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Recent FedSpeak Highlights

  • Janet L. Yellen From Reuters: The Fed is “not certain” the “surprising” inflation weakness will prove transitory, [Yellen] said at NYU Stern School of Business in New York. 

    [ November 21, 2017 ]

    Temporary factors likely explain the low U.S. inflation readings and prices should rebound next year, Federal Reserve Chair Janet Yellen said on Tuesday, though she added that she and her colleagues at the central bank are not necessarily convinced and the trend could prove more long-lasting.

    The Fed is “not certain” the “surprising” inflation weakness will prove transitory, she said at NYU Stern School of Business in New York. Yellen added she is “open minded” on what is behind the low-inflation conundrum.

  • Robert S. Kaplan For me, prudent risk management means some action to remove accommodation gradually and patiently… It’s not that you have see you are meeting both, then you move.

    [ November 16, 2017 ]

    Inflation is expected to rise toward the Fed’s goal, he said, and though structural pressures keeping it down are intensifying, “cyclical forces are building.”

    “For me, prudent risk management means some action to remove accommodation gradually and patiently,” he said, even if that means raising rates when the Fed has met only one of its two goals of full employment and 2-percent inflation. “It’s not that you have see you are meeting both, then you move.”

  • Loretta J. Mester I do think [the effectiveness of the Fed’s inflation target is] a very important thing that we should all be starting to think about… The Bank of Canada rethinks its framework every five years. It seems to me that’s not a bad thing.

    [ November 16, 2017 ]

    “I do think [the effectiveness of the Fed’s inflation target is] a very important thing that we should all be starting to think about,” Cleveland Fed President Loretta Mester told a monetary policy conference at the Cato Institute Thursday in Washington. “The Bank of Canada rethinks its framework every five years. It seems to me that’s not a bad thing.”

  • Eric Rosengren My own view is that it is quite likely that unemployment will fall below 4 percent, which is likely to increase pressures on inflation and asset prices. In my view, that suggests the need to continue to gradually remove monetary policy accommodation, which is quite consistent with market expectations of another increase in December.

    [ November 15, 2017 ]

    My own view is that it is quite likely that unemployment will fall below 4 percent, which is likely to increase pressures on inflation and asset prices. In my view, that suggests the need to continue to gradually remove monetary policy accommodation, which is quite consistent with market expectations of another increase in December.

  • Charles L. Evans In order to dispel the view that 2 percent is a ceiling, I feel our communications should be much clearer about our willingness to deliver on a symmetric inflation outcome. 

    [ November 15, 2017 ]

    By and large, central bankers are conservative types who view their most important task as preventing an outbreak of 1970s-style inflation. So perhaps then it’s not surprising that we as a group have not convincingly demonstrated to the public our commitment to a symmetric inflation target.

    Indeed, actual inflation outcomes in the U.S. have been far from symmetric.

    In order to dispel the view that 2 percent is a ceiling, I feel our communications should be much clearer about our willingness to deliver on a symmetric inflation outcome. This means our public commentary needs to acknowledge a much greater chance of inflation running at 2-1/2 percent in the coming years than I believe we have communicated in the past.

    I also worry that giving too much prominence to financial stability considerations in discussions of monetary policy could erode the public’s confidence in our commitment to our 2 percent inflation objective. Financial stability is obviously very important. But there are better tools than monetary policy for promoting it. In contrast, when it comes to meeting our inflation objective, monetary policy is the only game in town.

  • Raphael Bostic I’m going to stay open, but right now I’m pretty comfortable with the notion of us continuing to go on our pace toward a more balanced monetary policy [with a hike in December].

    [ November 14, 2017 ]

    When it comes to his support for boosting the Fed’s interest rate target in December, Mr. Bostic said after his speech that “I’m still in that place.” Asked if a rate rise is on the table, he responded “yes.” Mr. Bostic explained, “I’m going to stay open, but right now I’m pretty comfortable with the notion of us continuing to go on our pace toward a more balanced monetary policy.”

  • Charles L. Evans My aim today is not to argue for state-contingent price-level targeting… That may be a good way to go, but at this point, I just don't know. My point is that we should be planning for these inevitable future situations today.

    [ November 14, 2017 ]

    Evans championed [price-level targeting] policy in 2010 to deal with sagging inflation, but ultimately the Fed rejected such an "extreme" idea as too difficult to undertake during an economic crisis, Evans said on Tuesday.

    Now that economic times are calmer, Evans said, the Fed can study and analyze this and other approaches, and prepare the public for their possible use in the next severe downturn if the Fed cuts rates to zero and still needs more firepower to get the economy growing again. Bouts of zero interest rates are likely to become more common in the future as potential economic growth slows, Evans and other Fed policymakers believe.

    "My aim today is not to argue for state-contingent price-level targeting," Evans said on Tuesday. "That may be a good way to go, but at this point, I just don't know. My point is that we should be planning for these inevitable future situations today."

  • Janet L. Yellen Individual [Fed officials] should be explaining in their speeches, elaborating what's on the statement and explaining what we have agreed upon. We agreed that having done that, individuals can go out and explain their individual perspectives. I would say that guidance hasn't been totally faithfully followed.

    [ November 14, 2017 ]

    "Individual [Fed officials] should be explaining in their speeches, elaborating what's on the [Fed's decision] statement and explaining what we have agreed upon. We agreed that having done that, individuals can go out and explain their individual perspectives," she said.

    However, she added: "I would say that guidance hasn't been totally faithfully followed, although many of my colleagues do try to do that, and the press tends to pick up on differences, (which is) particularly difficult when we have an upcoming policy decision."

    Yellen admitted that it is hard to find a solution to this problem.

    "Probably we will never, given our structure and size, be able to deal with this totally effectively," Yellen told the audience.

  • Robert S. Kaplan From FT: Asked if he was willing to consider a rate rise at the Fed’s upcoming meeting, Mr Kaplan said: “Yes, I am actively considering appropriate next steps. As I should be.”

    [ November 14, 2017 ]

    From FT: Asked if he was willing to consider a rate rise at the Fed’s upcoming meeting, Mr Kaplan said: “Yes, I am actively considering appropriate next steps. As I should be.”

  • Patrick Harker I would like to avoid any inversion of the curve, so my goal is to remove accommodation in a way that we do not run the risk of inverting the yield curve.

