AIG American International Group Inc

NEW YORK—Four living Federal Reserve leaders—including current Chairwoman Janet Yellen—sought to dispel worries the U.S. is heading back toward recession despite concerns about slow global growth and the expansion's advancing age.

Ms. Yellen, joined Thursday in an unusual gathering in New York by former Fed Chairmen Ben Bernanke, Alan Greenspan and Paul Volcker, described an economy that is progressing without breeding obvious new financial bubbles that could derail growth.

"This is an economy on a solid course, not a bubble economy," Ms. Yellen said. It has made "tremendous progress" from the damage of the 2007-2009 financial crisis.

"The domestic U.S. economy is moving forward," Mr. Bernanke added. "I don't see any particular reason to believe a recession is any more likely in 2016 than it was in 2015 or 2014." Though the U.S. expansion is already older than the average post World War II expansion, he said expansions don't die of old age. Instead, they reverse when imbalances throw off spending and investment. Messrs. Greenspan and Volcker largely concurred.

"I doubt very much if a recession is what our problem is," Mr. Greenspan said. He said policy makers needed to be focused on slow productivity growth which is holding the economy's growth rate down.

Taken altogether, their comments marked a sign of guarded confidence from a quartet of the world's most powerful economic policy makers, past and present, at a moment with political undertones. Republican presidential front-runner Donald Trump has argued the U.S. is a bubble economy heading toward severe recession. The Fed's own critics have argued its low interest rate policies and repeated bond-purchase programs have inflated financial asset prices and made them prone to decline.

The gathering was held at the International House in New York. Ms. Yellen was joined on stage by Messrs. Bernanke and Volcker, and Mr. Greenspan joined by video connection. It was the first time all four had spoken together at such great length in public and comes at a moment with a central bank in flux and facing intense public scrutiny. In that respect, the gathering was a chance for the leadership of the institution during the past 37 years to defend it.

The Fed took extraordinary measures during and after the 2007-2009 financial crisis, including bailouts of banks and the giant insurer American International Group Inc., along with bond-purchase programs that have swelled its portfolio of assets. Lawmakers have demanded more openness on the part of the central bank and questioned the bank bailouts, putting it in a long-running battle to restore public trust in its conduct and role in the economy.

"Many people are unhappy with the economy," Mr. Bernanke said. "All the Fed can do is try to do the right thing."

The current Fed leader was at times pressed to defend herself. The Fed raised its benchmark interest rate in December after keeping it near zero for seven years to boost borrowing, spending and investment. In the face of headwinds to global growth and financial market turbulence, the Fed has since scaled back its plans for rate increases this year.

"I don't think December was a mistake," Ms. Yellen said. "We remain on a reasonable path."

Financial bubbles are often marked by large increases in private sector debt and overvalued asset prices. "We certainly don't see those imbalances," she said.

Ms. Yellen spoke a day after the Fed released minutes of the central bank's March policy meeting. At that meeting, officials left their short-term interest rate target range unchanged at 0.25% to 0.50% as policy makers waited to see how slowing global economic growth and financial market volatility was affecting the U.S. economy.

Most economists surveyed by The Wall Street Journal in recent days expect the next Fed rate increase in June.

The minutes indicated most officials didn't expect to raise rates at their meeting later this month. Ms. Yellen didn't tip her hand about the outlook in her public comments, saying "we think a gradual path of rate increases will be appropriate and stand ready to adjust what we do based on how our views of the economy evolve."

The Fed leader said the economy has shown a lot of improvement in hiring, with the current jobless rate of 5% close to the full employment, which suggests the further that measure goes down, the more likely inflation pressures are to build. Ms. Yellen said weak inflation is due to transitory factors that are likely to subside, and she said she expect price pressures to continue to tick higher.

She also noted that while the strength of the dollar has been a drag on the economy, the Fed doesn't use its policy tools to achieve a particular exchange rate.

Ms. Yellen also said the process of boosting borrowing costs had so far gone smoothly and showed the central bank has the appropriate tools to control short-term rates.

She said the Fed would at some point take steps to shrink its $4.5 trillion balance sheet, but she didn't say when that would happen.

Ms. Yellen was asked about recent comments by the new president of the Minneapolis Fed, Neel Kashkari, who has made waves by launching an effort to address the issue of whether some financial firms are so large the government would have to rescue them to prevent their collapse from wrecking the financial system—a worry called too-big-too-fail. He has said the nation's largest banks may need breaking up to strengthen the financial system.

Ms. Yellen countered that she believes current reform efforts have made progress on the problem and that she didn't share Mr. Kashkari's pessimism about the situation.

But she, unlike some critics, had no problem with Mr. Kashkari raising the issue. Ms. Yellen cited the decentralized nature of the Fed and said a "diversity of opinions is a positive attribute" for the Fed, adding "it's within his purview to look at these issues."

Write to Michael S. Derby at michael.derby@wsj.com

(END) Dow Jones Newswires

April 07, 2016 21:05 ET (01:05 GMT)

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