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  • William C. Dudley"We’re at a point where the economic expansion has plenty of room to run. Inflation’s a little bit below our target, rather than above our target,” Dudley said. “So, I think we can be quite gentle as we go in terms of gradually removing monetary policy accommodation.”


    “You certainly want to go as far as you can,” Dudley told the Business Council of New York State on Wednesday in Albany, New York. “You don’t want to keep people unemployed just because you think you’re already at the full employment rate."

    [ October 12, 2016 ]
  • Charles L. EvansSome are still focused on the risk that Fed policy will overstimulate the economy, pushing inflation above our 2 percent target in a way that would require a sharply restraining policy response. But I would say that such fears currently are exaggerated and are a bit like the problem of generals fighting the last war. Today, looking at experiences from around the world, I think the bigger risk is that inflation in the U.S. will not get back to our symmetric 2 percent objective within an acceptable period of time.

    Much of my perspective derives from how I view the symmetry of our inflation target. I would say that the FOMC has been challenged to describe what is meant by symmetry for our 2 percent inflation objective. I typically point out that a successful symmetric approach would have inflation average 2 percent over long stretches of time. In order to average 2 percent, some time will be spent above 2 percent and some time will be spent below 2 percent.

    So, in the current situation, after many years of very low inflation, one has to ask, Would overshooting 2 percent be a failure or a virtue?

    Current SEP forecasts from FOMC participants have inflation rising to 2 percent without overshooting our target level. I call this threading the needle to get to 2 percent. This might be consistent with a symmetric approach to inflation. But that can’t really be known with much certainty until sometime in the future when inflation is shocked above 2 percent. At that juncture, we would be able to see whether or not the FOMC responds by similarly trying to thread the needle with a shallow decline in inflation back down to 2 percent.

    Given what I see today, I am skeptical that the public believes a future FOMC would act in such a manner. Indeed, when I say in speeches or panel discussions that the FOMC has a symmetric inflation target, I am often greeted with skepticism. To ensure more public confidence that the Fed’s inflation objective is indeed symmetric, we need to provide a substantial and credible example of symmetric behavior with regard to our inflation target. And we need to do it sooner rather than later.

    [ October 10, 2016 ]
  • Stanley FischerGiven that generally positive view of the economic outlook, one might ask, why did we not raise the federal funds rate at our September meeting? Our decision was a close call, and leaving the target range for the federal funds rate unchanged did not reflect a lack of confidence in the economy. Conditions in the labor market are strengthening, and we expect that to continue. And while inflation remains low, we expect it to rise to our 2 percent objective over time. But with labor market slack being taken up at a somewhat slower pace than in previous years, scope for some further improvement in the labor market remaining, and inflation continuing to run below our 2 percent target, we chose to wait for further evidence of continued progress toward our objectives.

    As we noted in our statement, we continue to expect that the evolution of the economy will warrant some gradual increases in the federal funds rate over time to achieve and maintain our objectives. That assessment is based on our view that the neutral nominal federal funds rate--that is, the interest rate that is neither expansionary nor contractionary and keeps the economy operating on an even keel--is currently low by historical standards. With the federal funds rate modestly below the neutral rate, the current stance of monetary policy should be viewed as modestly accommodative, which is appropriate to foster further progress toward our objectives. But since monetary policy is only modestly accommodative, there appears little risk of falling behind the curve in the near future, and gradual increases in the federal funds rate will likely be sufficient to get monetary policy to a neutral stance over the next few years.

    [ October 9, 2016 ]
  • Loretta J. MesterRecently, the FOMC has been describing its policymaking approach as being “data dependent.” Unfortunately, I believe there is some confusion about what the Fed actually means by “data dependent.” This phrase has provided a transition from a period of explicit forward guidance, which was used as a policy tool during the recession and early in the recovery, back to more normal policymaking times. But this transition has posed somewhat of a challenge for FOMC communications. After the Great Inflation of the 1970s, the FOMC became more predictable and systematic in how it reacted to changes in economic activity and inflation. So the public had a pretty good sense of the Fed’s so-called reaction function and explicit forward guidance was rarely used. But the Great Recession required the Fed to behave in a way quite distinct from its past behavior, and consequently, there is less understanding today about how policymakers are likely to react to incoming economic information. Another factor complicating communication is that market participants prefer more explicit statements and less uncertainty. Thus, they may interpret the forecasts of the economy and the appropriate policy path as having more certitude than they actually do, which creates some communications issues when the forecasts and policy path change.

