fb-pixel Skip to main content

Janet Yellen says Fed thwarted worse economic slide

As Fed chief, she’d be likely to keep stimulus for now

WASHINGTON — Janet Yellen says a ‘‘strong majority’’ of Federal Reserve officials think the Fed’s low-interest-rate policies have supported a still-recovering US economy.

Responding to questions from members of the Senate Banking Committee, Yellen said the US economy would probably be weaker if the central bank had not acted aggressively.

Yellen’s responses were released Tuesday, two days before the committee is expected to vote to back her nomination to succeed Ben Bernanke as chairman of the Fed.

In letters to the committee, Yellen defended the Fed’s monthly bond purchases, which have been intended to keep long-term rates down to encourage borrowing and spending. Critics say the bond purchases have not helped the economy but have raised the risks of high inflation or asset bubbles.


‘‘While monetary policy is not a panacea for all of the nation’s economic difficulties, our economic situation would almost certainly be far worse had the Federal Reserve not acted aggressively,’’ Yellen said in response to questions from Senator David Vitter, Republican of Louisiana and a critic of the Fed’s bond buying. He has said he’ll vote against her nomination.

Yellen’s remarks suggested the Fed is standing behind its $85 billion a month in bond purchases for now. She said it’s monitoring potential risks.

Senator Elizabeth Warren, Democrat of Massachusetts, asked Yellen whether she thought the Fed should lower the 6.5 percent unemployment level it has set as a threshold that would have to be reached before it would consider raising short-term rates. Many economists think the Fed will soon lower that threshold unemployment rate to 6 percent.

Yellen noted that the Fed, in its latest economic forecast, viewed an unemployment rate between 5.2 percent and 5.8 percent as a level the economy can achieve in the long run.

Yellen did not endorse lowering the threshold rate to a range of 5 to 6 percent before the Fed begins raising short-term rates. But she repeated comments Bernanke has made that the Fed’s policies will probably remain accommodative ‘‘long after’’ the unemployment threshold has been reached.


The committee is likely to back Yellen’s nomination Thursday, but the timing of a vote in the full Senate is uncertain. Some senators have said they plan to hold up the nomination as leverage on other matters. But both Democratic and Republican senators have said they expect Yellen to win confirmation.

Bernanke’s second four-year term as chairman ends Jan. 31. Yellen made clear last week that she is prepared to support the Fed’s extraordinary efforts to bolster the economy until there are more signs of a sustained rebound in growth.