Federal Reserve Chair Yellen pledges to give clear signals on interest rate policy
PARIS — Federal Reserve Chair Janet Yellen said Friday that the Fed is striving to clearly communicate its intentions on interest rates in order to minimize surprises that could disrupt financial markets in the United States and globally.
She said central bank policymakers understand that moving from a period of very low interest rates to more normal rates will lead to more volatility in financial markets.
But she said the normalization of rates will be an important sign that economic conditions are “finally emerging from the shadow of the Great Recession.”
Yellen made her comments in a speech at a conference sponsored by the Bank of France. The Fed last week ended its bond-buying program, but its first increase in rates is not expected until mid-2015.
“As employment, economic activity and inflation rates return to normal, monetary policy will eventually need to normalize too, although the speed and timing of this normalization will likely differ across countries based on differences in the pace of recovery in domestic conditions,” Yellen said.
“For our part, the Federal Reserve will strive to clearly and transparently communicate its monetary policy strategy in order to minimize the likelihood of surprises that could disrupt financial markets, both at home and around the world,” Yellen said.
The Fed chief said that among the lessons learned from the crisis is that central banks need to be prepared to employ all available tools, including unconventional policies such as bond buying, to support economic growth and achieve optimal inflation rates.
In response to a question, Yellen said that before the 2008 financial crisis hit, the Fed had spent a great deal of time studying the prolonged period of weak economic growth and deflation in Japan in an effort to learn how to deal with similar problems.
She said among the lessons policy-makers drew from the Japanese experience was the need to quickly get banks on a sound footing and guard against inflation persistently falling below the Fed’s 2 percent target.
“That was an important lesson from the Japanese experience that we have tried to learn from,” Yellen said.