* Fed No. 2 highlights risks of doing too little to help
* Yellen cites "substantial social cost" of employment gap
* Yellen says not considering curtailing bond buys
By Pedro Nicolaci da Costa
WASHINGTON, March 4 Janet Yellen, the Federal
Reserve's influential vice chair, said on Monday the U.S.
central bank's aggressive monetary stimulus is warranted given
how far the economy was operating below its full potential.
Downplaying the potential costs of the Fed's unconventional
easing efforts, which currently include $85 billion in monthly
asset purchases, Yellen highlighted the dangers of a prolonged
period of economic malaise.
"Insufficiently forceful action to achieve our dual mandate
also entails costs and risks," Yellen told a conference
sponsored by the National Association of Business Economists.
"At present, I view the balance of risks still calling for
highly accommodative monetary policy to support a stronger
recovery and more rapid growth in employment."
Yellen, seen as a potential successor to Fed Chairman Ben
Bernanke, who is expected to step down early next year,
reiterated Fed officials' intention to keep their foot on the
accelerator even as the economy recovers.
"The large shortfall of employment relative to its maximum
level has imposed huge burdens on all too many Americans and
represents a substantial social cost," she said. "Prolonged
economic weakness could harm the economy's productive potential
for years to come."
The U.S. economy stalled in the fourth quarter but is
forecast to expand around 2 percent this year. At the same time,
unemployment remains at an elevated 7.9 percent, and Yellen said
Fed officials expect the rate to come down all too slowly to
around 7 percent at the end of next year.
In response to the financial crisis and deep recession of
2007-2009, the U.S. central bank slashed interest rates to
effectively zero, and bought more than $2.5 trillion in Treasury
and mortgage-backed securities in an effort to keep long-term
rates low and spur spending and investment.
It began a third round of quantitative easing, dubbed QE3,
in September, which it decided to expand in December despite
divisions within the Fed's policy-setting committee over
potential risks posed by the program.
Yellen's remarks indicated she was clearly not in the camp
of those officials who felt the central bank might need to
curtail its new program before reaching its goal of a
substantial improvement in the labor market outlook.
"At this stage, I do not see any (potential costs) that
would cause me to advocate a curtailment of our purchase
program," she said.