By Steven K. Beckner
Regarding dissenting Kansas City Fed President Thomas Hoenig’s
warning that keeping rates down “for an extended period” could lead to
financial imbalances, Yellen said, “In a broad sense I don’t disagree
with President Hoenig,” but said she doesn’t see any near-term need to
worry about imbalances.
She said asset prices, yield spreads and other financial indicators
should be carefully monitored, but said, “I do not see signs in
financial markets that concern me.” She noted that price-earnings ratios
are “normal,” that risk premiums are “high” and that corporate debt
spreads have “come down but from unbelievably high levels.”
“In terms of pricing I don’t think we’re seeing evidence of
euphoria,” she added.
Earlier, in response to audience questions, Yellen said she has
“not yet seen any very detailed analysis of the possible macroeconomic
impacts” of the health care legislation, but said “my best guess is that
it will not have a very significant impact over the next several years.”
Asked about the role of the dollar in monetary policy, Yellen said
that “in normal times as long as dollar movements are moderate and not
disruptive,” the Fed “takes into account” how dollar exchange rate
changes affect the Fed’s twin goals of price stability and maximum
employment.
“A decline in the dollar tends to boost demand by making exports
more competitive and imports somewhat more expensive which tends to move
domestic consumers in the direction of domestically produced goods.” At
the same time, she said, “a decline in the dollar can raise the price of
imported goods” and can “have an effect on the price of commodities.”
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** Market News International **
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