Janet Yellen calls for caution on rates; Mario Draghi says ECB ready to act

Aug 24 2014, 08:50 IST
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The US Federal Reserve should move cautiously in deciding when to raise interest rates, said Fed Chair Janet Yellen. (Reuters) The US Federal Reserve should move cautiously in deciding when to raise interest rates, said Fed Chair Janet Yellen. (Reuters)
SummaryYellen and Draghi underscored how both central banks were wrestling with the complexities of labour markets still-wracked by the 2007-2009 financial crisis.

The US Federal Reserve should move cautiously in deciding when to raise interest rates given the US labour market remains bruised from the Great Recession, Fed Chair Janet Yellen said on Friday amid calls from policy hawks for a near-term rate hike.

In a speech at the Fed’s annual central bank conference, Yellen laid out in detail why she feels the unemployment rate alone is inadequate to evaluate the strength of the jobs market and why the central bank needs to step gingerly.

Her remarks were followed by a speech by the head of the European Central Bank, Mario Draghi, who said the ECB was ready to use all the tools at its disposal to lift euro zone inflation if it continued to drop. He said, however, that most factors that had weighed on prices appeared temporary.

Together, the comments from Yellen and Draghi underscored how both central banks were wrestling with the complexities of labour markets still-wracked by the 2007-2009 financial crisis.

Yellen stood by her view that significant slack remains in the US economy, even as she nodded to the counter-arguments of some of her colleagues who feel labour markets are tighter than she believes and inflation a risk.

“There is no simple recipe for appropriate policy,” she said, arguing for a “pragmatic” approach that focuses on incoming data without committing to a preset policy path.

Ahead of her comments, a number of top Fed officials pressed their case for an early hike in benchmark rates, which the US central bank has held near zero since December 2008.

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