Assets buying, low interest rate won't threaten Fed independence, says former chair Yellen

Source: Xinhua| 2020-08-06 14:49:42|Editor: huaxia

NEW YORK, Aug. 5 (Xinhua) -- The U.S. Federal Reserve's policy of purchasing assets and holding the interest rate low in dealing with COVID-19 impact makes it easier for fiscal policy to be effective and won't threaten Fed's independence, said Janet Yellen, former chairperson of the U.S. Federal Reserve on Wednesday.

Speaking at an online dialogue organized by Columbia University, Yellen said the Fed is engaging in an appropriate monetary policy.

"This is not the Fed printing money in order to help the government financing budget deficits, which was the situation we had in the United States after World War II until the Fed-Treasury accord in 1951," said Yellen, who now is a distinguished fellow in residence with The Brookings Institution.

Yellen noted as well that the U.S. government would have a much larger pile of debt than it had before the start of the COVID-19 pandemic. "We were not on a sustainable fiscal path."

The situation would continue into the future and put pressure on the government, said Yellen. "I can’t imagine a day and this will be the test of independence," when higher interest rates won’t be a burden and a problem for the government to finance its deficit and the Fed will find it appropriate to raise interest rates, she added.

Yellen said she believes that the central bank's independence in the United States is strong enough and the Fed has enough support in the Congress allowing the Fed to be able to do what it regards is the right thing.

Still, the Fed's independence has been a concern for both market players and lawmakers for some time due to Fed's possible losses from lending programs, political pressures from the Federal government and nominations to the Fed. Enditem

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