WASHINGTON – Federal Reserve Chair Janet Yellen says the Fed’s bond holdings will likely remain at high levels for up to eight years after it starts raising short-term interest rates.
Yellen says the Fed’s investment portfolio, now at a record $4.3 trillion, will decline only gradually. She says it could take five to eight years for the portfolio to return to its level of 2008, when the Fed began aggressively buying bonds.
The bond purchases were intended to lower long-term borrowing rates to stimulate a weak economic recovery. The Fed has gradually lowered the pace of its monthly purchases from $85 billion to $45 billion.
Yellen was responding to a question posed at a Senate Banking Committee hearing. She testified to Congress for a second day about the Fed’s economic outlook.