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Nation/World

November 15, 2013

Yellen stands by Fed's low rate policies

(Continued)

“I think the economy has gotten used to the sugar you have put out there and I just worry that we are on a sugar high. That is a very dangerous thing,” said Sen. Mike Johanns, R-Neb.

Yellen repeatedly assured senators that the Fed is mindful of those risks. But she cautioned that there were other dangers if the Fed pulled back prematurely. The economy could weaken further and unemployment could rise.

Pressed by Republicans to specify when the central bank might begin scaling back the bond purchases, Yellen didn’t bite.

She said Fed policymakers assess the risks and benefits of the bond purchase program each time they meet.

“The committee is looking for ... signs of growth that are strong enough to promote continued progress” in the labor market. She said “there is no set time that we will decide to reduce the pace of our purchases.”

The Fed has said that it wants to see stronger data before it reduces the stimulus. Recent reports have been encouraging.

The government said last week that the economy added 204,000 jobs in October, and many more in the previous two months than initially reported. And the economy grew at a 2.8 percent annual rate from July through September, the fastest pace in a year.

Yellen told senators that the economy has regained ground lost to the Great Recession. But it still needs the Fed’s support because unemployment remains too high.

She also praised Bernanke for his “wise and skillful leadership.”

The Fed has a dual mandate to keep inflation low and fight high unemployment.

Yellen and Bernanke are considered to be among the more “dovish” members of the Fed. Those are officials who believe the Fed should be more focused now on job creation because unemployment is high and inflation is mild. But so-called “hawks” have expressed worries that the Fed’s policies are raising the risk of higher inflation down the road.

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