Yellen Says Communications Now Playing ‘Big Role’ in Fed Policy

Federal Reserve Vice Chairman Janet Yellen said Fed communication of its policy aims plays a “big role” in supporting the economy now that the central bank’s benchmark interest rate is close to zero.

The Federal Open Market Committee last month linked its policy to economic indicators for the first time, saying it will keep rates low as long as the unemployment rate is above 6.5 percent and the outlook for inflation is no more than 2.5 percent. The Fed previously said it will maintain low rates through at least mid-2015.

“Communications play a big role” in monetary policy, Yellen said.

The Fed can change the interest it pays on excess bank reserves when it comes time for the Fed to begin withdrawing its record stimulus, Yellen said on a panel today at the American Economic Association’s annual meeting in San Diego.

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