April 8, 2020
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CHAIR YELLEN. Good afternoon. Today the Federal Open
Market Committee decided to raise the target range
for the federal funds rate by 1/4 percentage point, bringing it to 1/2
to 3/4 percent. In doing so, my colleagues and I are recognizing the
considerable progress the economy has made toward
our dual objectives of maximum employment
and price stability. Over the past year, 2-1/4 million net new
jobs have been created, unemployment has fallen further,
and inflation has moved closer to our longer-run
goal of 2 percent. We expect the economy will
continue to perform well, with the job market
strengthening further and inflation rising
to 2 percent over the next couple of years. I’ll have more to say about
monetary policy shortly, but first I’ll review
recent economic developments and the outlook. Economic growth has picked up
since the middle of the year. Household spending continues
to rise at a moderate pace, supported by income gains
and by relatively high levels of consumer sentiment
and wealth. Business investment, however, remains soft despite
some stabilization in the energy sector. Overall, we expect the economy
will expand at a moderate pace over the next few years. Job gains averaged
nearly 180,000 per month over the past three months,
maintaining the solid pace that we’ve seen since the
beginning of the year. Over the past seven
years, since the depths of the Great Recession, more than 15 million jobs have
been added to the U.S. economy. The unemployment rate fell
to 4.6 percent in November, the lowest level since 2007,
prior to the recession. Broader measures of labor market
slack have also moved lower, and participation in the labor
force has been little changed, on net, for about two
years now, a further sign of improved conditions in the labor market given
the underlying downward trend in participation stemming
largely from the aging of the U.S. population. Looking ahead, we expect that job conditions will
strengthen somewhat further. Turning to inflation,
the 12-month change in the price index for personal
consumption expenditures was nearly 1-1/2 percent in October, still short of our 2
percent objective but up more than a percentage point
from a year earlier. Core inflation-which excludes
energy and food prices that tend to be more volatile than
other prices-has risen to 1-3/4 percent. As the transitory
influences of earlier declines in energy prices and prices
of imports continue to fade and as the job market
strengthens further, we expect overall inflation
to rise to 2 percent over the next couple of years. Our inflation outlook rests
importantly on our judgment that longer-run inflation
expectations remain reasonably well anchored. Market-based measures of inflation compensation
have moved up considerably but
are still low. Survey-based measures of longer-run inflation
expectations are, on balance, little changed. Of course, we remain committed to our 2 percent inflation
objective and will continue to carefully monitor actual and expected progress
toward this goal. Let me now turn to the economic
projections that were submitted for this meeting by
Committee participants. As always, they conditioned
their projections on their own individual views
of appropriate monetary policy, which, in turn, depend on
each participant’s assessment of the multitude of factors
that shape the outlook. The median projection for growth of inflation-adjusted gross
domestic product rises from 1.9 percent this year
to 2.1 percent in 2017 and stays close to 2
percent in 2018 and 2019, slightly above its
estimated longer-run rate. The median projection for
the unemployment rate stands at 4.7 percent in the
fourth quarter of this year. Over the next three years, the
median unemployment rate runs at 4.5 percent, modestly
below the median estimate of its longer-run normal rate. Finally, the median inflation
projection is 1.5 percent this year and rises to
1.9 percent next year and 2 percent in 2018 and 2019. Overall, these economic
projections are very similar to those made in September:
GDP growth is a touch stronger; the unemployment rate is a
shade lower; and inflation, beyond this year, is unchanged. Returning to monetary
policy, the Committee judged that a modest increase in the federal funds rate
is appropriate in light of the solid progress we
have seen toward our goals of maximum employment
and 2 percent inflation. We continue to expect
that the evolution of the economy will warrant
only gradual increases in the federal funds
rate over time to achieve and maintain our objectives. That’s based on our view that the neutral nominal
federal funds rate-that is, the interest rate that is
neither expansionary nor contractionary and keeps
the economy operating on an even keel-is
currently quite low by historical standards. With the federal funds rate only
modestly below the neutral rate, we continue to expect
that gradual increases in the federal funds rate will
likely be sufficient to get to a neutral policy stance
over the next few years. This view is consistent with
participants’ projections of appropriate monetary policy. The median projection for
the federal funds rate rises to 1.4 percent at
the end of next year, 2.1 percent at the end of 2018, and 2.9 percent by
the end of 2019. Compared with the
projections made in September, the median path for the federal