    [ November 13, 2017 ]

    I think there are a lot of likely suspects [for the flattening of the yield curve]. One is just simply that other banks the European Central Bank, Bank of Japan, others continue to be highly accommodative, and that is one of the reasons we're seeing the long end flatten out. I am concerned about that, and that's why the pace of removal of accommodation, to me, has to be gradual… I would like to avoid any inversion of the curve, so my goal is to remove accommodation in a way that we do not run the risk of inverting the yield curve.

    We're heading toward, in the forecast horizon, a Fed funds rate around 3 percent or so. That's our forecast. But again, we'll take our time to get there, and we'll do it in a very prudent fashion so that we don't disrupt that markets and we run their risk of inverting the yield curve.

  • Patrick Harker I have penciled in right now, in my SEP, three increases for 2018, but... some of the underlying numbers, like wage growth, job openings and hires, if we saw that that wasn’t translating to higher prices -- our dual mandate is very clear, it’s stable prices.

    [ November 8, 2017 ]

    I have penciled in right now, in my SEP, three increases for 2018, but I will reassess that as the data comes in, referring to the Fed’s Summary of Economic Projections. Some of the underlying numbers, like wage growth, job openings and hires, if we saw that that wasn’t translating to higher prices -- our dual mandate is very clear, it’s stable prices.

  • Randall Quarles “I have come into this position thinking that ... changing the tenor of supervision will be the biggest part of what it is that I do,” Quarles said. “I think that a significant part of the Fed’s engagement of the firms is through supervision rather than regulation. I think that the regulatory part is probably the easier part.”

    [ November 6, 2017 ]

    “I have come into this position thinking that ... changing the tenor of supervision will be the biggest part of what it is that I do,” Quarles said. “I think that a significant part of the Fed’s engagement of the firms is through supervision rather than regulation. I think that the regulatory part is probably the easier part.”

  • 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
  • Janet L. Yellen The FOMC's outlook depends importantly on the view that longer-run inflation expectations have been stable for many years at a level consistent with PCE price inflation that will average around 2 percent in the longer run.

    [ September 26, 2017 ]

    The FOMC's outlook depends importantly on the view that longer-run inflation expectations have been stable for many years at a level consistent with PCE price inflation that will average around 2 percent in the longer run. 

    More From:

    See Also:

    Source:

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

    Venue:

    Federal Reserve Bank of Cleveland
  • Charles L. Evans Inflation has been lower than the FOMC’s 2 percent target for too long, and there is little in the recent data to suggest that inflation will soon rise to target. So I believe maintaining policy accommodation until we are more demonstrably on a sustainable path to 2 percent is key for reaching that objective—and for maintaining the credibility of our price stability goal.

    [ September 25, 2017 ]

    The fundamentals for economic growth in the U.S. are sound, and we are close to our full employment goal. But inflation has been lower than the FOMC’s 2 percent target for too long, and there is little in the recent data to suggest that inflation will soon rise to target. So I believe maintaining policy accommodation until we are more demonstrably on a sustainable path to 2 percent is key for reaching that objective—and for maintaining the credibility of our price stability goal.

  • William C. Dudley I expect inflation will rise and stabilize around the FOMC’s 2 percent objective over the medium term. In response, the Federal Reserve will likely continue to remove monetary policy accommodation gradually.

    [ September 25, 2017 ]

    With a firmer import price trend and the fading of effects from a number of temporary, idiosyncratic factors, I expect inflation will rise and stabilize around the FOMC’s 2 percent objective over the medium term. In response, the Federal Reserve will likely continue to remove monetary policy accommodation gradually.

  • Robert S. Kaplan I’ve got an open mind about December.

    [ September 22, 2017 ]

    “I’ve got an open mind about December, but I want to take a little bit more time” to observe economic data, said Mr. Kaplan, referring to the Fed’s final scheduled policy meeting of the year, on Dec. 12-13, during remarks at an energy conference here.

  • John Williams My own view is that [low inflation] has not been that baffling.

    [ September 22, 2017 ]

    "My own view is that it has been not that baffling," Mr. Williams said, referring to low inflation. He noted that prices in some sectors such as health care and cellular services have been hit by downward movements, and that prices typically reflecting developments in the economy have been rising.

    "With a strong economy, history teaches us that inflation tends to move up," he said.

    Assuming the U.S. remains on a path of rising inflation and modest economic growth -- Mr. Williams expects 2.5% gross domestic product growth this year and slightly less than 2% in 2018 -- the Fed should be able to raise interest rates gradually toward what he sees as the "normal" longer-term policy rate of about 2.5%.

    That could include another rate increase this year and around three in 2018, he said, which is in line with projections released Wednesday by the Fed.

  • William C. Dudley [Our early estimates would suggest] a normalized balance sheet size of, perhaps, $2.4 trillion to $3.5 trillion in the early 2020s.

    [ September 7, 2017 ]

    This leads us to the next question:  Assuming that a floor system is retained, what amount of reserves will be needed in the banking system so that day-to-day open market operations are not necessary to keep the federal funds rate within its target range?

    As a rough starting point, we have suggested that the necessary amount of excess reserves could be in a range of $400 billion to $1 trillion.   Coupled with uncertainty about the likely growth in other factors, such as currency outstanding, this implies a normalized balance sheet size of, perhaps, $2.4 trillion to $3.5 trillion in the early 2020s.  

  • Loretta J. Mester There hasn’t been enough evidence that inflation is on a different trajectory now. This gradual path balances the risks on both sides, and I would stick with it longer.

    [ September 7, 2017 ]

    “The conditions remain in place for inflation to gradually return over the next year or so to our symmetric goal of 2 percent on a sustained basis,” Mester, one of the more hawkish officials at the U.S. central bank, said in a speech Thursday in Pittsburgh.

    “There hasn’t been enough evidence that inflation is on a different trajectory now,” she said. “This gradual path balances the risks on both sides, and I would stick with it longer.”

  • Neel Kashkari These premature rate hikes that we are embarking on, they’re not free, and I think we need to remind ourselves of that.

