WASHINGTON – Janet Yellen says a “strong majority” of Federal Reserve officials think the Fed’s low-interest-rate policies have supported a still-recovering U.S. economy.
Responding to questions from members of the Senate Banking Committee, Yellen said the U.S. economy would likely be weaker if the central bank had not acted aggressively.
Yellen’s responses were released Tuesday, two days before the committee is expected to vote to back her nomination to succeed Ben Bernanke as Fed chairman.
In letters to the committee, Yellen defended the Fed’s monthly bond purchases, which have been intended to keep long-term rates down to encourage borrowing and spending. Critics have charged that the bond purchases haven’t helped the economy and have raised the risks of high inflation or asset bubbles.
“While monetary policy is not a panacea for all of the nation’s economic difficulties, our economic situation would almost certainly be far worse had the Federal Reserve not acted aggressively,” Yellen said in response to questions from Sen. David Vitter, R-La., a critic of the Fed’s bond buying who has said he’ll vote against her nomination.
Yellen’s remarks suggested that the Fed is standing behind its $85 billion a month in bond purchases for now. She said it’s monitoring potential risks.
Sen. Elizabeth Warren, D-Mass., asked Yellen whether she thought the Fed should lower the 6.5 per cent unemployment level it’s set as a threshold that would have to be reached before it would consider raising short-term rates. Many economists think the Fed will soon lower that threshold unemployment rate to 6 per cent.
Yellen noted that the Fed, in its latest economic forecast, viewed an unemployment rate between 5.2 per cent and 5.8 per cent as a level the economy can achieve in the long run.
Yellen did not endorse lowering the threshold rate to 5 per cent to 6 per cent before the Fed begins raising short-term rates. But she repeated comments Bernanke has made that the Fed’s policies will likely remain accommodative “long after” the unemployment threshold has been reached.
After the Banking Committee likely backs Yellen’s nomination Thursday, the timing of a vote in the full Senate is uncertain. Some senators have said they planned to hold up her nomination as leverage on other matters. But both Democratic and Republican senators have said they expect Yellen to win confirmation.
Bernanke’s second four-year term as chairman ends Jan. 31.
Yellen made clear during a confirmation hearing last week that she’s prepared to support the Fed’s extraordinary efforts to bolster the economy until there are more signs of a sustained rebound in growth.