Federal Reserve

Yellen: Fed policy will stay easy if inflation stays low

Janet Yellen
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U.S. monetary policy will probably remain very easy for a long while even after either the Federal Reserve's interest rate hike threshold on lower unemployment, or inflation, has been crossed, Fed Vice Chair Janet Yellen said in a letter to a U.S. lawmaker.

Yellen also said the jobless rate threshold was not a trigger for action.

She was responding to a written question for the record from Massachusetts Democratic Senator Elizabeth Warren following her hearing last week before the Senate Banking Committee to become the next Fed chair.

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"Monetary policy is likely to remain highly accommodative long after one of the economic thresholds for the federal funds rate has been crossed," she said in her written answer.

Warren asked in her letter if it would be helpful to lower the Fed's unemployment rate target.

Yellen, nominated by President Barack Obama to replace current Fed chair Ben Bernanke when his term expires on Jan. 31, would be the first woman to lead the U.S. central bank. She is expected to win confirmation with relative ease.

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Yellen and the Markets

The Fed has pledged to hold rates near zero at least until the U.S. unemployment rate hits 6.5 percent, provided the outlook for inflation remains under 2.5 percent. The jobless rate in October was 7.3 percent.

"It is also important to note that the thresholds are not triggers - that is, once a threshold has been crossed, the (Fed's policy-setting) committee will not necessarily raise the federal funds rate target immediately,'' Yellen said.

Yellen's responses stuck closely to the tone of recent comments from Bernanke, as well as the October statement issued by Fed officials after they decided to maintain purchases of bonds at a $85 billion monthly pace.

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The Senate Banking Committee, which vets her suitability for the job before passing the nomination to the full Senate for consideration, will vote on her nomination Thursday.

Obama's Democrats hold 12 of the 22 seats on the panel and control 55 of the 100 votes in the Senate.

This should assure her nomination will proceed smoothly to the full Senate, where she is expected to comfortably pick up enough bipartisan support to secure the 60 votes needed to overcome Senate procedural hurdles to become the next Fed chief.

—By Reuters