    [ September 5, 2017 ]

    “It’s very possible that our rate hikes over the past 18 months are leading to slower job growth, leaving more people on the sidelines, leading to lower wage growth, and leading to lower inflation and inflation expectations,” Kashkari said Tuesday during a talk at the University of Minnesota in Minneapolis. “These premature rate hikes that we are embarking on, they’re not free, and I think we need to remind ourselves of that.”

  • Lael Brainard I consider normalization of the federal funds rate to be well under way, the criterion for commencing balance sheet normalization. The approaching change to our reinvestment policy has been clearly communicated and is well anticipated.

    [ September 5, 2017 ]

    I consider normalization of the federal funds rate to be well under way, the criterion for commencing balance sheet normalization. The approaching change to our reinvestment policy has been clearly communicated and is well anticipated.

  • Lael Brainard I am concerned that the recent low readings for inflation may be driven by depressed underlying inflation, which would imply a more persistent shortfall in inflation from our objective. In that case, it would be prudent to raise the federal funds rate more gradually. We should have substantially more data in hand in the coming months that will help us make that assessment.

    [ September 5, 2017 ]

    Once balance sheet normalization is under way, I will be looking closely at the evolution of inflation before making a determination about further adjustments to the federal funds rate. We have been falling short of our inflation objective not just in the past year, but over a longer period as well. My own view is that we should be cautious about tightening policy further until we are confident inflation is on track to achieve our target.

    To the extent that the neutral rate remains low relative to its historical value, there is a high premium on guiding inflation back up to target so as to retain space to buffer adverse shocks with conventional policy. In this regard, I believe it is important to be clear that we would be comfortable with inflation moving modestly above our target for a time.

    ...

    To conclude, much depends on the evolution of inflation. If, as many forecasters assume, the current shortfall of inflation from our 2 percent objective indeed proves transitory, further gradual increases in the federal funds rate would be warranted, perhaps along the lines of the median projection from the most recent SEP. But, as I noted earlier, I am concerned that the recent low readings for inflation may be driven by depressed underlying inflation, which would imply a more persistent shortfall in inflation from our objective. In that case, it would be prudent to raise the federal funds rate more gradually. We should have substantially more data in hand in the coming months that will help us make that assessment.

  • Loretta J. Mester I am not there yet. I still think we need to start bringing back some of the accommodation... [Risks to the Fed's current median forecast of one more rate hike this year and three next year] are balanced.

    [ August 16, 2017 ]

    "I am not there yet. I still think we need to start bringing back some of the accommodation," by raising rates and pressing forward with plans to reduce the size of the Fed's asset holdings, Mester, who is toward the central bank's hawkish wing, told Reuters.

    Risks to the Fed's current median forecast of one more rate hike this year and three next year "are balanced," she added.

    More From:

    See Also:

    Source:

    reuters

    Venue:

    Reuters Interview
  • Stanley Fischer It took almost 80 years after 1930 to have another financial crisis that could have been of that magnitude. And now after 10 years everybody wants to go back to a status quo before the great financial crisis. And I find that really extremely dangerous and extremely short-sighted

    [ August 16, 2017 ]

    It took almost 80 years after 1930 to have another financial crisis that could have been of that magnitude. And now after 10 years everybody wants to go back to a status quo before the great financial crisis. And I find that really extremely dangerous and extremely short-sighted. One can understand the political dynamics of this thing, but one cannot understand why grown intelligent people reach the conclusion that [you should] get rid of all the things you have put in place in the last 10 years.

  • William C. Dudley If [the economy] evolves in line with my expectations, I would be in favor of doing another rate hike later this year.

    [ August 14, 2017 ]

    If [the economy] evolves in line with my expectations, I would be in favor of doing another rate hike later this year.

  • William C. Dudley I don't think the expectations of market participants [for a September start for the balance sheet reduction process] are unreasonable.

    [ August 14, 2017 ]

    I don't think the expectations of market participants [for a September start for the balance sheet reduction process] are unreasonable.

  • Neel Kashkari People are worried that, if wages start to climb, if businesses have to compete with each other, you may not get gradual wage growth, you might all of a sudden get an acceleration in wages… I call this -- and I mean this with no disrespect -- I call this a ghost story.

    [ August 11, 2017 ]

    “People are worried that, if wages start to climb, if businesses have to compete with each other, you may not get gradual wage growth,” he said Friday during a talk in Bloomington, Minnesota. “You might all of a sudden get an acceleration in wages.”

    “I call this -- and I mean this with no disrespect -- I call this a ghost story, meaning, I cannot prove to you that there’s not a ghost underneath this table,” he said. “I cannot prove it definitively. There may be. But there is no evidence that there is a ghost under this table. There is no evidence in any of the data that wages have this acceleration factor and are all of a sudden going to take off.”

  • Charles L. Evans I personally think that it would be quite reasonable to [begin trimming the Fed's balance sheet] in September

    [ August 9, 2017 ]

    A move to begin shrinking the balance sheet makes sense because it probably won’t have a big impact on financial markets or the economy, and “I personally think that it would be quite reasonable to do that in September, on the basis of the data I’ve seen so far,” he said.

  • John Williams My own view is that it will be appropriate to start [the balance sheet reduction] process this fall.

    [ August 2, 2017 ]
  • Janet L. Yellen As I noted earlier, the economic outlook is always subject to considerable uncertainty, and monetary policy is not on a preset course... In this regard, as we noted in the FOMC statement last month, inflation continues to run below our 2 percent objective and has declined recently; the Committee will be monitoring inflation developments closely in the months ahead.

    [ July 12, 2017 ]

    As I noted earlier, the economic outlook is always subject to considerable uncertainty, and monetary policy is not on a preset course. FOMC participants will adjust their assessments of the appropriate path for the federal funds rate in response to changes to their economic outlooks and to their judgments of the associated risks as informed by incoming data. In this regard, as we noted in the FOMC statement last month, inflation continues to run below our 2 percent objective and has declined recently; the Committee will be monitoring inflation developments closely in the months ahead.

  • Janet L. Yellen I try not to opine on the level of asset prices, although our report notes that valuations, generally, are toward the top of their historical ranges. What I try to think about is, if there are adjustments in asset prices, what consequences would they have on our financial system, in our economy.  And, in that context, look for evidence that searching asset prices might be leading to imprudent borrowing, a build up in leverage in the economy that would be dangerous if the prices were to unwind. And we're not seeing that so ...  financial stability risks, at this point, [appear] moderate.

