Janet Yellen, the Federal Reserve’s influential vice chair, said on Monday the central bank’s aggressive monetary stimulus is warranted given how far the economy was operating below its full potential.
Downplaying the potential costs of the Fed’s unconventional easing efforts, which currently include $85 billion in monthly asset purchases, Yellen highlighted the dangers of a prolonged period of economic malaise.
“Insufficiently forceful action to achieve our dual mandate also entails costs and risks,” Yellen told a conference sponsored by the National Association of Business Economists. “At present, I view the balance of risks still calling for highly accommodative monetary policy to support a stronger recovery and more rapid growth in employment.”
Yellen, seen as a potential successor to Fed Chairman Ben Bernanke, who is expected to step down early next year, reiterated Fed officials’ intention to keep their foot on the accelerator even as the economy recovers.
“The large shortfall of employment relative to its maximum level has imposed huge burdens on all too many Americans and represents a substantial social cost,” she said. “Prolonged economic weakness could harm the economy’s productive potential for years to come.”
The U.S. economy stalled in the fourth quarter but is forecast to expand around 2 percent this year. At the same time, unemployment remains at an elevated 7.9 percent, and Yellen said Fed officials expect the rate to come down all too slowly to around 7 percent at the end of next year.
Each new round of Monopoly money from our economic betters at the Fed was supposed to act like a magic defibrillator on the economy yet there have barely been any changes in the vital signs. As for the “balance of risks” Yellen mentions, the only real evidence we’ve been given that such a balance exists is “Because we said so.” The most powerful voices at the Fed all seem to subscribe to the Paul Krugman School Of It’s Never Enough thinking which just makes me want to drink until I’m as inebriated as they sound all the time.