wricaplogo

Keyword Search

RETURN

Categories

Recent FedSpeak Highlights

  • Robert S. Kaplan I'm not prepared to say yet I want to go above neutral.

    [ May 24, 2018 ]

    From CNBC: The Federal Reserve needs to raise interest rates about four more times before it reaches an equilibrium level, Dallas Fed President Robert Kaplan said Thursday.

    Speaking a day after the central bank released minutes from its May meeting, Kaplan said the Fed still has work to do before it can say it has its benchmark funds rate at a level that is considered "neutral" for growth.

    "My own view is we should be raising rates until we get to neutral," he told CNBC's Steve Liesman in a live interview from Dallas. "We should do it gradually. I'm not prepared to say yet I want to go above neutral."

  • Loretta J. Mester We need to be explaining to markets that one month's reading above 2% is not something to cause panic

    [ May 22, 2018 ]

    "We need to be explaining to markets that one month's reading above 2% is not something to cause panic," she said. "I think we're getting closer on the inflation front, and I think we're a little bit beyond on the labor front. I think we're close."

  • Raphael Bostic Given that measured inflation is already effectively on target, I won't be surprised to see a modest overshoot of our longer-run target. In fact, my own forecast is that, even with further gradual removal of monetary policy accommodation, inflation is likely to run a bit above 2 percent for a while.

    [ May 21, 2018 ]

    Given that measured inflation is already effectively on target, I won't be surprised to see a modest overshoot of our longer-run target. In fact, my own forecast is that, even with further gradual removal of monetary policy accommodation, inflation is likely to run a bit above 2 percent for a while.

  • Loretta J. Mester The goals of monetary policy and financial stability are interconnected…. Financial stability is a necessary but not sufficient condition for macroeconomic stability.

    [ May 18, 2018 ]

    The goals of monetary policy and financial stability are interconnected. Indeed, the FOMC’s statement on its monetary policy strategy says that the FOMC’s monetary policy decisions “reflect its longer-run goals, its medium-term outlook, and its assessments of the balance of risks, including risks to the financial system that could impede the attainment of the Committee’s goals.” Financial stability is a necessary but not sufficient condition for macroeconomic stability. On the other side of the coin, macroeconomic stability is an important contributor to financial stability, and well-formulated and well-communicated monetary policy supports financial stability.

  • James Bullard When you’re at zero and you’re giving forward guidance, that’s one thing.  But we’re not at zero anymore.

    [ May 16, 2018 ]

    When you’re at zero and you’re giving forward guidance, that’s one thing.  But we’re not at zero anymore.

  • Raphael Bostic I have had extended conversations with my colleagues about a flattening yield curve and the risks of it inverting...  We are aware of it. So it is my job to make sure that doesn’t happen.

    [ May 16, 2018 ]

    "I have had extended conversations with my colleagues about a flattening yield curve” and the risks of it inverting, he said at a moderated forum in Augusta, Georgia on Wednesday. “We are aware of it. So it is my job to make sure that doesn’t happen.”

    ...

    Bostic said Wednesday he favors three rate hikes in total this year after three in 2017, though his outlook could change.

    “We don’t want to do it so fast that it is disruptive. That is why we are going at a slow, gradual pace,” he said about interest-rate increases. “Hopefully we won’t get to that inversion.”

  • John Williams We can’t keep talking about policy normalization once we’re around what we think of as a neutral interest rate... So I think this forward guidance, at some point, will be past its shelf life.

    [ May 15, 2018 ]

    “That language [in the FOMC post-meeting statement] still works today,” Williams said. But as interest rates approach neutral, a point that could be reached this year or early next, “We will have to come up with something at some point...That will be a committee decision about how best to describe where money policy is positioned.”

    ...

    “We can’t keep talking about policy normalization once we’re around what we think of as a neutral interest rate... So I think this forward guidance, at some point, will be past its shelf life.”

    “I do think that the statement language will have to evolve over time, to reflect the fact that at some point, we’ve got monetary policy to more normal levels -- we can’t keep talking about policy normalization once we’re around what we think of as a neutral interest rate. And so I think this forward guidance, at some point, will be past its shelf life.”

    ...

    “Even if we.move away from verbal forward guidance in the future, we’re still going to have this numerical forward guidance [in the dot plot and the SEP].  It’s not forward guidance in the same way: it’s not like, ‘further gradual increase in interest rates’, it’d be more about: well here’s the perspective of the participants.

    And if you think about it, once we’re closer to neutral, there will be a range of views about where interest rates should go, and it won’t be quite as clear cut as it is now, where the majority of people want to see us moving toward neutral.”

