Janet Yellen: Additional Asset Purchases Possible If Recovery Slows

Janet Yellen's speech (6/6/2012) - federalreserve
In a speech yesterday, Federal Reserve Vice Chair Janet Yellen said she was in favor of "further policy accommodation" and perhaps another round of QE or Operation Twist if headwinds affect the economic recovery. The next FOMC meeting is on June 19-20, and tomorrow Fed Chairman Ben Bernanke testifies before the U.S. Joint Economic Committee at 10:00am on the U.S. economy. Question: Can QE (quantitative easing) push up the stock market even during a recession and EPS capitulation? That would be impressive.

In my remarks this evening I have sought to explain why, in my view, a highly accommodative monetary policy will remain appropriate for some time to come. My views concerning the stance of monetary policy reflect the FOMC's firm commitment to the goals of maximum employment and stable prices, my appraisal of the medium term outlook (which is importantly shaped by the persistent legacy of the housing bust and ensuing financial crisis), and by my assessment of the balance of risks facing the economy. Of course, as I've emphasized, the outlook is uncertain and the Committee will need to adjust policy as appropriate as actual conditions unfold. For this reason, the FOMC's forward guidance is explicitly conditioned on its anticipation of "low rates of resource utilization and a subdued outlook for inflation over the medium run."23 If the recovery were to proceed faster than expected or if inflation pressures were to pick up materially, the FOMC could adjust policy by bringing forward the expected date of tightening. In contrast, if the Committee judges that the recovery is proceeding at an insufficient pace, we could undertake portfolio actions such as additional asset purchases or a further maturity extension program. It is for this reason that the FOMC emphasized, in its statement following the April meeting, that it would "regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.""

Read the full speech here with slides.

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