    The concept of “data dependence” was meant to reinforce the idea that the economy is dynamic and will be hit by economic disturbances that can’t be known in advance. Some shocks will result in an accumulation of economic information that changes the medium-run outlook for the economy and the risks around the outlook in a way to which monetary policy will want to respond. But some of these shocks will not materially change the outlook or policymakers’ view of appropriate policy. Unfortunately, referring to policy as “data-dependent” could be giving the wrong impression that policy is driven by short-run movements in a couple of different data reports. It may even suggest that policy-setting is unsystematic in that the salient data reports may be viewed as changing from meeting to meeting. We seem to find ourselves in a situation where market participants and commentators view any one monthly or quarterly data release as the definitive piece of evidence that will result in either a policy action or no action.

    [ October 7, 2016 ]
  • Stanley FischerOn regulatory matters, Mr. Fischer defended the 2010 Dodd-Frank law, even though he said areas for improvement remain.

    “The big goals of the reforms and regulation that took place in Dodd-Frank have been achieved in certain areas of the banking sector, and I worry a little bit about the fact that we in the United States do not have very good mechanisms for dealing with the nonbank sector, the shadow banking system,” he said.

    [ October 7, 2016 ]
  • Stanley FischerMonetary and fiscal policies could ameliorate some, though not all, of the potential causes of ultralow rates--such as excessive precautionary saving and weak demand for physical capital. In other words, ultralow interest rates are not necessarily here to stay, especially if the right policies are put in place to address at least some of their root causes.

    What are some of these policies? First, transparent and sound monetary policies here and abroad have helped mitigate downside risks and improve economic conditions, likely boosting confidence in the sustainability of the recovery. Without them, we probably would have had a more pronounced increase in precautionary saving and a deeper decline in fixed investment, which together would have put additional downward pressure on the natural rate of interest and, more important, further damaged the economy's growth potential.

    But, second, the virtues of sound monetary policy notwithstanding, we must not forget, as former Fed Chairman Ben Bernanke reminded us on numerous occasions, that "monetary policy is not a panacea." For instance, as I mentioned recently elsewhere, policies to boost productivity growth and the longer-run potential of the economy are more likely to be found in effective fiscal and regulatory measures than in central bank actions. Some combination of improved public infrastructure, better education, more encouragement for private investment, and more-effective regulation is likely to promote faster growth, which would increase the natural rate of interest and, thus, reduce the probability that we may find ourselves again struggling to avoid Keynes's infamous liquidity trap. If the natural rate can be lifted by appropriate policies, the economic near-stagnation that many countries have experienced in recent years may well turn out not to be that secular after all.

    [ October 5, 2016 ]
  • Jeffrey LackerAcross the history of central banks around the world, when monetary policy has been subject to high-frequency political winds, the results have not been good. And our own history shows that the temptation of short-sighted monetary policies is a bipartisan vulnerability, just as the Fed’s founders feared.
    Monetary policy independence is essential to achieving good economic outcomes. Undue political influence can and has happened even under our current structure, and as a country we should be wary of changes to Fed governance that could make such breaches easier. Nations around the world came to similar conclusions in the 1980s and 1990s – after long, hard struggles to tame inflation – that central banks delivered better results when insulated from short-run political pressures. Most accordingly structured their monetary policy decision-making processes to include independence.

    The apolitical aspects of Reserve Bank governance seem especially useful given the potential for political influence on the publicly appointed parts of the Fed. Governors are politically appointed, as noted, but to staggered 14-year terms. When enacted in the 1930s, this was envisioned as a way to prevent their terms from overlapping with electoral cycles. In practice, the tenure of governors is typically less than half of a full term and has fallen substantially since the 1970s. A byproduct is that the composition of the Board of Governors is less insulated from the political process than was originally envisioned. Indeed, by the end of a president’s term in the White House, it has typically been the case that the majority or every member of the Board of Governors was appointed by a president of the same party. So in practice, the views of Governors may not be as diverse as intended.

    Monetary policy independence has its limits, however. Independence with regard to short-term choices of monetary policy instrument settings – that is, policy interest rates – must be paired with strong accountability for the economic results of policymaking over time. The economics literature has contrasted “instrument independence,” which we have, with “goal independence,” which we do not: Congress sets the Fed’s monetary policy objectives, and the FOMC chooses a succession of instrument settings in pursuit of them.

