Fed chief Yellen: reversing long-term damage
Fed chief Yellen: reversing long-term damage may require more accommodative policy than otherwise, while more study may be needed on how labor market conditions affect inflation after a weaker connection of late, along with study on inflation expectations formation and how this is influenced by monetary policy. She said more explicit verbal guidance may be needed to reassure that rates may stay low for some time and low rates may not be sufficient to trigger growth in the event of another recession. Yellen warns that the financial crisis may have permanently damaged output, requiring more aggressive and faster action in a future downturn. Indeed, she warns that "high pressure policy" may be needed for a full recovery from the crisis. This sounds pretty dovish to us, but is big picture thinking that may not be so relevant in terms of a near-term hike in either November or December.