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FOMC Press Conference March 15, 2017


Transcript of Chair Yellen’s
Press Conference March 15, 2017 CHAIR YELLEN. Good afternoon. Today the Federal Open
Market Committee decided to raise the target range
for the federal funds rate by ¼ percentage point,
bringing it to to 1 percent. Our decision to make another
gradual reduction in the amount of policy accommodation reflects
the economy’s continued progress toward the employment and price
stability objectives assigned to us by law. For some time the
Committee has judged that, if economic conditions
evolved as anticipated, gradual increases in the federal
funds rate would likely be appropriate to achieve and
maintain our objectives. Today’s decision is
in line with that view and does not represent
a reassessment of the economic outlook or of the appropriate
course for monetary policy. I’ll have more to say about
monetary policy shortly, but first I’ll review
recent economic developments and the outlook. The economy continues to
expand at a moderate pace. Solid income gains and
relatively high levels of consumer sentiment and
wealth have supported household spending growth. Business investment, which was
soft for much of last year, has firmed somewhat, and business sentiment
is at favorable levels. Overall, we continue to expect
that the economy will expand at a moderate pace over
the next few years. Job gains averaged
about 200,000 per month over the past three months, maintaining the solid pace we
have seen over the past year. The unemployment
rate was 4.7 percent in February, near
its recent low. Broader measures of labor
market underutilization also remain low. Participation in the labor force
has been little changed, on net, for about three years. Given the underlying
downward trend in participation stemming
largely from the aging of the U.S. population, a relatively steady
participation rate is a further sign of improving conditions
in the labor market. 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 rose to nearly 2 percent in
January, up from less than 1 percent last summer. That rise was largely
driven by energy prices, which have been increasing
recently after earlier declines. Core inflation-which excludes
volatile energy and food prices and tends to be a
better indicator of future inflation-has
been little changed in recent months at
about 1 percent. We expect core inflation to
move up and overall inflation to stabilize around 2 percent
over the next couple of years, in line with our
longer-run objective. Let me now turn to the economic
projections that were submitted for this meeting by
Committee participants. As always, participants
conditioned their projections on their own individual views
of appropriate monetary policy, which, in turn, depend on
each participant’s assessment of the many factors
that shape the outlook. The median projection for growth of inflation-adjusted gross
domestic product is 2.1 percent this year and next, and edges
down to 1.9 percent in 2019, slightly above its
estimated longer-run rate. The median projection for
the unemployment rate stands at 4.5 percent in the fourth
quarter of this year and remains at that level over
the next two years, modestly below the
median estimate of its longer-run normal rate. Finally, the median inflation
projection is 1.9 percent this year and rises to 2
percent in 2018 and 2019. These economic projections
are very little changed from those made in December. Returning to monetary
policy, the Committee judged that a modest increase in the federal funds rate
is appropriate in light of the economy’s solid
progress toward our goals of maximum employment
and price stability. Even after this increase, monetary policy remains
accommodative, thus supporting some further
strengthening in the job market and a sustained return
to 2 percent inflation. Today’s decision also reflects
our view that waiting too long to scale back some accommodation
could potentially require us to raise rates rapidly sometime
down the road, which, in turn, could risk disrupting
financial markets and pushing the economy
into recession. We continue to expect
that the ongoing strength of the economy will
warrant gradual increases in the federal funds
rate 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. That means that the federal
funds rate does not have to rise by all that much to get to
a neutral policy stance. We also expect the neutral
level of the federal funds rate to rise somewhat over time, meaning that additional
gradual rate hikes are likely to be appropriate over
the next few years to sustain the economic
expansion. Even so, the Committee
continues to anticipate that the longer-run
neutral level of the federal funds
rate is still likely to remain below levels that
prevailed in previous decades. This view is consistent with
