Fed Gov. Yellen: Guidance, Asset Purchases Supporting Recovery
The Fed's accommodative monetary policy actions since the financial crisis have lent meaningful support to the economic recovery, as the central bank has relied on forward guidance about the path of the federal funds rate and large-scale asset purchases, Federal Reserve Vice Chair Janet Yellen said at a Washington, DC, conference sponsored by the International Monetary Fund.
Central banks worldwide grappling with similar problems
"By lowering private-sector expectations of the future path of short-term rates, this guidance can reduce longer-term interest rates and also raise asset prices, in turn, stimulating aggregate demand,"Yellen said, adding that she believes the fed funds rate should, under current conditions, remain "lower for longer"than conventional policy rules suggest.
Financial stability addressed
"I don't see pervasive evidence of rapid credit growth, a marked buildup in leverage, or significant asset bubbles that would threaten financial stability,"she said. "But there are signs that some parties are reaching for yield, and the Federal Reserve continues to carefully monitor this situation."
Yellen said that in addressing financial stability, she strongly prefers to rely mainly on supervision and regulation as opposed to monetary policy. She suggested that most central bankers probably share this view. The Fed, Yellen noted, has been cooperating with numerous federal agencies and international organizations on reforms to enhance monitoring, mitigate systemic risk, and improve the overall resilience of the financial system.
"Significant work will be needed to implement these reforms, and vulnerabilities still remain,"she said. "Thus, we are prepared to use any of our many instruments as appropriate to address any stability concerns."
April 25, 2013