Yellen hopeful for 3 percent GDP growth in 2014: Time magazine

Thu Jan 9, 2014 9:44am EST
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(Reuters) - Janet Yellen, who is set to take over as head of the Federal Reserve next month, is "hopeful" that U.S. economic growth will accelerate in 2014 to 3 percent or more and persistently low inflation will move up toward the central bank's target, according to a Time magazine interview released Thursday.

"I think we'll see stronger growth this year," Yellen said in the interview, released online ahead of the Time edition's January 20 publishing date. "Most of my colleagues on the Fed's policymaking committee and I are hopeful that the first digit (of GDP growth) could be 3 rather than 2."

U.S. gross domestic product growth has averaged 2.6 percent through the first three quarters of 2013, but appears to have gathered momentum in the second half the year. Third-quarter GDP growth was recently revised up to 4.1 percent, though it is not expected to have sustained that pace for the fourth quarter.

Yellen, who will succeed Fed Chairman Ben Bernanke on February 1 and will be the first woman to hold the job, also said she believes that the persistently low level of inflation, a worry for policy-makers, will pick up.

"The recovery has been frustratingly slow, but we're making progress in getting people back to work, and I anticipate that inflation will move back toward our longer-run goal of 2 percent," she said.

The Fed's preferred measure of inflation is currently running at roughly half that pace -- just 1.1 percent on an annual basis -- and has been in a downtrend since the spring of 2012, the only time since the recession it has reached the target level.

Worryingly low inflation notwithstanding, Yellen stressed that her current top priority is to lower the U.S. unemployment rate, currently at 7 percent, to the longer-run range estimated by the Fed of between 5.2 percent and 5.8 percent. The Fed has pledged not to consider raising its benchmark interest rate until the unemployment rate has fallen to at least 6.5 percent.

The recovery in the housing market will also gather pace in 2014 and the fiscal policy headwinds that the Fed has cited persistently as a drag on growth will also ease, she told Time.

"I expect it (the housing market) to pick back up and I do expect a further recovery," she said.   Continued...

U.S. Federal Reserve Vice Chair Janet Yellen testifies during a Senate Banking Committee confirmation hearing on her nomination to be the next chairman of the U.S. Federal Reserve, on Capitol Hill in Washington November 14, 2013. REUTERS/Joshua Roberts