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Recent FedSpeak Highlights

  • William C. Dudley Historically the ability of the Fed to generate a soft landing when the unemployment rate has gone too low . . . the track record is poor.

    [ January 18, 2018 ]

    Historically the ability of the Fed to generate a soft landing when the unemployment rate has gone too low . . . the track record is poor. Pretty much in all the cases where the unemployment rate has been pushed up a little, it has actually ended up rising a lot. There are no examples historically of the unemployment rate moving up a half a per cent, or 1 per cent, or even 1.5 per cent. Once you have pushed up beyond a couple of tenths of a per cent, the next stop historically is there has been a full-blown recession. Now that does not mean that historical regularity necessarily has to be repeated, but I do think it is hard for the Fed to bring the economy back to a sustainable growth pace, sustainable labor market, if the economy really is too strong and the unemployment rate gets too low.  That is a risk to the longer-term outlook but it needs to be recognised. 

  • William C. Dudley The fact is that we have been tightening monetary policy over the last couple of years, yet financial conditions are actually easier today than when we began to start to tighten monetary policy.

    [ January 18, 2018 ]

    We will have to see how the economy evolves. There are arguments on both sides of the ledger. Inflation is still below our 2 per cent objective, so that argues for patience, on the other side the economy is growing at an above-trend pace, we are getting more fiscal stimulus so that should actually reinforce that trajectory, the labour market continues to tighten, financial conditions are very accommodative — that is something I put a fair amount of weight on. The fact is that we have been tightening monetary policy over the last couple of years, yet financial conditions are actually easier today than when we began to start to tighten monetary policy.

    It all suggests that the forecast that the FOMC wrote down in December, in the December summary of economic projections — where the median was three rate hikes in 2018 seems a very reasonable type of forecast . . . It could be more. We could do a little bit more, or could do a little bit less. Remember all these are forecasts, they are not pre-commitments. Sometimes people take the SEPs I think a bit too literally. They are just what we think is likely at that particularly point of time. If the economy changes of course we will change our forecasts.

    In response to a question about whether the Fed would raise rates three times in 2018.

  • William C. Dudley I don’t think there is any signal at all to take today [from the flat yield curve] in terms of the probability of a near-term recession.

    [ January 18, 2018 ]

    The yield curve is flatter than normal but there are good reasons why it is flatter than normal. The most obvious one is that we have QE still ongoing in Japan and Europe and the Fed still has a very elevated balance sheet relative to where we are actually headed in the medium to longer term. So bond term premia are unusually depressed. So think about the path you expect of short term rates in the future and ask yourself how much additional compensation for the risk of holding a bond you want to take. Right now by the measures we have bond term premia are about zero. That means the yield curve, everything else equal, is going to be flatter today than it would typically in prior environments when the term premium was much much larger. Historically the term premium, the spread between say three month treasury bills and 10-year treasury notes, has been about 100 basis points in terms of that term premium. Today the term premium is about zero. That accounts for pretty much all of the fact that the yield curve is flatter than normal can be explained just by the bond term premium.

    I would be much more concerned about the yield curve if I thought that the yield curve was flat because people thought short-term rates were high and monetary policy was tight. The reason why . . . an inverted yield curve has historically been a pretty good predictor of recession is typically the yield curve becomes inverted and people think short-term rates are high relative to what they are going to be in the future because monetary policy is tight. That turns out to be correct, and the tightness of monetary policy generates an economic downturn and so the yield curve essentially forecasts that outcome. In the current environment the yield curve is not inverted, it is flatter than normal mainly because term premia are unusually depressed. Market participants think short-term rates are low relative to what they are going to be in the future. I don’t think there is any signal at all to take today in terms of the probability of a near-term recession.

  • Eric Rosengren I would also suggest that the optimal inflation rate is not likely to remain constant over time...  In my view, adopting an inflation range that allows for movement in the effective medium-run inflation goal might be a helpful addition to the Fed’s monetary policy framework...  If we set the range to – for example – 1.5 to 3.0 percent ...this would represent a set of inflation outcomes that are similar to those the U.S. has experienced over the past 20 years.

    [ January 12, 2018 ]

    I would also suggest that the optimal inflation rate is not likely to remain constant over time. An alternative, which would recognize that the inflation target should not necessarily be constant, is an inflation range with an adjustable inflation target. Within this framework, one could think of our inflation goal as defined by two components: A range of inflation rates that policymakers would find acceptable across many economic circumstances, and a medium-term goal within that range that policymakers would set, perhaps year by year, depending on specific economic circumstances.

