WASHINGTON, July 22 -- Economist Janet Yellen, President Clinton's choice to fill a vacancy on the Federal Reserve Board, said Friday that central bank policies should keep the economy growing as much as possible without accelerating inflation. The remarks by the University of California professor at her Senate confirmation hearing came amid concerns Yellen might harbor liberal views and a dovish attitude toward a dire enemy of the Fed -- inflation. Yellen avoided saying whether interest rates should be raised or specifying targets on inflation and unemployment rates, and limited her testimony to broad, mild statements about the Fed and its mission. 'The Fed's responsibility is to choose policies that are designed to maintain a non-inflationary environment,' she told the Senate Banking Committee. 'Price stability should be a central goal of monetary policy.' To support her point, Yellen recalled the 1970s, when prices built up and reached into double digits, contributing to the harsh 1982-83 recession. 'Having incurred such a high price to lower inflation then, it would be foolhardy now to squander the fruits of this effort,' she said. The nomination of Yellen has come at a critical time for the Fed. The central bank began raising short-term interest rates for the first time in five years during February in order to prevent the economy from overheating and pushing up the inflation rate. The 19-member Senate Banking Committee, consisting of 11 Democrats and eight Republicans, will decide on Clinton's nomination of Yellen, followed by a full Senate vote.
Attendance was light at the confirmation hearing, with only five senators appearing to make statements and two remaining for what amounted to a cordial questioning of Yellen. While complimenting the professor's credentials, Sen. Jim Sasser, D- Tenn., told Yellen he, like many, believes the Fed has overreacted to inflationary fears and that its rate hikes threaten to choke off economic growth. Most analysts predict consumer prices will climb at a low rate this year, while the economy continues on a path of modest growth. 'I think the Fed's fear of inflation is vastly overblown,' Sasser said. 'I think we got to move away from this hysteria over inflation.' Alan Greenspan, the Fed chairman, testified to congressional panels this week that prices will likely remain subdued through 1995, but pointed to inflationary pressures lurking in the economy and suggested the central bank might hike short-term interest rates again. Yellen said the Fed must craft policies that create maximum employment, stable prices and moderate long-term interest rates. 'Inflation appears to be stable at this point, to be well-contained, ' the economist said. 'I think it's the Fed's job to keep its eye on what's happening to inflation, what's happening to jobs.' She said the central bank must keep the economy growing as close as possible to the natural rate of unemployment, defining it as 'the lowest rate of unemployment that the Fed can target without risking acclerating inflation.' If approved by the Senate, Yellen, 47, would step into a 14-year term on the powerful, seven-member Board that controls the nation's money supply and, thus, has incalculable power over the U.S. -- and, hence, global -- economy. Clinton picked Yellen to fill the vacancy on the Board left by the departure of Fed Governor Wayne Angell, whose term expired. Angell is now with the New York investment banker Bear, Stearns & Co. Yellen is one of Clinton's first two nominees to the Fed. The White House announced its nomination of Yellen on April 22 in tandem with the selection of economist Alan Blinder. Blinder, another liberal professor said to have soft views on inflation, has already been approved by the Senate and sworn in as a Board member. A former Clinton economic adviser, Blinder is filling the vacancy left by Vice Chairman David Mullins, who resigned abruptly to work in the private sector. The term expires Jan 1996.
