Janet Yellen smiles after taking the oath of office as Chairman of the Board of Governors of the Federal Reserve System February 3, 2014 at the Eccles Building in Washington, DC. AFP PHOTO/Mandel NGAN
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Janet Yellen looks to be taking one page out of Alan Greenspan's playbook while tearing up another as she plots monetary strategy for 2015 and beyond.Yellen stressed to reporters on Sept. 17 that the Fed's actions would depend on how the economy evolves.Yellen's strategy has its risks.William C. Dudley, New York Fed president, drew attention to the central bank's aims in a Sept. 22 interview. Rather than expressing concern that pushing unemployment below its natural level would lead to dangerous price pressures, Dudley argued it might be necessary to raise inflation to the Fed's 2 percent target. As measured by the personal consumption expenditure price index, inflation was 1.6 percent in July and has been below the central bank's goal for more than two years.Greenspan countenanced a drop in the unemployment rate to a 30-year low of 3.8 percent in April 2000 as he probed how hot the economy could run without triggering too much inflation.Even if the Fed manages to keep inflation under control as it pursues a lower jobless rate, the central bank could still risk stoking dangerous asset bubbles by keeping monetary policy loose.The central bank then raised rates in 25-basis-point increments for 16 straight meetings.
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