Bloomberg News

Former Fed Chair Janet Yellen said the Fed could leave inflation behind if it does not continue to rise.

Former Fed President Janet Yellen said Tuesday that the Federal Reserve should stick to the task of raising interest rates to slow the economy despite the turmoil this month.

"I think it is appropriate for the Fed to raise interest rates somewhat," Yellen said during a conversation at the Charles Schwab Impact 2018 conference in Washington.

Yellen said the financial conditions are "accommodating" or simple despite the market correction.

The Fed has been stimulating the economy since 2009 and now wants to pull away from the gas pedal to sustain expansion and limit inflation, she said.

"I think it's a very tricky business," she said and could lead to a recession.

Yellen said the Fed funds rates are neutral by 3% and would neither stimulate nor dampen growth. In September, the Fed raised this policy rate to between 2% and 2.25%.

Yellen said she expected the economy to slow down next year, but only marginally and still above the trend rate, which would further lower the unemployment rate.

Yellen said she is currently not worried about an outbreak of inflation and predicted an inflation rate of 2.1% or 2.2%.

"I do not think so [inflation] will rise a lot. It seems like a fairly harmless inflation process, "she said.

The Fed could be the potential cause of a recession if it contracts too much. This is more of a concern for 2020 than for 2019, she said.

"It does not have to be a deep recession," Yellen said.

Asked about her personal impression of President Donald Trump, Yellen said she had met him twice and both times had "reasonable" discussions.

"It's clear he's dealing with growth," she said.

Yellen said the Fed should "stay calm and carry on" despite the president's critical tweetstorms.



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