wricaplogo

Keyword Search

RETURN

Categories

Recent FedSpeak Highlights

  • Janet L. Yellen The bottom line is that we must recognize that our unconventional tools might have to be used again. If we are indeed living in a low-neutral-rate world, a significantly less severe economic downturn than the Great Recession might be sufficient to drive short-term interest rates back to their effective lower bound.

    [ October 20, 2017 ]

    Does this mean that it will take another Great Recession for our unconventional tools to be used again? Not necessarily. Recent studies suggest that the neutral level of the federal funds rate appears to be much lower than it was in previous decades. Indeed, most FOMC participants now assess the longer-run value of the neutral federal funds rate as only 2-3/4 percent or so, compared with around 4-1/4 percent just a few years ago. With a low neutral federal funds rate, there will typically be less scope for the FOMC to reduce short-term interest rates in response to an economic downturn, raising the possibility that we may need to resort again to enhanced forward rate guidance and asset purchases to provide needed accommodation.

    ...

    The bottom line is that we must recognize that our unconventional tools might have to be used again. If we are indeed living in a low-neutral-rate world, a significantly less severe economic downturn than the Great Recession might be sufficient to drive short-term interest rates back to their effective lower bound.

  • John Williams My own view is we want to continue this gradual pace of increase. One more rate increase in December and three more next year is a pretty good starting point.

    [ October 18, 2017 ]

    My own view is we want to continue this gradual pace of increase. One more rate increase in December and three more next year is a pretty good starting point. I am still data dependent, but that is my baseline view.

    My view is that the normal fed funds rate in the future is 2.5 percent, which is pretty low. That’s not a lot of rate increases to get to that normal level, but I do think we want to be moving gradually toward that over the next two years.

  • Patrick Harker From WSJ: Like most of his colleagues, Mr. Harker said he had penciled in one more rate increase this year in his economic forecast released following the September meeting. “I emphasize the word ‘pencil.”

    [ October 17, 2017 ]

    Like most of his colleagues, Mr. Harker said he had penciled in one more rate increase this year in his economic forecast released following the September meeting.

    “I emphasize the word ‘pencil,’” he said. “We have to see how inflation dynamics roll out over the next couple of months and we have to make sure that the process of ceasing reinvestment is, as we anticipate, not very disruptive to the market.”

    Mr. Harker said he has also penciled in three rate increases in 2018.

    “There’s no need to firmly commit” to raising rates again this year, Mr. Harker said. “We just have to see how it evolves.”

  • Patrick Harker On a national level, there’s very little slack left in the labor market.

    [ October 17, 2017 ]

    On a national level, there’s very little slack left in the labor market.

  • Janet L. Yellen My best guess is that these soft readings will not persist, and with the ongoing strengthening of labor markets, I expect inflation to move higher next year. Most of my colleagues on the FOMC agree.

    [ October 17, 2017 ]

    Inflation readings over the past several months have been surprisingly soft, however, and the 12-month change in core PCE prices has fallen to 1.3 percent. The recent softness seems to have been exaggerated by what look like one-off reductions in some categories of prices, especially a large decline in quality-adjusted prices for wireless telephone services. More generally, it is common to see movements in inflation of a few tenths of a percentage point that are hard to explain, and such "surprises" should not really be surprising. My best guess is that these soft readings will not persist, and with the ongoing strengthening of labor markets, I expect inflation to move higher next year. Most of my colleagues on the FOMC agree. In the latest Summary of Economic Projections, my colleagues and I project inflation to move higher next year and to reach 2 percent by 2019.

    More From:

    See Also:

    Source:

    https://www.federalreserve.gov/newsevents/speech/yellen20171015a.htm

    Venue:

    Group of 30 International Banking Seminar
  • James Bullard If the committee continues to raise rates that could turn into a policy mistake...I think inflation could drift lower instead of higher.

    [ October 13, 2017 ]

    “If you are going to have an inflation target you should defend it. If you say you are going to hit the inflation target then you should try to hit it and maintain credibility,” Bullard said.

    Persistent weakness this year in the Fed’s preferred measure of inflation means “we more or less lost all the progress that we made the last two years” toward the 2 percent goal, Bullard said. Continuing to raise interest rates in that environment “can send a signal to markets that the inflation target is not that important.”

    “This idea of throwing out the unpleasant number and finely chopping the price index, you get down to a set of prices that barely can be considered representative and I think that is inappropriate,” Bullard said. “Maybe this is temporary, maybe this will bounce back. What I say to that is you want to see evidence...This is going in the wrong direction. And it is not consistent with the stories that the committee has been telling,” of inflation reaching the Fed’s target in the “medium term.”

