Yellen says swift action needed during periods of upheaval
Fed chair says monetary and fiscal policymakers must act quickly when a recession hits
The danger that serious downturns do lasting damage to an economy means policymakers need to act “aggressively” when responding to a major setback, the Federal Reserve chair said as she called for more research into a host of economic conundrums dogging central bankers around the world.
Janet Yellen said poor economic performances since the financial crisis suggest that a plunge in demand can have a persistent effect on the supply capacity of an economy.
Citing research showing that US potential output is 7 per cent below what might have been expected based on its pre-crisis trajectory, she told a conference that it was crucial for monetary and fiscal policymakers to act quickly when a recession hits.
“If strong economic conditions can partially reverse supply-side damage after it has occurred, then policymakers may want to aim at being more accommodative during recoveries than would be called for under the traditional view that supply is largely independent of demand,” she added in the conference hosted by the Federal Reserve Bank of Boston.