Fed chief dismisses suggestions that policies created 'bubble conditions'

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The Federal Reserve chairman-designate Janet Yellen vigorously defended the central bank's stimulus policies today, dismissing suggestions it had created "bubble conditions" in financial markets. She left scant doubt the Fed under her leadership would continue this strategy until the economy had returned to normal.

In her confirmation hearing before the Senate Banking Committee, Ms Yellen conceded that 'quantitative easing,' as the Fed's bond-buying policy is known, could not continue indefinitely. But under repeated questioning from Republicans on the panel, she refused to set any date for a scaling back, or 'tapering' of the plan which has kept interest rates close to zero since late 2008. The decision, when it came, would be "data driven," she declared.

For now, the priority was to boost growth. Interest rates were exceptionally low, "but you can't have normal rates until the economy is normal," she said. This was the best way to get the economy moving, and permit interest rates to return to historically normal levels.

Ms Yellen admitted that the longer the programme continued, the greater the risk of a bubble would grow. But that point had not been reached. The central bank was constantly monitoring the situation and would act as required, she insisted.

If confirmed - and even the Fed's Republican critics acknowledge that she will be - Ms Yellen, 67, will be the first woman to head the US central bank when she takes over from Ben Bernanke at the end of January, as the 15th chairman in its history. Like him, she is considered a monetary dove, and a strong advocate of openness at the Fed.

Ms Yellen noted that the economy, despite an uptick in growth to 2.8 per cent in the third quarter, is still performing far below its potential. While inflation was running below the Fed's target of 2 per cent, unemployment was still too high, at 7.3 per cent in October 2013.