Yellen: The Unemployment Rate Is Only Down Because People Have Stopped Looking For Work

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Federal Reserve chairwoman Janet Yellen testified at a Committee On Banking, Housing, And Urban Affairs hearing and explained why the unemployment rate fell in May.

"The unemployment rate fell to 4.7 percent in May, but that decline mainly occurred because fewer people reported that they were actively seeking work," Yellen said Tuesday morning. "A broader measure of labor market slack that includes workers marginally attached to the workforce and those working part-time who would prefer full-time work was unchanged in May and remains above its level prior to the recession."

Yellen said Tuesday that the US economy faces a number of uncertainties that require the Fed to proceed cautiously in raising interest rates.



"The federal funds rate is likely to remain for some time below the levels that are expected to prevail in the longer run because of headwinds which include restraint on U.S. economic activity from economic and financial developments abroad, subdued household formation and meager productivity group mean that the interest rate needed to keep the economy operating near its potential is low by historical standards," Yellen said.

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