US May Employ ‘Unconventional’ Tools to Stave Off Recession

The Federal Reserve Chair said that the probability that short-term interest rates may need to be reduced to their effective lower bound is high.

WASHINGTON (Sputnik) — US financial policymakers may have to employ once again unconventional financial tools to prevent another Great Recession, Federal Reserve Chair Janet Yellen said at the National Economists Club.

"The bottom line is that we must recognize that our unconventional tools might have to be used again," Yellen said on Friday.

A significantly less severe economic downturn than the Great Recession might be sufficient to drive short-term interest rates back to their effective lower bound, the US central bank leader added.

"The probability that short-term interest rates may need to be reduced to their effective lower bound at some point is uncomfortably high," Yellen said.

The US economy had made great strides and was now operating near maximum employment and inflation was expected to rise, Yellen noted.

The biggest banks, including Morgan Stanley, HSBC and Citigroup have warned recently that the economy is in its pre-bubble stage, as the ongoing rally in the financial markets is not based on solid macroeconomic fundamentals and is purely speculative.