funds rate has been revised up just ¼ percentage point. Only a few participants
altered their estimate of the longer-run normal
federal funds rate, although the median
edged up to 3 percent. Of course, the economic
outlook is highly uncertain, and participants will
adjust their assessments of the appropriate path for the
federal funds rate in response to changes to the economic
outlook and associated risks. As many observers have noted,
changes in fiscal policy or other economic policies
could potentially affect the economic outlook. Of course, it is far too early to know how these
policies will unfold. Moreover, changes in
fiscal policy are only one of the many factors that
can influence the outlook and the appropriate
course of monetary policy. In making our policy decisions, we will continue-as always-to
assess economic conditions relative to our objectives
of maximum employment and 2 percent inflation. As I have noted on
previous occasions, policy is not on
a preset course. Finally, we will continue
to reinvest proceeds from maturing Treasury
securities and principal payments
from agency debt and mortgage-backed securities. As our statement says, we anticipate continuing this
policy “until normalization of the level of the federal
funds rate is well under way.” Thank you. I’d be happy to take
your questions. HARRIET TORRY. Thank you, Madam Chair. Harriet Torry with the
Wall Street Journal. Why does the Fed now see three
rate increases next year instead of two? Is it because the economy
is at risk of overheating, or is the Fed behind the
curve, or is this a reaction to Donald Trump’s election? CHAIR YELLEN. Well, I would like to emphasize that this is a very modest
adjustment in the path of the federal funds rate
and involves changes by only, you know, some of, you know,
some of the participants. So in thinking about the
paths and the revisions, there are a number of
factors that were taken into account by participants. The unemployment rate is
perhaps a touch, as I said, a touch lower than previously; you’ve seen some modest
downward revisions in that-in that projection. For this year, there was
a slight upward revision to inflation, and some
of the participants, but not all of the participants,
did incorporate some assumption of a change in fiscal policy
into their projections. And that may have been a
factor that was one of several that occasioned these shifts,
but I want to emphasize that these-the shifts that you
see here are really very tiny. STEVE LIESMAN. Steve Liesman, CNBC. In recent testimony,
you said your advice was for fiscal authorities to increase the productive
capacity of the economy. Do individual and business tax
cuts increase the productive capacity of the economy? And how would the Fed’s reaction
be different to fiscal policies that increase the
productive capacity of the economy and
those that don’t? CHAIR YELLEN. So the statement that I
made, that it would be useful to increase the productive
capacity of the economy, reflects my concern that productivity
growth has been very low. It’s the ultimate determination of the evolution of
living standards. Policies that would improve
productivity growth would include policy changes that
enhance education, training, workforce development; policies
that spur either private or public investment to
enhance the quality of capital in the United States that
workers have to work with; and policies that spur
innovation or competition or the formation of new firms. So tax policies can
have that effect. It really depends
on the specifics. I don’t think there’s anything
that I could say in general about what tax policy would do, but that-and I really can’t
tell you what the Fed’s response would be to any policy changes
that are put into effect. I wouldn’t want to speculate
until I were more certain of the details and how they
would affect the likely course of the economy. STEVE LIESMAN. Okay. A quick follow-up-I’m
sorry, but if there was a rush of fiscal policy that did not
increase the productive capacity of the economy, would that mean
the Federal Reserve would have to move more quickly
with raising rates? CHAIR YELLEN. I-you know, it’s something I
really just can’t generalize about because, while it would be
desirable to have tax policies that do increase the productive
capacity of the economy, an increase in the pace of
productivity change is one of the factors that does affect
the economy’s neutral rate. A boost to productivity
could spur investment. As we have been saying,
we estimate that the value of the neutral federal funds
rate is quite low-has-and one of the reasons for that is
slow productivity growth. And so it’s very hard
to generalize about it because it could affect
that neutral rate. JIM PUZZANGHERA. Hi. Jim Puzzanghera
with the L.A. Times. For the average American, can
you explain what the impact of this hike and three
additional hikes will be next year? And should they feel more
confident in the economy now that you are raising rates
at a slightly faster pace? CHAIR YELLEN. So let me say that our decision to raise rates is-should
certainly be understood as a reflection of
the confidence we have in the progress the economy
has made and our judgment that that progress
will continue. And the economy has proven
to be remarkably resilient. So it is a vote of
confidence in the economy. As you know, this was a decision
