“Because of the substantial lags in the effects of monetary policy on the economy, we must make policy in a forward-looking manner. Delaying action to tighten monetary policy until employment and inflation are already back to our objectives would risk overheating the economy,” Yellen said in a speech to the Providence (Rhode Island) Chamber of Commerce.
Before moving ahead, as MHProNews understands, she wants to see continued improvement in the labor market, which is approaching its full strength, and has reached a level at which many economists believe will not increase inflation.
While noting that many people are voluntarily not seeking work, such as retirees, teenagers, and people caring for children at home, Yellen added “I also believe that a significant number are not seeking work because they still perceive a lack of good job opportunities.”
Most members of the Federal Open Market Committee (FOMC) expect the economy to grow 2.5 percent per year over the next couple of years, said Yellen, and the unemployment rate to fall to around five percent. In any case, she expects the “pace of normalization” to be gradual and very much dependent upon the improvement of the overall economy.
She thinks it will be several years before the federal funds rate has returned to its normal, longer-run level and inflation is at about two percent. ##
(Photo credit: nydailynews-Janet Yellen)