    [ July 12, 2017 ]

    In looking at asset prices and valuations, we try not to opine on whether they are correct or they're not correct. But as you asked what the potential spillovers or impacts on financial stability could be of asset price revaluations, my assessment of that is that, as asset prices have moved up, we have not seen a substantial increase in borrowing based on those asset price movements. We have a financial system, a banking system that's well-capitalized and strong, and I believe it's resilient. 

    [And later...]

    I try not to opine on the level of asset prices, although our report notes that valuations, generally, are toward the top of their historical ranges. What I try to think about is, if there are adjustments in asset prices, what consequences would they have on our financial system, in our economy.  And, in that context, look for evidence that searching asset prices might be leading to imprudent borrowing, a build up in leverage in the economy that would be dangerous if the prices were to unwind. And we're not seeing that so ... [we judge that] financial stability risks, at this point, are moderate.

  • Lael Brainard I consider normalization of the federal funds rate to be well under way. If the data continue to confirm a strong labor market and firming economic activity, I believe it would be appropriate soon to commence the gradual and predictable process of allowing the balance sheet to run off.

    [ July 11, 2017 ]

    In light of recent policy moves, I consider normalization of the federal funds rate to be well under way. If the data continue to confirm a strong labor market and firming economic activity, I believe it would be appropriate soon to commence the gradual and predictable process of allowing the balance sheet to run off.

    Once that process begins, I will want to assess the inflation process closely before making a determination on further adjustments to the federal funds rate in light of the recent softness in core PCE (personal consumption expenditures) inflation. In my view, the neutral level of the federal funds rate is likely to remain close to zero in real terms over the medium term. If that is the case, we would not have much more additional work to do on moving to a neutral stance. I will want to monitor inflation developments carefully, and to move cautiously on further increases in the federal funds rate, so as to help guide inflation back up around our symmetric target.

  • Patrick Harker Let’s start the process of ceasing reinvestment. Let’s see how the market reacts to that, and then consider the third rate increase this year—whether that occurs or not.

    [ July 11, 2017 ]

    “Let’s start the process of ceasing reinvestment,” he said. “Let’s see how the market reacts to that, and then consider the third rate increase this year—whether that occurs or not.”

    Mr. Harker also said the exact timing of the central bank’s balance-sheet wind-down hasn’t been decided, but he “fully expects” it to start this year.

  • Loretta J. Mester I don’t think there’s anything, like, fundamental that says you couldn’t do both [asset sales and rate hikes] at the same time.

    [ July 6, 2017 ]

    I don’t think there’s anything, like, fundamental that says you couldn’t do both [asset sales and rate hikes] at the same time, alright? So really what we do with our funds rate path depends on what the economy is doing and how we see the outlook, etc. The balance sheet, again, because the change in the reinvestment policy is such a gradual one (other than the signaling effect that it might have — which we’re hoping that the communication is handling) there isn’t any reason not to start that early, just because it’s a very slow reduction in the size of the balance sheet. And to get the balance sheet down significantly it’s going to take several years. I mean, it’s not like something that’ll change overnight.

    So again, that’s sort of in the background, right? It’s not really an active, what I would say, policy tool at this point. The idea was set it and forget it—you know, like that old Ronco ad. You know, right? You just sort of do it, set it, let it go in the background. And then our main policy tool, of course, is going to be the short-term interest rate. And that’s the way I view it. And so could we do both at the same time? Sure. It depends on what the economy is doing.

  • James Bullard I think it’s more prudent to announce a balance-sheet adjustment at a press conference meeting. So September is more likely [than July].

    [ June 29, 2017 ]

    I think it’s more prudent to announce a balance-sheet adjustment at a press conference meeting. So September is more likely [than July].

  • Janet L. Yellen Would I say there will never, ever be another financial crisis?  You know, probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be,

    [ June 27, 2017 ]

    “Would I say there will never, ever be another financial crisis?” Yellen said at a question-and-answer event in London.

    “You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be,” she said.

    Yellen said it would “not be a good thing” if reforms of the financial services industry since the crisis were unwound, and urged those who had helped manage the fallout at the time to be vocal in preventing such a dilution.

  • Stanley Fischer The increase in prices of risky assets in most asset markets over the past six months points to a notable uptick in risk appetites

    [ June 27, 2017 ]

    The increase in prices of risky assets in most asset markets over the past six months points to a notable uptick in risk appetites, although this shift has not yet led to a pickup in the pace of borrowing or a sizable rise in leverage at financial institutions.

    The general rise in valuation pressures may be partly explained by a generally brighter economic outlook, but there are signs that risk appetite increased as well. For example, estimates of equity and bond risk premiums are at the lower end of their historical distributions, and, relative to some non-price-based measures of uncertainty, the implied volatility index VIX is particularly subdued. So far, the evidently high risk appetite has not lead to increased leverage across the financial system, but close monitoring is warranted.

  • Patrick Harker I’m sticking to my outlook that we’re on the right path, but I’m adjusting my view slightly on meeting our inflation goal from the end of 2017 to the beginning of 2018.

    [ June 27, 2017 ]

    I’m sticking to my outlook that we’re on the right path, but I’m adjusting my view slightly on meeting our inflation goal from the end of 2017 to the beginning of 2018. This is the advanced economic practice of “hedging one’s bets.”

  • Jerome H. Powell I am confident the broad Treasuries repo rate, which the Federal Reserve Bank of New York has proposed publishing in cooperation with the Office of Financial Research, is based on a deep and actively traded market and will be highly robust.

    [ June 26, 2017 ]

    And finally, I would also like to note that work continues to address the risks identified with existing reference rates. Just last week, the Alternative Reference Rates Committee (ARRC) selected a new rate suitable for use with new derivative contracts. I am confident the broad Treasuries repo rate, which the Federal Reserve Bank of New York has proposed publishing in cooperation with the Office of Financial Research, is based on a deep and actively traded market and will be highly robust. With this choice, the ARRC has taken another step in addressing the risks involved with the LIBOR.

    More From:

    See Also:

    Source:

    https://www.federalreserve.gov/newsevents/speech/powell20170626a.htm

    Venue:

    Salzburg Global Seminar
  • William C. Dudley When financial conditions ease, as has been the case recently, this can provide additional impetus for the decision to continue to remove monetary policy accommodation.