that was well anticipated in markets, and I think it will
have relatively small effect on market rates. It could boost very slightly
some short-term interest rates that could have an effect on
borrowing costs that are linked to them, but, overall,
I think that households and firms will see very modest
changes from this decision. But, certainly, it’s important
for households and businesses to understand that my colleagues
and I have judged the course of the U.S. economy
to be strong, that we’re making progress
toward our inflation and unemployment goals. We have a strong labor market,
and we have a resilient economy. SAM FLEMING. Sam Fleming from
the Financial Times. Clearly, there’s been a
lot of discussion already about fiscal-fiscal policy. But even if you discount or don’t know what the
fiscal outlook is going to be next year, unemployment
is already below the longer-run projection under the policy rule
you cited in your August speech. That would suggest that
policy ought to be tighter. Is there a risk that the Federal
Reserve is already behind the curve, even before any fiscal
impact steps in next year? Thanks. CHAIR YELLEN. So I would agree
that-and as we said in our statement-policy
remains accommodative. The degree of accommodation I
would characterize as moderate. As I’ve emphasized and
said in the statement, we currently judge
the neutral level of the federal funds
rate to be pretty low. So there is some accommodation. Remember that inflation is
still below our objective. The Committee projects-at least
the median projection shows a very modest undershoot
of estimates of the longer-run normal
rate of unemployment. The median unemployment rate
here gets down to 4-1/2 percent, which is just a few tenths below
the estimated longer-run normal level of the unemployment rate. And we think that
that’s appropriate because we want inflation
to rise to our 2 percent objective
in a timely fashion. So there is not a
substantial undershoot of the natural rate
of unemployment. We’re not seeing
evidence in labor markets of very substantial
upward pressures on labor that could signify
extreme shortages of labor that could propel inflation
higher in a very rapid way, and inflation is still
operating below our objective. So I do not judge that
we are behind the curve. I’ve-my judgment is that
we’re on a good path to reaching our objectives. But, of course, the
outlook is uncertain. We recognize that
there are many sources of uncertainty affecting
the outlook. And we will have to adjust
our thinking as things evolve, as conditions-conditions
evolve, and we learn more about economic policy changes
that could affect the outlook. JIM TANKERSLEY. Jim Tankersley, Washington Post. I’m curious, you and
your predecessor had both at times called for more
fiscal stimulus to help with the outlook,
the growth outlook. And I’m wondering, how much
do you judge the economy has capacity for fiscal
stimulus right now? It’s a version of
Steve’s question, but I think we’re
trying to get at, how much can happen before we
run that risk of overheating? CHAIR YELLEN. Well, I believe my predecessor
and I called for fiscal stimulus when the unemployment rate
was substantially higher than it is now. So, with a 4.6 percent
unemployment and a solid labor market, there
may be some additional slack in labor markets, but I
would judge that the degree of slack has diminished. So I would say at this point that fiscal policy is
not obviously needed to provide stimulus to help us
get back to full employment. But, nevertheless, let me be
careful that I am not trying to provide advice to the new
Administration or to Congress as to what is the
appropriate stance of policy. There are many considerations
that Congress needs to take account of
and many bases for justifying changing
fiscal policy. I’ve continued to
highlight the importance of spurring productivity
growth, that I think that would be something that’s
beneficial for the economy. Of course, it’s also important
for Congress to take account of the fact that, as
our population ages, that the debt-to-GDP ratio
is projected to rise, and that needs to continue
to be taken into account. And so there are many factors that I think should enter
into such decisions. CHRISTOPHER CONDON. Thank you. Chris Condon, Bloomberg News. Chair Yellen, you’ve
just spoken about some of the risks-the
inflationary risks of running in this expansionary
fiscal policy. But in October you were
wondering whether it might be possible to repair
some of the damage done to the labor force
during the recession by running what you termed
a “high-pressure economy.” So I’m wondering, why couldn’t
fiscal policy serve the same end in seeking to run a
high-pressure economy, hoping to draw more
Americans off the sidelines and into the workforce? Is there something necessarily
riskier about approaching it from the fiscal side, or
perhaps have you become less enthusiastic about the idea of
running a high-pressure economy? Thank you. CHAIR YELLEN. So I want to be clear that
what I said in that speech in Boston is that an important
research question is whether or not, in an economy with
a very strong labor market, there might be changes
that took place that permanently raised the
labor force participation, training, and other things of
the labor-of the labor force that would be positives for
the productive potential of our economy on a
long-lasting basis. I never said that I favor
