Federal Reserve Chair Janet Yellen is defending the central bank’s extraordinary efforts to fight the Great Recession and says they might be needed again.
Yellen said in a speech Friday that the U.S. economy has made “great strides.”
During the recession, the Fed pushed short-term interest rates to zero. When the economy needed more help, it took the extraordinary step of buying hundreds of billions of dollars’ worth of bonds to push long-term interest rates lower.
Now the economy is improving, and the Fed is raising short-term rates and reducing its massive bond portfolio. But Yellen says economic forces have driven short-term interest rates to unusually low levels. So when the next downturn hits, it will have less room to cut rates and likely will have to buy bonds again.
Source: Associated Press