A Quote by Janet Yellen
Monetary policy will, as always, respond to the economy's twists and turns so as to promote, as best as we can in an uncertain economic environment, the employment and inflation goals.
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If you continue to use monetary policy to attempt to promote full employment the result would be that you would have higher inflation, and that you would not have lower unemployment.
Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output... A steady rate of monetary growth at a moderate level can provide a framework under which a country can have little inflation and much growth. It will not produce perfect stability; it will not produce heaven on earth; but it can make an important contribution to a stable economic society.
The future path of the federal funds rate is necessarily uncertain because economic activity and inflation will likely evolve in unexpected ways. For example, no one can be certain about the pace at which economic headwinds will fade. More generally, the economy will inevitably be buffeted by shocks that cannot be foreseen.
The unique aspect of today's monetary inflation is that it is not limited to one country, but a host of countries are all inflating together. As a result of the monetary inflation (when all of the newly created money begins to leave the banks and enter the system), the price inflation will be worldwide.
The Federal Reserve's monetary policy objective is to foster maximum employment and price stability. In this regard, a key challenge is to assess just how far the economy now stands from the attainment of its maximum employment goal.
Inflation is certainly low and stable and, measured in unemployment and labour-market slack, the economy has made a lot of progress. The pace of growth is disappointingly slow, mostly because productivity growth has been very slow, which is not really something amenable to monetary policy. It comes from changes in technology, changes in worker skills and a variety of other things, but not monetary policy, in particular.
My bottom line is that monetary policy should react to rising prices for houses or other assets only insofar as they affect the central bank's goal variables - output, employment, and inflation.
Our ability to predict how the federal funds rate will evolve over time is quite limited because monetary policy will need to respond to whatever disturbances may buffet the economy.
The success of monetary policy should be judged by the economy's performance against our statutory mandates of price stability and maximum employment.
The theory of economic shock therapy relies in part on the roleof expectations on feeding an inflationary process. Reining in inflation requires not only changing monetary policy but also changing the behavior of consumers, employers and workers. The role of a sudden, jarring policy shift is that it quickly alters expectations, signaling to the public that the rules of the game have changed dramatically - prices will not keep rising, nor will wages.
If I am confirmed, I am confident that my colleagues on the Federal Open Market Committee and I will maintain the focus on long-term price stability as monetary policy's greatest contribution to general economic prosperity and maximum employment.
During the 1970s, inflation expectations rose markedly because the Federal Reserve allowed actual inflation to ratchet up persistently in response to economic disruptions - a development that made it more difficult to stabilize both inflation and employment.
I've always believed in expansionary monetary policy and if necessary fiscal policy when the economy is depressed.
The basic prescription for preventing deflation is therefore straightforward, at least in principle: Use monetary and fiscal policy as needed to support aggregate spending, in a manner as nearly consistent as possible with full utilization of economic resources and low and stable inflation. In other words, the best way to get out of trouble is not to get into it in the first place.
It is particularly odd that economists who profess to be champions of a free-market economy, should go to such twists and turns to avoid facing the plain fact: that gold, that scarce and valuable market-produced metal, has always been, and will continue to be, by far the best money for human society.
If the public understands the central bank's views on the economy and monetary policy, then households and businesses will take those views into account in making their spending and investment plans; policy will be more effective as a result.
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