    [ October 5, 2016 ]
  • Charles L. EvansI think a very shallow funds rate path, such as the one envisioned by the median FOMC participant, is appropriate and needed to support my forecasts for growth and inflation. Indeed, I think the pace of policy normalization necessary to bring inflation back up to 2 percent in a timely manner has to be shallow enough to result in the unemployment rate falling below its natural level. I should note, too, that achieving a symmetric target means having enough accommodation in place to generate a reasonable likelihood that inflation in the future could moderately exceed 2 percent. If you eliminate all chance of inflation rising above target, then you are effectively making your inflation target a ceiling. A very shallow path for policy normalization is likely needed to deliver these results.

    [ October 4, 2016 ]
  • Charles L. EvansI think a very shallow funds rate path, such as the one envisioned by the median FOMC participant, is appropriate and needed to support my forecasts for growth and inflation. Indeed, I think the pace of policy normalization necessary to bring inflation back up to 2 percent in a timely manner has to be shallow enough to result in the unemployment rate falling below its natural level. I should note, too, that achieving a symmetric target means having enough accommodation in place to generate a reasonable likelihood that inflation in the future could moderately exceed 2 percent. If you eliminate all chance of inflation rising above target, then you are effectively making your inflation target a ceiling. A very shallow path for policy normalization is likely needed to deliver these results.

    [ October 4, 2016 ]
  • Jeffrey LackerLacker, one of seven policymakers who currently do not have a vote but who participate in policy discussions, made clear on Tuesday he would have been in the camp gunning for higher rates.

    "I would have dissented," Lacker told reporters in Charleston, West Virginia where he gave a speech on the economic outlook.

    [ October 4, 2016 ]
  • Loretta J. MesterBLOOMBERG: If the outlook doesn’t change, if the reports come in strong, are you going to argue for a rate hike in November?

    MESTER: So I think that all meetings are live. And I would include November in that – all meetings are live. As I said in September, I thought the case was compelling to take another step on the gradual path. If the data come in as we anticipate, consistent with my forecasts over the medium run, then I would expect that the case will remain compelling.

    BLOOMERG: So you’ll push, and you think other FOMC members will vote for a rate hike – if called for – even six days before an election?

    MESTER: I think we’re apolitical. Politics doesn’t play into it.

    [ October 3, 2016 ]
  • Janet L. YellenFrom Reuters:

    Referring to asset purchase stimulus programs in a video conference with a minority bankers meeting in Kansas City, Yellen said: "If we found, I think as other countries did, that they could reach the limits in terms of purchasing safe assets like longer-term government bonds, it could be useful to be able to intervene directly in assets where the prices have a more direct link to spending decisions."

    She added that buying equities and corporate bonds could have costs and benefits.

    From the WSJ:

    “There could be benefits to the ability to buy either equities or corporate bonds,” she said in reply to a question from the audience. “There would also be costs as well that would have to be carefully considered in deciding whether that would be a good idea.”

    [ September 29, 2016 ]
  • Neel KashkariPolitics does not factor at all into the Fed's decisions, Kashkari said. "I am agreeing with people in terms of interest rates who I shouldn’t be agreeing with, if it were up to politics," said Kashkari, who ran as a Republican for California governor and was an appointee to the Treasury by a Republican president.

    [ September 29, 2016 ]
  • Jerome H. PowellI think the key question for policymakers is whether the recent acceleration in the rate of decline in the number of small banks is primarily a structural change attributable to increasing economies of scale--or, perhaps more accurately, diseconomies of very small scale--or whether recent efforts by the FDIC and others to encourage more chartering of new banks, combined with a return to higher interest rates and stronger economic growth, will mitigate the decline in numbers. At this point, I think it is too soon to say.

    The Federal Reserve and the Conference of State Bank Supervisors began this conference three years ago in order to stimulate research on community banks, with the goal of improving our understanding of their condition and their important contributions to economic growth and prosperity. We plan to continue our own research efforts across the Federal Reserve System, as well as our efforts, through initiatives such as this conference, to encourage academics to focus their attention on community banks.

    Of course, the Federal Reserve's support for community banks goes well beyond research. One of the clearest lessons from our most recent recession is that, when it comes to bank regulation and supervision, one size does not fit all. As we seek to promote safety and soundness and ensure consumer compliance, we increasingly tailor rules and supervisory approaches to the differing risks posed by institutions of different size and complexity. This way, we can achieve our aims without creating undue regulatory burden. The Federal Reserve is committed to this approach to community bank oversight and to ensuring that new and existing regulations are not unduly burdensome for community banks.

