Fed's Yellen sees dynamics similar to Depression

[girl gone mad]

http://www.reuters.com/article/ousiv/idUSTRE5156GW20090207

By Ros Krasny

KOHALA COAST, Hawaii (Reuters) - The United States is not facing a downturn as deep as the Great Depression, but many of the current dynamics are similar, driving the need for "urgent, aggressive action" to stop a deepening recession, a top Federal Reserve policy-maker said on Friday.

The dynamics of the financial markets as well as the global nature of the current downturn both have similarities to the depression of the 1930s, Janet Yellen, president of the San Francisco Federal Reserve Bank, told reporters after a speech to the 128th Assembly for Bank Directors meeting on the Kohala Coast of Hawaii.

Yellen is a voting member of the policy-setting Federal Open Market Committee in 2009.

Yellen said consumer spending had been stopped in its tracks as American households have hunkered down and acted to boost their savings in response to spiraling unemployment and a "staggering" $10 trillion loss of household wealth.

Yellen said that "unfortunately, there is no end in sight" to the housing woes that triggered the current recession, with inventories of unsold homes remaining high and private mortgage credit still scarce.

Meanwhile, a yawning output gap in the U.S. economy suggests "inflation will remain, for some time, below levels that are consistent with price stability."

Still, Yellen said outright deflation, while possible, was less of a worry to her than rising "real" interest rates now that nominal rates are already as low as they can go, inflation is falling, and the economy is still contracting.