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Yellen says Fed should not withdraw stimulus too soon

By Joshua Zumbrun and Steve Matthews
Bloomberg News

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WASHINGTON: Janet Yellen, the nominee for chairman of the Federal Reserve, told Congress Thursday she is committed to promoting a strong economic recovery and will ensure monetary stimulus isn’t removed too soon.

“I consider it imperative that we do what we can to promote a very strong recovery,” she said in response to a question during testimony to the Senate Banking Committee. “It’s important not to remove support, especially when the recovery is fragile and the tools available to monetary policy, should the economy falter, are limited given that short-term interest rates are at zero.”

Yellen’s testimony signaled that she is prepared to continue the strategies of Fed Chairman Ben S. Bernanke, whose term as head of the central bank ends in January. His actions have included the $85 billion monthly bond-purchase program, which is pushing the Fed’s assets toward a record $4 trillion as officials debate when to begin winding it down.

“It will be a pretty smooth transition,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Fla. “The evidence that we’re seeing now — the continued slack in the economy, the low trend in inflation — suggests the Fed will maintain the course at least for the time being.”

Under two hours of mostly genial questioning, Yellen said the benefits of the bond-buying program still outweigh the costs. While calling for stronger regulation to help protect the financial system, she said she’d like to see more progress in the labor market and that she doesn’t see an asset price bubble emerging in equities.

Yellen said the central bank’s asset purchases “have made a meaningful contribution to economic growth and improving the outlook” and that the program “will not continue indefinitely.” She also emphasized her commitment to the Fed’s 2 percent inflation goal and stronger financial regulation.

Yellen drew questioning from Republican senators for her support of bond purchases and from Democrats for widening income inequality in the U.S., yet none of the exchanges became contentious.

“Most senators seemed to treat this as a formality,” said Michael Hanson, senior U.S. economist for Bank of America Corp. in New York and a former Fed economist. “The general expectation in Washington seems to be that she will be confirmed.”

Yellen, 67, publicly voiced her views for the first time in seven months on the unprecedented monetary stimulus that she’s supported and that some lawmakers have used to justify voting against her.

The S&P 500 has rallied more than 25 percent this year, putting it on pace for the best annual gain in a decade. The gauge has rebounded 163 percent from a 12-year low in March 2009, adding more than $10 trillion in market value.


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