    ...

    “We probably need to do more work on communicating our reaction function, and not spending so much time trying to communicate our forward guidance.”

    “Now, in a perfect world, we’d find a way to use our economic projections to come up with a document that explained this in words. Right now economic projections are kind of a statistical artifact, and there’s no story to go along with that. Hopefully at some point, we’ll be able to provide, as a committee, a nice summary of -- here’s where we see the economy going. Here are the big drivers. Here are the uncertainties. And here’s what we think appropriate policy will be. We’re not going to do that anytime soon, but this was a project we contemplated years ago, a consensus forecast or something. I still think -- if we could figure out a way to do that, and make it practical, and make it effective, that would be a good way to get into this much more data-dependent, reaction-function mode.”

  • Robert S. Kaplan From Bloomberg: The yield curve is one of the considerations on my mind, which is why I’m not jumping away from three as a base case.

    [ May 15, 2018 ]

    The “yield curve is one of the considerations on my mind, which is why I’m not jumping away from three as a base case,” Kaplan said Tuesday in a Bloomberg News interview. “I don’t want to knowingly invert the yield curve, but I think it’s too soon to say how much operating flexibility we are going to have."

    “I’d like to first get to neutral, see if we can do that, and then we’ll have to make a judgment when that time comes” about whether to continue raising rates, Kaplan said. “But even in my dot plot submissions, I would not be submitting estimates that would, in my view, knowingly invert the yield curve.”

  • Richard Clarida I do believe that the benefits of QE diminished as more and more rounds were added, and that the cost of QE went up.

    [ May 15, 2018 ]

    I do believe that the benefits of QE diminished as more and more rounds were added, and that the cost of QE went up.

  • Randal Quarles I believe we should consider whether the internal TLAC calibration for IHCs could be adjusted to reflect the practice of other regulators without adversely affecting resolvability and U.S. financial stability. The current calibration is at the top end of the scale set forth by the FSB, and willingness by the United States to reconsider its calibration may prompt other jurisdictions to do the same...

    [ May 15, 2018 ]

    The single-point-of-entry (SPOE) and bail-in concepts hold particular promise for most large global firms. However, a successful SPOE resolution of a large global firm has not yet been attempted and will require close cooperation among a large number of stakeholders, including both home and host country regulators. This cooperation will be based on an understanding of separate and mutual interests, not on trust alone. So while SPOE creates a potentially workable framework for resolution, setting the conditions for cooperation is critical. I grew up among the ranches of the American West, where we lived by the motto taught to me as a young child: trust everyone, but brand your cattle. This is a theme that will run throughout my remarks today.

    ...

    Regarding liquidity, the Board and FDIC expect a U.S. G-SIB to appropriately estimate and maintain sufficient liquidity for material entities, an expectation known as Resolution Liquidity Adequacy and Positioning, or RLAP.4 RLAP expectations are intended to be designed so that liquidity is not "double counted" among home and host jurisdictions, to provide transparency into the location of liquidity across the firm's material entities, and to ensure that liquidity can flow where needed with minimal potential disruption. The RLAP approach is aimed at ensuring that surpluses in one host jurisdiction generally are not relied upon to meet deficits in another host jurisdiction, given the confusion and vulnerabilities such reliance can cause in an actual stress. Specifically, a firm should be able to measure the stand-alone liquidity position of each material entity and ensure that liquidity is readily available either at the parent or at that entity to meet any deficits.5 As with capital, firms are expected to have a balance of prepositioned and centrally managed liquidity--specifically, by balancing the certainty associated with holding liquidity directly at material entities against the flexibility provided by holding high-quality liquid assets at the parent available to meet unanticipated outflows at material entities.

    ...

    For IHCs that are subsidiaries of foreign-owned G-SIBs, the Federal Reserve requires such a firm to issue a minimum amount of loss-absorbing instruments to its foreign parent, known as internal TLAC, including a minimum amount of unsecured long-term debt.6 In the event that an IHC was experiencing significant financial distress, the internal TLAC could be used to replenish the IHC's equity and maintain its solvency. The U.S. implementation of internal TLAC is modeled on the internal TLAC framework developed by the Financial Stability Board (FSB), which includes a calibration of the amount of loss-absorbing resources that should be prepositioned in a given jurisdiction.7 Specifically, the FSB contemplates that internal TLAC requirements of a subsidiary of a foreign bank expected to be resolved through SPOE would be calibrated at 75 to 90 percent of the external TLAC requirement that would apply to the subsidiary if it were to be separately resolved. In implementing the TLAC standards in the United States, the Board calibrated the internal TLAC requirement for IHCs of foreign-owned G-SIBs at the high end of the FSB range, at around 90 percent.

