Fed’s Yellen Feels Certain That The Economy Is “On The Right Track” (INTC, UPS)

According to a report by Bloomberg, the President of the Federal Reserve Bank of San Francisco, Janet Yellen, said she’s increasingly certain the U.S. economy is “on the right track.” In a speech in San Francisco on Thursday, Yellen said, “We’ve been getting some pretty encouraging news. It’s been a long time coming and is very welcome indeed.” Still, “it’s important not to lose sight of just how fragile this recovery is,” she said, while reiterating Fed’s commitment to keep interest rate low for an “extended period.”

She also pointed out the encouraging news, which point towards an economic recovery, to have come out in this week, which include an increase in retail sales and factory production and strong results posted by companies such as Intel Corporation (NASDAQ: INTC) and United Parcel Service Inc. (NYSE: UPS). She said that three months of payroll gains reflect a “slow, but steady rebound” of jobs, and there aren’t signs of imbalances in U.S. stock prices.

Yellen said “It’s fair to say that my own thinking has recently turned a corner and I am becoming more and more confident that the economy is on the right track.” She went on to add that “At some point, though, as the economy continues to expand, the Fed will have to pull back some of this extraordinary stimulus.” It is a major headache for the Fed policy makers as to when and how to raise interest rates. Any increase too soon may hamper a nascent economic recovery and if the move came in late then it may create another asset-price bubble.

In the fourth-quarter of 2009, the GDP grew by annual rate of 5.6 percent, driven mainly by restocking of inventories by companies. According to a median estimate of 59 economists surveyed by Bloomberg this month, that pace of growth probably slowed to 3 percent in the first-quarter of 2010.

Yellen said “The latest indicators show a broadening and deepening of the recovery, and point to solid, if not spectacular, expansion in the first half of this year.” She said she expects growth of about 3.5 percent in 2010 and 4.5 percent in 2011. In her view credit flows remain “extremely weak” and one “bleak” area of the economy is commercial real estate. The housing outlook “is somewhat better” she added. In response to audience questions after her speech, Yellen said policy makers have “stepped on the gas as much as we can.”