participants’ projections of appropriate monetary policy. The median projection for
the federal funds rate is 1.4 percent at the end of this
year, 2.1 percent at the end of next year, and 3
percent at the end of 2019, in line with its
estimated longer-run value. Compared with the
projections made in December, the median path for the
federal funds rate is essentially unchanged. As always, 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 their
economic outlooks and views of the risks to their outlooks. Changes in economic
policies, including fiscal and other policies, could potentially affect
the economic outlook. Of course, it is still too early to know how these
policies will unfold. Moreover, fiscal policy is
only one of many factors that can influence the outlook. In making our decisions, we will
continue-as always-to assess economic conditions
relative to our dual mandate. As I’ve noted previously, 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. This policy, by keeping
the Committee’s holdings of longer-term securities
at sizable levels, has helped maintain
accommodative financial conditions. As a matter of prudent
planning, we discussed at this meeting a
number of issues related to an eventual change to
our reinvestment policy. We made no decisions, and we
will continue our discussion at subsequent meetings. In keeping with the
principle that the process of normalizing our balance sheet
will be gradual and predictable, we will provide more
information about our plans as it becomes available. Thank you. I’d be happy to take
your questions. SAM FLEMING. Thanks very much. Sam Fleming from
the Financial Times. Could I take you up
on the last topic, which is the balance
sheet normalization? Clearly you said you don’t want
to start pulling in the size of the balance sheet until normalization
“is well under way.” Could you give us some sort
of sense about what “well under way” means, at
least in your mind? What kind of hurdles
are you setting? What kind of economic conditions
would you like to see? Is it just a matter of the level of the short-term federal funds
rate as being the main issue? And what kind of role
do you see the role of the balance sheet playing in the normalization
process over the longer term? Is it an active tool,
or is it a passive tool? Thanks. CHAIR YELLEN. So let me start with the
second question first. We’ve emphasized for quite some
time that the Committee wishes to use variations in the fed
funds rate target-our short-term interest rate target-as our
key active tool of policy. We think it’s much
easier in using that tool to communicate the
stance of policy. We have much more experience
with it and have a better idea of its impact on the economy. So while the balance sheet,
asset purchases are a tool that we could conceivably
resort to if we found ourselves in a serious downturn
where we were, again, up against the zero bound and
faced with substantial weakness in the economy, it’s not a
tool that we would want to use as a routine tool of policy. You asked what “well
under way” means. I can’t give you a
specific answer to that. And I think the right-the
right way to look at it is in qualitative and not
quantitative terms. It doesn’t mean some
particular cutoff level for the federal funds rate that,
when we’ve reached that level, we would consider
ourselves well under way. I think what we want
to have is confidence in the economy’s trajectory, a sense that the economy
will make progress, that we’re not overly
worried about downside risks and adverse shocks that
could hit the economy that could quickly-after
setting it off on the path to shrinking the balance sheet
gradually over time-cause us to want to begin to add
monetary policy accommodation. So I think it has to do with the
balance of risks and confidence in the economic outlook
and not simply the level of the federal funds rate. JASON LANGE. Hi, thank you. Jason Lange with Reuters. You mentioned that you
don’t-that you don’t-you want to not have to raise
rates rapidly if you were to fall behind the curve. In the current context, “gradual” has been
very, very gradual. Could you describe what a rapid
rate of increases should be-how that should be understood? CHAIR YELLEN. So I’m not sure that
I can tell you what “a rapid rate of increases” is. I think the trajectory
that you see is the median in our projections,
which, this year, looks to a total
of three increases. That certainly qualifies
as gradual. My comfort in using the term
“gradual” comes back, in part, to my judgment that
the neutral level of the federal funds
rate-namely, the level of the
federal funds rate that would keep the economy
operating on an even keel, that it’s a rate where
we neither are pressing on the brake nor pushing down
on the accelerator-that level of interest rates is quite low. So, at present, I see monetary
policy as accommodative-namely, the current level of the