    ...

    There are two principal points I have been making today. The first is that some amount of local capital and liquidity prepositioning can reduce the incentives for damaging and unpredictable seizures of resources by local regulators during times of stress--thus actually reducing the likelihood that improvised, beggar-thy-neighbor ring-fencing would frustrate completion of a successful SPOE resolution in the future. As we learned long ago out West, the branding of cattle creates the possibility of trust.

    The second point, however, is equally important: the best prepositioning structure is not an eternal verity mathematically deducible from first principles, but it is instead a practical balance designed to promote cooperation among humans, and any such balance is likely to be improvable with experience, reflection, and debate...

    There are two principal points I have been making today. The first is that some amount of local capital and liquidity prepositioning can reduce the incentives for damaging and unpredictable seizures of resources by local regulators during times of stress--thus actually reducing the likelihood that improvised, beggar-thy-neighbor ring-fencing would frustrate completion of a successful SPOE resolution in the future. As we learned long ago out West, the branding of cattle creates the possibility of trust.

    The second point, however, is equally important: the best prepositioning structure is not an eternal verity mathematically deducible from first principles, but it is instead a practical balance designed to promote cooperation among humans, and any such balance is likely to be improvable with experience, reflection, and debate...

    We continue to believe that the IHC and attendant requirements are appropriate for foreign banks with large U.S. operations. However, in light of our experience with these structures, I believe we should consider whether the internal TLAC calibration for IHCs could be adjusted to reflect the practice of other regulators without adversely affecting resolvability and U.S. financial stability. The current calibration is at the top end of the scale set forth by the FSB, and willingness by the United States to reconsider its calibration may prompt other jurisdictions to do the same, which could better the prospects of successful resolution for both foreign G-SIBs operating in the United States, and for U.S. G-SIBs operating abroad. Alternatively, it may be possible to streamline the elements of our resolution loss absorbency regime, which include both TLAC and long-term debt requirements. I will be recommending to my colleagues that we look closely at these possibilities in the coming weeks and seek comment on ways to further improve this framework.

  • James Bullard Unless we screw up I think the dollar is going to be the dominant currency.

    [ May 14, 2018 ]

    He also brushed aside suggestions that the U.S. dollar was in jeopardy of being dethroned by bitcoin or another upstart cryptocurrency (or fiat currency).

    “The dollar is in great shape today and will stay in great shape because it has been the winner in the currency competition over a long period of time,” he said, contending that is backed by the largest economy in the world, prevails in international trade and is backed by sound monetary policy that has produced low and stable inflation for the last two decades.

    “Unless we screw up I think the dollar is going to be the dominant currency.”

  • Loretta J. Mester As the expansion continues, it could be that in order to maintain our policy goals, we may need to move the fed funds rate, for a time, a bit above the level of the funds rate that is expected to prevail over the longer run. 

    [ May 14, 2018 ]

    As the expansion continues, it could be that in order to maintain our policy goals, we may need to move the fed funds rate, for a time, a bit above the level of the funds rate that is expected to prevail over the longer run. Indeed, the March Summary of Economic Projections indicates that the median appropriate policy path has the fed funds rate in 2020 moving a bit above the estimate of its longer-run level, which is about 3 percent.

  • James Bullard Analysis [regarding r-star conducted earlier this year] also suggests that the nominal policy rate set by the FOMC is already pressing against the upper bound of a neutral setting.

    [ May 11, 2018 ]

    Analysis [regarding r-star conducted earlier this year] also suggests that the nominal policy rate set by the FOMC is already pressing against the upper bound of a neutral setting.

  • Jerome H. Powell While global factors play an important role in influencing domestic financial conditions, the role of U.S. monetary policy is often exaggerated. And while financial globalization does pose some challenges for monetary policy, efforts to build stronger and more transparent policy frameworks and a more resilient financial system can reduce the adverse consequences of external shocks.

    [ May 8, 2018 ]

    Today I will focus in particular on the role of U.S. monetary policy in driving global financial conditions and capital flows. To preview my conclusions, I will argue that, while global factors play an important role in influencing domestic financial conditions, the role of U.S. monetary policy is often exaggerated. And while financial globalization does pose some challenges for monetary policy, efforts to build stronger and more transparent policy frameworks and a more resilient financial system can reduce the adverse consequences of external shocks.

