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Fed's Yellen: Economy's Downside Risk Getting Worse
By: Reuters | 04 Dec 2007 | 12:24 PM ET
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Federal Reserve Bank of San Francisco President Janet Yellen said on Monday that worsening financial conditions and weaker-than-expected economic data have raised downside risks to the economic outlook.

Janet Yellen
AP
Janet Yellen

"Since the October FOMC meeting, financial conditions have deteriorated, and we have seen some unexpected softening in the economic data," she said in a speech to business leaders in Seattle on the U.S. outlook and monetary policy.

"These developments necessitate some rethinking of my growth forecast, and have highlighted the downside skew in the risks to that forecast."

On inflation, Yellen said consumer prices were expected to rise broadly in line with price stability, although there were some "notable upside risks" such as higher labor costs, a weaker dollar and rising energy prices.

She added that more economic data to be released ahead of the Fed's rate-setting committee's meeting on Dec. 11 would have to be incorporated into the outlook.

Yellen is not a voting member this year on the Fed's rate-setting committee.

The Fed has cut benchmark interest rates by 75 basis points since mid-September. Markets widely expect another rate cut next week.

Economic growth for the last three months of the year will likely be sluggish, Yellen said, and growth may come in weaker than she had previously anticipated over the next few quarters due to the possible adverse effects of financial turmoil.

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