running a high-pressure economy. And, you know, as you can
see in the SEP projections of the participants-and this
has long been true not just in this forecast,
but in earlier ones as well-you see a
modest undershooting. The under-unemployment
rate is projected to modestly undershoot,
for several years, levels that are deemed to
be normal in the longer run. That’s an appropriate
policy purely on the grounds that inflation is running
below our objective. And while we don’t want to overshoot our 2
percent objective, we also don’t want a
persistent undershoot of our 2 percent objective, and
that does involve a labor market that may succeed in attracting
more people off the sidelines into the labor market. It’s something we will see
as we examine experience over the next couple of years. We may adjust our views on this. But I do want to make clear that
I have not recommended running a “hot” economy as some
sort of experiment. LINDSAY DUNSMUIR. Hi, Lindsay Dunsmuir
with Reuters. How comfortable are you
with possible interference on Fed policy by the
incoming President? And I’m talking there about
the negative impacts his tweets on aerospace companies
in the last week have had on their share prices. And do you feel having
a President tweeting about individual companies-do
you feel that that could begin to distort corporate
decisionmaking? CHAIR YELLEN. Well, I’m not going to offer
the incoming President advice about how to conduct
himself in policy. I’m a strong believer in
the independence of the Fed. We have been given the
independence by Congress to make decisions about
monetary policy in pursuit of our dual-mandate
objectives of maximum employment and inflation, and that is what
I intend to stay focused on. That’s what the Committee
is focused on. BINYAMIN APPELBAUM. Binya Appelbaum with
the New York Times. The President-elect has said that overhauling financial
regulation is a high priority for him. I’m curious whether the Fed has
been asked to provide any advice on how that might be done, and
what advice you would provide to the President-elect about how
our financial regulatory system should be improved? CHAIR YELLEN. So we have been-our
staff have been in touch with the Trump transition team. And we, of course,
share the objective that the whole government
has to work constructively to ensure a smooth transition. I’ve not been in
touch beyond that, and it’s not something
that I would expect. But-I’m sorry, so what
would I- BINYAMIN APPLEBAUM. I was saying, what
advice would you give about how the system
should be improved? CHAIR YELLEN. About how- BINYAMIN APPLEBAUM. -on financial regulation. CHAIR YELLEN. -the financial rate. Yes. So, okay, on financial
regulation, I feel that we lived through a devastating
financial crisis that took a huge
toll on our economy. And most members of Congress
and the public came away from that experience
feeling that it was important to take a set of steps that
would result in a safer and stronger financial system. And I feel that we
have done that. That has been our mission
since the financial crisis for the last six or seven years. That’s what Dodd-Frank
was designed to do. I think it’s very important
that we have reduced the odds that a systemically
important firm could fail by requiring higher
capital, higher liquidity, by performing stress tests
that provide us another way of ensuring that the firms
we count on to supply credit to households and businesses
would be able to go on doing that even in the face of
a severely adverse shock. The firms-the largest firms
have a great deal more capital than they did before the crisis. Those are important changes. We have placed the toughest
regulations on those firms that are systemically important. I would advise that-and
we have been trying to do this-that it’s
important to look for ways to relieve regulatory
burden on community banks and smaller institutions,
to tailor regulation so that it’s appropriate for
the systemic risk profile of the particular institutions. I think there was
broad agreement also that we should end
“too big to fail,” and that means not only
reducing the odds of the failure of a systemically
important institution, but also making sure that,
should such a firm fail, that it could be resolved
in an orderly way. And the living wills
process has been about that, and I think we’ve made
considerable progress in making sure that the largest and most systemic firms
conduct their businesses in a day-to-day way with some
thought about-with important thinking in place about whether or not the way they are
conducting their business would aid resolution in the event that they encountered a
severe negative shock. So this is progress,
I would say, it’s very important
not to roll back. There may be some changes
that could be made, and we’ve suggested a few,
like eliminating the burden of compliance with the Volcker
rule, or incentive compensation, regulations for smaller banks, or modestly raising
the threshold for banks that are subject to enhanced
prudential supervision. But I would urge that it’s
important to keep this in place. MARTIN CRUTSINGER. Marty Crutsinger with
the Associated Press. The election of Donald
Trump seemed to have sparked a major
reaction in financial markets: stock prices at record highs,
the dollar has strengthened, long-term interest
rates are higher. The-did any of that get
