Fed's Yellen supports central bank openness

WASHINGTON The No. 2 official at the Federal Reserve says she hopes the old days of extreme secrecy surrounding the Federal Reserve are gone forever.

Janet Yellen, vice chair of the Fed, said Thursday that the Fed's old policy of not even telling financial markets when it had changed a key interest rate has given way to one of using communications to enhance interest-rate policies.

"I hope and trust that the days of 'never explain, never excuse' are gone for good and that the Federal Reserve continues to reap the benefits of clearly explaining its actions to the public," Yellen said at a conference sponsored by the Society of American Business Editors and Writers.

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The Fed in December for the first time linked changes in a key short-term rate to a drop in unemployment below 6.5 percent, as long as inflation remains modest. The Fed is also buying $85 billion per month in bonds to keep downward pressure on long-term rates.

Yellen said she expects both policies to remain in effect for a considerable period because unemployment remains high. She said the central bank should keep pursing low interest rates to stimulate the economy until unemployment returns to more normal levels.

"With unemployment so far from its longer-run normal level, I believe progress on reducing unemployment should take center stage ... even if maintaining that progress might result in inflation slightly and temporarily exceeding 2 percent," Yellen said.

The Fed has set 2 percent as its target for inflation but has stated that it was willing to keep pursuing aggressive economic stimulus measures as long as long-term inflation expectations do not rise above 2.5 percent.

Yellen has been a strong supporter of Fed Chairman Ben Bernanke's efforts to keep stimulating the economy. At its last meeting in March, the Fed voted to continue those policies on an 11-1 vote. However, some regional Fed bank presidents who are not voting members of the Fed's interest-rate panel this year have expressed concerns that the central bank's polices are risking future inflation troubles and could create dangerous asset bubbles.

During a question period, Yellen was asked about her views on the need to promote more women into top leadership roles in central banking and finance. Yellen is considered a front-runner to replace Bernanke as head of the Fed if he decides he does not want another four-year term. Bernanke is now in his eighth year as Fed chairman. His term will end on Jan. 31, 2014.

Yellen did not discuss her own prospects of taking over at the Fed but she did say that she is happy that the number of women pursuing masters' degrees in business administration had increased steadily when she was a college professor and now women were rising in financial ranks.

"At the highest levels of central banking there are very few women, but I am pleased to see that the representation of women is increasing at a lot of other levels," she said, referring to positions in financial institutions including big banks. "We are really seeing women getting ahead and moving up to the highest posts."