    [ September 29, 2016 ]
  • Patrick HarkerBLOOMBERG: Do you think the central bank has a communications problem, particularly with Wall Street, because you have forecast a lot of interest rate moves that haven’t happened?

    HARKER: I think one of the fundamental problems we’ve had is that in the SEP – the dot plot – the path of the fed funds rate is often taken as some sort of commitment as opposed to our best guess or estimate of what will happen. And I think that’s been a communications issue, that it really isn’t saying this is exactly what we’re going to do. It’s saying given what we know today, this is our best estimate of where that will be, assuming that proper policy is followed.

    BLOOMBERG: As a modeler, would you get rid of the dot plot?

    HARKER: I’m not sure. I think it does provide value, and you need to think of lots of ways to communicate and be transparent. It does provide that. It’s really the interpretation of that particular dot plot, not for GDP or inflation, because people understand that’s our forecast. The one I worry about is the fed funds rate dot plot.

    [ September 29, 2016 ]
  • Dennis Lockhart“That phrase -- for the time being -- appeared in the statement suggesting, as I see it, that a change in policy could occur before long,” Lockhart, who doesn’t vote on policy this year and will retire in early 2017, said Thursday in the text of a speech in Orlando, Florida. “I did support the consensus view that, before taking the next move, it makes sense to see a little more evidence of progress toward our statutory policy objectives.”

    [ September 29, 2016 ]
  • Esther L. GeorgeCNBC: And you still think at, so for example, a 1% funds rate, the economy would still be accommodative? The Fed would still be accommodative?

    GEORGE: Under my forecast it would still be accommodative and the economy can still grow.

    [ September 29, 2016 ]
  • Patrick Harker“I tend to be in the camp of normalizing sooner, rather than later,” he said Thursday in Dublin during an interview on Bloomberg Television with Michael McKee. He said the Fed was making progress toward its target for 2 percent inflation and “I am somewhat concerned about falling behind the curve,” he said.


    Harker, who became president of the Philadelphia Fed in July 2015 and will vote on policy next year, said that every FOMC meeting was “live” for a policy decision. “To take any meeting of the table is a mistake,” he said.

    [ September 29, 2016 ]
  • Patrick Harker“If things continue on the trajectory that I anticipate, December would be an appropriate time for a rate increase,” Mr. Harker said. He was speaking to reporters after an address at an event hosted by the Global Interdependence Center, a U.S. think tank that promotes free trade.

    [ September 29, 2016 ]
  • Loretta J. MesterI, and two of my FOMC colleagues, dissented from that decision [to hold rates steady], preferring to see a 25-basis-point increase in September.
    I view another small step on the gradual upward path as appropriate, not because I want to curtail the expansion, but because I believe gradually moving rates up as we continue to make progress on our goals will help prolong the expansion. It is also consistent with the policy communications we have been issuing for quite a while. I note that the gradual path I’m anticipating means that policy will remain accommodative for some time, continuing to lend support to the economic expansion going forward. The gradual path will also allow us to recalibrate policy over time as we gain more insights into the underlying structural aspects of the post-crisis economy.

    Now, one can always say it’s better to wait for more information before making a move, and a cautious approach has served us well so far during the expansion. But there are also risks to delaying for too long. If we continue to delay even as we make further progress on our inflation goal and labor markets continue to tighten, we risk having to undertake a considerably steeper policy path later on. Such a strategy is inconsistent with what we have been communicating; it risks confusing the public about our policy rationale and undercutting the credibility of Fed communications. This would cause problems for future policymaking. In addition, if we delay too long and then find ourselves in a situation where the labor market becomes unsustainably tight, price pressures become excessive, and we have to move rates up steeply, we could risk a recession, a bad outcome that history tells us disproportionately harms the more vulnerable parts of our society. I think we also have to recognize that if we fail to exit gracefully from the nontraditional policy actions we took in the aftermath of the crisis — actions I thought were necessary and effective — we could jeopardize their use in the future, should the need arise again.

    For these reasons, I favor taking the next step on the gradual path of rising interest rates. The lesson that policy should be forward looking is based on the history of poor outcomes when that strategy hasn’t been followed. In the face of evidence that the economy is on track to meet our goals over the medium run, sometimes being prudent means moving the policy rate up.

    [ September 28, 2016 ]