The Federal Reserve should focus its energies on bringing down an elevated United States unemployment rate even if inflation “slightly” exceeds the central bank’s target, Fed Vice Chair Janet Yellen said on Thursday, Reuters reported.
Yellen, who is seen as a potential successor to Chairman Ben Bernanke, says she looks forward to the day when policymakers can abandon unconventional tools like asset purchases and return to the conventional business of lowering and raising interest rates, currently set at effectively zero.
But she made that clear that time is not near, saying eventual “normalization” of policy by the Federal Open Market Committee is still far in the future.
“Progress on reducing unemployment should take center stage for the FOMC, even if maintaining that progress might result in inflation slightly and temporarily exceeding two per cent,” Yellen told a meeting sponsored by the Society of American Business Writers and Editors.
Yellen said she favored adjusting the pace of Fed bond purchases, currently running at $85bn a month, in response to changes in economic conditions.
The US economy showed signs of strength in the first quarter, with many economists predicting an annualized growth rate above three per cent.