Yellen Says Fed’s Extraordinary Policies May Be Needed Again

Federal Reserve Chair Janet Yellen is defending the central bank’s extraordinary efforts to fight the Great Recession and says they might be needed again.

Yellen said in a speech Friday that the U.S. economy has made “great strides.”

During the recession, the Fed pushed short-term interest rates to zero. When the economy needed more help, it took the extraordinary step of buying hundreds of billions of dollars’ worth of bonds to push long-term interest rates lower.

Now the economy is improving, and the Fed is raising short-term rates and reducing its massive bond portfolio. But Yellen says economic forces have driven short-term interest rates to unusually low levels. So when the next downturn hits, it will have less room to cut rates and likely will have to buy bonds again.

Source: Associated Press