Fed's Yellen: Interest Rates at Appropriate Level


San Francisco Federal Reserve Bank President Janet Yellen said Tuesday the current level of U.S. interest rates should boost the economy in the second half of 2008.

In remarks prepared for a speech to the CFA Institute conference in Vancouver, Yellen said recent inflation data had had been disappointing but that price pressures could ease as slow growth builds more slack into labor and product markets.

Yellen gave no indication that she favored another cut to benchmark interest rates, noting that the real federal funds rate is "at an accommodative level of around zero," or equal to the rate of inflation.

"I consider the current level of monetary accommodation to be appropriate. That, together with the fiscal package, should be sufficient to promote a gradual step up to moderate economic growth later this year," she said.

Yellen said the economy is pinned down by the "grim trio" of the credit crunch, the ongoing housing downturn and high commodity prices. "Activity is weak across most sectors of the economy," she said, with risks to the growth outlook still unusually large.

Yellen is not a voting member of the Federal Open Market Committee in 2008.

The Fed's interest rate cuts and moves to pump liquidity into the financial system "have mitigated the worst effects of the credit crunch," she said.

A copy of Yellen's remarks was made available in advance.