SAN FRANCISCO — San Francisco Federal Reserve Bank president Janet Yellen Sunday warned that without “substantial” fiscal stimulus to supplement monetary stimulus, the U.S. economy could face an “extended period of stagnation.”

Yellen, echoing what the policymaking Federal Open Market Committee said Dec. 16, said it is appropriate for the federal funds rate to be kept “exceptionally low ... for some time.” But she said that is not sufficient and that a large and diversified fiscal package is also going to be needed.

Yellen, in remarks prepared for a session of the annual meeting of the Allied Social Science Associations, sounded very gloomy about the outlook.

“With the U.S. economy in a year-old recession, marked by a particularly sharp contraction in recent months, and ensnared in ongoing financial market distress, fiscal policy intervention is certainly needed,” she said. “It is important that it be informed by the kind of cogent thinking and analysis that these papers embody.”

Echoing Harvard University professor Martin Feldstein, Yellen said: “The current downturn is likely to be far longer and deeper than the 'garden-variety’ recession in which [gross domestic product] bounces back quickly.”

— Market News International


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