federal funds rate is below that neutral rate, but not very
far below the neutral rate. We’re closing in, I think,
on our employment objective. We’re coming closer on
our inflation objective. As we reach those objectives,
and particularly in light of the fact that we see
the risks to the outlook as roughly balanced at this
point-and that’s been our assessment for the last
several meetings-it looks to us to be appropriate to gradually
raise the federal funds rate back in the direction
of neutral. And exactly how many
increases is that? You know, the SEP
gives you a sense of what Committee participants
envision in a concrete sense. But, you know, if it’s
one more or one less, I think that still-that still
qualifies to my mind as gradual, I think, if you compare it with
any previous tightening cycle. I remember when rates
were raised at every meeting
starting in mid-2004. And I think people thought that was a gradual
pace, a measured pace. And we’re certainly not
envisioning something like that. STEVE LIESMAN. Steve Liesman, CNBC. Both the OECD and the IMF
have raised their forecasts, in part because of-for
the U.S. growth-in part because of the policies expected from the new Administration,
yet the Fed has not. And I take it from your
comment at the very beginning that this-these forecasts today
represent no reassessment. Has the Committee discussed
what policy might look like in the event that there
are large tax cuts passed or infrastructure
spending passed? And what might policy look like
if those policies become law? Finally, why did you remove
the word “only” before the word “gradual” when you talked
about future rate increases? CHAIR YELLEN. So we have not discussed in
detail potential policy changes that could be put into place,
and we have not tried to map out what our response would be
to particular policy measures. We recognize that there is great
uncertainty about the timing, the size, the character of
policy changes that may be put in place and don’t think
that that’s a decision, or a set of decisions, that we
need to make until we know more about what policy changes
will go into effect. So I do want to emphasize that, while some participants
have penciled in some fiscal policy changes
into their projections, that the basis for today’s
decision is simply our assessment of the
progress of the economy against our long-established
goals of maximum employment
and price stability. There’s nothing that we
have done or anticipate that is a speculation. I think it’s fair to say, there’s nothing that’s
a speculation about preemptive responses
to future policy moves. We have plenty of time
to see what happens. We did remove the word “only” in the statement
today from “gradual.” I think this is something that
shouldn’t be overinterpreted. I regard it as a
relatively small change and think it’s appropriate
for you to consider it in the context, for example, of the fact that our economic
projections are virtually identical to those that
we issued in December. They’re essentially unchanged
both in terms of the path of the economy and the path
of the federal funds rate. So we have carried out
a modest adjustment of the federal funds rate because we’ve seen the
economy progressing over the last several months in exactly the way
that we anticipated. We haven’t in any
way changed our view about where the economy
is heading or the risks. We had long said that if the
economy progressed, and-it’s, you know, it’s been
doing nicely, I think, in making progress, in showing
resilience, and we have, you know, have some confidence
in the path the economy is on. And if we continue to feel
that, we will likely regard it as appropriate to make
some further moves to scale back accommodation
to move toward neutral, along the lines in the SEP. Now, obviously, there
are surprises. Our economic forecasts
can change. But the word “gradual,” I think, emphasizes that if things
continue in the manner that we’ve been going,
as we have said now for quite some time, we think that gradual-some
gradual increases in the federal funds
rate-will be appropriate. And this is not a, you know, this is not a significant-this
is not a significant change. PETER BARNES. Peter Barnes, Fox
Business, ma’am. Speaking of fiscal policy,
have you had a chance to meet with the new Treasury
Secretary yet, Mr. Mnuchin? If not, when will
you meet with him? What do you want to
talk to him about? And, separately, have
you had a chance to talk to President Trump
yet or meet with him? And, if not, would you
like to, and would you, and what would you talk about? Thank you. CHAIR YELLEN. I’ve met a couple of times
with the Treasury Secretary, and I’m getting to know him. And I think, you know, it’s
traditional for Fed Chairs and Treasury Secretaries
to meet on a regular basis, and I fully expect to
have a strong relationship with Secretary Mnuchin. We have had very good
