Reuters logo
Fed's Yellen says can't rule out recession
April 16, 2008 / 4:03 PM / 10 years ago

Fed's Yellen says can't rule out recession

ALAMEDA, California (Reuters) - The United States’ economic prospects are “unusually uncertain” and growth has slowed to a crawl “at best,” San Francisco Federal Reserve Bank President Janet Yellen said on Wednesday.

“I‘m not ruling out a recession,” Yellen told reporters after a speech to the Bay Area Council.

Yellen addressed the group on the aircraft carrier USS Hornet, now a museum, but she was far from declaring “mission accomplished” for the Fed’s efforts to shore up the economy after months of turmoil from the subprime mortgage market crisis and falling housing prices.

The Federal Open Market Committee, the U.S. central bank’s policy-setting panel, must be “prepared to act in a timely manner,” Yellen said.

She noted the FOMC had taken “significant steps” in pushing down the key federal funds rate to 2.25 percent from 5.25 percent since September. The FOMC meets on April 29-30 to consider its next move.

Monetary and fiscal stimulus should give the economy a boost in the year’s second half, Yellen said.

Financial markets now expect the Fed to adopt an additional quarter percentage point cut in the fed funds rate to 2 percent. Earlier, markets had been split between a one-quarter and one-half percentage point decrease.

Yellen told reporters the recent shift in market expectations probably reflected the view that financial conditions have stabilized somewhat since the previous FOMC meeting in March.

Yellen is not a voting member of the FOMC this year.

The housing sector “will be a major drag on the overall economy” into 2009, Yellen said, adding that she could not guess when house prices would stop falling.

Yellen said she was surprised that consumer spending had not weakened earlier due to years of rising energy prices and, more recently, higher food costs.

Still, she said the Fed must be careful not to lower rates more than needed. “Inflation is a problem,” she said.

Asked if she regretted not having a vote as the Fed faces its most challenging period in decades, Yellen said that all the Fed policy-makers are ”noodling it out together ... it doesn’t matter that much if you cast a vote or not.

The sharp rate cuts made so far are “an appropriate response to the contractionary effects of the ongoing financial shock and the housing downturn,” she said.

Although the weaker economy should help trim inflation going forward, the Fed cannot be “complacent” about price pressures, she said.

Yellen welcomed data on Wednesday that showed March core consumer prices rose by 0.2 percent, as expected, but she said that price stability cannot be achieved unless price measures that reflect food and energy subside as well.

Editing by Kenneth Barry

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below