discussed in the meeting and did it-do you feel that
it will have any effect, either negative or
positive, on things? And also, did you have
any broader discussion about Trump’s economic
plan and what it might do and how the Fed might
have to react? CHAIR YELLEN. So we did discuss these
topics in our meeting today. I would simply summarize
by saying that all the FOMC
participants recognize that there is considerable
uncertainty about how economic
policies may change and what effect they
will have on the economy. And in so far as that will
affect monetary policy, of course we will have to
factor those policies along with many other things,
including the global environment and oil prices and
other matters. We will have to factor that
into our outlook and figure out what is an appropriate
response. But we’re operating under
a cloud of uncertainty at the moment, and
we have time to wait to see what changes
occur and to factor those into our decisionmaking as
we gain greater clarity. You mentioned the market moves. So I see the market moves
as implicit forecasts about what impact these
policies are likely to have on the economy. The changes-the financial market
changes that you described, particularly the increase in
stock prices, the increase in longer-term rates, and the
strengthening of the dollar, suggest that many market
participants anticipate expansionary fiscal policies that would raise
interest rates somewhat in the United States
relative to abroad and would cause a
strengthening in the dollar. But market participants
were uncertain too, and I would expect changes
in our understanding of what is going to happen
to also affect market prices in financial markets
as we move forward. NANCY MARSHALL-GENZER. Hi, Nancy Marshall-Genzer
with Marketplace. Wondering about slack,
when do you think the slack in the labor market
will have worked its way through so we’re no
longer talking about it at press conferences and
it’s not such a big issue? CHAIR YELLEN. So this is not something that it’s possible
to judge precisely. My colleagues write down
their best estimates of a normal longer-run
unemployment rate. The median stands at 4.8
percent, so we’re close, possibly-the unemployment
rate right now is ever so slightly below, but
in the neighborhood. If we look at larger,
broader measures of slack, like the U-6 measure that includes involuntary
part-time employment and those who are marginally
attached to the labor force, they’re slightly higher
than pre-recession levels, but they’ve come
down considerably. We look at a broad array of
indicators of the labor market, and if you look at job
openings or the hires rate or the quits rate or difficulty
of hiring workers as reported in business surveys, you know, I would say the labor
market looks a lot like the way it did
before the recession, that it’s-we’re roughly
comparable to 2007 levels when we thought the, you know,
there was a normal amount of slack in the labor market. The labor market was in the
vicinity of maximum employment. MICHAEL MCKEE. Michael McKee from Bloomberg
Television and Radio. Given President-elect
Trump’s criticism of your low-rate policy during
the campaign, like it or not, market participants are going
to focus a lot in 2017 on you. You’ve suggested you will serve
out your term, but I’m curious if that statement still holds,
if you would like another term as Fed Chair, if you
would accept another term as Fed Chair, and would
you stay on the Committee if you were not Fed Chair? CHAIR YELLEN. So I guess the way I think
about it is that I was confirmed by the Senate to
a four-year term. The term of the Fed Chair was
not meant to coincide with that of the President, and there
were good reasons for that, too. It’s part of ensuring the
independence of the Fed. And so I do intend to serve
out my four-year term. I haven’t made any
decision about the future. I, you know, I recognize I might
or might not be reappointed. It’s a decision that I don’t
have to make and don’t, you know, don’t have
thoughts on at this time. And, as you said, I recognize
too that I could stay on as a Board member, and that’s
a decision for another day. PETER BARNES. Peter Barnes, Fox Business. Just to follow up
on Marty’s question about the financial markets,
the Dow is about to hit 20,000. It’s up substantially since
the election on, apparently, investor optimism about
potential-the impact of President-elect Trump’s
policies on the economy and an improving economy. I wonder if you share that
optimism, number one, and, if not, are we seeing
a bout of, perhaps, irrational exuberance right now? Or are you concerned at all
about a bubble in equity prices that could create some financial
instability in the economy? CHAIR YELLEN. So, you know, I really
don’t want to comment on the level of stock prices. They may have been boosted by
expectations about tax policy; possible cuts in
corporate tax rates that have been much discussed;
or by expectations about growth, possible reductions, and
downside risk to the economy. But, you know, these are things that market participants
are trying to view, along with the likely path
of-paths of interest rates, and I think all of that factors into movements and
stock valuations. But I don’t-I don’t
want to offer a view as to whether they’re
appropriate. PETER BARNES. You have said-mentioned-can
I just follow up? On equity prices, you
