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Fed official urges more stimulus

By Karen Pantelides, economics editor


NEW YORK (CNNMoney.com) -- Ballooning U.S. debt is a serious long-term threat, but the economy needs more stimulus now, a top Federal Reserve official said Wednesday.

Fed Vice Chairwoman Janet Yellen said she supported the Federal Reserve's latest move to stimulate the still-tepid recovery by purchasing long-term Treasuries to drive down interest rates. She also called for more stimulus measures from Congress.

"I strongly supported the Federal Reserve's recent action because I believe it will be helpful in strengthening the recovery. But it is hardly a panacea," said Yellen, who was speaking at a Committee for Economic Development conference in New York.

"A fiscal program that combines a focus on pro-growth policies in the near term with concrete steps to reduce longer-term budget deficits could be a valuable complement to our efforts."

While the deficit seems to have "topped out," the aging population presents a longer-term threat to federal debt, Yellen said.

"Whatever size of government we choose, taxes must ultimately be set at a level sufficient to achieve an appropriate balance of spending and revenues," she said.

With economic growth still stuck at a rate considered too low to bring down high unemployment, many economists feel more stimulus is needed to jump start the sluggish recovery and create jobs.

But since the election, the government's attention has turned to deficit reductions and austerity, making talk of more stimulus politically unpopular.

The Fed's latest move to pump more money into the economy was sharply criticized around the world and raised concerns of a weakening U.S. dollar and rising inflation.

Yellen is widely considered to be dovish on inflation. And she dismissed the idea that the Fed's program would cause runaway inflation in the future.

"As the economy more fully recovers, the Federal Reserve will need to remove this extraordinary monetary accommodation in order to maintain price stability and keep inflation expectations well anchored," Yellen said. "I am confident that the Federal Reserve has both the commitment and the tools to achieve this unwinding."

Yellen also addressed concerns about growing imbalances in the global economy. She described a "two-speed global recovery" in which emerging economies are growing rapidly and outpacing industrialized countries struggling to recover from the worldwide slowdown.

She said that more fiscal stimulus could help address those concerns by promoting U.S. growth and increasing demand for foreign goods.  To top of page

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