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Fed officials see recession in all but name

(Agencies)
Updated: 2008-04-17 08:15

Yellen, who is not an FOMC voting member this year, said the slowing economy will serve as a brake on inflation over time, and looked for core prices to return to a 2 percent pace of annual increase over the next years.

Still, she said the Fed must be careful not to lower rates more than needed in the current easing cycle, saying, "Inflation is a problem."

Although core inflation has stabilized in the past two months, Yellen said price stability cannot be achieved unless headline price pressures, which include food and energy, subside as well.

"The Fed cares about total inflation," she said.

The headline consumer price index rose by 0.3 percent in March for a year-on-year advance of 4 percent, according to data released on Wednesday.

The Fed's focus on core inflation assumes that food and energy prices will not keep rising relentlessly, Yellen said.

Plosser termed crude oil prices, which traded above $115 per barrel for the first time on Wednesday, "extraordinarily high."

MISSION NOT YET ACCOMPLISHED

Speaking aboard the aircraft carrier USS Hornet, Yellen was far from declaring "mission accomplished" for the Fed's efforts to shield the economy from turmoil related to the collapse of the subprime mortgage market and decline in housing prices.

Still, she said the FOMC had taken "significant steps" since September in pushing the federal funds rate down to 2.25 percent from 5.25 percent, and that monetary and fiscal stimulus should boost the economy in the second half.

The FOMC meets on April 29-30 to consider its next move on interest rates.

Financial markets anticipate a one-quarter percentage point cut in the federal funds rate, to 2 percent. Earlier this month bets were divided between a one-quarter-point ease and a bolder, half-point cut.

Yellen told reporters that the shift in market expectations probably reflected the view that financial conditions have stabilized somewhat since the last FOMC meeting in March.

Mishkin told the Senate Small Business Committee the Fed is taking steps beyond movements in lending rates.

The Fed is "continually looking at steps to make the markets function better" and has been "quite creative in terms of the steps we've taken so far," he said.

 

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