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Yellen: Fed Far From Out of Policy Tools

Monday, 05 Jan 2009 10:11 AM

The Federal Reserve will use all of its tools, including unconventional policy measures, to support the U.S. economy and financial markets, Janet Yellen, president of the San Francisco Federal Reserve Bank, said on Sunday.

In a bookend to an earlier speech in which Yellen threw her support behind a huge fiscal stimulus package to boost economic growth, the policy-maker said the Fed was far from out of ammunition on the monetary side.

"The Federal Reserve faces some of the greatest challenges in its history as it strives to restore economic growth, job creation, and financial stability and to preserve price stability," Yellen said in remarks prepared for a panel discussion at the American Economics Association annual meeting in San Francisco. "To achieve these policy objectives, the Fed is committed to using every tool at its disposal."

Yellen is a voting member of the Federal Open Market Committee in 2009.

Looming forces of deflation make the Fed's job even more urgent, Yellen said.

"With growing economic slack, inflation may well decline, for a time, below levels that best promote the dual goals of full employment and price stability," she said. "An important lesson of theory and history is that circumstances like these call for prompt and aggressive action."

In December, the policy-setting Federal Open Market Committee lowered the federal funds rate essentially to its "zero bound" by establishing a target range of zero to 0.25 percent and noting an expectation that rates would stay at exceptionally low levels for some time.

"This move ... by no means exhausts the Fed's options to stimulate the economy through other measures," Yellen said.

"Considerable scope for action" remains in the use of nonconventional programs that use an expansion of the Fed's balance sheet as a lever to improve the functioning of financial markets, she said.

Of the "interventions" done by the Fed recently, Yellen said the program to buy $600 billion in agency debt and agency-insured mortgage-backed securities "could provide significant support to the housing sector."

The approach employed by another new Fed program, the Term Asset-Backed Securities Loan Facility, "can be expanded substantially, with higher lending volumes and additional asset classes," she added.

Yellen said the Fed's targeted approach differed from the quantitative easing policy pursued by the Bank of Japan in the early 1990s, which she said "had little effect on bank lending or on the economy more broadly."

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The Federal Reserve will use all of its tools, including unconventional policy measures, to support the U.S. economy and financial markets, Janet Yellen, president of the San Francisco Federal Reserve Bank, said on Sunday. In a bookend to an earlier speech in which Yellen...
janet,yellen
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2009-11-05
Monday, 05 Jan 2009 10:11 AM
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