Federal Reserve Vice Chairman Janet Yellen signaled stimulus may outlast the Fed’s bond purchases, saying the central bank has the option to hold interest rates near zero even after reaching near-term targets for inflation or unemployment.
Yellen’s comments yesterday coincide with a Federal Open Market Committee debate over when to bring bond buying to an end, a shift that may prompt expectations of an interest-rate increase. The FOMC said in December it will hold the main interest rate in a range of zero to 0.25 percent so long as inflation isn’t forecast to rise to more than 2.5 percent in one to two years and unemployment exceeds 6.5 percent.
U.S. central bankers are focusing the full force of monetary policy on reviving growth and reducing 7.9 percent unemployment. The economy contracted at a 0.1 percent annual rate in the fourth quarter of 2012, dragged down by the biggest plunge in government defense spending in four decades.
“Our control over the economy is imperfect, and so temporary deviations from the FOMC’s specific longer-term goals will sometimes occur,” Yellen said. “Importantly, these quantitative goals are neither ceilings nor floors for inflation and unemployment, and the committee will take a balanced approach to returning both measures to their objectives over time.”