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Recent FedSpeak Highlights

  • William C. Dudley In my view, the case for retaining the current floor system is very compelling.

    [ April 18, 2018 ]

    For [the implementation of Fed’s policy framework], I see two options: return to the “corridor”-type system that was in place prior to the financial crisis, or remain with the framework that has been in place since the crisis—namely, a “floor” system.

    In my view, the case for retaining the current floor system is very compelling for a number of reasons.  First, it is operationally much less complex than a corridor system.  In the current regime, the setting of IOER is largely sufficient to maintain the federal funds rate within the FOMC’s target range, as we have seen over the past few years.10  In contrast, a corridor system requires forecasting the many exogenous factors that affect the amount of bank reserves outstanding, and then engaging in open market operations on a near daily basis to keep reserves at a level consistent with the FOMC’s target range. This task would likely be more difficult now because of greater fluctuation in these exogenous factors relative to when the corridor regime was last in place.

    Second, a corridor system constrains the Federal Reserve’s ability to provide the types of lender-of-last-resort backstops that can help support financial stability… My overall point is that broad-based, open-ended lender-of-last-resort facilities are more difficult to accommodate in a corridor system because of the need to drain any reserve additions to keep the federal funds rate close to the FOMC’s target.

  • John Williams The flattening of the yield curve that we’ve seen is so far a normal part of the process, as the Fed is raising interest rates, long rates have gone up somewhat -- but it’s totally normal that the yield curve gets flatter.

    [ April 17, 2018 ]

    [Williams] said a truly inverted yield curve “is a powerful signal of recessions” that historically has occurred “when the Fed is in a tightening cycle, and markets lose confidence in the economic outlook.” That is not the case now, he said.

    “The flattening of the yield curve that we’ve seen is so far a normal part of the process, as the Fed is raising interest rates, long rates have gone up somewhat -- but it’s totally normal that the yield curve gets flatter,” Williams said.

    “I don’t see the signs yet of an inverted yield curve.”

  • William C. Dudley I don't know what neutral is precisely, but I think 3% is a reasonable starting point in terms of thinking about what neutral might be over the long run.

    [ April 16, 2018 ]

    I don't know what neutral is precisely, but I think 3% is a reasonable starting point in terms of thinking about what neutral might be over the long run. But it depends on so many other factors. What's happening to the stock market, what's happening to the bond market, what's happening to the dollar. So this idea that there's this magic neutral rate that's sort of constant for all time I think is not a good way of looking at it.

  • Neel Kashkari It now seems much more likely that we are going to actually achieve our inflation target in the near future, which would be a good thing. And I do think that the fiscal packages have probably helped somewhat.

    [ April 16, 2018 ]

    I think it’s likely that the fiscal actions that have been taken are going to on the margin help us achieve our inflation target. I was much more skeptical of whether we were on track to hitting 2% over the medium term. It now seems much more likely that we are going to actually achieve our inflation target in the near future, which would be a good thing. And I do think that the fiscal packages have probably helped somewhat. And so that’s why I think that that does lend support for, you know, the path that the SEP is forecasting.

  • Eric Rosengren I am in favor of somewhat more tightening than the median [Federal Open Market Committee] member.

    [ April 13, 2018 ]

    Referring to the Fed’s current outlook that guides for about three rate rises this year, Mr. Rosengren said “my own forecast is somewhat stronger in terms of unemployment rates and inflation outcomes,” and he expects today’s 4.1% jobless rate to fall to 3.7% this year.

    Because of this robust outlook, “I am in favor of somewhat more tightening than the median [Federal Open Market Committee] member,” he said.

  • Robert S. Kaplan I’m not going to say blindly we should be raising rates if the curve keeps flattening.”

    [ April 10, 2018 ]

    “I, for one, am going to be watching the yield curve very carefully,” Kaplan said. “I’m not going to say blindly we should be raising rates if the curve keeps flattening.”

