Yellen defends Fed stimulus efforts as she navigates confirmation hearing

US Federal Reserve chief nominee Janet Yellen said Thursday that the country's economy still needs the central bank's life support and premature withdrawal of stimulus would be costly. In her confirmation hearing at the Senate Banking Committee, Yellen said in opening remarks that the U.S. labor market and the overall economy are performing "far short of" their potential. Yellen said although the economy is "significantly stronger" and continues to improve, the nation has "farther to go to regain the ground lost in the crisis and the recession." She voiced concern over the stubbornly high unemployment rate, which now stands at 7.3 percent, and the persistently low inflation, which she expected would continue to run below the Fed's 2 percent target for some time. "A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and its reliance on unconventional policy tools, such as asset purchases. I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy," she noted. As the Fed's vice chair since 2010, Yellen has been the main architect and supporter of the easy monetary policy. She also championed the Fed's efforts to improve policy communication and transparency. "I strongly believe that monetary policy is most effective when the public understands what the Fed is trying to do and how it plans to do it," Yellen told the Committee, adding that she would work with the Fed's policy-setting panel to continue promoting robust economic recovery. In response to questions regarding risks associated with tapering of the massive asset purchases, Yellen said she sees dangers of winding down the program too early or too late. "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," Yellen said, balancing her view by adding that the U.S. central bank should bring monetary policy back to normal when time is right. Senators expressed their concern over the direction of the monetary policy during the hearing as they weighed Yellen's nomination. After months of bitter debates, U.S. President Barack Obama in October nominated Yellen to be the next Fed chief. Pressed with questions about the limited impact of the Fed stimulus, potential threat to financial stability and widening inequality, Yellen defended the Fed's highly accommodative stance, saying the benefits continued to exceed the costs and the "ripple effects" of the easy monetary policy went through the economy and brought benefits to all Americans. "If we can generate more robust recovery in the context of price stability, then more Americans will see meaningful increases in their well-being," she continued. Yellen noted that the U.S. banking system is more stable and resilient and regulatory gaps are being closed. "We have made progress in promoting a strong and stable financial system. But here, too, important work lies ahead." Lawmakers in the Banking Committee will likely hold a vote in the coming weeks before sending the nomination to the full Senate, which will vote to confirm her. If confirmed by the Senate, Yellen will take the helm after Ben Bernanke's term ends at the end of January 2014, and become the first woman to lead the Fed.