    [ June 25, 2017 ]

    "Monetary policymakers need to take the evolution of financial conditions into consideration," Federal Reserve Bank of New York president and CEO William Dudley, a permanent voter on U.S. interest rates and a close ally of Fed Chair Janet Yellen, said on a closed-to-the-press panel on Sunday.

    "When financial conditions ease, as has been the case recently, this can provide additional impetus for the decision to continue to remove monetary policy accommodation," he said according to prepared remarks published by the New York Fed.

  • Loretta J. Mester We don’t want to undermine credibility on the inflation target, but I think people react too much to one or two data reports.

    [ June 23, 2017 ]

    We don’t want to undermine credibility on the inflation target, but I think people react too much to one or two data reports.

  • James Bullard The trajectory that the committee has laid out seems to me to be inappropriate given the situation that we’re in.

    [ June 22, 2017 ]

    Last week’s rate increase is “not such a big problem,” Mr. Bullard said in an interview Wednesday. But the projection to raise the federal-funds rate to 3% over the next 2½ years “is unnecessarily aggressive,” he said. “The trajectory that the committee has laid out seems to me to be inappropriate given the situation that we’re in.”

  • Robert S. Kaplan I think there's a point that if the 10-year Treasury rate stays at the level it's at, we've got to be very careful about how we remove accommodation.

    [ June 20, 2017 ]

    I think there's a point that if the 10-year Treasury rate stays at the level it's at, we've got to be very careful about how we remove accommodation.

  • Charles L. Evans We have to assure the public that we recognize the new low-inflation environment and that we are not overly conservative central bankers who see our inflation target as a ceiling.

    [ June 19, 2017 ]

    I view slow removal of accommodation as necessary support to symmetrically achieving our 2 percent inflation goal in a timely fashion. We have to assure the public that we recognize the new low-inflation environment and that we are not overly conservative central bankers who see our inflation target as a ceiling.

  • William C. Dudley Generally, if you sort of asked me would I sign up for a 4.3 percent unemployment rate and inflation running about 1 1/2 percent, the answer is:  absolutely.

    [ June 19, 2017 ]

    "I am very confident" that economic expansion "has quite a long ways to go," Dudley said, adding he expected wage growth to rise to about 3 percent over the next year or two.

    ...

    "Generally, if you sort of asked me would I sign up for a 4.3 percent unemployment rate and inflation running about 1 1/2 percent, the answer is:  absolutely."

  • Robert S. Kaplan We should be very careful about raising rates and we should do it patiently and carefully.

    [ June 16, 2017 ]

    The Federal Reserve should be cautious about any further interest-rate hikes, Dallas Federal Reserve President Robert Kaplan said on Friday, just two days after he voted with the majority of his colleagues to raise rates for the second time this year.

    "We should be very careful about raising rates and we should do it patiently and carefully," Kaplan said at a meeting of the Park Cities Rotary Club in Dallas, adding that he will need to see improvements in inflation, which has weakened in recent months.

  • Jerome H. Powell If the economy continues broadly on the path it's on, I can see a couple more rate increases this year which would be a total of three.

    [ June 1, 2017 ]

    If the economy continues broadly on the path it's on, I can see a couple more rate increases this year which would be a total of three.

  • Lael Brainard With the federal funds rate projected to be in the range that is midway to the Committee's projection of the long-run value of the federal funds rate later this year, I would consider it reasonable to assess that this threshold will have been attained before too long.

    [ May 30, 2017 ]

    Consideration that normalization of the federal funds rate is well underway was the criterion the Committee adopted in its December 2015 decision to continue to reinvest principal payments. In my view, that "well under way" standard has served an important purpose. With asymmetry in the scope for conventional monetary policy to respond to shocks, maintaining reinvestments provided an important benefit by enabling the federal funds rate to rise more quickly than would have been possible with a shrinking balance sheet and sooner reach a level that allows for reductions if conditions deteriorate. This approach has ensured that our most proven tool, the federal funds rate, will have reached a level at which it can be cut if needed to buffer adverse shocks, thus helping to guard against the asymmetric risks associated with the effective lower bound. With the federal funds rate projected to be in the range that is midway to the Committee's projection of the long-run value of the federal funds rate later this year, I would consider it reasonable to assess that this threshold will have been attained before too long.

    ...

    I favor an approach that would gradually and predictably increase the maximum amount of securities the market will be required to absorb each month, while avoiding spikes. Thus, in an abundance of caution, I prefer to cap monthly redemptions at a pace that gradually increases over a fixed period. In addition, I would be inclined to follow a similar approach in managing the reduction of the holdings of Treasury securities and mortgage-backed securities (MBS), calibrated according to their particular characteristics.

    ...

    Over time, the gradual reduction in our balance sheet should result in a gradual decline in reserves to a longer-run level that is well below today's level but likely somewhat higher than in the pre-crisis regime. It is difficult to know in advance with any precision how low reserves can be allowed to drop. That minimum level will depend on the structural demand for reserves and the short-term variability in the demand for and supply of reserves. During the process of balance sheet normalization, I favor an approach of monitoring money markets carefully to gauge the appropriate longer-run level of reserves consistent with efficient and effective policy implementation.

    Finally, while subordination of the balance sheet to the federal funds rate should be our baseline policy, in my view, there may be circumstances when we may need to rely on the balance sheet more actively. During the period when the balance sheet is running down, if the economy encounters significant adverse shocks, it may be appropriate to commence the reinvestment of principal payments again in order to preserve conventional policy space.

     

     

    More From:

    See Also:

    Source:

    https://www.federalreserve.gov/newsevents/speech/brainard20170530a.htm

    Venue:

    New York Association for Business Economics
  • Robert S. Kaplan I don't want to put a specific number on [the eventual size of the balance sheet]. If somebody says in the $2 [trillion]s, that sounds about right to me.

    [ May 30, 2017 ]

    Kaplan said the balance sheet should be "substantially less" than it is today but conceded that it likely will remain above $2 trillion.

    "I don't want to put a specific number on it. If somebody says in the 2s, that sounds about right to me," he said.

  • John Williams I want [balance sheet reduction] to be predictable, well understood, gradual -- not super gradual, or uber-gradual, but gradual over time -- but also to be fundamentally on autopilot.

