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Recent FedSpeak Highlights

  • Jeffrey Lacker Just as easing policy aggressively in response to emerging downside risks made sense, withdrawing some of that stimulus as those risks diminish makes eminent sense as well.

    [ July 8, 2008 ]

    Part of the rationale for the speed with which the FOMC brought down the funds rate was the risk that the slowdown we are experiencing would prove to be more severe. While that uncertainty has not entirely disappeared, my sense is that such downside risks have diminished appreciably. And just as easing policy aggressively in response to emerging downside risks made sense, withdrawing some of that stimulus as those risks diminish makes eminent sense as well. Moreover, our attention to risks needs to be two-sided, I believe. As we move through this period of low growth, we need to be attuned to the risk that we emerge from the slowdown with inflation following a higher trend than when we went in. This danger associated with the persistence of elevated inflation warrants an additional measure of vigilance.

  • Ben Bernanke We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end, should the current unusual and exigent circumstances continue to prevail in dealer funding markets.

    [ July 8, 2008 ]

    The PDCF and the TSLF were created under the Federal Reserve's emergency lending powers, with the term of the PDCF set for a period of at least six months, through mid-September. The Federal Reserve is strongly committed to supporting the stability and improved functioning of the financial system. We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end, should the current unusual and exigent circumstances continue to prevail in dealer funding markets.

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    Source:

    http://www.federalreserve.gov/newsevents/speech/bernanke20080708a.htm

    Venue:

    Federal Deposit Insurance Corporation Symposium
  • Janet L. Yellen We cannot and will not allow a wage-price spiral to develop.

    [ July 7, 2008 ]

    We're approaching a crossroads. The FOMC responded to the difficult economic conditions that emerged last year by easing monetary policy substantially. ... I am somewhat reassured by the recent data, which suggest that my biggest fears on the downside have, so far, been avoided. Of course, the underlying housing, credit, and commodity-price issues are far from fully resolved. My discussion of those issues makes clear that a lot of uncertainty surrounds my outlook. A lot could still go wrong.

    But maximum sustainable employment is only one of our mandates. The other is low and stable inflation. In the wake of rapid increases in prices for gasoline and food, consumer survey measures of longer term inflation expectations have turned up. In contrast, other surveys, such as the Survey of Professional Forecasters, show little erosion in long-term inflation expectations. In addition, the anecdotes I hear are more consistent with credibility than with an upward wage-price spiral. In particular, my contacts uniformly report that they see no signs of general wage pressures.

    On balance, I still see inflation expectations as reasonably well anchored and I anticipate that consumer survey measures will come down once oil and food prices stop rising. But the risks to inflation are likely not symmetric and they have definitely increased. We cannot and will not allow a wage-price spiral to develop.

    As I began with a reference to Shakespeare, let me end with one as well: For monetary policymakers, "readiness is all." By this I mean that, in the face of these competing risks, we will monitor developments carefully and be prepared to act as needed to fulfill our mandate for sustainable economic growth and price stability.

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    Source:

    http://www.frbsf.org/news/speeches/2008/0707.html

    Venue:

    University of California at San Diego
  • Jeffrey Lacker The persistence of elevated inflation warrants an additional measure of vigilance.

    [ June 16, 2008 ]

    Part of the rationale for the speed with which the FOMC brought down the funds rate was the risk that the slowdown we are experiencing would prove to be more severe. While that uncertainty has not entirely disappeared, my sense is that such downside risks have diminished appreciably. And just as easing policy aggressively in response to emerging downside risks made sense, withdrawing some of that stimulus as those risks diminish makes eminent sense as well. Moreover, our attention to risks needs to be two-sided, I believe. As we move through this period of low growth, we need to be attuned to the risk that we emerge from the slowdown with inflation following a higher trend than when we went in. This danger associated with the persistence of elevated inflation warrants an additional measure of vigilance.

  • Charles Plosser We need to take steps to insure that inflation does not get out of control.  We need to act preemptively.

    [ June 12, 2008 ]

    "We need to take steps to insure that inflation does not get out of control," Plosser said in an interview on the CNBC television network. "We need to act preemptively."

    "It is certainly clear that rates will have to rise. The question is when."

    As reported by MarketWatch.

  • James Bullard My sense is that actual headline inflation in excess of 3.0 percent coupled with inflation expectations near 2.5 percent will not be compatible for long.

    [ June 11, 2008 ]

    My sense is that actual headline inflation in excess of 3.0 percent coupled with inflation expectations near 2.5 percent will not be compatible for long. If inflation remains elevated, inflation expectations will begin to move higher. Market participants, businesses, and consumers will come to view higher inflation as part of the economic landscape, in part because of doubts about the Fed’s ability and willingness to keep inflation contained. These expectations, if allowed to persist, will then feed into the equilibrium of the economy and will be difficult to reverse. In short, credibility is much easier to keep than it is to recover.

