Yellen says stimulus still needed to meet Fed's goals

PUBLISHED : Friday, 09 May, 2014, 1:14am
UPDATED : Friday, 09 May, 2014, 1:14am

Federal Reserve chairman Janet Yellen said she believes the US economy still requires a strong dose of stimulus five years after the recession ended because unemployment and inflation are well short of the Fed's goals.

"A high degree of monetary accommodation remains warranted," Yellen said yesterday in testimony to the Joint Economic Committee of Congress. "Many Americans who want a job are still unemployed," and inflation is below the central bank's 2 per cent target, she said.

Yellen repeatedly declined to specify when the benchmark interest rate might rise.

In March, Yellen responded to a reporter's question by saying the rate might start to rise about six months after the Fed ends its asset purchases, a timeframe she hasn't repeated.

Economic data shows "solid growth" in the second quarter, bolstering the case for a faster expansion this year, Yellen said in her opening remarks. But she also cited the slowdown in US housing as a risk, along with "heightened geopolitical tensions" and financial stress in emerging markets.

Still, signs of strength in the economy are allowing the Fed to gradually reduce the pace of bond purchases intended to boost growth.

Policy makers last week cut monthly bond purchases by US$10 billion to US$45 billion and are on track to halt buying in the second half of 2014.