    In my view, adopting an inflation range that allows for movement in the effective medium-run inflation goal might be a helpful addition to the Fed’s monetary policy framework.  An inflation range that allows some movement in the inflation target, depending on economic fundamentals, would be treating the Fed’s inflation goal more like the natural rate of unemployment, where we recognize that the natural rate will shift over time with demographic and other workforce characteristics.

    Of course, the advantages of greater inflation target flexibility would likely be partly offset by some costs. For instance, it is likely that such flexibility would generate more uncertainty about inflation in the medium to long run, since we cannot know for sure how long productivity and demographic trends would persist.7 However, if we set the range to – for example – 1.5 to 3.0 percent, and were successful in keeping inflation mostly in that range, this would represent a set of inflation outcomes that are similar to those the U.S. has experienced over the past 20 years.

    ...

    One way to avoid periods of prolonged low interest rates would be to alter the inflation target in response to changes in our estimates of real interest rates – estimates that have been changing of late. This would make inflation, like the natural unemployment rate, a target that could vary over time. If, for example, the monetary policy framework set an inflation range of, say 1.5 to 3.0 percent, the FOMC could vary its medium-term inflation target to be high, low, or in the middle of the range depending on economic factors that the Committee could determine at the beginning of each year. For example, in the current environment, with low population growth and low productivity growth, policy could move even more gradually to remove accommodation, and allow inflation to be somewhat higher in its range. Should the labor force or productivity grow more quickly, the Committee could seek to gradually reduce the inflation target within its range.

    ...

    An inflation range with an adjustable medium-run inflation goal is one way to address such concerns, but there are a variety of alternative frameworks also worth considering.18 In my view, we are approaching a time when a comprehensive reconsideration of the monetary policy framework is likely warranted, given the experience of the past 10 years. Any change we make should be designed to provide policymakers with the flexibility to set monetary policy appropriately as key features of the economy change, as they have repeatedly over U.S. economic history.

  • Patrick Harker [An] issue I’m watching is the yield curve, and I’m sure I’m not alone in this room. My assessment is that the worries so far have been inflated.

    [ January 12, 2018 ]

    [An] issue I’m watching is the yield curve, and I’m sure I’m not alone in this room. My assessment is that the worries so far have been inflated.

  • William C. Dudley Over the longer term, however, I am considerably more cautious about the economic outlook.  Keeping the economy on a sustainable path may become more challenging.  While the recently passed Tax Cuts and Jobs Act of 2017 likely will provide additional support to growth over the near term, it will come at a cost...  While this does not seem to be a great concern to market participants today, the current fiscal path is unsustainable.

    [ January 11, 2018 ]

    Broadly speaking, the prospects for continued economic expansion in 2018 look reasonably bright.  The economy is likely to continue to grow at an above-trend pace, which should lead to a tighter labor market and faster wage growth.  Under such conditions, I would expect the inflation rate to drift higher toward the FOMC’s 2 percent long-run objective.

    Over the longer term, however, I am considerably more cautious about the economic outlook.  Keeping the economy on a sustainable path may become more challenging.  While the recently passed Tax Cuts and Jobs Act of 2017 likely will provide additional support to growth over the near term, it will come at a cost.  After all, there is no such thing as a free lunch.  The legislation will increase the nation’s longer-term fiscal burden, which is already facing other pressures, such as higher debt service costs and entitlement spending as the baby-boom generation retires.  While this does not seem to be a great concern to market participants today, the current fiscal path is unsustainable.  In the long run, ignoring the budget math risks driving up longer-term interest rates, crowding out private sector investment and diminishing the country’s creditworthiness.  These dynamics could counteract any favorable direct effects the tax package might have on capital spending and potential output.

  • Robert S. Kaplan We want to avoid a situation where we have such an overheating that we’re playing catch up.

    [ January 10, 2018 ]

    “We want to avoid a situation where we have such an overheating that we’re playing catch up,” Kaplan said at a business event. The cuts are in part a concern, he said, “because I think debt levels of the country are unsustainable.”

  • Charles L. Evans “I think we have to be mindful of the fact that as we have all repriced real interest rates downwards that’s going to find its way into lower long term interest rates,” he told reporters. “We’ve been increasing short-term rates; it’s natural then almost mechanically for there to be a flattening of it.”

