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Recent FedSpeak Highlights

  • Jeffrey Lacker Inflation is a problem now. It is too high and personally I would be uncomfortable in waiting for economic slack to bring it down.

    [ April 17, 2008 ]

    Inflation is a problem now. It is too high and personally I would be uncomfortable in waiting for economic slack to bring it down.

    ...

    I am particularly concerned about movements in measures of expected inflation.

    From comments to press, as reported by Reuters

  • Richard Fisher The answer, to be curt, is not to compound the bad by repeating the oft-prescribed remedy of inflating our way out of our predicament with a wing-and-a-prayer promise that it can always be reined in later. It is for this reason that I have maintained a strong reluctance to further general monetary accommodation.

    [ April 17, 2008 ]

    [N]ow we must do what we can to remedy the situation. One thing, however, is clear. The answer, to be curt, is not to compound the bad by repeating the oft-prescribed remedy of inflating our way out of our predicament with a wing-and-a-prayer promise that it can always be reined in later. It is for this reason that I have maintained a strong reluctance to further general monetary accommodation. At the same time, I have been an advocate of using our various discount window facilities, within reason, to bridge the financial system’s structural problems as the credit markets correct themselves and run the long course of contrition.

  • Donald Kohn It is this tightening that is accentuating the downside risks for the economy as a whole. And in some sectors, as lenders seek protection against perceived downside risks, it is probably going further than is necessary to foster financial stability in the long run.

    [ April 17, 2008 ]

    To protect their capital and liquidity, banks and other financial market participants are addressing the weaknesses revealed by market developments by becoming much more careful about the risks they are taking. This is a necessary process, but it has been a difficult one as well; it is reducing the values of some assets and tightening credit cost and availability across a wide range of instruments and counterparties, despite considerable easing in the stance of monetary policy. It is this tightening that is accentuating the downside risks for the economy as a whole. And in some sectors, as lenders seek protection against perceived downside risks, it is probably going further than is necessary to foster financial stability in the long run.

  • Frederic Mishkin Clearly you can't get interest rates below zero ... but we actually have interest rates now at 2-1/4 percent and clearly there is some room to lower them if it's needed.

    [ April 16, 2008 ]

    Clearly you can't get interest rates below zero ... but we actually have interest rates now at 2-1/4 percent and clearly there is some room to lower them if it's needed.

    ... Furthermore, we are continually looking at steps to make the markets function better and I think we've been quite creative in terms of the steps we've taken so far, but in fact we will continue to look at the steps that we can take to in fact make the functioning of the financial markets get back to a more normal situation

    From Q&A as reported by Reuters

  • Charles Plosser It's clear that the U.S. economy has slowed dramatically

    [ April 16, 2008 ]

    I don't know whether we're going into a recession or not. ... It's clear that the U.S. economy has slowed dramatically. Whether we're in a recession technically or not -- it's like a definition. It's not very meaningful in a substantive sense.

    From Q&A as reported by Market News International

  • Janet L. Yellen It appears that growth in consumption and business investment spending has slowed markedly after years of robust performance, and, as a result, the economy has all but stalled and could even contract over the first half of the year.

    [ April 16, 2008 ]

     In fact, the contraction in spending on housing construction subtracted a full percentage point from U.S. real GDP growth last year, and nearly as much the year before. It seems likely that this sector will be a major drag on the overall economy through the end of this year and into 2009.

    Until recently, the deflating housing bubble had not spilled over to the rest of the economy. But now it has. It appears that growth in consumption and business investment spending has slowed markedly after years of robust performance, and, as a result, the economy has all but stalled and could even contract over the first half of the year.

    The factors weighing down consumer spending go beyond the effects of the credit crunch and the falling house prices. Consumers also face constraints due to the declines in the stock market, which have diminished their wealth. Furthermore, energy, food, and other commodity prices have risen sharply in recent years, essentially “taxing” their incomes. Finally, and very importantly, labor markets have weakened.

  • Kevin Warsh A credit crunch, particularly for small businesses and consumers, poses meaningful downside risks to the real economy.

    [ April 14, 2008 ]

    Credit is threatening to displace liquidity as the primary antagonist. A credit crunch, particularly for small businesses and consumers, poses meaningful downside risks to the real economy. And market participants are struggling to assess the possibility that the narrative turns into a multi-act, macroeconomic drama.

