Janet Yellen on deflation

According to Yellen, deflation is detrimental to both businesses and households: businesses are impacted because deflation increases real interest rates, dis-incentivizing them from capital formation and increasing output and creating jobs, which is counter-productive to the Fed’s monetary stimulus efforts to induce economic recovery. 

Further, when interest rates increase, this increases the debt burden for households and borrowers alike, which impacts consumption.

Yellen will resist raising interest rates

Yellen has already indicated a willingness to change policy in line with incoming data and not pre-commit the Fed to specific indicators or time markers. 

It suggests that Yellen will be slower to pull the trigger in the face of either higher inflation or more robust wage gains than some on Wall Street and even in the inner circles of monetary policy would like.