Incoming Federal Reserve Chair Janet Yellen will tell lawmakers on Thursday that loose monetary policies carried out since the financial crisis have supported U.S. recovery, which still has a way to go, according to prepared remarks of her speech released Wednesday afternoon.
The Federal Reserve is currently purchasing USD85 billion in Treasury holdings and mortgage debt a month to spur recovery, a monetary policy tool known as quantitative easing that aims to boost the economy by driving down interest rates, weakening the dollar and boosting stocks in the process.
Critics dub quantitative easing as printing money out of thin air that will fuel inflationary pressures down the road, while supporters say the program has steered the country away from deflationary decline and has allowed for some recovery, especially during times when political impasses impede badly needed fiscal reform.
"The Federal Reserve is using its monetary policy tools to promote a more robust recovery. A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases," Yellen said in her speech.
"I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy."
The Fed's current quantitative easing program, dubbed QE3 by the markets, came after two previous programs in the recent past.
A first round of easing saw the Fed buy USD1.7 trillion in assets from banks, namely mortgage debt, while a second round saw the U.S. central bank snap up an additional USD600 billion in Treasury holdings from the nation's financial institutions.
Yellen in her speech said the economy has a long way to go on its road to recovery, which many interpreted as a sign that the Fed could hold off on tapering QE3 until 2014.
"We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession," Yellen said.
"Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential. At the same time, inflation has been running below the Federal Reserve's goal of 2 percent and is expected to continue to do so for some time."
The Federal Reserve is currently purchasing USD85 billion in Treasury holdings and mortgage debt a month to spur recovery, a monetary policy tool known as quantitative easing that aims to boost the economy by driving down interest rates, weakening the dollar and boosting stocks in the process.
Critics dub quantitative easing as printing money out of thin air that will fuel inflationary pressures down the road, while supporters say the program has steered the country away from deflationary decline and has allowed for some recovery, especially during times when political impasses impede badly needed fiscal reform.
"The Federal Reserve is using its monetary policy tools to promote a more robust recovery. A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases," Yellen said in her speech.
"I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy."
The Fed's current quantitative easing program, dubbed QE3 by the markets, came after two previous programs in the recent past.
A first round of easing saw the Fed buy USD1.7 trillion in assets from banks, namely mortgage debt, while a second round saw the U.S. central bank snap up an additional USD600 billion in Treasury holdings from the nation's financial institutions.
Yellen in her speech said the economy has a long way to go on its road to recovery, which many interpreted as a sign that the Fed could hold off on tapering QE3 until 2014.
"We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession," Yellen said.
"Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential. At the same time, inflation has been running below the Federal Reserve's goal of 2 percent and is expected to continue to do so for some time."