May 29 2006

Fed Playbook Not Outdated by Globalization — Yellen

Published by at May 29, 2006 11:52 am under Globalization

Cheap imports from China and the new global workforce shouldn’t cause the Federal Reserve to rip up its monetary policy playbook, Janet Yellen, the president of the San Francisco Fed said on Saturday

“My main conclusion is that globalization has no impact on the Fed’s ability to control inflation in the long run,” Yellen said in a speech at the University of California Santa Cruz. But Yellen said she had an open mind on the topic and wanted to see more academic research on the issue

“We still have a lot to learn about the mechanisms through which globalization is impacting the U.S. economy,” Yellen said

Yellen’s view on globalization is important because they are known to carry weight with other Fed officials

But Yellen said she was not saying that globalization did not matter for Fed policy

“Shocks and persistent economic trends associated with America’s involvement in the global economy must be factored into the design of an appropriate monetary policy,” she said

Yellen said globalization could either cause headwinds, holding back economic growth, if commodity prices trended upward. On the other hand, global forces could act as a tailwind, from falling import prices, allowing the economy to grow at a sustained pace with low inflation

These forces may require monetary policy to be “recalibrated” on occasion, she said

But the Fed knows how to keep inflation contained in this environment, she said

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