Janet Yellen, President Obama's pick to be the next head of the Federal Reserve, is vowing to maintain the central bank's ultra-easy policies on interest rates until she sees more convincing growth in the economy and job market, in prepared testimony to be delivered at her Senate confirmation hearing Thursday.
"Our country has come a long way since the dark days of the financial crisis, but we have farther to go," Ms. Yellen, currently the Fed's vice chairwoman, said in a short prepared statement released late Wednesday ahead of the Senate Banking Committee hearing, where she is sure to encounter praise from Democrats but criticism from conservatives over the Fed's loose-money policies.
Ms. Yellen, who would succeed departing Fed Chairman Ben S. Bernanke if confirmed, made no apology for the Fed's unprecedented efforts in the past year to try to lower long-term interest rates on mortgages and other loans through $85 billion a month purchases of U.S. Treasury bonds and mortgage securities, and signaled she will present a vigorous defense of those policies at the committee confirmation hearing.
"I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy," she will say, according to the testimony. "The Federal Reserve is using its monetary policy tools to promote a more robust recovery. A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases."
Ms. Yellen, an eminent labor economist with extensive experience working at the Fed, the White House and in academia, said she will be closely watching the job market for signs of improvement in deciding what policies to recommend to other members of the Fed's rate-setting committee, which meets every six weeks to consider whether to change course or stand fast in steering interest rates.
She noted that the U.S. private sector already has created 7.8 million new jobs since the Great Recession, though that is still not enough to replace the more than 8 million jobs lost during the global downturn.
"We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession," she said. "Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential."
For Republican legislators who are concerned about the possibility of high inflation arising from the Fed's stimulative policies, Ms. Yellen emphasized that inflation has remained under the Fed's 2 percent annual goal despite the easy-money policies, and is expected to stay there for some time to come.
Ms. Yellen paid tribute to Mr. Bernanke, crediting him with preventing the recession from turning into a far worse economic downturn akin to the Great Depression by moving decisively in 2008 and 2009 to contain the financial crisis, often in the face of sharp criticism and opposition from members of Congress and the public.
"The effects were severe, but they could have been far worse," she said, noting that still-controversial moves by Mr. Bernanke to rescue the foundering American International Group and provide emergency loans to liquidity-strapped U.S. and foreign banks "helped stabilize the financial system, arrest the steep fall in the economy and restart growth."
Ms. Yellen added that she will continue Mr. Bernanke's policies of making the Fed more open and transparent to the public, policies that she helped to forge as his lieutenant for many years. Mr. Bernanke was the first Fed chairman to hold regular press conferences and interviews with the media, among other unprecedented steps he took to open up the Fed during an eight-year tenure that is due to end on Jan. 30.
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