US calls for strong action to boost economy
June 7, 2012  |  News

Janet Yellen, the Federal Reserve’s second-most-powerful person is calling for aggressive action to boost the U.S. economy — giving the hint that she might favor extending the Fed’s “Operation Twist” and launching a third round of so-called “quantitative easing.”

“I believe that a highly accommodative (Fed) policy will be needed for quite some time to help the economy mend,” Janet Yellen, vice chair of the Federal Reserve board of governors, said this evening in remarks to the Boston Economic Club. “I anticipate that significant headwinds will continue to restrain the pace of the recovery.” said Yellen. She also mentioned the U.S. housing market remains quite weak, while the unemplyoment rate is still going up.

She added that the European debt crisis will continue to threaten America’s economic recovery, while a debt-ceiling showdown expected later this year between Democrats and Republicans in Washington could make things even complicated.

“If the Congress does not reach agreement on several important tax and budget policy issues before the end of this year, (a Congressional Budget Office study) recently warned that the potential hit to gross domestic product growth could be sufficient to push the economy into recession in 2013,” Yellen said. “The deterioration of financial conditions in Europe of late, coupled with notable declines in global equity markets, also serve as a reminder that highly destabilizing outcomes cannot be ruled out.”

The Fed vice chair said that’s why she believes “an extended period of highly accommodative (Fed) policy is necessary to combat the persistent headwinds to recovery.”

Without spelling out specifics, Yellen hinted that she favors extending Operation Twist beyond its currently scheduled June 30 expiration, as well as launching a third round of quantitative easing — known as “QE3.”

“If the (Fed) judges that the recovery is proceeding at an insufficient pace, we could undertake portfolio actions, such as additional asset purchases (QE3) or a further maturity-extension program (Operation Twist),” she said.

Under quantitative easing, the Fed buys up U.S. Treasury bonds to inject cash into the U.S. economy and drive interest rates down.

Investors are speculating that the Fed will shortly announce the another Operation Twist or Quantitative Easing. This may been seen by the surge of Gold and Silver price over the past two days.

 


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