    More From:

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    Source:

    http://www.stls.frb.org/news/speeches/2008/06_11_08.html

    Venue:

    Federal Reserve Bank of St. Louis Macroeconomics Advisers Quarterly Outlook Meeting
  • Donald Kohn In particular, an appropriate monetary policy following a jump in the price of oil will allow, on a temporary basis, both some increase in unemployment and some increase in price inflation.

    [ June 11, 2008 ]

    An efficient monetary policy {following an oil shock} should attempt to facilitate the needed economic adjustments so as to minimize distortions to economic efficiency on the path to achieving, over time, its dual objectives of price stability and maximum employment.9

    In particular, an appropriate monetary policy following a jump in the price of oil will allow, on a temporary basis, both some increase in unemployment and some increase in price inflation.  By pursuing actions that balance the deleterious effects of oil prices on both employment and inflation over the near term, policymakers are, in essence, attempting to find their preferred point on the activity/inflation variance-tradeoff curve introduced by John Taylor 30 years ago.  Such policy actions promote the efficient adjustment of relative prices: Since real wages need to fall and both prices and wages adjust slowly, the efficient adjustment of relative prices will tend to include a bit of additional price inflation and a bit of additional unemployment for a time, leading to increases in real wages that are temporarily below the trend established by productivity gains.

  • Ben Bernanke The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations, as an unanchoring of those expectations would be destabilizing for growth as well as for inflation.

    [ June 9, 2008 ]

    Despite the unwelcome rise in the unemployment rate that was reported last week, the recent incoming data, taken as a whole, have affected the outlook for economic activity and employment only modestly.  Indeed, although activity during the current quarter is likely to be weak, the risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.  Over the remainder of 2008, the effects of monetary and fiscal stimulus, a gradual ebbing of the drag from residential construction, further progress in the repair of financial and credit markets, and still-solid demand from abroad should provide some offset to the headwinds that still face the economy.  However, the ongoing contraction in the housing market and continuing increases in energy prices suggest that growth risks remain to the downside. 

    ...

    Inflation has remained high, largely reflecting sharp increases in the prices of globally traded commodities.  Thus far, the pass-through of high raw materials costs to the prices of most other products and to domestic labor costs has been limited, in part because of softening domestic demand.  However, the continuation of this pattern is not guaranteed and future developments in this regard will bear close attention.  Moreover, the latest round of increases in energy prices has added to the upside risks to inflation and inflation expectations.  The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations, as an unanchoring of those expectations would be destabilizing for growth as well as for inflation.

  • Timothy Geithner No government, no central bank can be indifferent to changes in the value of its currency.

    [ June 9, 2008 ]

    "No government, no central bank can be indifferent to changes in the value of its currency," Geithner said.

    He said the dollar was important not just because of its effect on growth and inflation in the U.S. and elsewhere but also because of "the very important role" it plays in the international financial system.

    Geithner added: "As a result, as you would expect, we pay very close attention to what happens in (foreign) exchange markets."

    During audience Q&A, as reported by Reuters

  • Henry Paulson I would never take intervention off the table -- or any policy tool off the table.

    [ June 8, 2008 ]

    I would never take intervention off the table -- or any policy tool off the table.

  • James Bullard My preferred definition of price stability is that trend inflation, correctly measured, is zero. In practice, this likely converts into a trend in measured inflation on the order of ½ to 1½ percent, depending on the particular price index referenced.

    [ June 6, 2008 ]

    Price stability has multiple interpretations. In the late 19th and early 20th centuries, price stability meant that variations in the general level of prices would be transitory: the price index would revert to a mean. In recent policy discussions, price stability generally is interpreted as a small positive rate of inflation. Under these conditions, the level of prices does not revert to a constant, but trends upward. I accept this latter definition of price stability. There may be theoretical and practical reasons to believe that the best price indexes we have available are subject to upward biases. While I am not a big fan of the upward-bias argument—after all, the best-available adjustments are already made to the indexes—I admit that I do not have better measures myself. My preferred definition of price stability is that trend inflation, correctly measured, is zero. In practice, this likely converts into a trend in measured inflation on the order of ½ to 1½ percent, depending on the particular price index referenced.

  • Ben Bernanke Some indicators of longer-term inflation expectations have risen in recent months,... However, changes in long-term inflation expectations have been measured in tenths of a percentage point this time around rather than in whole percentage points, as appeared to be the case in the mid-1970s.  Importantly, we see little indication today of the beginnings of a 1970s-style wage-price spiral, in which wages and prices chased each other ever upward.

