Euro crisis hurting the US recovery

Yellen, Fed chairman Ben Bernanke’s influential number two at the central bank’s board, said the world’s major economies were all slow to mend from the massive shock of the financial crisis and recession of 2007-2009.

“Their performance is even more anaemic than we would have expected,” Yellen said.

“This shortfall likely reflects the unusually limited scope for fiscal stimulus at present, which very accommodative monetary policies have not been able to fully offset.”

The Fed last month launched a third round of monetary stimulus, announcing an open-ended programme of bond purchases aimed at supporting a still-fragile economy, which expanded at a paltry 1.3 per cent annual rate in the second quarter.

The central bank has committed to buy some $40bn per month of mortgage-backed debt, and said it will continue to make asset purchases until it sees substantial improvement in the labour market.

Yellen, who is seen as a strong supporter of the Fed’s unconventional monetary policies, blamed Europe’s troubles for some of the recent weakness in US economic performance. She also noted emerging Asian economies had also begun to slow as exports to rich countries wane.

“Spillovers from Europe and a still depressed housing market also help account for our tepid recovery and elevated unemployment,” she said.