Baku-APA. It may be wise to run a “high pressure” economy with a tight labor market to reverse some of the negative effects of the Great Recession, Fed Chairwoman Janet Yellen said Friday, APA reports.
The Federal Reserve may need to run a "high-pressure economy" to reverse damage from the crisis that depressed output, sidelined workers and risks becoming a permanent scar, Fed Chair Janet Yellen said on Friday in a broad review of where the recovery may still fall short.
Though not addressing interest rates or immediate policy concerns directly, Yellen laid out the deepening concern at the Fed that U.S. economic potential is slipping and may need aggressive steps to rebuild it.
"If strong economic conditions can partially reverse supply-side damage after it has occurred, then policymakers may want to aim at being more accommodative during recoveries than would be called for under the traditional view that supply is largely independent of demand," Yellen said. It would "make it even more important for policymakers to act quickly and aggressively in response to a recession, because doing so would help to reduce the depth and persistence of the downturn."
From weak inflation to the effect of low interest rates on spending, Yellen's remarks demonstrated how little in the economy has been acting as the Fed expected.
With public expectations about inflation so hard to budge, Yellen said tools like forward guidance, "may be needed again in the future, given the likelihood that the global economy may continue to experience historically low interest rates, thereby making it unlikely that reductions in short-term interest rates alone would be an adequate response to a future recession."
Yellen’s speech could be seen as adding another reason for holding off raising rates in December.
The next Fed meeting will be held on November 1-2. Analysts believe that at this meeting the US central bank will not change rates. Earlier, Fed officials have repeatedly stated that the rate can be increased up to the end of the year.
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