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Recent FedSpeak Highlights

  • Jeffrey Lacker Financial market volatility, in and of itself, does not require a change in the target federal funds rate, in my view. Interest rate policy needs to be guided by the outlook for real spending and inflation. Financial turbulence has the potential to change the assessment of the appropriate rate if it induces a sufficient revision in growth or inflation prospects.

    [ August 21, 2007 ]

    Financial market volatility, in and of itself, does not require a change in the target federal funds rate, in my view. Interest rate policy needs to be guided by the outlook for real spending and inflation. Financial turbulence has the potential to change the assessment of the appropriate rate if it induces a sufficient revision in growth or inflation prospects.

  • William Poole It's premature to say that this upset in the market is changing the course of the economy in any fundamental way.  Obviously, there could be an impact, but we have to rely on some real evidence.

    [ August 15, 2007 ]

        William Poole, president of the Federal Reserve Bank of St. Louis, said there's no sign that the subprime-mortgage rout is harming the broader U.S. economy, and an interest-rate cut isn't yet needed.   ``I don't see any impact as yet on the real economy or on the inflation rate,'' he said in an interview in the bank's boardroom. ``Obviously, there could be an impact, but we have to rely on some real evidence.''
         Barring a ``calamity,'' there is no need to consider an emergency rate cut, Poole said. His comments were the first by a Fed official since the U.S. central bank joined counterparts in
    Europe and Asia to inject emergency funds after a surge in money-market rates. The Fed has added $71 billion of reserves in the past five trading days.
         Poole, 70, said businesses have maintained their hiring and investment plans and banks have sufficient capital to weather the credit-market turmoil. The St. Louis Fed chief stressed that the best course is for policy makers to assess the latest economic data when they next meet Sept. 18. The comments contrast with the certainty that traders put on a rate cut next month.   ``If the data confirm the market's view that the economy is sagging, we'll have to decide whether to share that view,'' said Poole, who votes on the rate-setting Federal Open MarketCommittee this year. He cited the monthly jobs, retail sales and industrial production reports as key gauges he'll be watching.

    As reported by Bloomberg News

     

  • William Poole The Fed doesn't know, and market participants do not know either, the full implications of last week's stock market declines and increases in risk spreads... The market understands, I believe, that the Fed will act in due time if and when evidence accumulates that action would be appropriate.

    [ July 31, 2007 ]

    Consider where this analysis leaves us...  The central bank can hold its policy rate relatively steady and rely on market adjustments in long rates to do much of the stabilization work... The current situation is a perfect illustration. The Fed doesn’t know and market participants do not know either, the full implications of last week’s stock market declines and increases in risk spreads. Market reactions last week may be overdone, or perhaps not. We just do not know. In a situation like the terrorist attacks of 9/11, the Fed knew enough to believe that a quick policy response would be helpful and unlikely to itself be destabilizing.

    A typical market upset, such as last week’s, is not at all like 9/11. Most of these upsets stabilize on their own, but some do not. I’m not saying that the Fed should ignore what happened last week—we need to understand what is happening. However, it is important that the Fed not permit uncertainty over policy to add to the existing uncertainty. The market understands, I believe, that the Fed will act in due time, if and when evidence accumulates that action would be appropriate. That is why trading in the federal funds futures market reflects changed odds from two weeks ago on a policy adjustment later this year...

    The regularity of Fed behavior I espouse is that the Fed should respond to market upsets only when it has become clear that they threaten to undermine achievement of fundamental objectives of price stability and high employment, or when financial-market developments threaten market processes themselves... [E]ffects on the economy can rarely be understood without passage of time and more information. Occasionally, there is contemporaneous evidence of damage to market mechanisms that might justify quick Fed action.

  • Charles Plosser I can’t see core in the latter half of 2007 being much more than a little over 2%.

    [ July 24, 2007 ]

    Mr. Plosser said some of the decline in core inflation — which excludes food and energy — during the spring, to 1.9% by the Fed’s preferred measure, was "transitory." Nonetheless, he said, “I can’t see core in the latter half of 2007 being much more than a little over 2%."

    As reported by the Wall Street Journal

  • Ben BernankeOur objective is to achieve enduring price stability. And in particular we want to make sure that inflation remains under good control in the medium run.

    There are several elements of that. One is that I think it's important to recognize that the month-to-month inflation numbers are very noisy. And so, a couple of good numbers does not, by itself, meant that the problem is solved and gone away.  So part of it is just simply seeing more data and getting a greater sense of assurance that the trend is really in the direction we'd like to see it.  The other is that as long as there's some very important risks out there to inflation, there's the possibility that inflation, even if it's a bit -- if it's come down some, there's a possibility that it will go back up in the future.

