- WASHINGTON (AFX) -- Cheap imports from China and the new global workforce shouldn't cause the Federal Reserve to rip up its monetary policy playbook, Janet Yellen, the president of the San Francisco Fed said on Saturday.
'My main conclusion is that globalization has no impact on the Fed's ability to control inflation in the long run,' Yellen said in a speech at the University of California Santa Cruz.
But Yellen said she had an open mind on the topic and wanted to see more academic research on the issue.
'We still have a lot to learn about the mechanisms through which globalization is impacting the U.S. economy,' Yellen said.
Yellen's view on globalization is important because they are known to carry weight with other Fed officials.
Yellen said there was 'some very tentative evidence' supporting the view that increasing global capacity has held inflation down over the past decade.
But Yellen said this dampening effect was only 'modest' and could be the result of the dollar's exchange rate value.
The impact of low-priced imports into the U.S. is probably overstated, she said.
'Foreign factors have had some impact on U.S. prices -- an impact that may be increasing -- but overall it has thus far been rather limited,' Yellen said.
For instance, Fed research has concluded that low-priced imports from China have only cut U.S. inflation by about 0.1 percentage points annually.
Imports still amount for a fairly small fraction of U.S. GDP, she said.
'Despite the growing trend toward integration, the U.S. is far -- very far -- from being fully integrated with the rest of the world's markets,' Yellen said.
But Yellen said she was not saying that globalization did not matter for Fed policy.
'Shocks and persistent economic trends associated with America's involvement in the global economy must be factored into the design of an appropriate monetary policy,' she said.
Yellen said globalization could either cause headwinds, holding back economic growth, if commodity prices trended upward. On the other hand, global forces could act as a tailwind, from falling import prices, allowing the economy to grow at a sustained pace with low inflation.
These forces may require monetary policy to be 'recalibrated' on occasion, she said.
But the Fed knows how to keep inflation contained in this environment, she said.
'I find nothing either in theory or the existing empirical evidence to overturn the conclusion that a county like the United States, operating under a flexible exchange rate, can ultimately achieve the inflation target of its choice,' Yellen said. This story was supplied by MarketWatch. For further information see www.marketwatch.com. newsdesk@afxnews.com ak COPYRIGHT Copyright AFX News Limited 2005. All rights reserved. The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News. AFX News and AFX Financial News Logo are registered trademarks of AFX News Limited