    “If the committee continues to raise rates that could turn into a policy mistake...I think inflation could drift lower instead of higher. I think a misperception about where rates need to be in this environment could possibly trigger recession if it was carried to an extreme.”

  • John Williams From Reuters:  San Francisco Federal Reserve Bank President John Williams on Wednesday said he expects the U.S. central bank to raise interest rates later this year, three times next year, and a little bit further in 2019.

    [ October 12, 2017 ]

    San Francisco Federal Reserve Bank President John Williams on Wednesday said he expects the U.S. central bank to raise interest rates later this year, three times next year, and a little bit further in 2019.

  • Eric Rosengren My guess is, if the data comes in as expected, it would be appropriate to raise rates in December.

    [ October 12, 2017 ]

    My guess is, if the data comes in as expected, it would be appropriate to raise rates in December.

    [Also,] three 2018 rate hikes sound “approximately right”.

  • Stanley Fischer We don't think we're in a situation where we have an inflationary bubble or an unsustainable set of prices in the asset markets, but we don't comment on that very much and I shouldn't go on.

    [ October 11, 2017 ]

    We don't think we're in a situation where we have an inflationary bubble or an unsustainable set of prices in the asset markets, but we don't comment on that very much and I shouldn't go on.

  • Esther L. George In hindsight I think [our inflation objective] has proven to be far more challenging than expected both as a communications mechanism and a policy guide… While I still see 2 percent as an appropriate long-run objective for policy, I think it makes sense to evaluate deviations from that objective in a broader context.

    [ October 11, 2017 ]

    In hindsight I think [our inflation objective] has proven to be far more challenging than expected both as a communications mechanism and a policy guide… While I still see 2 percent as an appropriate long-run objective for policy, I think it makes sense to evaluate deviations from that objective in a broader context.

    While I supported the 2012 decision to specify a 2 percent objective for inflation, in hindsight I think it has proven to be far more challenging than expected both as a communications mechanism and a policy guide. Too much focus is placed on achieving this specific numerical target when, in fact, inflation is likely to fluctuate around that target with deviations that occasionally might persist. In fact, the qualitative definition of price stability that guided Volcker and Greenspan rings true today: An inflation rate that does not materially affect the decisions of business or households is an inflation rate that is consistent with price stability. While I still see 2 percent as an appropriate long-run objective for policy, I think it makes sense to evaluate deviations from that objective in a broader context.

  • Robert S. Kaplan What I don’t want to see us do is raise rates so fast that we get an inverted yield curve because history has shown an inverted yield curve has tended to be a precursor to a recession.

    [ October 10, 2017 ]

    Even as the short-term interest rate targeted by the Fed has climbed, the yield on the benchmark 10-year Treasury has fallen, a reversal of what usually happens and a development that Kaplan said he sees as “a little ominous.”

    “I view that as a comment on future economic growth,” Kaplan said at the Stanford Institute for Economic Policy Research. “And what I don’t want to see us do is raise rates so fast that we get an inverted yield curve because history has shown an inverted yield curve has tended to be a precursor to a recession.”

  • James Bullard The December meeting is going to be too early to make a determination on whether inflation is coming back. I don’t see how we can get the data on that. I am getting more concerned that we might make a policy mistake.

    [ October 6, 2017 ]

    “If we go too far in our zeal to normalize we might push inflation expectations down further and that might hinder our ability to hit our target,” Bullard said.

    “The December meeting is going to be too early to make a determination on whether inflation is coming back. I don’t see how we can get the data on that. I am getting more concerned that we might make a policy mistake.”

  • Raphael Bostic If we continue to see strength and that robust energy in the economy, I will be comfortable with a conversation about increasing rates. But we have to wait and see about those things.

    [ October 6, 2017 ]

    If we continue to see strength and that robust energy in the economy, I will be comfortable with a conversation about increasing rates. But we have to wait and see about those things.

  • John Williams Turning to inflation, I feel the agony of Sisyphus.

    [ October 5, 2017 ]

    My own view is that r-star today is around 0.5 percent. Assuming inflation is running at our goal of 2 percent in the future, the typical, or normal short-term interest rate would be 2.5 percent.

    Turning to inflation, I feel the agony of Sisyphus, as core inflation rolled back down the hill after being so near to our 2 percent goal earlier in the year. This low inflation, against a background of steady growth and strong employment, has been attracting a lot of attention from Fed commentators in recent months… [However,] as [temporary] effects wane and the strong economy pushes inflation higher for prices that tend to be sensitive to the economy, I am optimistic that inflation will move up to our 2 percent goal over the next couple of years. As inflation rises and the economic expansion continues, we will be able to move interest rates up to their new normal level.

  • Stanley Fischer We always need to be steeled for the possibility that we need to change course drastically.

