Thu, Nov 15, 2012 - Page 15 News List

Yellen backs link to economic goals

SEEKING CLARITY:The Federal Reserve’s vice chairman is the latest Fed official to support tying zero interest rates with progress on fighting unemployment

Bloomberg

Yellen said the Fed’s 2 percent inflation goal set in January should not be viewed as a ceiling, arguing that such an interpretation would lead to inflation that is more frequently below the target than above.

“To balance the chances that inflation will sometimes deviate a bit above and a bit below the goal, 2 percent must be treated as a central tendency around which inflation fluctuates,” she said.

The central bank is “thinking carefully” about the potential adverse effects of a prolonged period of low interest rates, Yellen said in response to a question from the audience.

These effects include reducing yields for savers, insurance companies and pension funds, in addition to possibly stoking excessive risk-taking in financial markets, she said.

Still, “we do not have any evidence yet of any increase in risk-taking that would be a major financial-stability concern,” she said.

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