    [ January 10, 2018 ]

    “I don’t see any evidence of inflation moving up really fast, or even moving up enough,” Evans told reporters Wednesday after speaking in Lake Forest, Illinois, where he disclosed that at the Dec. 12-13 policy meeting he thought “it would be good to sort of put off the increases until about the middle of this year just to make sure the inflationary concerns resolve themselves.”

  • Raphael Bostic From Bloomberg: Bostic said his base case for 2018 was for two or three rate increases.

    [ January 8, 2018 ]

    Bostic said his base case for 2018 was for two or three rate increases, slightly below the median of three rate increases expected by his colleagues.

  • Loretta J. Mester I probably have one more (hike than the consensus) or a bit steeper path just because I think growth is picking up a little bit.

    [ January 5, 2018 ]

    Asked in an interview whether she agreed with the central bank’s median forecast for three rate rises this year, she said she was “about” in line. “I probably have one more (hike than the consensus) or a bit steeper path just because I think growth is picking up a little bit,” she said, adding she expects unemployment, now 4.1 percent, to settle around 4.75 percent.

  • Patrick Harker My own view is that two rate increases are likely to be appropriate for 2018.

    [ January 5, 2018 ]

    Inflation continues to run below target, not just in the U.S. but in countries across the globe. Domestically, I expect inflation will run a bit above target in 2019 and come down to target the following year, but I am more hesitant in this view than I am on economic activity. If soft inflation persists, it may pose a significant problem, which I’ll get to shortly.

    For that reason, my own view is that two rate increases are likely to be appropriate for 2018.

    Of course, I’ll continue to monitor the data as they roll in, but that’s the view as we start out the new year.

  • James Bullard We’ve really made no progress in the last two years toward our inflation target.

    [ January 5, 2018 ]

    We’ve really made no progress in the last two years toward our inflation target.

  • James Bullard A lot of good things were done in this tax bill… I do hold out the possibility that the tax bill will unleash a lot of investment in the U.S. and you will then get an outsized effect.

    [ January 4, 2018 ]

    “A lot of good things were done in this tax bill,” said Bullard, who endorsed the alignment of U.S. corporate taxes closer to developed world norms and said he felt that raising the standard deduction would weaken the constituencies behind itemized tax breaks that can distort economic decisions. “I do hold out the possibility that the tax bill will unleash a lot of investment in the U.S. and you will then get an outsized effect.”

    Bullard said his “base case” was for only a modest increase in capital spending, and a possible shift in the economy’s long-term potential growth by a few tenths of a percentage point -- not a dramatic change for the near term but important over the long run.

    A lot of good things were done in this tax bill… I do hold out the possibility that the tax bill will unleash a lot of investment in the U.S. and you will then get an outsized effect.

  • Eric Rosengren I do worry that we may start to see “reach for yield” kinds of behaviors on financial investments that could potentially have broader implications at a time when monetary or fiscal policy can’t react if we get a big negative shock.

    [ December 27, 2017 ]

    On the financial stability front, it’s not just the United States that has had low interest rates—it’s a global phenomenon. I do worry that we may start to see “reach for yield” kinds of behaviors on financial investments that could potentially have broader implications at a time when monetary or fiscal policy can’t react if we get a big negative shock.

  • Robert S. Kaplan So, let me answer it this way. I've been in the markets my entire adult life. I've been watching them since before I was an adult. And what I have learned is I don't always know what the market is saying, but I know it always pays to try to decipher what it's saying. And I think the bond market is saying expectations for future growth are sluggish and I think it's worth paying attention to that.

    [ December 19, 2017 ]

    KAPLAN:  I said to you when we've talked before, gradual and patient is my key comment. My own [2018] dot was three.  The 10-year Treasury is something I'll be watching. And what the 10-year does will also influence how many rate increases next year...  The yield curve is something I'll be watching carefully. So that could go (ph) the other way.

    FERRO: The yield curve is flattening and I wonder whether what the signal really is there. Because most people would say there's a massive balance sheet over the ECB, there's a massive balance sheet over the BOJ and that's why we've got this flattening, that's why the ten year yield is not rising. Do you see anything can that does to argue and resonate with you?

    KAPLAN: So it's a part of it and, by the way, I wish that was all of it. But my own view is a part of what's going on is global liquidity. But I think the bigger part of why the ten year is muted is sluggish expectations for out year GDP growth.

    And what I mean by that if you look at where potential GDP growth is five years from now, I think it is actually declining from where we are today. Why is that happening?  Aging demographics, slowing workforce growth and sluggish productivity, unless the United States improves early childhood literacy, college readiness and little skills training.