  • Charles L. Evans If inflation remains on track for 2 percent, continuing our slow, gradual increases will be appropriate to get us to the point where monetary policy isn’t really providing more lift to the economy.

    [ April 7, 2018 ]

    “Fiscal policy has been much more supportive of further growth and so the need for accommodative monetary policy is less than it was before,” Evans told reporters in comments after a talk at the University of Chicago Graduate China Forum.

    The Fed next meets to set policy in June. If it remains on track for 2 percent, and inflation expectations rise, “continuing our slow, gradual increases will be appropriate to get us to the point where monetary policy isn’t really providing more lift to the economy.”

    ...

    “I am optimistic that we are going get to 2 percent; it would be surprising if we didn’t, I just want to make sure we do,” he said. “In that environment, a gradual increase in our interest rate range objectives is appropriate.”

  • Jerome H. Powell As a nation, we are not bystanders. We can put policies in place that will support labor force participation and give us the best chance to achieve broad and sustained increases in productivity, and thus in living standards.

    [ April 6, 2018 ]

    To summarize this discussion, some of the factors weighing on longer-term growth are likely to be persistent, particularly the slowing in growth of the workforce. Others are hard to predict, such as productivity. But as a nation, we are not bystanders. We can put policies in place that will support labor force participation and give us the best chance to achieve broad and sustained increases in productivity, and thus in living standards. These policies are mostly outside the toolkit of the Federal Reserve, such as those that support investment in education and workers' skills, business investment and research and development, and investment in infrastructure.

  • Jerome H. Powell The FOMC's patient approach has paid dividends and contributed to the strong economy we have today... My FOMC colleagues and I believe that, as long as the economy continues broadly on its current path, further gradual increases in the federal funds rate will best promote these goals. 

    [ April 6, 2018 ]

    At our meeting last month, the FOMC raised the target range for the federal funds rate by 1/4 percentage point, bringing it to 1-1/2 to 1-3/4 percent. This decision marked another step in the ongoing process of gradually scaling back monetary policy accommodation. The FOMC's patient approach has paid dividends and contributed to the strong economy we have today.

    Over the next few years, we will continue to aim for 2 percent inflation and for a sustained economic expansion with a strong labor market. As I mentioned, my FOMC colleagues and I believe that, as long as the economy continues broadly on its current path, further gradual increases in the federal funds rate will best promote these goals. 

  • John Williams Our recent projections indicate that the center of the distribution of FOMC projections foresees a total of three to four rate increases this year and further gradual rate increases over the next two years, bringing the target federal funds rate to around 3-1/2 percent by the end of 2020. In my view, this is the right direction for monetary policy.

    [ April 6, 2018 ]

    The good news is for most of the past year, inflation has been running closer to 2 percent. With the economy strong, and strengthening further, I expect that we’ll see inflation reach and actually slightly exceed our longer-run 2 percent goal for the next few years.

    ...

    [O]ur recent projections indicate that the center of the distribution of FOMC projections foresees a total of three to four rate increases this year and further gradual rate increases over the next two years, bringing the target federal funds rate to around 3-1/2 percent by the end of 2020. In my view, this is the right direction for monetary policy.

    ...

    To sum up: the outlook is very positive. The economy is on course to be as strong as we have seen in many decades and inflation is moving closer to our target. The challenge for monetary policy is to keep it that way. This is never an easy task, but we are well positioned to achieve our goals, and to respond to any unexpected twists and turns that may lie in the economic road ahead.

  • Raphael Bostic I am actually very comfortable going above the 2 percent by some amount… I think it is also important that we take a stance so that everyone understands that the 2 percent level is an average, not a ceiling.

    [ April 5, 2018 ]

    “I am actually very comfortable going above the 2 percent by some amount -- 2.2, 2.3 -- I don’t think that is a crisis of overheating,” he told Bloomberg Television’s Michael McKee in an interview Thursday in Sarasota, Florida. “I think it is also important that we take a stance so that everyone understands that the 2 percent level is an average, not a ceiling.”