    [ May 26, 2017 ]

    I want [balance sheet reduction] to be predictable, well understood, gradual -- not super gradual, or uber-gradual, but gradual over time -- but also to be fundamentally on autopilot.

  • Charles L. Evans   I think there are some institutional tendencies that make it difficult for some central bankers to tolerate above-target inflation even for limited and controlled periods of time.  

    [ May 24, 2017 ]

     

    I think there are some institutional tendencies that make it difficult for some central bankers to tolerate above-target inflation even for limited and controlled periods of time.

     

  • Patrick Harker I can definitively say that [the normlization process] will be boring.

    [ May 23, 2017 ]

    There are different options under discussion, but we’re looking for a normalization process that is gradual and essentially on autopilot. If something happens, of course we’ll intervene, but we fundamentally want to push the start button and leave it to churn slowly away. We’ll still discuss the balance sheet in meetings, but if things are good, we’ll leave it to gradually unwind in the background.

    And we’ll let you know. I can say with absolute certainty that markets will get a heads up with a good amount of time.

    I can also definitively say that it will be boring. It will be the policy equivalent of watching paint dry. Fed presidents had a brief encounter with people finding us interesting over the past few years. Now we’re headed back to the natural state of things, where people try to avoid getting stuck next to us at dinner parties.

    The funds rate will be our primary monetary policy tool, and we’ll keep the unconventional ones in the arsenal in case we need to use them again, which I hope we won’t.

  • Charles L. Evans The symmetry of our inflation target is important — the central bank should be equally concerned about undershooting the target as overshooting. 

    [ May 22, 2017 ]

    The symmetry of our inflation target is important — the central bank should be equally concerned about undershooting the target as overshooting. If instead the public viewed our target as a ceiling, they likely would lower their expectations for average inflation over the longer run. These lower expectations would get built into lower nominal interest rates, and thus increase the risks of hitting the effective lower bound.

  • James Bullard Low unemployment readings are probably not an indicator of meaningfully higher inflation over the forecast horizon.

    [ May 19, 2017 ]

    Low unemployment readings are probably not an indicator of meaningfully higher inflation over the forecast horizon.

  • Patrick Harker I thinkJune should be a live meeting, for sure. We'll get more data between now and June. The only issue is the way inflation — where is it going? We're getting mixed signals on that right now. But I remain pretty confident we are close to our 2% target, and that if we don't see a deceleration of inflation but continued growth in inflation, I think June is a distinct possibility.

    [ May 16, 2017 ]

    One of my colleagues has an interesting phrase for describing the current mood of the economy: "awkward optimism." What he means by that is, if you look at all the surveys, whether it's consumer confidence, or business confidence, or whether it's at the national level, or our own manufacturing or nonmanufacturing business outlook — there's lots of confidence. But that confidence needs to translate into action, and there's still a little bit of hesitation. I want to be optimistic, I want to believe that we're going to get, say, tax policy change — but I'll wait...

    I think [June] should be a live meeting, for sure. We'll get more data between now and June. The only issue is the way inflation — where is it going? We're getting mixed signals on that right now. But I remain pretty confident we are close to our 2% target, and that if we don't see a deceleration of inflation but continued growth in inflation, I think June is a distinct possibility.

  • Patrick Harker I'm not completed wedded to thinking two more rate rises will be enough for this year.

    [ May 12, 2017 ]

    Things are pretty balanced, but there is a potential we have to accelerate the path" of rate increases if, for example, elected leaders were to find their way toward stimulative taxation and spending policies, or if wages were to heat up in a way that would drive inflation up more quickly than projected.

    "I'm not completed wedded" to thinking two more rate rises will be enough for this year, Mr. Harker said. 

    ...

    On the hiring front, Mr. Harker said, "We're looking at a labor market more or less at full health, with very little slack." He said what is now a 4.4% jobless rate is likely to ebb to 4.2% by the end of 2018.

    What is likely to be a 200,000 average monthly jobs gain this year should cool to a 100,000 average next year, he said, adding that slowing shouldn't be a problem. "To sustain a healthy economy, estimates of the ideal number range from about 70,000 to 100,000 a month to keep up with population growth," Mr. Harker said. 

  • Charles L. Evans If inflation is confidently headed back to 2 percent, I could see two more rate increases this year.  I could be okay with one as well if there are more uncertainties about the inflation outlook.

    [ May 12, 2017 ]

    “The one lingering difficulty, I would say, and it’s an important one, is that inflation pressures are still under-running our 2 percent objective in the U.S.,” Evans said Friday during a moderated discussion at an event in Dublin. “At the moment, I think the downside risks still predominate.”

    ...

    Evans said he would be "very surprised" if the Fed raises interest rates more than twice more this year.

    "If inflation is confidently headed back to 2 percent, I could see two more rate increases this year," Evans, a voting member of the policy-setting committee, said. "I could be okay with one as well if there are more uncertainties about the inflation outlook."

  • William C. Dudley Countries need to compete better, not compete less.

    [ May 11, 2017 ]

    Protectionism can have a siren-like appeal.  Viewed narrowly, it may be potentially rewarding to particular segments of the economy in the short term.  Viewed more broadly, it would almost certainly be destructive to the economy overall in the long term.

    Countries need to compete better, not compete less.  Trade barriers are a very expensive way to preserve jobs in less competitive or declining industries.  They blunt opportunities in export industries and they reduce the affordability of goods and services to households.  Indeed, such measures often backfire, resulting in harm to workers and diminished growth.

  • Eric Rosengren Along with a gradual reduction in the level of the balance sheet, it would still be reasonable to have three rate increases over the remainder of this year.

    [ May 10, 2017 ]

    Along with a gradual reduction in the level of the balance sheet, it would still be reasonable to have three rate increases over the remainder of this year.

  • Esther L. George My own view is that the process [of reducing the Fed’s balance sheet] should begin sometime this year by reducing reinvestments in mortgage-backed securities (MBS) and long-term Treasury securities.

    [ May 9, 2017 ]

    The FOMC also must begin to adjust the size and composition of its securities holdings.

