The Free Press, Mankato, MN

State, national news

November 14, 2013

Yellen stands by Fed's low interest rate policies

WASHINGTON (AP) — Janet Yellen said Thursday that the U.S. economy has regained ground lost to Great Recession but still needs the Federal Reserve's support because unemployment remains too high at 7.3 percent.

Yellen made those comments in testimony to the Senate Banking Committee, which is considering her nomination to be the next chairman of the Federal Reserve.

Her remarks suggest she plans to stand by the Fed's extraordinary low interest rate policies begun under current Chairman Ben Bernanke until the economy shows further improvement.

The Fed's support of the recovery is the "surest path to returning to a more normal approach to monetary policy," said Yellen.

She noted that the economy is still performing far below its potential. And she points out that inflation is running below the Fed's 2 percent target.

The Fed's policies, which include three rounds of bond purchases, are credited with helping boost economic growth and lower unemployment. But they have also driven up stock prices and stoked worries about a greater risk of inflation and asset bubbles.

Even with some Republican resistance, Yellen's backing by the committee and confirmation by the full Senate is viewed as all but assured. But approval won't come before critics air their grievances about the Fed's response to the financial crisis and the Great Recession.

Some economists saw Yellen's comments, which were released a day ahead of the hearing, as a sign that the Fed won't move at its next meeting in December to reduce its bond purchases — a process often called "tapering." Rather, the Fed could delay any tapering beyond March, when many have predicted it would begin.

"This is a strong signal that the Fed is not going to reduce its support for the economy any time soon," said Sung Won Sohn, an economics professor at the Martin Smith School of Business at California State University.

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