In an interview with Time magazine published Thursday, the incoming chairwoman of the U.S. central bank said "it's not true" that the Fed's purchases of trillions of dollars' worth of Treasury bonds and mortgage-backed securities are "just helping rich people."
"Our policy is aimed at holding down long-term interest rates, which supports the recovery by encouraging spending," the 67-year-old Yellen told Time's Rana Foroohar.
As the Fed's vice chairwoman since 2010, Yellen has played a central role in the Fed's stimulus programs, including the asset purchases known as quantitative easing.
Yellen explained that the effect of quantitative easing "comes through higher house and stock prices, which causes people with homes and stocks to spend more, which causes jobs to be created throughout the economy and income to go up throughout the economy."
That is similar to the logic outgoing Fed Chairman Ben Bernanke delineated in a 2010 Washington Post op-ed explaining the basis for a previous quantitative easing program. Bernanke wrote then that lower mortgage and corporate bond rates would encourage home-buying and investment, and that "higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion."
Nevertheless, Bernanke has increasingly faced criticism that quantitative easing benefits wealthy stockowners without generating a recovery for the broader population.
Yellen faced similar questions during her confirmation process in the fall.
Sen. Heidi Heitkamp, D-N.D., asked Yellen at a November hearing if the Fed's "policies have added to the problem" of inequality in the U.S.
Yellen responded that she "would like to see the U.S. economy and the job market recovering more rapidly than they are, but I believe our policies have helped." She also added that businesses would be "willing more to invest in people, to hire, to make capital investments" when the economy recovers, leading to wage gains for all.
In the Time interview, Yellen also indicated that she is relatively optimistic about the recovery. Her projections about growth are in the middle of road for Fed officials, whose median estimate for 2014 gross domestic growth ranged from 2.8 to 3.2 percent. Yellen said that she was "hopeful that the first digit ... could be 3 rather than 2," and that "the recovery has been frustratingly slow, but we're making progress in getting people back to work."