discussions about the economy, about regulatory objectives,
the work of the FSOC, global economic developments,
and I look forward to continuing to work with him. I was introduced
to the President. I had a very brief meeting
and appreciated that as well. ANA SWANSON. Ana Swanson, the
Washington Post. You said that the neutral level of the federal funds
rate is quite low. How close do you judge it
to be to the inflation rate? And what do you anticipate
will be the force pushing up the neutral interest rate
over the next few years? Could fiscal policy
be among those? CHAIR YELLEN. So I’ve given a number of
recent speeches on this topic where I’ve developed
my views more fully. I would say, over the longer
run-that means going several years out-I think
the evidence suggests that the neutral rate may
be something, in real terms, that might be close to 1 percent
or a little bit under that. That would be consistent with
the median longer-run value of the federal funds rate
in our economic projections for the last several meetings. Three percent is the longer-run
normal federal funds rate that participants estimate. In real terms, with a 2 percent
inflation objective-that’s 1 percent in real terms. And I’ve indicated-why
is it so low? Well, I think there’s very
strong evidence that’s accumulated that this rate
has been falling not just in the United States, but
in many advanced nations, and the decline probably
predates the financial crisis. I think in part it reflects
slowing population growth and also slow productivity
growth here and in many other
advanced nations. But some recent work suggests
that, at the present time, the neutral real rate
is yet lower than that, and some estimates place it
around zero in real terms. So I think the lower current
rate arguably reflects headwinds that are left over from
the financial crisis. One form of headwind, I think,
has been caution and restraint and risk aversion on
the part of households and businesses that’s held
back spending decisions. And, I suppose, my
judgment that it’ll move up over time reflects
a notion that part of that will gradually
dissipate over the years. So that’s a sense of where I
think-now, there is uncertainty about the neutral rate. And, as you mentioned,
it is-it can be affected by shifts in fiscal policy. How the neutral rate is affected by fiscal policy-that
really depends importantly on the nature, the size
of the fiscal shift and the effect it
has both on demand and supply in the economy. NICK TIMIRAOS. Thank you. Nick Timiraos of the
Wall Street Journal. Chair Yellen, between the
release of the minutes of the previous meeting late
last month and your speech in Chicago earlier this
month, market expectations about an increase in rates today
changed quite dramatically. What happened over the
course of those two weeks to make officials far more
interested in signaling the idea of raising rates
at today’s meeting? And why do you think the
market was so out of sync with where the central bank was? CHAIR YELLEN. So, when I look at our
sequence of communications, they seem to me to have
been reasonably consistent over this entire period. We had indicated in December
that we expect-we saw the risks as balanced, and if
the economy continued to progress along the
lines we expected, that several rate increases
would likely be appropriate. The minutes of our
January meeting indicated that many participants
thought that an increase in the funds rate would
be appropriate fairly soon if things continued
along those lines. I indicated in my congressional
testimony that I thought that, indeed, the economy
was progressing in line with our expectations. And, as I think all of us-having
that expectation and that if the economy continued
to progress along the lines that we expected and we
continued to see the risks as balanced-do regard
it as appropriate to gradually remove
accommodation that’s in place by having several interest
rate increases this year. As we saw the data
continue to come in in line with our expectations, my
colleagues and I spoke out and indicated that, indeed,
that had been and continued to be our expectations. Now, you know, when you ask
me, how did we get out of sync with the market, this is
something I tried to reflect on a bit in the remarks
I made in Chicago. And, of course, it is true
that in 2015 and in 2016 each, we raised the federal
funds rate only once, and perhaps market participants
have been influenced by that pattern. I did try to explain the
reasons why we had moved so slowly during
those two years. And it reflects, I think, a
set of shocks partly emanating from the global economy and
risks that we saw to the outlook as well as more fundamental
assessments-reassessments pertaining to the neutral
level of the federal funds rate and the longer-run normal
level of the unemployment rate. So I think there are
