Yellen's bet on pulling workers back to labour force pays off

Washington

EVEN as US unemployment crept lower in recent years, Federal Reserve chair Janet Yellen stuck with a glacial pace of policy tightening that she justified with a powerful message: There were still millions of potential workers to pull in from the labour market's sidelines.

The latest news from the labour market is proving her right. While June's US payroll report keeps the central bank on track to raise rates once more this year and begin unwinding its US$4.5 trillion balance sheet, it also suggests that Ms Yellen's decision to hold interest rates lower than some critics and colleagues preferred has helped heal some of the harm done by the Great Recession.

Her goal was to foster a sustained recovery that would help to draw Americans who had dropped out of the labour force back into employment. This was a gamble. If workers hadn't come back, the strategy could have spurred an overly tight labour market that sent wages and inflation up too quickly. That in turn could have forced the Fed to raise rates more aggressively a…