Janet Yellen Endorses Fed’s View

By TraderVox.com

Tradervox (Dublin) – Janet Yellen, the Federal Reserve Vice Chairman indicated in a speech yesterday that the accommodative policy adopted by the Federal Reserve is necessary in the present economic circumstances. This is in line with the Fed’s view that the borrowing costs should be held low until 2014 to allow the economy to make full recovery. The Fed Vice Chairman Janet Yellen was talking in New York in a round of Fed speeches which have been going on throughout the week. Federal Reserve Chairman Ben S. Bernanke spoke on Monday and he is expected to give another speech on Friday.

Yellen said that said that the Fed’s program to extend the maturity of the assets to expire in June should not be taken as tightening of the policy. Her speech came barely two weeks prior to Fed’s meeting. She echoed the Fed Chairman’s sentiments that the unemployment is expected to decline gradually hence the need for the accommodative monetary policy. Further, she added that the housing prices weakness, the government spending cuts, and the European debt crisis are some of the factors that will slow the economic expansion in the US.

Yellen was also pessimistic about achieving the maximum employment in the near future as it is projected in the Fed’s monetary policy. She added that she is ready to change her monetary view if the circumstances change citing the numerous uncertainties surrounding the current outlook prospects. Financial economists have indicated that the Vice Chairman’s comments indicate that the Fed is not ready to change its outlook on “exceptionally low” interest rate.

Despite the comments, Yellen expressed confidence in the Fed’s ability to deal with any scenario in the future. Her confidence was also shared by the Atlanta Fed President Dennis Lockhart who in his speech said that despite the disappointing job report for March; his view about the economy remains unchanged. Lockhart holds the view that the economy is growing at a moderate pace and would not support a third round of quantitative easing. The data that has been released since the Fed’s last meeting has not been consistent pointing to a mixed outlook for the US economy.

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