US Federal Reserve Vice Chairperson Janet Yellen said improvements in the US recovery don’t warrant a reduction in the central bank’s record monetary stimulus.
“Economic conditions do not yet call for the Fed to exit from unconventional monetary policy,” Yellen said on Saturday during a speech at Yale University in New Haven, Connecticut.
Fed policy makers at a meeting last month differed on whether to start removing stimulus this year, according to minutes of a March 15 meeting released last week.
“A few participants indicated that economic conditions might warrant a move toward less--accommodative monetary policy this year; a few others noted that exceptional policy accommodation could be appropriate beyond 2011,” the minutes said.
Since the meeting, reports showed the labor market and inflation have picked up while consumer confidence slipped and new home sales dropped to a record low. Some regional Fed presidents who were skeptical of stimulus have talked about the need to tighten credit, while Fed Chairman Ben Bernanke has yet to indicate his preference.
Yellen defended the central bank’s plan to buy US$600 billion in Treasury securities through June to spur economic growth, reduce unemployment and keep inflation from falling too low.
“There are certainly skeptics who doubt QE2 has had any favorable” impact on the economy, Yellen said, referring to the second round of quantitative easing.
“These purchases did work to stimulate aggregate demand,” and “raised equity prices thereby stimulating consumption,” she said.
Yellen cited a Fed study showing that the two rounds of large-scale asset purchases “will have raised private payroll employment by about 3 million jobs” by the end of next year. Without quantitative easing “the economy might have slipped into deflation,” she said.
The US economy added 216,000 jobs last month and 194,000 so far this month. The unemployment rate dropped to 8.8 percent last month from 9.8 percent in November, a turnaround that caught some Fed officials by surprise. Still, 14 million people remain unemployed and the labor force participation rate has fallen to 64.2 percent, the lowest since 1984.
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