reasons, but it is important for the public to understand
that we’re getting closer to reaching our objectives;
that policy is accommodative; that although the level of the neutral federal funds
rate is probably quite low, we nevertheless have an
accommodative stance of policy; and it will be appropriate to gradually move
toward a neutral stance if we continue on
the path we’re on. BINYAMIN APPELBAUM. Binya Appelbaum,
the New York Times. The Bank for International
Settlements has raised concerns that central banks are being
insufficiently attentive to asset price-excuse me,
asset price inflation. And stock market investors in the United States certainly
don’t seem to be waiting for the Trump Administration to actually implement
its fiscal policies. And I guess I’m just
curious to know how much of a concern that is for you. And, if not, why not, given
the remarkably elevated level of stock price evaluations? CHAIR YELLEN. Well, we do look at
financial conditions in formulating our
view of the outlook, and stock prices do figure
into financial conditions. So I think the higher level
of stock prices is one factor that looks like it’s likely to somewhat boost
consumption spending. We also noticed that, in
the last several months, that risk spreads, particularly for lower-grade corporate
issuers, have narrowed, which is another signal that financial conditions
have become somewhat easier. Now, on the other side,
longer-term interest rates are up some in recent months, and
the dollar is a little stronger. How does that net out? There are private-sector
analysts that produce financial
conditions indices that attempt to aggregate all these
different factors affecting financial conditions. And for some of the more
prominent analysts and indices, I think the conclusion
they have reached is that financial conditions,
on balance, have eased, and that’s partly driven
by the stock market. So that is a factor that
affects the outlook. MARTIN CRUTSINGER. Marty Crutsinger,
Associated Press. You and Secretary
Mnuchin will be meeting with your G-20 colleagues
in Germany this weekend. What do you expect
to find there? Do you think the group
assessment is going to be that the world economy
is finally out of the woods, doing better? Or do you think that
there’s still going to be worries about risk? And would one of
those risk worries be that the Fed might
raise rates too quickly? CHAIR YELLEN. Well, we always exchange
views on the economic outlook and developments in our country,
and it will be my objective to explain-explain U.S.
monetary policy and to try to make the same points to them that I’ve made here already
today about what the outlook is for monetary policy
in the United States. I think it’s fair to say that the global economy
is doing better. It’s growing a bit more
strongly than it was, perhaps, the last time I got together
that the-with my counterparts in the G-20-that the risks do
look somewhat more balanced. But there remain a set of very
significant risks, medium term, facing the global
economy, and I’m sure that those will be
discussed as well. JIM PUZZANGHERA. Hi, Jim Puzzanghera with
the Los Angeles Times. You said you and your colleagues
aren’t making assumptions about stimulative
fiscal policies, but many other people are. Business and consumer confidence
has jumped since the election. Homebuilder sentiment today was
at its highest level since 2005. Are you concerned about the
effects on the economy if some of these policies,
such as tax cuts and infrastructure spending, don’t get enacted
or are delayed? CHAIR YELLEN. So we recognize-our statement
actually last time noted that there had been
an improvement, a marked improvement in business
and household sentiment. It’s uncertain just how much
sentiment actually impacts spending decisions. And I wouldn’t say at this point
that I have seen hard evidence of any change in
spending decisions based on expectations about
the future. We exchange around the
table what we learn from our many business contacts,
and I think it’s fair to say that many of my colleagues and I note a much
more optimistic frame of mind among many-many
businesses in recent months. But, I’d say, most of
the business people that we’ve talked to also
have a wait-and-see attitude and are very hopeful
that they will be able to expand investment and are
looking forward to doing that but are waiting to
see what will happen. So we will watch that. And, of course, if we
were to see a major shift in spending reflecting
those expectations, that could very well
affect the outlook. I’m not seeing it-I’m not
seeing that at this point, but the shift in sentiment
is obvious and notable. KATE DAVIDSON. Thank you, Madam Chair. Kate Davidson from Dow Jones. There’s a perception out there
that the Fed could somehow stand in the way of some of the
economic growth policies that the new Administration