    [ October 4, 2017 ]

    [Fischer] leaned against the notion that monetary policy can be conducted solely with formulas or rules.

    “We always need to be steeled for the possibility that we need to change course drastically.”

  • Neel Kashkari Job growth, wage growth, inflation and inflation expectations are all likely somewhat lower than they would have been had the FOMC not removed accommodation over the past three years.

    [ October 2, 2017 ]

    Of the five possible explanations I mentioned for low inflation, four of them (global labor supply, technology development, more domestic labor slack and falling inflation expectations) all suggest there is no reason to raise rates until we start to see wages and inflation climb back to target. The only explanation that would potentially call for further policy tightening is the transitory factor explanation. But the longer low inflation persists (here and around the world), the more tenuous that story becomes.

    Job growth, wage growth, inflation and inflation expectations are all likely somewhat lower than they would have been had the FOMC not removed accommodation over the past three years. Allowing inflation expectations to slip further will mean that we will have less powerful tools to respond to a future economic downturn. I believe these are significant costs that we must consider as we contemplate the future path of policy.

  • Patrick Harker From CNBC: Patrick Harker said Friday he still has "penciled in" an interest rate hike in December, and three more rate hikes next year, despite weak inflation.

    [ September 29, 2017 ]

    Patrick Harker said Friday he still has "penciled in" an interest rate hike in December, and three more rate hikes next year, despite weak inflation.

    "Labor markets feel really tight," Harker said at a conference in Philadelphia on Fintech, adding that it was appropriate for the Fed to take a pause for now in raising rates as it begins to shrink its $4.5 trillion balance sheet.

  • Janet L. Yellen Inflation data is very noisy, month-to-month, hopefully this isn’t too much in the weeds -- but there is residual seasonality in inflation and inflation data, which will tend to result in lower inflation readings in the second half of the year.

    [ September 26, 2017 ]

    From Bloomberg News:

    In response to a question about what data the Fed might look for before it adjusts its path, Yellen answered, "Inflation data is very noisy, month-to-month, hopefully this isn’t too much in the weeds -- but there is residual seasonality in inflation and inflation data, which will tend to result in lower inflation readings” in the second half of the year.

    It could be interesting if we see that trotted out a reason to look through soft readings (if there are soft readings) going forward.

    From a footnote to Yellen's speech:

    In general, price changes measured over a few months tend to be noisy, even when measured on a core or trimmed-mean basis. For this reason, the FOMC usually focuses on the growth rate of PCE prices over the previous 12 months, which smooths through the volatility in the monthly price data. This approach also sidesteps distortions in the monthly data associated with residual seasonality; these distortions are likely to hold down month-to-month changes in prices over the balance of the year (see Peneva, 2014). That said, 12‑month rates of inflation will continue to be held down through early 2018 by the unusually weak monthly readings on price changes recorded in early 2017.

  • Raphael Bostic My staff's own projections indicate continued strength in the economy and progress toward the FOMC's inflation objective as the year concludes and we move into 2018. I think clear evidence of this path could certainly be consistent with an additional rate hike this year.

    [ September 26, 2017 ]

    I conclude that monetary policy is not currently overly easy. But this is not a statement as to whether or not further adjustments in policy are required. My staff's own projections indicate continued strength in the economy and progress toward the FOMC's inflation objective as the year concludes and we move into 2018. I think clear evidence of this path could certainly be consistent with an additional rate hike this year.

  • Janet L. Yellen It would be imprudent to keep monetary policy on hold until inflation is back to 2 percent.

    [ September 26, 2017 ]

    How should policy be formulated in the face of such significant uncertainties? In my view, it strengthens the case for a gradual pace of adjustments. Moving too quickly risks overadjusting policy to head off projected developments that may not come to pass. A gradual approach is particularly appropriate in light of subdued inflation and a low neutral real interest rate, which imply that the FOMC will have only limited scope to cut the federal funds rate should the economy be hit with an adverse shock.  But we should also be wary of moving too gradually. Job gains continue to run well ahead of the longer-run pace we estimate would be sufficient, on average, to provide jobs for new entrants to the labor force. Thus, without further modest increases in the federal funds rate over time, there is a risk that the labor market could eventually become overheated, potentially creating an inflationary problem down the road that might be difficult to overcome without triggering a recession. Persistently easy monetary policy might also eventually lead to increased leverage and other developments, with adverse implications for financial stability. For these reasons, and given that monetary policy affects economic activity and inflation with a substantial lag, it would be imprudent to keep monetary policy on hold until inflation is back to 2 percent.

    More From:

    See Also:

    Source:

    https://www.federalreserve.gov/newsevents/speech/yellen20170926a.htm

    Venue:

    NABE Annual Economic Policy Conference