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Fed Official Hints At Longer Period For Low Rates

By MARTIN CRUTSINGER

WASHINGTON (AP) â¿¿ Federal Reserve Vice Chairman Janet Yellen says the central bank may keep its key short-term interest rate at a record low even after unemployment falls close to a more normal level.

The Fed has said it would hold its benchmark rate near zero as long as unemployment is above 6.5 percent and long-run inflation forecasts are below 2.5 percent. The unemployment rate is currently 7.9 percent.

In a speech Monday to the AFL-CIO, Yellen said those are "thresholds for possible action, not triggers that will necessarily prompt an immediate increase."

Her comments echoed remarks Chairman Ben Bernanke made in December after the Fed announced it would change its forward guidance for short-term rate increases. At a news conference after the Fed's December meeting, Bernanke said the Fed might decide to keep stimulating the economy even after unemployment falls below 6.5 percent.

Yellen has been a close Bernanke ally. She has consistently voted to support his initiatives to boost the economy. Those include the latest change in guidance for short-term rates, as well as bond purchases that have helped push long-term rates lower. Both are designed to encourage more borrowing and spending, which boosts economic growth.

Yellen is considered a top prospect to succeed Bernanke as chairman, should he leave when his current term ends on Jan. 31, 2014.

Analysts said Yellen's comments are a signal that Fed remains committed to aggressive stimulus measures to boost growth and lower unemployment.

"Yellen does not sound ready to slow asset purchases, far less contemplate tightening policy, any time soon," Dana Saporta, director of U.S. economics at Credit Suisse, said in a research note.

Copyright 2011 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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