  • Randal Quarles What will the Fed be monitoring as reserves are drained and the balance sheet shrinks? I would first like to emphasize that the Fed regularly monitors financial markets for a number of reasons, so I do not mean to imply that we will be doing anything that is very much different for our normal practice. As reserves continue to be drained, we will want to gauge how banks are managing their balance sheets in continuing to meet their LCRs, watching in particular how the distribution of reserve balances across the banking system evolves as well as monitoring any large-scale changes in banks' holdings of other HQLA-eligible assets, including Treasury securities and agency mortgage-backed securities. And on the liabilities side of banks' books, we will be keeping our eye on both the volume and the composition of deposits... Of course, importantly, deposits will not necessarily decline one-for-one with reserve balances as the Fed's balance sheet shrinks. The overall effects of the decline in the Fed's balance sheet will depend both on who ultimately ends up holding the securities in place of the Fed and on the full range of portfolio adjustments that other economic agents ultimately make as a result. We will also be monitoring movements in interest rates. In part, we will be tracking how the yields and spreads on the various assets that banks use to meet their LCR requirements evolve. For example, to the extent that some banks will wish to keep meeting a significant portion of their LCR requirements with reserves, the reduction in the Fed's balance sheet and the associated drop in aggregate reserves could eventually result in some upward pressure on the effective federal funds rate and on yields of Treasury securities. This situation could occur if some banks eventually find that they are holding fewer reserves than desired at a given constellation of interest rates and, in response, begin to bid for more federal funds while selling Treasury securities or other assets. Interest rates will adjust up until banks are indifferent with regard to holding the relatively smaller volume of reserves available in the banking system.

    [ May 4, 2018 ]

    Of course, importantly, deposits will not necessarily decline one-for-one with reserve balances as the Fed's balance sheet shrinks. The overall effects of the decline in the Fed's balance sheet will depend both on who ultimately ends up holding the securities in place of the Fed and on the full range of portfolio adjustments that other economic agents ultimately make as a result.

  • Robert S. Kaplan For me, neutral is somewhere between 2.5 or 2.75.

    [ May 4, 2018 ]

    I think that the fed should continue to gradually remove accommodation, certainly, until we get to inflation, until we get to neutral, and, for me, neutral is somewhere between 2.5 or 2.75, that would be my best estimate of neutral. Where we go from there, I'm a little unsure.

  • John Williams I am personally comfortable with the fact that inflation may overshoot that 2 percent for a while.

    [ May 4, 2018 ]

    "From the beginning we've seen our inflation target being a symmetric one, where we want inflation on average to be 2 percent — sometimes above, sometimes below," he said in an interview with CNBC's Steve Liesman on "Power Lunch."

    "I am personally comfortable with the fact that inflation may overshoot that 2 percent for a while," he added.

  • William C. Dudley I wouldn’t quite declare victory yet [on consistently achieving the Fed’s 2 percent inflation target].

    [ May 4, 2018 ]

    “I wouldn’t quite declare victory yet” on consistently achieving the Fed’s 2 percent inflation target, Dudley said Friday in New York during an interview with Bloomberg Editor-in-Chief Emeritus Matthew Winkler. “The inflation data goes up and down month to month, but we have made some progress and I am certainly happy where we are today.”

  • Charles L. Evans Some cyclical upturn in inflation is actually welcome because it should help solidify expectations symmetrically around our 2 percent objective. This is necessary for achieving our inflation target on a sustainable basis.

    [ April 20, 2018 ]

    Some cyclical upturn in inflation is actually welcome because it should help solidify expectations symmetrically around our 2 percent objective. This is necessary for achieving our inflation target on a sustainable basis.

    In this setting, the federal funds rate does not need to be increased as much above its neutral setting as in the past when trend inflation needed to be taken down several notches. Gradual policy increases in this context make sense—certainly as a way to limit the damage if policy ever actually becomes overly tight too soon.

  • Loretta J. Mester Recent research from the Cleveland Fed suggests that a strategy to overheat the economy in an attempt to pull more people back into the workforce is unlikely to have any lasting effect on labor force participation. Yet, overheating would have costs.

    [ April 19, 2018 ]

    t is appropriate to continue to remove some of the monetary policy accommodation to ensure we avoid a build-up in risks to macroeconomic stability that could arise if the economy were allowed to overheat. Recent research from the Cleveland Fed suggests that a strategy to overheat the economy in an attempt to pull more people back into the workforce is unlikely to have any lasting effect on labor force participation. Yet, overheating would have costs — it would necessitate sharper rate increases that could in themselves be destabilizing.

    A gradual upward path of interest rates should also help to avoid financial imbalances and a potential build-up of financial stability risks that could arise from the extended period of very low interest rates. Currently, in my assessment, financial stability vulnerabilities are at a moderate level.