BOSTON Recent U.S. economic data has been "pretty disappointing," with the economy probably growing at a 2 percent rate and the labor market stalled for now, the Federal Reserve's number two policy-maker said on Wednesday.
Fed Vice Chairman Janet Yellen hinted that the central bank would be prepared to act if it suspects that growth will remain tepid for too long.
"The challenge is to decide whether or not, going forward, we expect to make sufficient progress in the next couple of years to bring the economy back to full employment," Yellen said while taking questions after a speech to the Boston Economic Club.
"If people were to conclude that we will not make adequate progress, we have to debate what is the appropriate response to that. As I mentioned, we have a number of possible tools."
Yellen said in the medium term the United States needed to craft a plan for fiscal sustainability, but now was not the time to make an aggressive move.
The scheduled expiration of various tax cuts at year-end, including Bush-era tax cuts and the end of extended unemployment benefits, "is obviously significant...it would be a huge drag" on growth, said Yellen.
She said that while the Fed has sympathy for savers, including many retirees, who have faced years of near-zero interest rates, the central bank has to balance the impact of its actions on various stakeholders.
"Our objective is to get the economy moving as quickly as possible back to full employment," Yellen said, noting that a weak economy imposes costs that go beyond just rock-bottom interest rates.
(Reporting by Ros Krasny; Editing by Leslie Adler)