  • Donald Kohn The market is still adjusting, the turmoil has not yet settled down ... It's still a fragile situation out there.

    [ April 12, 2008 ]

    The market is still adjusting, the turmoil has not yet settled down ... It's still a fragile situation out there.

    As reported by Bloomberg News

  • Ben Bernanke Healthy, well-functioning financial markets are essential to sustainable growth. In particular, much experience shows that economies cannot perform at their full potential when financial conditions are such as to restrict the supply of credit to sound borrowers.

    [ April 10, 2008 ]

    In recent months, the Federal Reserve has been intensely focused on the continuing strains in financial markets. Healthy, well-functioning financial markets are essential to sustainable growth. In particular, much experience shows that economies cannot perform at their full potential when financial conditions are such as to restrict the supply of credit to sound borrowers. We are addressing these financial strains and their potential economic consequences with a number of tools, including the provision of extra liquidity to the system and reductions in our target for the federal funds rate.

  • Richard Fisher The “shadow banking system,” however, looks like a Rube Goldberg device designed by a hydrologist on acid.

    [ April 9, 2008 ]

    Here is a simple analogy to help you think about our effort. The Federal Reserve is charged with conducting monetary policy that sustains noninflationary economic growth. We have at our disposal a tool called the federal funds rate, which we set as the base lending rate for the economy. Think of the fed funds rate as a monetary spigot, and the Fed’s goal is keeping the lawn of the economy green and healthy. If we turn the spigot up too forcefully, we will flood and kill the grass with inflation. If we provide too little, the lawn turns brown, starved for money. To get the money from the spigot to the lawn requires a working system of pipes and sprinkler heads. The “shadow banking system,” however, looks like a Rube Goldberg device designed by a hydrologist on acid, with pipes and conduits that lead every which way and not always toward the goal of sustainable economic growth. Moreover, the system of pipes and outlets is clogged with the muck and residue of a prolonged and frenetic period of unrestrained growth and abuse. Until the confusion and the debris are cleared away, financial intermediaries will be reluctant to book new loans or incur additional risk. This retards the impact of additional monetary accommodation.

    Thus, even as we have been cutting the fed funds rate—even as we have been opening the monetary spigot—interest rates for private sector borrowers have not fallen correspondingly, and rates for some borrowers have increased. The grass is turning brown.

  • Janet L. Yellen The economy has all but stalled and could contract over the first half of the year.

    [ April 3, 2008 ]

    Until recently, the deflating housing bubble had not spilled over to the rest of the economy. But now it has. Based on monthly data that cover most of the first quarter, it appears that growth in consumption and business investment spending has slowed markedly after years of robust performance, and, as a result, the economy has all but stalled and could contract over the first half of the year.

  • Timothy Geithner It is important to recognize that a substantial adjustment, recognition of losses, and reduction in risk has already taken place. And a range of different prices of financial assets now reflect a very cautious view of the future.

    [ April 3, 2008 ]

    It is important to recognize that a substantial adjustment, recognition of losses, and reduction in risk has already taken place. And a range of different prices of financial assets now reflect a very cautious view of the future. The severity of the pressures in markets evident over the last few months are in part a reflection of the speed and force with which markets and institutions in our financial system adapt to fundamental changes in the outlook. This capacity to adjust and adapt is one of the great strengths of our system. Nevertheless, we still face a number of challenges ahead. The seeds of this crisis took a long time to build up, and they will take some time to work through.

    More From:

    See Also:

    Source:

    http://www.newyorkfed.org/newsevents/speeches/2008/gei080403.html

    Venue:

    Testimony to Senate Banking, Housing and Urban Affairs Committee
  • Ben Bernanke Much necessary economic and financial adjustment has already taken place, and monetary and fiscal policies are in train that should support a return to growth in the second half of this year and next year.

    [ April 2, 2008 ]

    Clearly, the U.S. economy is going through a very difficult period. But among the great strengths of our economy is its ability to adapt and to respond to diverse challenges. Much necessary economic and financial adjustment has already taken place, and monetary and fiscal policies are in train that should support a return to growth in the second half of this year and next year. I remain confident in our economy’s long-term prospects.  

    More From:

    See Also:

    Source:

    http://www.federalreserve.gov/newsevents/testimony/bernanke20080402a.htm

    Venue:

    Testimony to the Joint Economic Committee
  • Charles Plosser A less aggressive cut would have been more appropriate.

