Federal Reserve Vice Chairman Janet Yellen said any improvements in the U.S. recovery don’t warrant a reduction in the central bank’s record monetary stimulus.
“Economic conditions do not yet call for the Fed to exit from unconventional monetary policy,” Yellen said today during a speech at Yale University in New Haven, Connecticut.
Fed Policy makers at a meeting last month differed over whether to start removing stimulus this year, according to minutes of their March 15 meeting released this week. “A few participants indicated that economic conditions might warrant a move toward less-accommodative monetary policy this year; a few others noted that exceptional policy accommodation could be appropriate beyond 2011,” according to the minutes.
Since the March meeting, reports showed the labor market and inflation have picked up while consumer confidence slipped and new home sales dropped to a record low. Some regional Fed presidents who were skeptical of stimulus have talked about the need to tighten credit, and Chairman Ben S. Bernanke has yet to indicate his preference for the Fed’s next move.
Yellen defended the central bank’s plan to buy $600 billion in Treasury securities through June to spur economic growth, reduce unemployment and keep inflation from falling too low.
“There are certainly skeptics who doubt QE2 has had any favorable” impact on the economy, Yellen said, referring to the bond purchases known as QE2 for a second round of quantitative easing.
“These purchases did work to stimulate aggregate demand,” and “raised equity prices thereby stimulating consumption,” she said.
Yellen cited a Fed study showing that the two rounds of large-scale asset purchases “will have raised private payroll employment by about 3 million jobs” by the end of 2012, she said. Without quantitative easing “the economy might have slipped into deflation,” she said.
The U.S. economy added 216,000 jobs in March and 194,000 in April. The unemployment rate dropped to 8.8 percent last month from 9.8 percent in November, a turnaround that caught some Fed officials by surprise. Still, 14 million people remain unemployed and the labor force participation rate has fallen to 64.2 percent, meaning the number of people working or looking for work is the lowest since 1984.
Yellen, 64, was appointed vice-chairman of the Fed by President Barack Obama, and took office in October. Before her appointment she was president of the San Francisco Fed. She received her doctorate in economics from Yale in 1971.
On April 11, Yellen is scheduled to give a speech in New York on “Commodity Prices, the Economic Outlook, and Monetary Policy.”