Yellen: Fed Policy Should Encourage Growth, Contain Inflation

by: Judith Levy

Janet Yellen, President of the Federal Reserve Bank of San Francisco, said Thursday that prevailing U.S. interest rate policy is the best means of accelerating growth and slowing down inflation, although "upside risks to inflation continue to be present." Speaking via satellite to an economic conference in Singapore, Yellen said, "The virtues of this path are that it avoids exposing the economy to unnecessary risk of a downturn while, at the same time, it is likely to produce enough slack in goods and labor markets to relieve inflationary pressures." Her speech followed the Fed's decision last week to maintain the benchmark interest rate at 5.25%. Yellen called the latest economic indicators "robust" and does not expect the housing slowdown to be a significant damper on wider growth, although she does expect consumer spending to "diminish." She did not mention slumping business spending, a topic she addressed in an April speech, but did discuss a new risk: high premiums on subprime mortgage-backed debt. "[S]uch developments are worth watching with some care, since there is always the possibility that they do presage a more general and pronounced shift in risk perceptions" that could ultimately "pose a downside threat to the global economy," she said.

Sources: Reuters, Bloomberg, Forbes
Commentary: Core Inflation Remains a Low 0.1%The Fed Rates the Economy, and Leaves All Its Options OpenFed Holds Rates Steady
Stocks/ETFs to watch: S&P 500 Index (NYSEARCA:SPY), Diamonds Trust Series 1 ETF (NYSEARCA:DIA), iShares Lehman Aggregate Bond (NYSEARCA:AGG)

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