    My own view is that the process should begin sometime this year by reducing reinvestments in mortgage-backed securities (MBS) and long-term Treasury securities. Once it begins, however, the runoff in the portfolio should be on autopilot and not reconsidered at each subsequent FOMC meeting. Otherwise, the Committee would need to re-evaluate and make adjustments that will potentially complicate monetary policy and provide few benefits to the real economy.

  • James Bullard On inflation the numbers were disappointing. We have been telling a story that we are trending back towards 2 percent and we went the other way.

    [ May 8, 2017 ]

    On inflation the numbers were disappointing. We have been telling a story that we are trending back towards 2 percent and we went the other way.

  • Stanley Fischer The strength of the financial system is absolutely essential to the ability of the economy to continue to grow at a reasonable rate, and taking actions which remove the changes that were made to strengthen the structure of the financial system is very dangerous.

    [ April 21, 2017 ]

    The strength of the financial system is absolutely essential to the ability of the economy to continue to grow at a reasonable rate, and taking actions which remove the changes that were made to strengthen the structure of the financial system is very dangerous.

  • Eric Rosengren By initially retiring only a small percentage of maturing securities, and then very gradually shrinking the volume of the securities being reinvested, the tightening of short-term interest rates should not need to be much different than it would be in the absence of shrinking the balance sheet.

    [ April 19, 2017 ]

    Many observers suggest that central banks’ use of their balance sheets should be limited solely as a response to the type of severe economic conditions that occurred during the financial crisis and in its aftermath. Others suggest – as I will today – that structural changes in the macroeconomy may necessitate more frequent use of large scale asset purchases during recessions…

    Low equilibrium rates would have noteworthy implications in a downturn… [A] 3 percent federal funds rate would imply a high probability that short-term interest rates would have to be lowered again to zero in response to future recessions. As a result, the central bank may need to again deploy its balance sheet to augment traditional policy, spur economic activity, and achieve its mandates from Congress associated with employment and price stability. One important implication, then, is that the exit from a large balance sheet may not prove to be a one-time event. So if done appropriately, the exit from the current large balance sheet can serve as an important “playbook” for future recovery periods should it prove necessary.

    To preview my argument a bit, while the FOMC is still carefully considering its balance sheet exit strategy, in my own view an ideal policy would take a very gradual approach to balance-sheet reduction. In my view that process could begin relatively soon and should not significantly alter the FOMC’s continuing gradual normalization of short-term interest rates. That is, by initially retiring only a small percentage of maturing securities, and then very gradually shrinking the volume of the securities being reinvested, the tightening of short-term interest rates should not need to be much different than it would be in the absence of shrinking the balance sheet.

  • Esther L. George Balance sheet adjustments will need to be gradual and smooth, which is an approach that carries the least risk in terms of a strategy to normalize its size. Importantly, once the process begins, it should continue without reconsideration at each subsequent FOMC meeting. In other words, the process should be on autopilot.

    [ April 18, 2017 ]

    Balance sheet adjustments will need to be gradual and smooth, which is an approach that carries the least risk in terms of a strategy to normalize its size. Importantly, once the process begins, it should continue without reconsideration at each subsequent FOMC meeting. In other words, the process should be on autopilot and not necessarily vary with moderate movements in the economic data. To do otherwise would amount to using the balance sheet as an active tool of policy outside of periods of severe financial or economic stress, and would increase uncertainty rather than reduce it.

    Based on economic conditions, I would support beginning the process of reducing the balance sheet this year. This would further normalize the stance of policy and leave more highly liquid, safe securities available to the market. I do not favor prolonging action for the purpose of allowing inflation to overshoot the 2 percent goal or to press labor markets into a condition where they are overheating.

  • Stanley Fischer My tentative conclusion from market responses to the limited amount of discussion of the process of reducing the size of our balance sheet that has taken place so far is that we appear less likely to face major market disturbances now than we did in the case of the taper tantrum.

    [ April 17, 2017 ]

    My tentative conclusion from market responses to the limited amount of discussion of the process of reducing the size of our balance sheet that has taken place so far is that we appear less likely to face major market disturbances now than we did in the case of the taper tantrum. But, of course, as we continue to discuss and eventually implement policies to reduce our balance sheet, we will have to continue to monitor market developments and expectations carefully.

  • Janet L. Yellen You know, there is a lot of focus on regulatory burden. I don't think if you look at objective data on lending that it's possible to make the case that regulation has simply stifled lending. Lending has grown in a very healthy way as the economy has recovered, and I think what we see is stronger banks that are better capitalized are in a better position to lend.

    [ April 10, 2017 ]

    I think we've accomplished a lot. We have a much safer system, but we always have to be aware of risks outside the perimeter of what we regulate, and when we regulate one sector, there's a natural tendency for activity to migrate outside its boundaries. And so we do have to be attentive to what's happening in the shadow banking system as well...

    You know, there is a lot of focus on regulatory burden. I don't think if you look at objective data on lending that it's possible to make the case that regulation has simply stifled lending. Lending has grown in a very healthy way as the economy has recovered, and I think what we see is stronger banks that are better capitalized are in a better position to lend.

  • James Bullard Post-crisis, if I have my numbers right, you [arrive at what the St. Louis Fed sees as a more reasonable long-term] balance sheet size of about $2 trillion.

    [ April 10, 2017 ]

    $4.5 trillion is higher than anybody thinks it should be… Post-crisis, if I have my numbers right, you [arrive at what the St. Louis Fed sees as a more reasonable long-term] balance sheet size of about $2 trillion.

  • William C. Dudley Presumably at the time that you make the decision on the balance sheet you might want to forgo the decision on short-term rates just to make sure that [it] doesn’t turn out to be a bigger decision than you thought you were making. So, I would emphasize the words ’little pause'.

    [ April 7, 2017 ]

    Presumably at the time that you make the decision on the balance sheet you might want to forgo the decision on short-term rates just to make sure that the balance-sheet decision doesn’t turn out to be a bigger decision than you thought you were making. So, I would emphasize the words ’little pause'.

    As reported by Dow Jones

  • Patrick Harker We have to balance [our reduction of the Fed’s balance sheet] off the path of the fed funds rate. As we cease reinvestment it will remove some accommodation. These two things are related.

    [ April 3, 2017 ]

    "Possibly by the end of this year or the beginning of next year would be an appropriate time to stop reinvesting (maturing assets), but that's all dependent on how the economy evolves between now and then," Harker told reporters in Philadelphia.

