Yellen:Fed Should Avoid Boom-Bust Cycle11/22 06:21
WASHINGTON (AP) -- Federal Reserve Chair Janet Yellen said Tuesday that the
biggest challenge facing the central bank in coming years will be to craft an
interest rate policy that avoids putting the economy through a "boom-bust"
She said that going forward, the Fed will be faced with a delicate balancing
act: It will need to move rates up at a pace that allows the labor market to
improve and inflation to move toward the Fed's target. This while not delaying
hikes to the point where the Fed is forced to push rates up so quickly that it
threatens to throw the country into recession.
Yellen's comments at New York University echoed previous remarks on
inflation, indicating that the Fed is still preparing to boost rates again in
December, its third hike this year.
"Moving monetary policy too slowly ... has risks," Yellen said, particularly
if unemployment, already at 4.1 percent, the lowest in nearly 17 years, begins
to fall even more quickly. That could trigger a sudden jump in inflation,
forcing the Fed to respond with more aggressive rate hikes that could spell the
end of the current economic expansion, already the third longest in history.
"We don't want a boom-bust situation," Yellen said.
As she has in the past, Yellen said Fed officials remain puzzled why
inflation, which had begun moving toward the Fed's 2 percent target, has
retreated for several months this year. She said officials still believe this
is being caused by temporary factors such as a price war among cellphone
companies but that the Fed needs to monitor inflation carefully.
Yellen's appearance sponsored by NYU's Stern School of Business came one day
after she submitted a resignation letter to President Donald Trump, saying she
will leave the central bank's board when Jerome Powell is confirmed as her
successor as Fed chairman.
Yellen, the first woman to head the central bank, was not chosen by Trump
for a second four-year term as chairman, becoming the first Fed leader not to
be offered a second term in nearly four decades.
Yellen, who participated in a discussion at NYU with Mervy King, the former
head of the Bank of England, was not asked about her feelings about not getting
a second term. But she did say in answer to a question that she had enjoyed
good relationships with officials in both the Obama and Trump administrations.
She noted she has met regularly with Treasury Secretary Steven Mnuchin and
Gary Cohn, the head of the president's National Economic Council.
"These interactions follow certain rules," Yellen said. "The first rule is
that the Federal Reserve is independent within the government and the Fed has
to make its own decisions about monetary policies."
She said all the administration officials she met with during her four years
as Fed chair understood the importance of the Fed's independence.
Powell, a Republican who has been on the Fed board since 2012, will have his
Senate confirmation hearing next week. He is expected to have little trouble
winning Senate approval.