Yellen Says Yields Unlikely to Rise Without Strong Recovery

Federal Reserve Chair Janet Yellen said Treasury yields aren’t likely to increase in the absence of a more robust economic recovery.

“Interest rates are unlikely to begin rising until we are in a strong economic recovery,” Yellen said in response to a question in testimony today to the Senate Budget Committee.

Yellen was responding to a question about the impact higher Treasury yields might have on the federal budget.

“In thinking about what will happen with the deficit and the debt it’s important to keep in mind that a strong economy will be very good for the federal budget deficit,” she said. “Yes, interest payments will go up, but I believe that the larger piece of it will be that a stronger economy will improve the budget.”

The yield on the 10-year Treasury note was little changed at 2.59 percent at 12:04 p.m. in New York. The yield has declined from 3.03 percent on Dec. 31 and from 4.02 percent at the end of 2007, at the start of the last recession.

In response to other questions from senators, Yellen defended the Fed’s accommodative monetary policies and said the central bank had no intention of raising its 2 percent inflation goal.

Favorable Response

“There are a number of sectors of the economy that have responded favorably to a policy of low interest rates, and it’s helped stimulate demand and job growth,” she said. “It’s been one factor that’s been helpful. I wouldn’t say it’s a panacea.”

Yellen, 67, said stable inflation expectations have been a “huge asset” for the country. “Expectations have been very stable and well anchored,” she said.

Yellen said she favors having another community banker join the seven-seat Fed Board of Governors after two members with experience in the industry, Elizabeth Duke and Sarah Bloom Raskin, left over the past eight months. She also vowed to be mindful of the burdens on smaller banks as regulators craft rules intended to avoid a repeat of the financial crisis.

“I do not want to see them caught up in unnecessary regulatory burden,” Yellen said in response to New Hampshire Republican Kelly Ayotte. “There’s no question they do feel that banking regulation has become more burdensome, but I pledge that I will continue to work with my colleagues to do all that we can to make sure that we reduce the burdens on these community banks and do not in any way have a one-size-fits-all approach.”

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