WRAPUP 2-Fed officials in no hurry to raise rates

* Officials point to high unemployment, low inflation

* Evans suggests rates on hold for at least 6 months

* Yellen makes first comments on prospect of vice chair
role

By Ann Saphir

LOS ANGELES, March 23 (BestGrowthStock) – With unemployment high
and inflation low, the Federal Reserve is in no hurry to raise
interest rates, two Federal Reserve officials suggested on
Tuesday.

The Fed cut its key target rate to near zero in December
2008 and pumped more than $1 trillion into the world’s biggest
economy to blunt the worst downturn since the Great Depression.

While a mild recovery has taken hold and the jobs market
has begun to stabilize, the officials said scant signs of
inflation mean the Fed’s vow to keep near-zero rates for an
extended period continued to be warranted.

“Such an accommodative policy is currently appropriate, in
my view, because the economy is operating well below its
potential and inflation is subdued,” San Francisco Federal
Reserve President Janet Yellen said at a Town Hall Los Angeles
luncheon. “I don’t believe this is yet the time to be
tightening monetary policy.”

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Earlier on Monday in Shanghai, Chicago Federal Reserve Bank
President Charles Evans said he believed the Fed’s “extended
period” language means no change to rates for at least three to
four meetings of the policy-setting Federal Open Market
Committee — or about six months.[ID:nTOE62M039]

“I’m hopeful that businesses will be surprised by the
strength of demand over the next year and that they will
actually begin to add workers, but it is quite a cautionary
prospect for the U.S. and that leads me to think that monetary
policy is likely to continue to be accommodative for an
extended period of time,” said Evans, who is not a voting
member of the Fed’s policy-setting committee this year.

Yellen is President Barack Obama’s top pick for vice
chairman of the Fed board to replace Donald Kohn, a 40-year Fed
veteran who plans to retire on June 23.

She is not a voting member of the policy-setting Federal
Open Market Committee (FOMC) this year, but she will gain a
vote if confirmed to the role of vice chairman.

In her first public comments on the prospect, she said on
Tuesday that she is open to the possibility of the job, and is
providing information requested by the White House.

COMMITTED TO PRICE STABILITY

Yellen’s remarks on Tuesday were in keeping with her
reputation as a monetary policy dove — that is, more concerned
with stimulating jobs and economic growth than with averting
inflation.

But she made clear that her view that inflation is not
currently a threat did not mean she would not be willing to
take her foot off the gas pedal when the situation was
warranted.

“I think I am as committed to price stability and the
attainment of price stability as any member of the FOMC,” she
said.

“When the time has come, am I going to support raising
interest rates? You bet. I don’t want to see inflation pick
up.”

As recovery takes hold, she said, the time will come for
the Fed to boost short-term interest rates.

To do so, it will likely increase the rate the Fed pays on
the reserves banks hold at the Fed, a hike that should bring up
other short-term interest rates as well.

The Fed’s balance sheet — which swelled during the crisis
as it provided emergency liquidity — should eventually shrink
to more normal levels, with holdings largely in Treasury
securities.

While selling assets could play some role in the shift, the
Fed would only do so once tightening was warranted, she told
reporters after her speech.

Speaking earlier in the day, Philadelphia Federal Reserve
Bank President Charles Plosser said that better regulation is
needed to dissuade market players from taking excessive risks.

“We have to have ways of disciplining the actors in the
marketplace so that they don’t take excessive risks, and in
many cases the market can do that and do that quite
effectively. But when we protect creditors, when we protect
people from failure, we encourage them to take risks,” Plosser
told an economic conference in Prague. [ID:nLDE62M1H4]

“The ‘too big to fail’ problem has essentially removed much
of that market discipline.”
Penny Stocks

(Reporting by Ann Saphir; Additional reporting by Jason Subler
in Shanghai, Jan Lopatka and Jason Hovet in Prague; Editing by
Gary Hill and Neil Fullick)

WRAPUP 2-Fed officials in no hurry to raise rates