have talked about whether or not the valuations
are still-are within historical
ranges and norms. Did-is Dow 20,000 kind of
within historical norms? Are you comfortable with that? CHAIR YELLEN. Well, I think rates of return in the stock market relative
to-remember that the level of interest rates is low,
and, taking that into account, I believe it’s fair to say that they remain
within normal ranges. JOHN HELTMAN. John Heltman of American Banker. You said that much progress
has been made since the crisis in making the banks more secure,
more safe, higher liquidity, capital levels, et cetera. Does that feeling extend to
the culture of the banks, the way that they run,
the way that they operate in their approach
towards-towards business? Do you think that more
needs to be done there? Do you expect that if
there has been improvement, that it will continue to be-that
culture will continue to improve in the next Administration
and the next Congress? CHAIR YELLEN. Well, there have been many ways in which there have
been compliance failures at large organizations,
and you’ve seen a series of enforcement actions by the
banking regulators over a range of practices that suggests
some breakdown of compliance or culture, whether it
involves violations of sanctions or foreign exchange or
LIBOR or other matters. So this is something that
we’ve discussed and emphasized, the importance of a
culture of compliance. And the Board will be
undertaking review. We’ve already begun this
year, broadly, of compliance and management of
compliance risk in the largest corporations. So I think this is
something that’s important. And the failings that
we have seen in a number of institutions suggest there is
certainly room for improvement. GREG ROBB. Greg Robb from MarketWatch. I’d like to-two questions, if I
might-follow up on the question about running the economy
hot that you mentioned in your speech up in
Boston a couple months ago. You brought it up. Are you now sort of distancing
yourself from the idea? CHAIR YELLEN. Well, I want to make clear what
I said and what I didn’t say. One of the things we’ve learned
from our financial crisis and from a series of
financial crises in history and around the globe
is that, very commonly, when the economy takes a hit
and falls into a recession, that productivity doesn’t pick
up to pre-recession levels and that there looks like there
is a permanent hit to the path of potential output
for the economy, which is called “hysteresis.” And I raised the
question as to whether or not this might operate in
the opposite direction as well. We have seen quite a few people who lost their jobs during
the Great Recession drop out of the labor force and,
you know, lose their ties and become discouraged
and not reenter. And I raised the
question as to whether or not hysteresis could operate
in the opposite direction. And that was a research
question for economists to see if there is any evidence,
because it could be important in determining policy. But I didn’t-I didn’t draw any
policy conclusions from that. And, as I indicated,
I think the path that you see-that the Committee
has laid out in a tentative way that involves a modest
degree of undershooting of normal longer-run levels
of unemployment going down to around 4½ percent would
remain for a couple of years-might provide
some insight. So I was not recommending a
substantially easier policy in order to test
that hypothesis. GREG ROBB. Thank you, Madam Chair. I guess my question to-that I
had before that follow-up was, both times you’ve raised
rates in this cycle, the market expectations of a rate hike have
been over 50 percent. The market has, you know,
kind of priced it in. Is that a prerequisite
going forward? Will that have to
happen as you go forward? CHAIR YELLEN. It’s not a prerequisite,
but we do try to explain our evolving
views as clearly as we can. It’s important for market
participants to have a sense of how we think about the
economy and the appropriate path of policy, to look
at incoming data, and to form their own judgments
as to whether or not changes in policy would be appropriate. And while it’s not
a prerequisite, if we’re in good sync in
terms of explaining what goes into our policy judgments,
it’s not surprising that it would often be true that moves are well
anticipated by the market. As I said, in thinking about
today’s move, we’ve indicated that we thought we were making
progress on our objectives. We wanted to see some more. I think anyone looking at
incoming data can clearly see that we have enjoyed
further progress both in the labor market
and on inflation. And, therefore, there are good
reasons why the market should have anticipated a moved today. PATRICK GILLESPIE. Chair Yellen, Patrick
Gillespie with CNN. There’s been a lot of discussion about manufacturing
jobs and trade. I’m wondering, what do you think
are two or three concrete steps that could be taken to increase
manufacturing employment in the United States? And, separately, I’ve asked
you about the importance of job training programs, something that you’ve
emphasized. Specifically, what do you think about the worker assistance
provided to workers who lose their jobs to trade,
both the financial assistance and the worker retraining
programs? Are they sufficient? CHAIR YELLEN. So, I don’t want to weigh in. I don’t intend to weigh in. I haven’t weighed in on
either fiscal policy, specifics of evaluating