    [ March 28, 2008 ]

    A less aggressive cut would have been more appropriate.

    From Q&A as reported by Bloomberg News, referring to the March 18 0.75-point rate cut.

  • Eric Rosengren It is too soon to call whether or not we are in a recession. But regardless of what you call it, it is a period of very slow growth. Slow growth does have the implication that you would expect a gradual increase in the unemployment rate.

    [ March 27, 2008 ]

    It is too soon to call whether or not we are in a recession. But regardless of what you call it, it is a period of very slow growth. Slow growth does have the implication that you would expect a gradual increase in the unemployment rate.

    From press Q&A, as reported by Reuters.

  • Frederic Mishkin Comfort zones, shmumfort zones.

    [ March 27, 2008 ]

    Comfort zones, shmumfort zones.

    ...

    An explicit point objective anchors inflation expectations more effectively than a comfort zone.  

  • Dennis Lockhart It now appears to me that the contraction in housing and the dampening effects of financial turmoil on household and business spending could persist through the remainder of this year. The recovery in growth I had expected in the second half of this year may be delayed.

    [ March 27, 2008 ]

    Looking ahead, my forecast has been affected both by an economic slowdown that has been sharper than I had expected and the recurring spells of financial market turmoil. A few months ago our forecast at the Atlanta Fed saw growth slow in the first half of 2008, then pick up in the second half of the year. But it now appears to me that the contraction in housing and the dampening effects of financial turmoil on household and business spending could persist through the remainder of this year. The recovery in growth I had expected in the second half of this year may be delayed.

    The tax rebates should provide some stimulus in the second and early third quarters of this year. But given the uncertain atmosphere I expect will continue to prevail in May and June, I do not expect full flow through of the rebates into personal consumption expenditures.

    I expect it will take much of the rest of the year for house prices to bottom out and financial markets to restore the necessary preconditions of stability—that is, confidence in asset values and confidence in transaction counterparties.

    Looking ahead further to 2009, my outlook becomes more optimistic. It will take longer than I earlier expected to return to solid growth, but by the fourth quarter of 2008 the conditions should be in place to support a return to healthy growth next year.

  • Gary Stern People should be under no illusions that even if policy is reasonably effective and reasonably timely that given the disruptions we've had with the financial sector and implications for the outlook...some of this (weakness) is now baked in the cake.

    [ March 27, 2008 ]

    People should be under no illusions that even if policy is reasonably effective and reasonably timely that given the disruptions we've had with the financial sector and implications for the outlook...some of this (weakness) is now baked in the cake.

    From Q&A as reported by Reuters

    More From:

    See Also:

    Source:

    http://www.minneapolisfed.org/news/pres/stern03-27-08.cfm

    Venue:

    European Economics and Finance Centre Seminar
  • Richard Fisher We are in a period of economic anemia and I think it's likely to be sustained for a little bit longer than people expect.

    [ March 26, 2008 ]

    We are in a period of economic anemia and I think it's likely to be sustained for a little bit longer than people expect.

    From press Q&A as reported by Bloomberg News

  • Charles L. Evans Because financial issues are being worked out against the backdrop of a soft economy, we also have to recognize the risk that interactions between the two might reinforce the weakness in the economy.

    [ March 26, 2008 ]

    Taking all of this into consideration, our outlook at the Chicago Fed is for weakness in real GDP this year, particularly in the first half of the year. However, we think conditions will improve in the second half of the year.

    A number of factors will likely hold back activity for some time. The strains on credit intermediation and financial balance sheets mean that credit conditions will likely restrict spending. The large overhang of unsold homes will continue to restrain residential investment. Greater caution on the part of businesses and consumers will likely limit increases in their discretionary expenditures as well. Because financial issues are being worked out against the backdrop of a soft economy, we also have to recognize the risk that interactions between the two might reinforce the weakness in the economy.

    Nonetheless, other factors point to improvement later in the year. We have lowered the federal funds rate by 300 basis points since September. At 2.25 percent, the current federal funds rate is accommodative and should support stronger growth. Indeed, because monetary policy works with a lag, the effects of last fall's rate cuts are probably just beginning to be felt, and the cumulative declines should do more to promote growth going forward.

    The effects of the fiscal stimulus bill also are likely to boost spending in the second and third quarters of 2008.