February 8, 2008 / 5:29 AM / 12 years ago

Fed's Yellen sees weak growth, but no recession

HONOLULU, Feb 7 (Reuters) - San Francisco Federal Reserve Bank President Janet Yellen said on Thursday that the United States faces several quarters of “anemic” economic growth but will probably not fall into an outright recession.”

Still, risks to growth for the near term are skewed lower, and as a result a slowing economy could create greater caution by lenders, households and businesses, dragging growth down even more, Yellen said.

“An important objective of Fed policy is to mitigate the possibility that such a negative feedback loop could develop and take hold,” Yellen said in remarks prepared for a panel discussion at the Certified Financial Analysts of Hawaii economic forecasting dinner.

Yellen said the Fed’s recent string of interest rate cuts had pushed the real, or inflation-adjusted, federal funds rate to about 1 percent, “an accommodative posture.”

The Fed’s interest rate cuts were appropriate given the extent to which the financial market shock and the ongoing housing downturn have restrained growth, she said.

The U.S. consumer is “pretty hobbled” at the moment by a weak job market, falling stock market and more difficult access to credit, she said.

“The rise in delinquency rates across the spectrum of consumer loans is strongly indicative of the growing strains on households,” Yellen added.

With prospects “unusually uncertain,” the Fed must be “prepared to act in a timely manner,” said Yellen, who is not a voting member of the policy-setting Federal Open Market Committee in 2008.

Yellen said recent readings on inflation had been “disappointing,” with core prices back above levels consistent with price stability.

However, “I expect core inflation to moderate over the next few years, edging down to around 1.75 percent under appropriate monetary policy,” she said. (Reporting by Ros Krasny; Editing by Leslie Adler)

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