is pursuing. Given that the Fed is
projecting 1.8 percent growth in the long run, is this a
potential point of conflict for the Fed and the
new Administration? CHAIR YELLEN. So I don’t believe it
is a point of conflict. We would certainly welcome
stronger economic growth in a context of price stability. And if policies were put
in place to speed growth that I’ve certainly urged
Congress and the Administration to consider-policies that
would boost productivity growth and raise the economy’s
so-called speed limit or potential to grow-I think that those would be-those
would be very welcome changes that we would like to see. KATHLEEN HAYS. Chair Yellen, Kathleen Hays. Oh, excuse me, Kathleen
Hays from Bloomberg. I’m going to try to
take the opposite side of this because-on this question
about market expectations and how the markets
got things wrong, and then how you say the Fed
suddenly clarified what it already said. But, for example,
if the-if you look at the Atlanta Fed’s latest GDP
tracker for the first quarter, it’s down to 0.9 percent. We had a retail sales
report that was mixed. Granted the, you
know, upward revisions of previous months
make it look better, but the consumer does
not appear to be roaring in the first quarter, kind of underscoring the wait-and-see
attitude you just mentioned. If you look at measures
of labor compensation, you note in the statement
that they’re not moving up, and, in fact, they are. And if you look at
average-there are so many things you can look at. And you yourself have said
in the past that the fact that that is happening is
perhaps an indication there’s still slack in the labor market. I guess my question is this:
In another sense, what happened between December and March? GDP is tracking very low. Measures of labor
compensation are not threatening to boost inflation
any time fast. The consumer is not
picking up very much. Fiscal policy-we don’t
know what’s going to happen with Donald Trump. And yet you have
to raise rates now. So what is the-what is
the motivation here? The economy is so far from
your forecast in terms of GDP, why does the Fed
have to move now? What does this signal, then,
about the rest of the year? CHAIR YELLEN. So GDP is a pretty
noisy indicator. If one averages through
several quarters, I would describe our economy
as one that has been growing around 2 percent per year. And as you can see
from our projections, we-that’s something
we expect to continue over the next couple of years. Now, that pace of growth has
been consistent with a pace of job creation that is more
rapid than what is sustainable if labor force participation
begins to move down in line with what we see as
its longer-run trend with an aging population. Now, unemployment
hasn’t moved that much, in part because people have
been drawn into the labor force. Labor force participation,
as I mentioned in my remarks, has been about flat over
the last three years. So, in that sense,
the economy has shown over the last several years that
it may have had more room to run than some people might have
estimated, and that’s been good. It’s meant we’ve
had a great deal of job creation over
these years. And there could be-there
could be room left for that to play out further. In fact, look, policy
remains accommodative. We expect further improvement
in the labor market. We expect the unemployment rate
to move down further and to stay down for the next several years. So we do expect that the path of policy we think is
appropriate is one that is going to lead to some further
strengthening in the labor market. KATHLEEN HAYS. [Inaudible] Just quickly, then,
I just want to underscore-I want to ask you, so following on
that, you expect it to move. But what if it doesn’t? What if GDP doesn’t pick up? What if you don’t see
wage measures rising? What if you don’t-what if the core PCE gets
stuck at 1.7 percent? Would you-is it your
view, perhaps, that if there’s a risk right now
in the median forecast for dots, that it’s fewer hikes this year, rather than the consensus,
or more? CHAIR YELLEN. Well, look, our policy
is not set in stone. It is data dependent, and
we’re-we’re not locked into any particular policy path. Our-you know, as you said, the data have not
notably strengthened. I-there is noise always in the
data from quarter to quarter, but we haven’t changed
our view of the outlook. We think we’re on the same path, not-we haven’t boosted
the outlook, projected faster growth. We think we’re moving along
the same course we’ve been on, but it is one that
involves gradual tightening in the labor market. I would describe some
measures of wage growth as having moved up some. Some measures haven’t moved
up, but there’s some evidence that wage growth is
gradually moving up, which is also suggestive of
a strengthening labor market. And we expect policy to remain
accommodative now for some time. So we’re-we’re talking
