Federal Reserve chair Janet Yellen has floated the idea that prolonged weakness in aggregate demand might be fuelling weak labour supply. If that was the case, the Fed might decide to keep monetary policy accommodative for a prolonged period, Yellen said. Her remarks were in marked contrast to some of the more hawkish arguments made by some senior Fed members during the past few weeks.

Speaking at the Boston Fed's 60th economic research conference on October 14, Yellen said economists needed to