Federal Reserve Vice Chairman Janet Yellen signaled stimulus may outlast the Fed's bond purchases, saying the central bank has the option to hold interest rates near zero even after reaching near-term targets for inflation or unemployment.
Yellen's comments yesterday coincide with a Federal Open Market Committee debate over when to bring bond buying to an end, a shift that may prompt expectations of an interest-rate increase. The FOMC said in December it will hold the main interest rate in a range of zero to 0.25 percent so long as inflation isn't forecast to rise to more than 2.5 percent in one to two years and unemployment exceeds 6.5 percent.
The speech by the Fed vice chairman "reminds people that if they are successful and if they get to their unemployment objective that doesn't automatically mean they are going to slam on the brakes," said Dominic Konstam, head of interest rate research at Deutsche Bank AG in New York. As "better data come out, they want to make sure the market doesn't want to get carried away" and anticipate a boost in interest rates.
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