policies. I’m not going to weigh
in either on the details of particular trade policies. But, more generally, I’d say, you asked me about
manufacturing. There were a lot of
manufacturing jobs lost over a long period of time and particularly after-during
the Great Recession. We’ve had some recovery in
manufacturing employment as the economy’s recovered. So, to some extent,
manufacturing employment depends on the progress of the economy,
and we have seen some recovery. Over a long period of time, technological change
is something that has been important in reducing manufacturing
employment absolutely and as a share of
jobs in the economy. For decades, the pace
of technological change in manufacturing has outstripped
that in the economy as a whole. And, so, firms-manufacturing
firms have found it easier to continue producing by-with
reducing their workforces. And that’s a change that I
would expect to continue. You mentioned worker assistance. So some of the forces that
are acting on manufacturing and other sectors,
including technological change and globalization-even though
most economists would judge the overall consequences of these
developments for the economy to be positive, certainly
there are groups of workers who were harmed by
developments pertaining to globalization and technology. And I think most economists
and policymakers recognize that it’s important to provide
ways for workers who were harmed by these kinds of developments
to be retrained for jobs so that they can
succeed in the economy. And so, I mean, I would
agree-without getting into any particular program
and whether it’s sufficient, I do think that it’s important
to recognize there are those who were harmed by
these developments, and their concerns, I
think, need to be addressed by policymakers, certainly. JUSTINE UNDERHILL. Justine Underhill,
Yahoo Finance. So the Fed’s balance sheet
has grown to over $4 trillion. And as the Fed begins
removing policy accommodation, under what circumstances
would you see the Fed removing or possibly winding
down its balance sheet in either letting
mature-securities mature or possibly outright selling
bonds from the SOMA portfolio? CHAIR YELLEN. So we’ve indicated in our
normalization principles that we expect to diminish
the size of our portfolio over time largely by
ceasing reinvestments of principal rather than
by selling securities. We’ve indicated that once
the process of normalization of the federal funds
rate is well under way, we would probably begin to
allow our portfolio to run off. We’ve not yet made
any precise decisions about when that will occur. We want to feel that
if the economy were to suffer an adverse shock,
that we have some scope through traditional means
of interest rate cuts to be able to respond to that. Now, there’s no mechanical
rule about what level of the federal funds rate
we might deem appropriate to begin that process. It’s not something that
only depends on the level of the federal funds rate. It also depends on our judgment
of the amount of momentum in the economy and
possible concerns about downside risks
to the economy. So we’ve not yet made this
decision, but it is something that we have long planned, to begin to allow our
balance sheet to run off. And then it would
take several years. And we would end up,
if all goes well, with a substantially
smaller balance sheet than we have at present. MICHAEL DERBY. Mike Derby from Dow
Jones Newswires. I wondered if the unexpected
outcome of the election and the sense that a lot
of people are really upset with how the economy is
performing despite having, you know, aggregate
economic statistics that look pretty good-is
that causing you in any way to think differently about
how you evaluate the economy, like what sort of things
you look for to get a sense of what’s going on
in the economy? Is-you know, basically,
did how things turned out in the election-is it
making you think differently about how you evaluate
the economy’s performance and how it’s doing? CHAIR YELLEN. Well, I mean, we’ve long
been aware, and I’ve spoken about previously disturbing
trends in the economy, particularly rising wage
inequality, income inequality, and the fact that
a significant share of our population hasn’t been
enjoying significant real wage gains, if any. And so these are
long-standing concerns. These are not new phenomenon, but the recession
was very severe and probably exacerbated
developments that had long been affecting
many American workers and households. And I think they are
quite disturbing. Now, they’re ones that the Fed
is not well positioned-I think our policies can
affect the general level of economic activity and
slack in the labor market, the level-the rate of
inflation, which we focus on. But I think it’s important
for policymakers more broadly to be attentive to these trends
and to think about policies that could address them. We’ve been quite
attentive with respect to particular demographic
groups in the labor market. Particularly, minorities tend to be very badly
affected by downturns. We’ve discussed that. We’ve been focused
on it-it’s not just since the election-and
are pleased to see that they are enjoying gains. For example, the African
American unemployment rate at this point is now rough-about
back to 2007 levels as well. But these are important trends,
and I think it’s important for policy to address them.

Robin Kshlerin