Yellen to Hill: It's Not Just Unemployment, Stupid

NEW YORK (TheStreet) -- So much for 6.5%.

No one thought Janet Yellen would be more of a monetary-policy hawk than her predecessor, but the new chair of the Federal Reserve removed any lingering doubts Tuesday morning.

With the unemployment rate only a tenth of a percentage point above the Fed's erstwhile target of 6.5% that once was thought likely to herald the beginning of interest-rate hikes, the 67-year-old Yellen made clear that there is much more to do before the Fed taps the brakes on a still-healing economy.

"The recovery in the labor market is far from complete,'' Yellen said in testimony to the House Financial Services Committee. "The unemployment rate is still well above levels that Federal Open Market Committee participants estimate is consistent with maximum sustainable employment. Those out of a job for more than six months continue to make up an unusually large fraction of the unemployed, and the number of people who are working part time but would prefer a full-time job remains very high.''

The remark drives home something Ben Bernanke began to emphasize late in his term: The Fed is looking at a wide range of employment indicators when it makes monetary policy. Even four-plus years into the nominal recovery, a lot of them are still too weak to take the upturn for granted -- or to conclude that it is working for everybody.

Take the percentage of workers unemployed more than six months -- at 36.7%, it's still twice as high as in 2008. The average duration of unemployment is still 35 weeks -- a household budget-busting eight months -- double what it was in 2008 and down only five weeks from the worst of the downturn. That's 3.6 million people. Down from 6.8 million, to be sure, but still double the 1.6 million who were in the same spot in 2008.

Or consider the 7.3 million people who are working part-time for economic reasons as they continue to want full-time employment.

Put it together and you have a picture of a job market that even 3.5% growth in the second half of 2013 hasn't fully fixed, Yellen said.

For investors, this picture is familiar by now -- the yield on 10-year Treasuries is actually up a little bit today. The reaction says markets understand that Yellen will keep up the dovish policies she helped Bernanke put in place, keeping interest rates low even as the Fed winds down its monthly bond purchases this year.

For anyone on the Hill who's still wondering whether the new responsibility of being in charge would make Yellen more hawkish, this is what it sounds like when doves rise.

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