    So I think the 10-year Treasury tells you more about expectations for future growth which are sluggish. And so if you told me where we're going to have solid GDP growth the next two or three years trailing off to maybe below two percent five years from now, I would have expected a flattish yield curve and that's what you're seeing.

     ...

    MCKEE: You're talking about the 10-year as an indicator of the market's view of long term potential growth. That is completely different than the man down in Washington who seems to think the tax cut is going to change the whole fundamental picture for the United States. Is the market wrong or is the president wrong?

    KAPLAN: So, let me answer it this way. I've been in the markets my entire adult life. I've been watching them since before I was an adult. And what I learned is I don't always know what the market is saying, but I know it always pays to try to decipher what it's saying. And I think the market is saying expectations for future growth are sluggish and I think it's worth paying attention to that.

  • Neel Kashkari An inverted yield curve ...  is one of the best signals we have of elevated recession risk and has preceded every single recession in the past 50 years.

    [ December 18, 2017 ]

    An inverted yield curve, where short rates are above long rates, is one of the best signals we have of elevated recession risk and has preceded every single recession in the past 50 years. While the yield curve has not yet inverted, the bond market is telling us that the odds of a recession are increasing and that inflation and interest rates will likely be low in the future. These signals should caution the FOMC against further rate increases until it becomes clear that inflation is actually picking up.

  • John Williams Something like three rate increases next year, or two to three more increases in 2019, that seems like a reasonable view of this gradual removal of accommodation in a very benign environment.

    [ December 18, 2017 ]

    Something like three rate increases next year, or two to three more increases in 2019, that seems like a reasonable view of this gradual removal of accommodation in a very benign environment. Low unemployment, relatively low inflation - moving back to 2 percent [or] a little bit maybe above that. But it’s not an environment that I, at least right now, view as having really any big risks of either needing to tighten dramatically faster, or any real arguments not to continue on the path we’re on.

    Now, that could change. I’m sure you were going to ask - but one of the big question marks is how will the tax policies change -  what that package ends up looking like, and then obviously how that effects the economy in terms of consumer spending, business spending, and over the longer term how it affects the supply side of the economy.

    From Wall Street Journal interview published on December 5 but conducted before the blackout period.

  • Charles L. Evans I believe that leaving the target range at 1 to 1-1/4 percent at the current time would have better supported a general pickup in inflation expectations and increased the likelihood that inflation will rise to 2 percent.

    [ December 15, 2017 ]

    I am concerned that persistent factors are holding down inflation, rather than idiosyncratic transitory ones. Namely, the public’s inflation expectations appear to me to have drifted down below the FOMC’s 2 percent symmetric inflation target. And I am concerned that too many observers have the impression that our 2 percent objective is a ceiling that we do not wish inflation to breach, as opposed to the symmetric objective that it really is; that is, we would like to see the odds of inflation running modestly below 2 percent equal the odds of it running modestly above over the long run.

    I believe that leaving the target range at 1 to 1-1/4 percent at the current time would have better supported a general pickup in inflation expectations and increased the likelihood that inflation will rise to 2 percent along a path that is consistent with a symmetric inflation objective.

  • Janet L. Yellen Economists are not great at knowing what appropriate valuations are; we don't have a terrific record. And the fact that those valuations are high doesn't mean that they're necessarily overvalued...  I think when we look at other indicators of financial stability risks, there's nothing flashing red there or possibly even orange... If you ask me is this significant factor shaping monetary policy now; well, it's on the list of risks, but it's not a major factor

    [ December 13, 2017 ]

    Of course, the stock market has gone up a great deal this year. And we have in recent months characterized the general level of asset valuations as elevated. What that reflects is simply the assessment that looking at price-earnings ratios and comparable metrics for other assets other than equities, we see ratios that are in the high end of historical ranges. And so that's worth pointing out.

    But economists are not great at knowing what appropriate valuations are; we don't have a terrific record. And the fact that those valuations are high doesn't mean that they're necessarily overvalued.

    ...

    I think what we need to and are trying to think through is if there were an adjustment in asset valuations, the stock market, what impact would that have on the economy? And would it provoke financial stability concerns?

    And I think when we look at other indicators of financial stability risks, there's nothing flashing red there or possibly even orange. We have a much more resilient, stronger banking system.  We're not seeing ... some buildup in leverage or credit growth at excessive levels. So you know, this is something that the FOMC pays attention to. But if you ask me is this significant factor shaping monetary policy now; well, it's on the list of risks, but it's not a major factor

  • Janet L. Yellen My colleagues and I mainly see the likely tax package as boosting aggregate demand, but also having some potential to boost aggregate supply.

