Federal Reserve

Yellen: Positive about progress in ending 'too big to fail'

Yellen: Take maximum employment and price stability very seriously
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Yellen: Take maximum employment and price stability very seriously
Yellen: Raising rates not a mistake
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Yellen: Raising rates not a mistake

Federal Reserve Chair Janet Yellen on Thursday touted the strength of the United States economy, rebuffing political rhetoric suggesting a bubble is ready to burst.

"I certainly wouldn't describe this as a bubble economy," Yellen said, noting a "healing" labor market and a 5 percent headline unemployment number.

Yellen appeared on a panel with former Fed Chairs Ben Bernanke, Paul Volcker and Alan Greenspan at the International House in New York. The U.S. central bank heads discussed the U.S. economy and monetary policy around the globe.

Yellen's comments come soon after Republican presidential contender Donald Trump's contention that an economic bubble could burst. Yellen noted that she did not see "imbalances" like "clearly overvalued" asset prices.

Federal Reserve chair Janet Yellen (L to R) and former Federal Reserve chairs Ben Bernanke and Paul Volcker appear together for the first time in New York, April 7, 2016. The panel is geared toward millennials and focused on decision-making with international implications.
Kathy Willens | Pool | Reuters

While Volcker admitted he saw some "overextended" pieces of the financial system, he concurred, saying he does not believe a bubble exists.

Yellen added that the global economy has seen "relatively weak" growth despite positive signs in the U.S. The Fed has taken a cautious approach on raising interest rates this year after hiking its target in December for the first time in nearly a decade. The bank's policy committee now projects two rate hikes this year.

Yellen said she did not consider the December decision a mistake, as indicators at the time showed "substantial" progress toward the Fed's labor market and inflation goals. Moving forward, she noted the Fed would "watch very carefully what is happening in the economy."

"We remain on a reasonable path and a don't think that December was a mistake," she said.

Global risk giving policymakers indigestion: Morgan Stanley economist

As it decides on how quickly to boost rates, the Fed has dealt with a sagging global economy and U.S. inflation below its target. The Fed's tightening path comes as other central banks around the globe, including those in Europe and Japan, have eased.

The policy committee next meets on April 26 and 27.

Some Fed observers have questioned how the central bank could respond to a possible recession with policy already accommodative. Bernanke noted Thursday that fiscal policy "does have a role to play" on top of monetary policy.

Greenspan added that monetary policy "should not have the whole load" of combating an economic slowdown. However, he cautioned against creating more debt with increased government spending.

Ending 'too big to fail'

Yellen also addressed a recent crusade by Minneapolis Fed President Neel Kashkari, who has floated breaking up large banks to increase financial system stability. She noted that she shared Kashkari's concern about ending firms' "too big to fail" status.

But she said policies like capital and liquidity requirements and stress tests have "greatly enhanced the safety and soundness of the banking system."

"I feel more positive on the progress that we've made," Yellen said.

She said she believes the issue is within Kashkari's purview, noting that the Fed's decentralized structure allows independent views.