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Yellen backs Fed rate stance
By Scott Lanman
BLOOMBERG NEWS
May 13, 2008
Federal Reserve Bank of San Francisco President Janet Yellen said the central bank's interest-rate stance is "appropriate" to revive economic growth this year as the credit crunch "gradually" eases.
"I consider the current level of monetary accommodation to be appropriate," Yellen said in a speech Tuesday in Vancouver. Stimulus from past rate cuts, along with more than $100 billion of tax rebates "should be sufficient to promote a gradual step up to moderate economic growth," she said.
The San Francisco Fed chief's comments buttress the view that policy makers want to take a breather after reducing the main interest rate seven times since September, including last month's cut by a quarter-point to 2 percent. The Fed is responding to a contraction in credit and housing recession that have pushed the economy toward a recession.
Yellen also said she anticipates inflation will slow as the labor market weakens and "commodity prices level off."
The Fed can't be "complacent about inflation," she said in prepared remarks to the CFA Institute Annual Conference. Recent measures of price expectations "highlight the risk that our attempts to deal with problems in the real economy could lead to higher inflation expectations and an erosion of our credibility," she said.
Yellen, 61, a former Fed governor and chairman of President Bill Clinton's Council of Economic Advisers, is a non-voter on interest rates this year. She will rotate into a voting slot in 2009.
The San Francisco Fed president didn't spare the Fed from blame in her discussion of the subprime mortgage crisis, delivering one of the most critical assessments of the central bank's performance by a sitting official.
"Financial supervisors and regulators, including the Federal Reserve, were behind the curve," she said. "We missed some of the risky developments that were unfolding. Our consumer regulations were unfortunately insufficient to protect households from some egregious and unfair lending practices. And we took too long to ramp up some supervisory policies in the face of mounting risks."
Yellen served as a Fed governor in Washington from 1994 to 1997, under Chairman Alan Greenspan, and has been her bank's leader since 2004.
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