YELLEN ON INFLATION

At today's confirmation hearing at the Senate Committee on Banking, Housing and Urban Affairs, Federal Reserve System Board of Governors Vice Chair Janet Yellen said this about the Fed's inflation goals:

"So the objective here is to assure a strong and robust recovery so that we get back to full employment, and that we do so while keeping inflation under control. It's important not to remove support, especially when the recovery is fragile and the tools available to monetary policy -- should the economy falter -- are limited given the short-term interest rates are at zero. I believe it could be costly to withdraw accommodation or to fail to provide adequate accommodation.

On the other hand, it will be important for us, also, as the recovery proceeds, to make sure that we do withdraw accommodation when the time has come. My colleagues and I are committed to our longer run inflation goal of 2 percent, and we will need to ensure that, as the recovery takes hold and progresses, that we will also exit or bring monetary policy back to normal in a timely fashion."

Low inflation will be good for the construction industry, right up to the point that it causes a "bubble"; in my view, it will be very hard for the Fed to get the timing right on this.

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