Yellen Warns Fed of Moving Too Gradually on Rates

The transcript discusses the importance of a gradual approach to monetary policy adjustments due to significant uncertainties. It highlights the risks of moving too quickly, which could lead to over-adjustment, and the dangers of moving too slowly, which could result in an overheated labor market and inflation. The text also addresses the potential financial stability concerns associated with persistently easy monetary policy and emphasizes the need for timely adjustments to avoid adverse economic impacts.

Why is a gradual approach to monetary policy adjustments recommended?

• To quickly address economic shocks

• To immediately control inflation

• To rapidly increase employment

• To avoid over-adjusting based on uncertain projections

What does a low neutral real interest rate imply for the FOMC's ability to cut rates?

• It has no impact on rate cuts

• It allows for significant rate cuts

• It limits the scope for rate cuts

• It encourages immediate rate cuts

What is a potential risk of not increasing the federal funds rate modestly over time?

• Lower economic growth

• Decreased employment

• An overheated labor market

• Deflation

What could be a consequence of persistently easy monetary policy?

• Increased leverage and financial instability

• Immediate economic growth

• Decreased inflation

• Stable interest rates

Why should monetary policy not be kept on hold until inflation reaches 2%?

• Because inflation is not a concern

• Due to the immediate effects of policy changes

• Because of the substantial lag in policy effects on the economy

• To ensure rapid economic growth