about a gradual path of removing policy accommodation as the economy makes progress
moving toward neutral. But we’re continuing to
provide accommodation to the economy that’s
allowing it to grow at an above-trend
pace that’s consistent with further improvement
in the labor market. JOHN HELTMAN. Hi, John Heltman with
the American Banker. A regulatory question, if I may. The Administration has
recently reiterated its support for a reinstatement
of Glass-Steagall. Treasury Secretary
Mnuchin has called for a “21st century Glass-Steagall.” Keeping in mind that there are
no specifics on this proposal, is the fundamental idea of
separating commercial banking from investment banking a
fruitful line of inquiry? Is this the right
path to be pursuing? CHAIR YELLEN. So I’ve not seen any concrete
proposals along this line. I don’t really know what a “21st century Glass-Steagall”
would look like. I think my reading on
the financial crisis is that that wasn’t the major
source of the financial crisis. In fact, many of the
problems emanated from firms that were investment
banking units. To me, an important reform in
the aftermath of the crisis was to make sure that investment
banking activities where-that were a core part of the
shadow banking system where leverage had built-that
those were appropriately capitalized, had
appropriate liquidity, and their management
was strengthened, and that’s what we
have tried to do. But, obviously, we would look at any proposals
that are put forward. I’m not aware of anything
concrete to react to. JOHN HELTMAN. So-so you don’t think it’s
necessarily [inaudible] a really good idea? CHAIR YELLEN. Well, I don’t think it was the
cause of the financial crisis, and I do feel that we have
significantly strengthened supervision of bank
holding companies that incorporate investment
banking activities. JO LING KENT. Hi, Chair Yellen. I’m Jo Ling Kent with NBC News. I just want to know, what
message are you trying to send consumers with
this particular rate hike? CHAIR YELLEN. I think that’s a great question. I appreciate your asking it. And the simple message is,
the economy is doing well. We have confidence in the
robustness of the economy and its resilience to shocks. It’s performed well over
the last several years. We have created, since
the trough in employment after the financial crisis,
around 16 million jobs. The unemployment rate
has moved way down, and many more people
feel optimistic about their prospects
in the labor market. There is job security. We’re seeing more people who are
feeling free to quit their jobs, getting outside offers,
looking for other opportunities. So I think the job market, which
is an important focus for us, is certainly improving. That’s not to say that it’s
a-good labor market conditions for every individual
in the United States. We know there are problems
that face, particularly, people with less skill and
education and in certain sectors of the economy, but many
Americans are enjoying a stronger labor market and feel
better-feel very much better about that. And inflation is
moving-moving up, I think, toward our 2 percent objective. And we’re operating
in an environment where the U.S. economy
is performing well and risks seem pretty balanced. So I think people can feel good
about the economic outlook. JEANNA SMIALEK. Hi, Jeanna Smialek,
Bloomberg News. You emphasized in the statement that the Fed’s inflation
target is “symmetric.” Would you be able to expand a
little bit on why you did that, why it was included, how much of an overshoot would
the Fed be willing to tolerate, and for how long? CHAIR YELLEN. Well, a couple of years ago, we
included the word “symmetric” in our statement of longer-run
goals, and this seemed like an appropriate time
to introduce that word into the statement because
we had previously indicated that there was a
shortfall of inflation from our 2 percent objective. Now, headline inflation
has moved almost back up to 2 percent. As I indicated, a better
forward-looking measure of inflation, core
inflation-that’s not our target, but I think it’s worth looking at because it’s a better
forward-looking predictor of headline inflation-I think
that’s still running a little bit under 2 percent, but we expect it’s
going to move up to 2. And this seemed like a good
time to remind Americans that what our objective
is is 2 percent inflation. Inflation is not always
going to be at 2 percent. It’s-like all economic
variables, it fluctuates. Sometimes it’s going to be below
2 percent, sometimes it’s going to be above 2 percent. We’ve had a long period
in which inflation has run under 2 percent. As we move back to 2 percent,
which is where we’re heading, there will be some times when
it’s above 2 percent as well. And it’s a reminder-2
percent is not a ceiling on inflation, it’s a target. It’s where we always want
