Wednesday April 16, 2008 - 16:02:00 GMT
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CEP News - www.economicnews.ca
Fed's Yellen Says Fed Must Be Prepared to Act in a "Timely Manner"
11:39 04/16 (CEP News) - San Francisco Fed President Janet Yellen
reiterated previous comments that the economy may contract in the first
half of 2008 and that the Federal Reserve must be ready to act in a
"firm and timely manner."
Yellen was speaking at the Bay
Area Council's 36th Annual Outlook Conference in Alameda, California on
Wednesday, where she also said rate cuts and the fiscal package should
help growth and that the Fed is ready to continue to support growth and
"With regard to monetary policy, the FOMC has taken significant steps
since September, cutting the federal funds rate by 3 full percentage
points to an accommodative level of 2.25%," she said. "I consider such
accommodation an appropriate response to the contractionary effects of
the ongoing financial shock and the housing downturn, and I anticipate
that the resulting stimulus, combined with that of the fiscal package,
will foster a moderate pickup in growth later this year."
At the same time, Yellen said consumer inflation seems likely to
decline gradually to just below 2% over the next couple of years, a
"level that is consistent with price stability."
Yellen cited housing and retail spending as significant downside risks,
but that she expects growth to pick up in the second half of 2008.
"Until recently, the deflating housing bubble had not spilled over to
the rest of the economy. But now it has. It appears that growth in
consumption and business investment spending has slowed markedly after
years of robust performance, and, as a result, the economy has all but
stalled and could even contract over the first half of the year," she
She noted that the factors weighing down consumer spending go beyond
the effects of the credit crunch and falling house prices. "Consumers
also face constraints due to the declines in the stock market, which
have diminished their wealth," she said.
"Furthermore, energy, food, and other commodity prices have risen
sharply in recent years, essentially 'taxing' their incomes," she
added. "Finally, and very importantly, labour markets have weakened.
Business payrolls have declined in recent months, and the unemployment
rate jumped in March."
Yellenâ€™s comments were similar to remarks delivered on April 3.
By Stephen Huebl, firstname.lastname@example.org, edited by Nancy Girgis, email@example.com
(END) Â©CEP Newswires - Â©CEP News Ltd. 2008. All Rights Reserved. www.economicnews.ca
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