Yellen: ‘We Believe We Understand Pretty Well What the Effects Are’ of Our Policies

EXCERPT:

YELLEN: “So, we have two policy tools that are available to us to use: the balance sheet and adjustments in short-term interest rates, our federal funds rate target. Historically, the committee has operated to adjust monetary conditions to meet our economic goals when there are shocks to the economy by adjusting the federal funds rate by short-term interest rate target. And that is something, a technique of monetary control that we’ve used for a very long time that we’re familiar with. We believe we understand pretty well what the effects are on the economy. Market participants understand how that tool has been used and would likely be adjusted in response to shocks to the economy. And our preference is, when we have two different tools that we could use, to actively adjust the stance of policy to prefer and to make a commitment that to the maximum extent possible, the federal funds rate will be the active tool of policy. That is our go-to tool."