Fed must have ‘exit strategy’ for loan programs
Federal Reserve Bank of San Francisco President Janet Yellen said the U.S. central bank must have a "timely" plan for ending lending programs created since the start of the global financial crisis, Bloomberg reported.
"Many of the interventions are novel, so no straightforward methods are available to quantify their effectiveness," Yellen said in remarks prepared for a speech today in San Francisco. "The Fed must ensure that it has an exit strategy to wind down the facilities in a timely and effective way when they are no longer needed."
Fed Chairman Ben S. Bernanke has created more than $2 trillion of emergency lending programs since December 2007, using the Fed's balance sheet and money-creation authority to cushion the economy from the credit crunch. Yellen's remarks come less than three weeks after Fed policy makers cut the federal funds rate, or the rate banks charge one another for overnight loans, to as low as zero for the first time. The central bank also shifted its focus to the amount and type of debt it buys.
"Conditions are still abnormal, but money market functioning has clearly improved relative to the dark days of last September and October," Yellen, 62, said during the annual meetings of the American Economic Association and the International Banking, Economics and Finance Association.
Economic data released during the past week show U.S. consumer confidence sinking to the lowest level in at least 41 years and home prices in 20 major cities declining at the fastest rate on record. A third report also showed that the decline in U.S. manufacturing deepened in December.