    [ December 13, 2017 ]

    I think my colleagues and I mainly see the likely tax package as boosting aggregate demand, but also having some potential to boost aggregate supply.

    ...

    We continue to think, as you can see from the projections that a gradual path of rate increases remains appropriate, even with almost all participants now factoring in their assessment of the impact of the tax policy.

    You know, it is projected that the tax cut package will lead to additions to the national debt and boost, by the end of the horizon, the debt to GDP ratio.  And I will say, and this is nothing new, it's something I've been saying for a long time. I am personally concerned about the U.S. debt situation. It's not that the debt to GDP ratio at the moment is extraordinarily or worrisomely high. But it's also not very low. And it's projected as the population continues to age and the baby boomers retire that that ratio will continue to rise in an unsustainable fashion. So the addition to the debt taking what is already a significant problem and making it worse is -- it is of concern to me.

    And I think it does suggest that in some future downturn, which could occur, just for whatever reason, the amount of fiscal space that would exist for fiscal policy to play an active role may well be limited.

  • Janet L. Yellen There is a strong correlation historically between yield curve inversions and recessions. But let me emphasize that correlation is not causation.  And I think there are good reasons to think that the relationship between the slope of the yield curve and the business cycle may have changed.

    [ December 13, 2017 ]

    I would say that the current slope is well within its historical range. Now there is a strong correlation historically between yield curve inversions and recessions. But let me emphasize that correlation is not causation.  And I think there are good reasons to think that the relationship between the slope of the yield curve and the business cycle may have changed.
    ...

    I think that the fact the term premium is so low and the yield curve is generally flatter, is an important factor to consider. Now, I think it is also important to realize that market participants are not expressing heightened concern about the decline of the term premium and when asked directly about the odd of recession, they see it as low, and I would concur with that judgment.

  • Charles L. Evans If the judgment was that we’re still likely to be underrunning our 2 percent objective, maybe we would stop briefly and assess for more information, maybe wait until mid-2018.

    [ December 5, 2017 ]

    I think our policy moves to date have been thoughtful and reasonable. We’ve increased our funds rate objective by 100 basis points. Maybe it’s time to stop and see whether inflation expectations are going to move in line with our 2 percent objective. And if the judgment was that we’re still likely to be underrunning our 2 percent objective, maybe we would stop briefly and assess for more information, maybe wait until mid-2018.

    From NY Times interview published on December 5 but conducted before the blackout period.

  • James Bullard There is a material risk of yield curve inversion over the forecast horizon if the FOMC continues on its present course of increases in the policy rate.

    [ December 1, 2017 ]

    “There is a material risk of yield curve inversion over the forecast horizon if the FOMC continues on its present course of increases in the policy rate,” Bullard said. “Yield curve inversion is a naturally bearish signal for the economy. This deserves market and policymaker attention.”

    He also discussed two possible ways to avoid an inverted yield curve—rising longer-term rates and policymaker caution. “It is possible that yield curve inversion will be avoided because longer-term nominal yields will begin to rise in tandem with the policy rate, but this seems unlikely as of today,” he said. “Given below-target U.S. inflation, it is unnecessary to push normalization to such an extent that the yield curve inverts.”

  • John Williams I expect the unemployment rate to continue to drift downward, bottoming out at around 3¾ percent next year.

    [ November 29, 2017 ]

    I expect the unemployment rate to continue to drift downward, bottoming out at around 3¾ percent next year.

  • Janet L. Yellen I would simply say that I am very worried about the sustainability of the U.S. debt trajectory… It's the type of thing that should keep people awake at night

    [ November 29, 2017 ]

    "I would simply say that I am very worried about the sustainability of the U.S. debt trajectory," Yellen said. "Our current debt-to-GDP ratio of about 75 percent is not frightening but it's also not low."

    "It's the type of thing that should keep people awake at night," she added.

    More From:

    Source:

    https://www.federalreserve.gov/newsevents/testimony/yellen20171129a.htm

    Venue:

    Testimony to the Joint Economic Committee
  • William C. Dudley From WSJ: “Most central bankers would say ‘sign me up’ ” for the current situation facing the Fed, Mr. Dudley said.

    [ November 27, 2017 ]

    Mr. Dudley repeated his view that low inflation with low unemployment is “not actually a bad thing,” because it would enable policy makers to “probe” how much lower the jobless rate can go before inflation heats up.