  • James Bullard It is possible that the nominal yield curve will invert sometime in the next year, but recently the 10-year yield has increased enough to keep pace with the FOMC’s rate increases.

    [ April 4, 2018 ]

    It is possible that the nominal yield curve will invert sometime in the next year, but recently the 10-year yield has increased enough to keep pace with the FOMC’s rate increases.

  • Lael Brainard The quarterly assessment of financial stability is a critical input into the Board's processes for adjusting the supervisory scenarios used in the stress test and the setting of the countercyclical capital buffer--the two tools that permit the Board to respond to vulnerabilities that build over time.

    [ April 3, 2018 ]

    The primary focus of financial stability policy is tail risk (outcomes that are unlikely but severely damaging) as opposed to the modal outlook (the most likely path of the economy). The objective of financial stability policy is to lessen the likelihood and severity of a financial crisis. Guided by that objective, our financial stability work rests on four interdependent pillars: systematic analysis of financial vulnerabilities; standard prudential policies that safeguard the safety and soundness of individual banking organizations; additional policies, which I will refer to as "macroprudential," that build resilience in the large, interconnected institutions at the core of the system; and countercyclical policies that increase resilience as risks build up cyclically.

    ...

    [T]he quarterly assessment of financial stability is a critical input into the Board's processes for adjusting the supervisory scenarios used in the stress test and the setting of the countercyclical capital buffer--the two tools that permit the Board to respond to vulnerabilities that build over time.

  • Patrick Harker It’s more the firming of inflation that’s moved me from two to three.

    [ March 29, 2018 ]

    WSJ: How much of the change, then, from two to three [rate increases in the baseline projection] is because of the fiscal policy, the aggregate demand boost.

    MR. HARKER: For me, it’s more the firming of inflation that’s moved me from two to three. And again, if I see inflation continuing to move toward 2% and if it would accelerate, then I would consider even further increases. But again, I’d need to see the data before I make that decision.

  • Raphael Bostic Coming into this year, we had penciled in three moves for the year. And I think the risks are to the upside.

    [ March 27, 2018 ]

    WSJ: So does the fiscal boost, with the unemployment rate being historically low, change your view about the path of monetary policy right now?

    MR. BOSTIC: Not immediately. If you look at my expectations around monetary policy, the risks are now to the upside now. So coming into this year, we had penciled in three moves for the year. And I think the risks are to the upside. We’re going to be monitoring—I’ll tell you that the business contacts that we’ve reached out to, they’re saying they’re not expecting significant changes to their capital expenditures for the first half of this year. So if you think about what it’s going to look like for this year, I don’t think we’re going to see a huge ramp up, if what they’re reporting is accurate. And so we’re really looking in the out years. And a lot of what we’re going to be trying to get a handle on is what does the trajectory of the economy look like in the out years—2019, 2020, 2021.

  • Loretta J. Mester If the economy evolves as I anticipate, I believe further gradual increases in interest rates will be appropriate this year and next year.

    [ March 26, 2018 ]

    “If the economy evolves as I anticipate, I believe further gradual increases in interest rates will be appropriate this year and next year,” Mester said in a speech at Princeton University. The Fed must “avoid a build-up in risks to macroeconomic stability that could arise if the economy were allowed to overheat,” she added.

  • Eric Rosengren I am going to suggest that policymakers should view financial stability tools more holistically. Indeed, I would like to suggest that the ability to appropriately set financial stability tools is integrally related to the ability to fully utilize fiscal, monetary, and financial stability policy tools to respond to a large adverse financial shock.

    [ March 23, 2018 ]

    Financial stability policy is generally associated with regulatory and supervisory measures, so the exercise of financial stability policy is often seen as being independent from the stance of monetary and fiscal policy. However, I am going to suggest that policymakers should view financial stability tools more holistically. Indeed, I would like to suggest that the ability to appropriately set financial stability tools is integrally related to the ability to fully utilize fiscal, monetary, and financial stability policy tools to respond to a large adverse financial shock.

