San Francisco Federal Reserve Bank president Janet Yellen expressed hope that the recession will come to an end in the second half of this year with the help of aggressive monetary and fiscal stimulus, among other factors, but predicted a “frustratingly tepid” recovery will keep the unemployment rate high through next year.

Yellen, a voting member of the policymaking Federal Open Market Committee in 2009, downplayed inflation fears, saying deflation is more likely, though not a “severe bout” of it.

In remarks prepared for delivery to the University of California-Berkeley Haas School of Business Tuesday night, she said the Fed is “well aware” of the danger of not tightening monetary policy quickly enough to prevent an inflation upsurge, and stressed the central bank has the tools needed to do ensure this does not happen.

Echoing Fed chairman Ben Bernanke’s congressional testimony earlier Tuesday, Yellen said the Fed’s ability to pay interest on reserves should enable it to raise the federal funds rate even while reserves remain expansive.

She also noted the Fed is seeking authority from Congress to issue its own debt — “Fed bills” — to soak up reserves.

— Market News International

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