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Monday, December 2, 2024

Economy needs central bank’s assistance, says Federal Reserve chair

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Federal Reserve Chair Janet Yellen said yesterday the US economy appeared to be slowly moving toward full employment, but that it would need help from the central bank for some time to come.
In her second public speech since taking the Fed’s helm, Yellen said it was “quite plausible” the economy would be back to near full employment and a healthier level of inflation by the end of 2016.
“I do think we are seeing very meaningful progress, although clearly … the goal has not been achieved at this point,” she told the Economic Club of New York.
Yellen used her speech to provide a monetary policy road map of sorts to one of the Fed’s most important constituencies – Wall Street.
How long rates will stay near zero, she said, will depend on how far the U.S. economy remains from the central bank’s employment and inflation goals, and how long it will likely take to meet them. She stressed that the Fed would respond to shifting economic conditions as it judges when to finally tighten monetary policy after years of unprecedented stimulus.
And although she emphasized how important it will be for the Fed to keep monetary policy easy for some time, she pointed to an eventual end to those policies.
“As the recovery proceeds and healing occurs, it’s obvious that we will need to tighten monetary policy to avoid overshooting our target,” she said. “We will remain very focused on removing accommodation when the right time has come.”
But she also emphasized that unforeseeable events could alter the central bank’s current course, as it has several times over the course of the recovery.
The Fed could even set aside efforts to wind down its bond-buying stimulus, she said, pushing back against broad expectations that the Fed is nearly certain to end the bond-buying, now at $55 billion a month, by the end of the year.
The Fed, frustrated with the slow U.S. recovery from the 2007-2009 recession, aims for maximum sustainable employment and a rise in inflation to 2 percent from just above 1 percent now.

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