    The use of financial stability tools is generally seen as being conditioned on and calibrated to the severity of likely economic stresses – but I would argue that it is also critically important to take into account the extent to which monetary and fiscal policy are equipped to respond to an adverse financial shock, so that policymakers can best coordinate the response to a crisis across all available tools. Much of what I have in mind has to do with assessing each policy tool’s capacity to respond.

    For example, suppose that a country’s government-debt-to-GDP ratio is high, limiting the ability or willingness to use fiscal tools to offset financial and other shocks. If that country has also not developed sufficient financial stability response tools, then most of the countercyclical policy response will likely fall to monetary policy. Alternatively, if the government-debt-to- GDP ratio is extremely high and interest rates are already at or near the effective lower bound, and the country is unable or unwilling to use less-conventional monetary tools like quantitative easing, then financial stability tools are likely to be more important. In sum, it is important to consider whether there is sufficient capacity in the toolkit for policymakers to adequately (let alone optimally) respond to severe financial shocks.

  • James Bullard You would not have to go very high in this environment to be in a restrictive policy stance.  If we went too far we would start to put downward pressure on inflation in an environment where inflation is already below target.

    [ March 11, 2018 ]

    James Bullard, the St Louis Fed president and one of a handful of doves in the Fed system, said lifting rates four times in 2018 could drive down inflation — especially when the central bank’s programme of reducing its asset holdings is becoming “more and more forceful”.

    The central bank began gradually unwinding its $4.5tn balance sheet in October last year.

    “You would not have to go very high in this environment to be in a restrictive policy stance,” Mr Bullard said in a Financial Times interview. “If we went too far we would start to put downward pressure on inflation in an environment where inflation is already below target.”

  • Eric Rosengren I expect that it will be appropriate to remove monetary policy accommodation at a regular but gradual pace – and perhaps a bit faster than the three, one-quarter point increases envisioned for this year in the assessment of appropriate policy from the December 2017 FOMC meeting.

    [ March 9, 2018 ]

    [T]he stock and bond markets have become much more volatile in recent weeks. This likely reflects, in part, the realization that financial markets need to factor in the risk that wages and prices could grow too quickly, if there were too much fiscal and monetary stimulus – particularly with the economy currently at or beyond full employment and inflation approaching the Fed’s goal. I view the underlying insight as a healthy realization by market participants that the risks are two-sided: Unsustainably strong growth that leads to excessive inflation or financial imbalances is now as much a risk as growth that falls short. And there is a realization that monetary policymakers need to be vigilant in calibrating the level of accommodation, if continued sustainable growth is to be achieved...

    To keep the economy on a sustainable path, I expect that it will be appropriate to remove monetary policy accommodation at a regular but gradual pace – and perhaps a bit faster than the three, one-quarter point increases envisioned for this year in the assessment of appropriate policy from the December 2017 FOMC meeting.

  • Charles L. Evans My own preference would be to wait a little bit longer, let the March anomalous inflation rate from a year ago fall out.

    [ March 9, 2018 ]
    Chicago Federal Reserve President Charles Evans told CNBC on Friday he's still nervous about continued low inflation and would prefer to "wait a little longer" than this month's meeting before raising interest rates for the first time in 2018. "My own preference would be to wait a little bit longer, let the March anomalous inflation rate from a year ago fall out," said Evans, who is not a policy voting member this year but takes part in the meetings.

    "Let's make sure these sort of Amazon, disruptive kind of pricing models aren't continuing to find their way into keeping inflation lower than that," he added in a "Squawk Box" interview.

    By midyear, if inflation does show signs of increasing to the Fed's 2 percent target, Evans said, he would be "much more confident" to continue "a gradual upward adjustment of the funds rate."  The trajectory of rates is much more important than whether there are "three, two, four rate increases" this year, Evans said.