The U.S. must continue efforts to revive the U.S. economy as the Fed unleashes all available tools to fight the crisis, San Francisco Fed President Janet Yellen (voter) said in a speech in New York on Wednesday.
"We face an extraordinarily uncertain future, and our main hope for economic recovery lies in the sorts of innovative and aggressive economic policy responses that are being carried out by Federal Reserve and federal government policy-makers," she said.
Yellen, who also sits on the Federal Open market Committee as a voting member, said she shares some of the "guarded optimism" from forecasters who expect a recovery within the "next several" quarters, but warned that considerable downside risks are associated with the assessment.
As a consequence, she threw her support behind the Fed's recent decision to buy U.S. Treasuries and expand its Term Asset-Backed Securities Lending Facility and mortgage-backed securities purchase program, as well as the U.S. government's Public-Private Investment Program.
While she understands some of the valid concerns associated with the amount of spending being done to finance these programs and help jump-start the U.S. credit markets, "the seriousness of our current economic problems argues for using all available tools," she said.
In particular, she pointed out that, "disinflation, and even deflation, will represent greater risks than inflation," one of the main concerns stemming from the amount of money the Federal Reserve has pumped into the financial system.
By Erik Kevin Franco and edited by Stephen Huebl
©CEP News Ltd. 2009