Saturday, May 19, 2018
Business

Yellen stands by Fed's policy to keep interest rates low

WASHINGTON — Janet Yellen made clear Thursday that she's prepared to stand by the Federal Reserve's extraordinary efforts to pump up the economy when she's chairwoman, if that's what it needs.

During a two-hour confirmation hearing before the Senate Banking Committee, Yellen embraced her so-called "dovish" reputation and expressed strong support for the Fed's low interest rate policies. And she warned critics that any potential harm those policies pose are outweighed by the risk of leaving a still-weak economy to survive without them. "I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy," she said.

Yellen, 67, faced tough questions, particularly from Republicans. But she also drew praise from senators from both parties and is expected to be confirmed by the full Senate, becoming the first woman to lead the powerful central bank.

A committee aide said that Banking Chairman Tim Johnson, D-S.D., plans a vote as soon as possible, potentially next week.

Her testimony represented a strong defense of the Fed's policies pursued under Chairman Ben Bernanke, which were launched to combat the Great Recession and the financial crisis.

The latest efforts include spending $85 billion a month on bond purchases, which are intended to lower long-term interest rates and promote faster economic growth.

The Fed has also said it plans to keep its key short-term rate near zero at least until unemployment falls to 6.5 percent. The rate is now 7.3 percent.

Yellen's comments, particularly her commitment to continue stimulus efforts, were embraced by Wall Street investors Thursday. The Dow Jones Industrial Average rose 54.59 points, or 0.4 percent, to 15,876.22, while the Standard & Poor's 500 index added 8.62 points, or 0.5 percent, to 1,790.62. Both set records for the second day in a row.

Some Republicans expressed concerns at the hearing about the bond purchases, which have swelled the Fed's balance sheet to $3.8 trillion. They are worried that the money flooding into the financial system is inflating stock and real estate prices.

"I think the economy has gotten used to the sugar you have put out there and I just worry that we are on a sugar high," said Sen. Mike Johanns, R-Neb.

Yellen cautioned that if the Fed pulled back prematurely, the economy could weaken further and unemployment could rise.

Comments
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