Fed's No. 2: Don't blame us for oil spike

By Chris Isidore, senior writer


NEW YORK (CNNMoney) -- The Federal Reserve's efforts to pump money into the U.S. economy are not to blame for the rise in oil and other commodity prices, according to the No. 2 official at the central bank.

Fed Vice Chairman Janet Yellen, in a speech to the Economic Club of New York Monday, said that rapid growth in demand by emerging economies such as China are driving up prices. And she argued that the Fed should not need to pull back on its stimulus efforts in order to rein in prices.

Yellen said the Fed's current program of buying up to $600 billion in additional long-term Treasuries and keeping its key interest rate near 0% "continues to be appropriate because unemployment remains elevated."

She added that measures of inflation are still lower than what the Fed usually considers to be stable for the long-term.

Yellen said it is not reasonable to attribute the rise in commodity prices with the 10% decline in the value of the dollar against other major currencies since last summer.

She said she doesn't think this current spike in prices will derail the U.S. economic recovery. While high prices for oil, food and other commodities will feed overall inflation over the next few months, she expects consumer inflation will then retreat and remain subdued.

Yellen repeated recent statements by Fed chairman Ben Bernanke, who has maintained that the impact of higher commodity prices on overall inflation to be "modest" and "transitory."

Since businesses are seeing little increases in labor costs due to high unemployment and productivity gains, there are only limited inflationary pressures caused by rising commodity prices, she said.

Yellen acknowledged that some inflation expectations are rising in the short-term, which she said is reasonable in light of commodity prices, but she sees prices remaining stable in the long run.

"Longer-term inflation expectations seem to me to have been roughly constant," she said in response to a question.

Even if inflation continues to rise under pressure from higher gas prices, it wouldn't necessarily mean that the Fed should change monetary policy, Yellen said.

"Such shocks push up unemployment and raise inflation," she said. Tightening by the Fed in response to a price spike, "might mitigate the rise in inflation, but would contribute to an even weaker economic recovery." To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 16,399.67 19.26 0.12%
Nasdaq 4,316.07 57.63 1.35%
S&P 500 1,904.01 17.25 0.91%
Treasuries 2.18 -0.02 -0.82%
Data as of 9:11pm ET
Company Price Change % Change
Apple Inc 99.76 2.09 2.14%
Bank of America Corp... 16.26 0.05 0.31%
Pfizer Inc 27.93 0.10 0.36%
Facebook Inc 76.95 1.00 1.32%
Microsoft Corp 44.08 0.45 1.03%
Data as of 4:04pm ET

Sections

Better-than-expected iPhone sales and record Mac sales lifted Apple in its fiscal fourth quarter. More

The Fed official overseeing Wall Street says things need to change, and if the risky culture isn't turned around, it may be time to break up the big banks. More

In three years, all Chicago high school students will have to take a coding course in order to graduate. More

Host a furniture market. Here's how small town High Point, N.C. rakes in this much money -- twice a year. More

Detroit has 80,000 dilapidated properties and 100,000 empty lots. It's trying to get more people like Antjuan Wyatt to buy them. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.