20 June 2019
The Fed's low rate-policy helped spur investments and job creation, says Janet Yellen. Photo: Bloomberg
The Fed's low rate-policy helped spur investments and job creation, says Janet Yellen. Photo: Bloomberg

Yellen defends Fed policy; says tightening will be gradual

US Federal Reserve Chairwoman Janet Yellen has defended the central bank’s low-rate policy of the past several years, saying such stance was needed to spur the economy at a critical time.

In a letter to consumer advocate Ralph Nader on Monday, Yellen said the Fed’s policy of holding rates at near-zero levels since 2008 helped prop up house and stock prices and prompted consumers and businesses to invest and create jobs.

Higher rates would have had dire consequences, she wrote, according to the Wall Street Journal.

“Unemployment would have risen to even higher levels, home prices would have collapsed further, even more businesses and individuals would have faced bankruptcy and foreclosure, and the stock market would not have recovered,” she wrote.

Yellen argued that low returns on savings were caused by the financial crisis and the recession that followed it rather than Fed monetary policy.

In other comments, she said the Fed expects more improvement in the labor market and for inflation to move toward the 2 percent target.

“If that is the case, my colleagues and I have indicated it will be appropriate to begin to normalize interest rates,” she wrote. “Most of us expect the pace of that normalization to be gradual.”

Raising rates too rapidly could hurt the expansion and force the Fed to backtrack and lower rates once more, she said. 

Yellen’s letter came in response to a letter written by Nader in October on behalf of a group called “Savers of America”.

In that letter, Nader took the Fed chief to task for holding rates low and hurting savers.

“We want to know why the Federal Reserve, funded and heavily run by the banks, is keeping interest rates so low that we receive virtually no income for our hard-earned savings while the Fed lets the big banks borrow money for virtually no interest,” Nader wrote.

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