    "We have to balance this off the path of the fed funds rate. As we cease reinvestment it will remove some accommodation. These two things are related," Harker added, reinforcing the similarly growing view that the Fed could temporarily pause interest rate hikes when it starts the portfolio process.

    Harker said it was unclear how much the Fed should shrink the portfolio. But he supports a "Treasury-heavy" portfolio in the future, adding that the Fed may not dump all of its nearly $2 trillion in mortgage-backed securities.

  • James Bullard This is not an environment where the data is screaming at the Fed that you have to move.

    [ March 31, 2017 ]

    “This is not an environment where the data is screaming at the Fed that you have to move,” Bullard said.

    Bullard said he would not oppose one more rate hike this year but said that might be all.

    “We don’t think you need to have a 200 point basis point adjustment in interest rate in this type of environment,” he said.

  • William C. Dudley If and when we decide to begin to normalize the balance sheet we might actually decide at the same time to take a little pause in terms of raising short-term interest rates.

    [ March 31, 2017 ]

    "It wouldn't surprise me if some time later this year or some time in 2018, should the economy perform in line with our expectations, that we will start to gradually let the securities mature rather than reinvesting them," Dudley, a close ally of Fed Chair Janet Yellen, said on Bloomberg TV.

    "If we start to normalize the balance sheet, that's a substitute for short-term rate hikes because it would also work in the direction of tightening financial conditions," he said. "If and when we decide to begin to normalize the balance sheet we might actually decide at the same time to take a little pause in terms of raising short-term interest rates."

  • William C. Dudley I don’t think we are removing the punch bowl, yet.  We’re just adding a bit more fruit juice. 

    [ March 30, 2017 ]

    William McChesney Martin, the ninth chair of the FOMC, once famously opined that the Federal Reserve is “in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up.”  I don’t think we are removing the punch bowl, yet.  We’re just adding a bit more fruit juice. 

  • John Williams I think [balance sheet] normalization will start later this year.

    [ March 30, 2017 ]

    [The challenge for the FOMC] is really trying to get that normalization process [started] both in terms of interest rates, but also our balance sheet, which I think that normalization will start later this year, getting that process underway.

  • Eric Rosengren (Asset markets are) a little rich relative to where the averages have been.

    [ March 29, 2017 ]

    (Asset markets are) a little rich relative to where the averages have been.

  • John Williams As we move forward, I see the unemployment rate nudging down a bit further, ultimately bottoming out near 4½ percent by the end of the year.

    [ March 29, 2017 ]

    As we move forward, I see the unemployment rate nudging down a bit further, ultimately bottoming out near 4½ percent by the end of the year.

  • Charles L. Evans The FOMC’s long-run price stability goal is 2 percent for overall PCE inflation. But it is important to remember that we strive for sustained symmetric achievement of 2 percent.

    [ March 29, 2017 ]

    The rise in energy prices probably will carry headline PCE inflation higher only for a time. It is more likely to fall back to the underlying rate as measured by core inflation. Today that rate is 1.7 percent. And I don’t expect it to achieve 2 percent until 2019.

    The FOMC’s long-run price stability goal is 2 percent for overall PCE inflation. But it is important to remember that we strive for sustained symmetric achievement of 2 percent.

    I still worry about darker scenarios in which we return to the zero lower bound (ZLB). That is one reason why I think it’s so important to get inflation and inflation expectations up to target, so that we have maximum rate cutting capacity.

  • Charles L. Evans If I thought that I was inclined to four rate hikes for 2017 I would presumably be seeing a much stronger lift in inflation.

    [ March 27, 2017 ]

    Evans said he saw three rate hikes in 2017 as "plausible", but added that two or four increases were also a possibility.

    "I don't see the data, I don't have the confidence," Evans said, asked whether there was a strong case for a fourth rate hike. "If I thought that I was inclined to four rate hikes for 2017 I would presumably be seeing a much stronger lift in inflation, I think it would be accompanied by a meaningful increase in long term inflation expectations."

  • James Bullard I think [three rate hikes this year] is potentially overkill.

    [ March 24, 2017 ]

    “I think [three rate hikes this year] is potentially overkill,” the St. Louis Fed president said Friday, referring to the central bank’s projection for future rate increases. “It’s not necessary to raise rates that quickly if the goal is to keep inflation near target and keep unemployment between 4.5 and 5 percent,” he told reporters in Memphis, Tennessee.

  • Robert S. Kaplan I would be advocating that we allow both [the Fed's MBS and Treasury holdings] to run off.

    [ March 23, 2017 ]

    Federal Reserve Bank of Dallas President Robert Kaplan said the central bank should roll off both mortgage-backed securities and Treasury holdings when it begins to let its balance sheet shrink.

    “Each is a different market, the sizes and daily market volumes are different in each” and “I would be advocating that we allow both of those to run off,” Kaplan said, speaking with reporters after an event in Chicago.

    “We just have to tailor our plan to each of those types of securities,” he said, adding: “Our plan should be to address both of those types of securities, and have an announced plan for how we’ll allow each of those to run off.”

    “We’re approaching a period where we’ll have made some further progress and we’ll be able to make an announcement on our plans for the balance sheet,” Kaplan said Thursday.

    Asked whether he’s concerned about the possibility of a market dislocation in response to the Fed’s strategy for the balance sheet, Kaplan said “it’s very important that we make a clear announcement, when we do” and that “it’s very critical that our plan for the balance sheet is patient and gradual, and try to minimize disruptions.”

  • John Williams Three or even four increases as your total makes sense.

    [ March 23, 2017 ]

    “I think the economy is in a good place right now. Growth has been basically a little bit above trend,” Mr. Williams told The Wall Street Journal during an interview.

    “Three or even four increases as your total makes sense,” he said.

    He said his projections are “not conditional on something happening,” such as whether new government policies stimulate faster growth, but rather on the state of the economy.

    He added, however, that if new fiscal policies do spur growth, that would strengthen the argument for four rather than three moves this year.

    Mr. Williams said he didn’t know when the next rate increases might occur, but added, “Doing them earlier positions monetary policy that if we do get either very positive news on the economy in terms of data or maybe news of significant fiscal stimulus, then you’re positioned to move a little bit quicker.”