San Francisco Federal Reserve President Janet Yellen expressed her optimism for the immediate future of U.S. central banking policy. In a speech given today, the policy maker stated that the Fed still has ample firing-power to combat the ills brought upon by the financial crisis. In her opinion, money market functioning has clearly improved relative to the dark days of last September and October. Nonetheless, the Fed ought to ensure that it has an exit strategy to wind down the facilities in a timely and effective way when they are no longer needed, the Fed president proclaimed.
Yellen expressed her concerns over the macroeconomic environment, stating that the U.S. economy is undergoing a sharp contraction. Regarding the price level, the odds are high that, over the next years, inflation will decline below desirable levels. Such dire conditions are worth pulling out all the stops including a large fiscal stimulus package.