    And the risks that I talked about in my testimony include high resource utilization, the fact that the economy is working at a very tight use of resources; and secondly, the fact that energy and food prices have raised headline inflation. Those prices might feed through into core inflation. They might raise inflation expectations.  So what we need to see is enough confidence that the risks have subsided so that we can feel confident that, in the medium term, inflation will be well-controlled.

    In response to a question from Senator Bunning in the Q&A session

    [ July 19, 2007 ]

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    Venue:

    MPR Testimony to Senate
  • Ben Bernanke [L]ooking forward, core inflation (which excludes food and energy prices) may be a better gauge than overall inflation of underlying inflation trends. 

    [ July 18, 2007 ]

    As measured by changes in the price index for personal consumption expenditures (PCE inflation), inflation ran at an annual rate of 4.4 percent over the first five months of this year, a rate that, if maintained, would clearly be inconsistent with the objective of price stability. 1  Because monetary policy works with a lag, however, policymakers must focus on the economic outlook.  Food and energy prices tend to be quite volatile, so that, looking forward, core inflation (which excludes food and energy prices) may be a better gauge than overall inflation of underlying inflation trends. 

  • Janet L. Yellen I don't think there's any fundamental change in the way the Fed looks at inflation...   My bottom line is that we've always thought about food and energy prices, and I don't see any particular change in thinking.

    [ July 12, 2007 ]

    I don't think there's any fundamental change in the way the Fed looks at inflation...   My bottom line is that we've always thought about food and energy prices, and I don't see any particular change in thinking.

    From audience Q&A, as reported by Bloomberg News

     

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    Venue:

    Federal Reserve Bank of San Francisco
  • Kevin Warsh In recent months, many market participants have expressed concern that a widening of credit spreads from relatively narrow levels could lead to hedge fund losses that would make funds unwilling or unable to maintain their existing positions, thus potentially eroding market liquidity.

    [ July 11, 2007 ]

    In recent months, many market participants have expressed concern that a widening of credit spreads from relatively narrow levels could lead to hedge fund losses that would make funds unwilling or unable to maintain their existing positions, thus potentially eroding market liquidity. Such circumstances could pose significant challenges to hedge funds' counterparties and creditors and perhaps to other market participants. Thus far, however, the repricing of credit risk does not appear to have imposed significant strains on the financial system.

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    Source:

    http://www.federalreserve.gov/boarddocs/testimony/2007/20070711/default.htm

    Venue:

    Testimony to House Financial Services Committee
  • Janet L. Yellen Another benign possibility is that labor markets may not actually be particularly tight. There are a variety of ways to estimate conditions in the labor market, and some of these don't suggest much in the way of inflationary pressures.

    [ July 5, 2007 ]

    Another benign possibility is that labor markets may not actually be particularly tight. There are a variety of ways to estimate conditions in the labor market, and some of these don't suggest much in the way of inflationary pressures. For example, the Conference Board index of job market perceptions, which is based on a survey of households, suggests that labor markets are only very slightly on the tight side. Moreover, if labor markets were tight, this could be expected to show up in robust growth of labor compensation. Instead, some of the data present a different picture: for example, the employment cost index shows remarkably restrained increases of only a little more than 3 percent over the past year.

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    Source:

    http://www.frbsf.org/news/speeches/2007/0705.html

    Venue:

    Risk Management Institute
  • Jeffrey Lacker Inflation is, in my opinion, too high.

    [ June 21, 2007 ]

    Over the three years leading up to 2006, real growth in the U.S. economy was relatively rapid, and inflation remained relatively low and stable. Over the course of 2006, though, both those numbers deteriorated a bit. Growth dropped below 3 percent, and in fact was closer to 2 percent in the last half of the year. Meanwhile, inflation moved above 2.5 percent. While still relatively low by historical standards, I view that number—and, more importantly, the upward trend in inflation—with some caution. Inflation is, in my opinion, too high.

  • Michael Moskow We still have a ways to go before we get to the level of inflation that I'm comfortable with on a longer-term basis.

    [ June 8, 2007 ]

    ``We still have a ways to go before we get to the level of inflation that I'm comfortable with on a longer-term basis,'' Moskow said in an interview today on CNBC television. ``Inflation is the predominant risk that I see in the economy.''

    As reported by Bloomberg News

  • Thomas Hoenig I feel very confident at this point that the economy will strengthen.  I am hopeful that the inflation numbers that we've seen of late will continue to decelerate as we move forward through the rest of this year and into next.

    [ June 6, 2007 ]

    I feel very confident at this point that the economy will strengthen.  I am hopeful that the inflation numbers that we've seen of late will continue to decelerate as we move forward through the rest of this year and into next.

