Yellen sees no rush to start tightening credit

WASHINGTON – The Federal Reserve's second-highest ranking official on Monday said the economy is not strong enough for the Fed to begin tightening credit, countering a vocal minority of members who argue the central bank's stimulus programs are contributing to higher inflation.

Janet Yellen, the Fed's vice chairwoman, said the Fed's $600 billion Treasury bond-purchase program and record-low interest rates are necessary to help lower unemployment, which was 8.8 percent last month. She is part of a majority of members, including Fed Chairman Ben Bernanke, who feel those programs are essential, even with oil and food prices surging.

A few members have raised concerns that the Fed's programs could spur higher inflation.

Richard Fisher, president of the Federal Reserve Bank of Dallas, Charles Plosser, president of the Federal Reserve Bank of Philadelphia and Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, have suggested in recent weeks that it may be time to exit the programs. The Fed meets next on April 26-27.

In remarks to economists in New York, Yellen argued that the surge in food and energy prices will have only a temporary and modest impact on consumer inflation.

Businesses will be limited in jacking up retail prices because consumers are still spending cautiously, she said. And workers don't have the power to demand big pay increases because the jobs market is healing only slowly, she added. Those forces should prevent inflation from taking off.

Yellen said she didn't think that even "additional large and persistent shocks to commodity prices" would force the Fed to reverse course and start tightening credit as long as underlying inflation stayed low.