The Federal Reserve missed clues that should have alerted them of the financial crisis, Fed Chair Janet Yellen said on Friday during a speech at Harvard University.
“We saw trees, and the house price bubble was a tree,” Yellen admitted. “We really didn’t see that coming.”
The Fed Chairwoman said a sudden explosion in borrowing was a strong sign that the market was about to go sideways.
Yellen said former Fed chairman Ben Bernanke did a “magnificent” job in steering policy to heal the economy after the Great Recession.
He was the “right person with the right intellectual background and courage to think outside the box,” Yellen said.
Yellen also said a rate hike in the coming months may be appropriate although she gave no definitive answer to the Feds upcoming decision.
Minutes from the FOMC’s April meeting also suggested that the Fed could increase rates at their June meeting.
Following suggestions of another rate hike, treasurys fell, and the odds of a rate hike in the Federal Fund Futures market increased.
Yellen has admitted that a rate hike is likely to increase at a slow pace to avoid complications that could occur if rates increase too quickly and there is an economic downturn or a severe financial surprise.
Yellen will speak at a World Affairs Council event in Philadelphia on June 6, her last scheduled public appearance before the FOMC’s next meeting.