    As reported by Bloomberg News

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    Venue:

    Federal Reserve Bank of Kansas City
  • Ben Bernanke Although core inflation seems likely to moderate gradually over time, the risks to this forecast remain to the upside. 

    [ June 5, 2007 ]

    [A]lthough core inflation seems likely to moderate gradually over time, the risks to this forecast remain to the upside.  In particular, the continuing high rate of resource utilization suggests that the level of final demand may still be high relative to the underlying productive capacity of the economy.

  • Randall Kroszner I believe that the risks to the inflation outlook are primarily to the upside.

    [ June 1, 2007 ]

    Turning to inflation risks, the high level of resource utilization continues to have the potential to put additional upward pressure on inflation.  And, of course, higher oil prices and the possibility of further increases also pose an upside risk to inflation.  With these concerns in mind, the latest statement issued by the Federal Open Market Committee again highlighted the risk that inflation could fail to moderate as expected, and I believe that the risks to the inflation outlook are primarily to the upside.

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    Source:

    http://www.federalreserve.gov/boarddocs/speeches/2007/20070601/default.htm

    Venue:

    Institute of International Finance
  • Randall Kroszner Another area of possible financial risk that we are watching is leveraged lending. 

    [ June 1, 2007 ]

    Another area of possible financial risk that we are watching is leveraged lending.  Business borrowing for mergers and acquisitions and for corporate refinancing has been quite robust over the past few years as firms have taken advantage of relatively low interest rates to reduce their cost of capital.  As underwriters have brought these deals to the market, the good earnings of corporate borrowers and several years of very low defaults have encouraged lenders and investors to fund hundreds of billions of dollars in leveraged loans.  However, with this growth we are seeing some trends in the leveraged loan market that warrant closer monitoring:  Deals continue to be structured with thin pricing, more leverage, and looser covenants than is typical for non-investment-grade borrowers.  Further, originating banks are capitalizing on the strong investor demand for these loans by underwriting to distribute them, including through securitization, while holding only nominal exposures themselves. 

  • Frederic Mishkin The bottom line is that we must never take our eye off of the inflation ball.

    [ May 24, 2007 ]

    For better or worse, we cannot escape the need for information on output gaps so that we can forecast the future path of inflation and evaluate the current setting of our monetary policy instruments.  However, we also need to recognize that because measures of potential output and output gaps are so uncertain, we must always be aware that they might be providing misleading signals as to the future course of inflation and the appropriateness of the stance of policy.  In assessing whether there is slack in the economy, we at central banks look not only at our estimates of output gaps but also at a wide range of indicators drawn from the labor, product, and financial markets to provide us with a perspective on the balance of supply and demand in the economy...

    The bottom line is that we must never take our eye off of the inflation ball. 

  • Jeffrey Lacker I think the current funds rate has us on track to achieve what we want.  I am comfortable with the funds rate where we are now.

    [ May 22, 2007 ]

    "I think the current funds rate has us on track to achieve what we want," Lacker told reporters after a speech.   I am comfortable with the funds rate where we are now," he said.

    As reported by Dow Jones News

     

  • Janet L. Yellen Economic growth has unexpectedly slowed from “middling” to a crawl, while the unemployment rate has actually inched down and employment growth has remained robust.

    [ April 26, 2007 ]

    The puzzle, as I put it then, was: Why is the labor market apparently going gangbusters, while growth in real GDP has turned in only a middling performance? The reason I’d like to revisit the puzzle is that, in the intervening period, its mystery has deepened: economic growth has unexpectedly slowed from “middling” to a crawl, while the unemployment rate has actually inched down and employment growth has remained robust.

  • Frederic Mishkin Given my estimate of the current level of long-run inflation expectations as well as the likelihood of some easing of resource pressures in labor and product markets, I expect that core inflation will slow to around 2 percent over the next couple of years.  

    [ April 20, 2007 ]

    Given my estimate of the current level of long-run inflation expectations as well as the likelihood of some easing of resource pressures in labor and product markets, I expect that core inflation will slow to around 2 percent over the next couple of years.    

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    Source:

    http://www.federalreserve.gov/boarddocs/speeches/2007/20070420/default.htm

    Venue:

    Levy Economics Institute of Bard College
  • Michael Moskow We expect to end 2008 with an unemployment rate only somewhat higher than it is now.  Core inflation should gradually come down, moving closer to the levels I view as being consistent with price stability.

    [ April 11, 2007 ]

    We expect to end 2008 with an unemployment rate only somewhat higher than it is now.  Core inflation should gradually come down, moving closer to the levels I view as being consistent with price stability.  

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    Source:

    http://www.chicagofed.org/news_room/speeches/2007_04_11_kuc.cfm

    Venue:

    Kenilworth Union Church Public Affairs Program