Yellen Excerpt: Added Scope To Conduct Policy Could Be Useful

     WASHINGTON (MNI)  - The following is a response of Federal Reserve Chairman

Janet Yellen to a question from a reporter at her press conference following

Wednesday's Federal Open Market Committee meeting.

Question:

     A couple longer term questions. First of all, midway through the year you

talked about the issue of whether inflation targets might need to be raised.

There has been more debate in the fed system since then about this. It may not

be a imminent issue but do you expect it to be something the fed should be

discussing over the coming years, some sort of change to the inflation target? 

     Second of all, the amount of stimulus tools that the fed may have at its

disposal in the next downturn strikes are fairly limited. One of the incoming

governors has talked about the merits of negative interest rates. I wondered

whether you see that as a potential, at least in theory for the fed to consider

should it run out of other options. Thanks. 

Yellen:

     So, right now, the FOMC is not discussing or considering its inflation

target. We do see inflation is likely moving up to target over the next couple

of years. I would say, you said our stimulus tools are limited. I would want to

emphasize that if there were a negative shock to the economy, we do have some

scope to cut the fed funds rate, and there are other tools available, ones that

we have used previously for with guidance in asset purchases. 

     I think we are not, I wouldn't say that we are out of ammunition. But

certainly, it's been recognized, and I've emphasized myself, that in the longer

run, we may be and we will have to see how this works out, but we may be in low

interest rate environments where it could prove useful to have additional scope

to conduct monetary policy. And in that context, I think additional research,

that academic economists and others are thinking hard about, what more could be

done, and I think these are matters that are certainly worthy of further study. 

Question:

     You do believe that negative [inaudible] at least in theory are possible in

the U.S. at some point if it should be necessary, at least in theory. 

Yellen:

     So I mean on that I would say, we have, that is not something that we have

studied inside the fed, to any considerable extent and haven't seriously thought

about using ourselves during this last downturn and recovery. We have watched

what happened in other countries. I think that is worthwhile. I would say it's

an area that academics may have interest in, in the future, and is worthy of

some study. But it hasn't been part of the fed's agenda.

--MNI Washington Bureau; +1 202-371-2121; email: holly.stokes@marketnews.com

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