    “Most central bankers would say ‘sign me up’ ” for the current situation facing the Fed, Mr. Dudley said.

  • Neel Kashkari I don't see any reason why we have to tap the brakes, when inflation is continuing to run low.

    [ November 27, 2017 ]

    My perspective is, let's allow the job market to continue to strengthen, allow more Americans to go back to work, allow wages to strengthen, and then, if we start to see inflation creep back up to our 2-percent target, we can tap the brakes then.  I don't see any reason why we have to tap the brakes, when inflation is continuing to run low.

  • Robert S. Kaplan I believe it will likely be appropriate, in the near future, to take the next step in the process of removing monetary accommodation.

    [ November 27, 2017 ]

    I believe that the neutral nominal rate of interest is likely in the neighborhood of 2.5 percent—materially lower than we are historically accustomed. As such, I think it is important that, to the extent possible, monetary policy accommodation be removed in a gradual and patient manner. I would like to avoid a situation where the FOMC is playing “catch-up” in raising interest rates.

    Taking all these factors into account, and from a risk management point of view, I believe it will likely be appropriate, in the near future, to take the next step in the process of removing monetary accommodation. This should be done in the context of an overall strategy of removing accommodation in a gradual and patient manner. I believe this strategy will increase the likelihood of sustaining and extending the economic expansion in the U.S.

  • 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.

  • Janet L. Yellen The Committee would be prepared to resume reinvestments if a material deterioration in the economic outlook were to warrant a sizable reduction in the federal funds rate.

    [ June 14, 2017 ]

    [T]he Committee affirmed that changing the target range for the federal funds rate is our primary means of adjusting the stance of monetary policy. In other words, the balance sheet is not intended to be an active tool for monetary policy in normal times. However, the Committee would be prepared to resume reinvestments if a material deterioration in the economic outlook were to warrant a sizable reduction in the federal funds rate. More generally, the Committee would be prepared to use its full range of tools, including altering the size and composition of its balance sheet, if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate.

    More From:

    See Also:

    Venue:

    FOMC Chairman Post-Meeting Press Briefing
  • Janet L. Yellen The recent lower readings on inflation have been driven significantly by what appear to be one-off reductions in certain categories of prices, such as wireless telephone services and prescription drugs.  These price declines will, as a matter of arithmetic, restrain the 12-month inflation figures until the extraordinarily low March reading drops out of the calculation.

    [ June 14, 2017 ]

    The recent lower readings on inflation have been driven significantly by what appear to be one-off reductions in certain categories of prices, such as wireless telephone services and prescription drugs. These price declines will, as a matter of arithmetic, restrain the 12-month inflation figures until the extraordinarily low March reading drops out of the calculation. However, with employment near its maximum sustainable level and the labor market continuing to strengthen, the committee still expects inflation to move up and stabilize around 2 percent over the next couple of years, in line with our longer-run objective.

    More From:

    See Also:

    Venue:

    FOMC Chairman Post-Meeting Press Briefing
  • Janet L. Yellen So it’s that recognition [that the neutral real funds rate may have fallen] that causes people to think we might be better off with a higher inflation objective... This is one of our most critical decisions and one we are attentive to evidence and outside thinking. It’s one that we will be reconsidering at some future time.

    [ June 14, 2017 ]

    At the time that we adopted the 2 percent target—it was back in 2012—we had a very thorough discussion of the factors that should determine what our inflation
    objective should be. And, you know, I believe that was a well-thought-out decision...

    Now, we’ve learned a lot in the meantime, and assessments of the level of the neutral likely level, currently and going forward, of the neutral federal funds rate have changed and are quite a bit lower than they stood in 2012 or earlier years. And that means that the economy has the potential where policy could be constrained by the zero lower bound more frequently than at the time that we adopted our 2 percent objective. So it’s that recognition that causes people to think we might be better off with a higher inflation objective,

    That’s an important set—this is one of our most critical decisions and one we are attentive to evidence and outside thinking. It’s one that we will be reconsidering at some future time. And it’s important for our decisions to be informed by a wide range of views and research which is ongoing inside and outside the Fed.

    But a reconsideration of that objective needs to take account not only of benefits of a higher in—potential benefits of a higher inflation target, but also the potential costs that could be associated with it. It needs to be a balanced assessment.

    But I would say that this is one of the most important questions facing monetary policy around the world in the future, and we very much look forward to seeing research by economists that will help inform our future decisions on this.

    More From:

    See Also:

    Venue:

    FOMC Chairman Post-Meeting Press Briefing
  • 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.