Nov 14 (Reuters) - Janet Yellen, President Barack Obama's
pick to lead the U.S. Federal Reserve when Ben Bernanke's term
ends early next year, on Thursday faced questions from the
Senate Banking Committee on how she would use the post to
breathe more life into the economy.
The following are her views on five key issues for the Fed.
Yellen said she is committed to promoting a robust recovery,
and boosting employment without sparking inflation is central to
that goal. Since full employment and price stability are the
mandates Congress has given the Fed, her take is not surprising,
but her emphasis on the plight of the jobless stood out.
'We note that those long spells of unemployment are
particularly painful for households, impose great hardship and
costs on those without work, on the marriages of those who
suffer these long unemployment spells, on their families ... The
objective of our policy is to broadly benefit all Americans,
especially those who are seeing harm come to them and their
families from high unemployment in a recovery that's taken a
long time and been, frankly, disappointing.'
Yellen said she does not currently see bubble-like
conditions in the stock market, housing or any other major
economic sector, but warned that holding interest rates low for
a long time can induce risky behavior.
If bubbles do form, she said: 'I would not rule out using
monetary policy as a tool to address asset price misalignments.
But because it is a blunt tool and because Congress has asked us
to use those tools to achieve the goals of maximum employment
and price stability, which are very important goals in their own
right, I would like to see monetary policy used first and
foremost towards achieving those goals Congress has given us,
and to use other tools in the first instance to try to address
potential financial stability threats.'
THE FED'S BOND BUYING:
The Fed is buying $85 billion in Treasuries and
mortgage-backed securities each month in an effort to spur
stronger growth and hiring. It has also kept rates near zero for
nearly five years, and has promised to keep them there at least
until the jobless rate - now at 7.3 percent - falls to 6.5
Yellen did not give her view on how long the bond-buying
program should continue, or if rates should stay low even beyond
the 6.5 percent unemployment threshold.
But she did say that for now, at least, the bond-buys are
doing more good than bad.
'I would agree that this program cannot continue forever,
that there are costs and risks associated with the program. We
are monitoring those very carefully... There are dangers,
frankly, on both sides of ending the program or ending
accommodation too early. There are also dangers that we have to
keep in mind with continuing the program too long or more
generally keeping monetary policy accommodation in place too
long... It would be important for us also, as the recovery
proceeds, to make sure that we do withdraw accommodation when
the time has come. My colleagues and I are committed to our
longer-run inflation goal of 2 percent and we will need to
ensure that as the recovery takes hold and progresses that we
will also exit or bring monetary policy back to normal in a
Fed Chairman Ben Bernanke's statement in June that the Fed
would likely begin to reduce its bond buying later this year
sparked a run-up in long-term borrowing costs that helped
convince officials at the central bank to hold off on trimming
the program in September, bucking investor expectations.
Yellen said that reading and reacting to markets, without
being held hostage by them, is tricky.
'I don't think that the Fed ever can be or should be a
prisoner of the markets ... we do have to take account of what's
happening in the markets, what impact market conditions are
likely to have on spending and the economic outlook,' she said.
'It is a work in progress, and sometimes miscommunication is
possible ... We certainly want to diminish any unnecessary
The Fed chair runs the central bank's policy-setting
meetings, but is also charged with keeping the banking system
safe. Yellen said that the tasks should be of equal priority.
'I absolutely believe that our supervisory abilities are
critical, and they're just as important as monetary policy. And
we need to take them just as seriously, and devote just as much
time and attention to them as we do to monetary policy.'
(Reporting by Ann Saphir; Editing by Krista Hughes)
Keywords: USA FED/YELLEN
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