inflation to be heading. And there will be some
times when inflation is above 2 percent, just like
it’s been below 2 percent. We’re not shooting for
inflation above 2 percent, but it’s a reminder that
there will be deviations above and below when we’re
achieving our objective. JEANNA SMIALEK. How well can you
tolerate an overshoot? CHAIR YELLEN. Well, we would-if there were
an overshoot and it appeared to be persistent, we would
put in place policies to try to bring inflation
back to 2 percent. That’s the core set of
principles that we have adopted in our statement on
longer-run goals and strategy. And exactly how long it
would take to get back to 2 percent would depend, in
part, on what was happening with respect to employment
and our other objectives. So there’s no hard and
fast answer to that. PATRICK GILLESPIE. Chair Yellen, Patrick
Gillespie with CNN. Some fiscal policy proposals, such as the border adjustment
tax, would cause the dollar to strengthen significantly
over a short period of time. I realize you can’t comment on
the specific policy proposal, but if the dollar were
to strengthen quickly over a short period of time,
perhaps some 20 percent for whatever reason, what would-what do you
think the impact would be on the U.S. economy,
particularly in exports and manufacturing? And what do you think
would be any implications for U.S. monetary policy? CHAIR YELLEN. So that’s a-that’s a
difficult question to answer. You asked that question
not in an isolated way: What would the impact of a large
appreciation of the dollar be? But, as I understand it, you
asked about it in the context of a border tax adjustment. Is that right? Because the argument
that is made is that what a border tax would do without an exchange rate
adjustment is to raise the price of imported goods into
the United States. And that large movement
in the dollar that analysts claim would occur
would essentially-if it were complete, would fully
offset the impact of the border tax on
U.S. import goods. So, it wouldn’t end
up having an impact on U.S. inflation or GDP growth. But a question that’s a
very different-that’s a very different matter than if,
suddenly, for some reason, the dollar were simply to begin
appreciating by a large amount, say, because there were
flight-to-safety flows into the dollar. I mean, if-if the
latter were to occur, there were just a big boost
in the dollar, it would tend to put downward pressure
on inflation and would have a negative
effect on U.S. export growth and tend to boost imports. But that’s a, that’s
a different-that’s a different exercise. I would just say, it’s very
uncertain exactly what would happen to the dollar. There has been a lot
of discussion of that, and I think it’s
complicated and uncertain. VICTORIA GUIDA. Hi, Chair Yellen. Victoria Guida with Politico. My question is about Republicans on the House Financial Services
Committee wrote to you asking that the Fed not put forward any
regulations until a Vice Chair of Supervision is in place. So I have a couple of
questions about that. One is, are you all
pulling back at all on any regulations-maybe not
all regulations, but, you know, maybe only going forward
with ones that you see as more time sensitive? And during the hearing
before that committee, you mentioned specifically the
CCAR stress-test rule would have to come out sometime
before that next cycle. Are there any other
time-sensitive regulations? CHAIR YELLEN. So at this point
we don’t have a lot of time-sensitive regulations. There is nothing right
now that we need to get out that’s a significant rule. So we have a relatively light
regulatory agenda at this point. We recognize, of course,
that we do have an obligation to write the rules that
Congress, you know, dictates in laws that they pass, and so that is an ongoing
obligation-obligation that we have. But our calendar is
relatively light at this point. NANCY MARSHALL-GENZER. I’m Nancy Marshall-Genzer
with Marketplace. Back here. CHAIR YELLEN. Yes. NANCY MARSHALL-GENZER. Some Fed critics have said it’s
too soon to raise interest rates because wages haven’t
risen enough to justify a rate increase. What would you say to that? CHAIR YELLEN. Well, I don’t-I would
like to see wages increase and think there’s
some scope for them to increase somewhat further. But our objectives are maximum
employment and inflation, and we need to consider what
path of rates is appropriate to foster those objectives. Unfortunately, one of the
things that’s been holding down wage increases is very
slow productivity growth. And I think we are seeing
some upward pressure as the labor market tightens. I take that as a signal
that we’re coming closer to our maximum employment
objectives. But productivity is-for those
focusing on wage growth, productivity is an
additional important factor.

Robin Kshlerin

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