    [ June 4, 2008 ]

    From the perspective of monetary policy, just as important as the behavior of actual inflation is what households and businesses expect to happen to inflation in the future, particularly over the longer term.  If people expect an increase in inflation to be temporary and do not build it into their longer-term plans for setting wages and prices, then the inflation created by a shock to oil prices will tend to fade relatively quickly. Some indicators of longer-term inflation expectations have risen in recent months, which is a significant concern for the Federal Reserve.  We will need to monitor that situation closely. However, changes in long-term inflation expectations have been measured in tenths of a percentage point this time around rather than in whole percentage points, as appeared to be the case in the mid-1970s. Importantly, we see little indication today of the beginnings of a 1970s-style wage-price spiral, in which wages and prices chased each other ever upward.

  • Ben Bernanke For now, policy seems well positioned to promote moderate growth and price stability over time. 

    [ June 3, 2008 ]

    Our decisive policy actions were premised on the view that a more gradual reduction in short-term rates could well have failed to contain the financial and economic problems confronting us.  For now, policy seems well positioned to promote moderate growth and price stability over time.  We will, of course, be watching the evolving situation closely and are prepared to act as needed to meet our dual mandate. 

    More From:

    See Also:

    Source:

    http://www.federalreserve.gov/newsevents/speech/bernanke20080603a.htm

    Venue:

    International Monetary Conference
  • Ben Bernanke In collaboration with our colleagues at the Treasury, we continue to carefully monitor developments in foreign exchange markets...  We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations...

    [ June 3, 2008 ]

    In collaboration with our colleagues at the Treasury, we continue to carefully monitor developments in foreign exchange markets.  The challenges that our economy has faced over the past year or so have generated some downward pressures on the foreign exchange value of the dollar, which have contributed to the unwelcome rise in import prices and consumer price inflation.  We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations and will continue to formulate policy to guard against risks to both parts of our dual mandate, including the risk of an erosion in longer-term inflation expectations.  Over time, the Federal Reserve's commitment to both price stability and maximum sustainable employment and the underlying strengths of the U.S. economy--including flexible markets and robust innovation and productivity--will be key factors ensuring that the dollar remains a strong and stable currency.

  • Eric Rosengren To reiterate, falling housing prices continue to be a significant source of down-side risk to the economy. 

    [ May 30, 2008 ]

    To reiterate, falling housing prices continue to be a significant source of down-side risk to the economy.  Previous periods of real estate problems have taken significant time to be worked out, with foreclosures remaining elevated well after their peak.  The current foreclosure problem has been exacerbated by the difficulties related to many of the problem loans being held in securities.

  • Donald Kohn I start from the premise that central banks should not allocate credit or be market makers on a permanent basis. That should be left to the market--or if externalities or other market failures are important, to other governmental programs.

    [ May 29, 2008 ]

    I start from the premise that central banks should not allocate credit or be market makers on a permanent basis. That should be left to the market--or if externalities or other market failures are important, to other governmental programs. The Federal Reserve should return to adjusting reserves mainly through purchases and sales of the safest and most liquid assets as soon as that would be consistent with stable, well-functioning markets. In fact, several of the Federal Reserve's new programs are designed to be self-liquidating as markets improve. Minimum bid rates and collateral requirements have been set to be effective when markets are disrupted but to make participation uneconomic when markets are functioning well. Under current law, our facilities for investment banks that don't involve securities eligible for open market operations (OMO-eligible paper) will necessarily be wound down when circumstances are no longer "unusual and exigent"; I'll come back to questions about these facilities in a minute.

    However, the Federal Reserve's auction facilities have been an important innovation that we should not lose. They have been successful at reducing the stigma that can impede borrowing at the discount window in a crisis environment and might be very useful in dealing with future episodes of illiquidity in money markets. The new auction facilities required planning and changes in existing systems, and we should consider retaining the new facilities for the purposes of bank discount window borrowing and securities lending against OMO-eligible paper, either on a standby basis or operating at a very low level when markets are functioning well in order to keep the new facilities in good working order. The latter might require that we allow the auction to set the price without a constraining minimum, but a small auction should not distort the allocation decisions of private participants.

  • Gary Stern Inflation expectations have remained reasonably well-anchored so far, which is encouraging -- but the key to maintaining low inflation and inflation expectations is likely to be the timeliness and the magnitude of decisions we make to reverse course.

    [ May 28, 2008 ]

    Inflation expectations have remained reasonably well-anchored so far, which is encouraging -- but the key to maintaining low inflation and inflation expectations is likely to be the timeliness and the magnitude of decisions we make to reverse course.

    We are highly sensitive to this issue and I am confident that we will conduct policy in an appropriate and timely manner.

    As reported by Market News International and Reuters.

  • Timothy Geithner Ben has, in very consequential ways, altered the framework for how central banks operate in crises. Some will criticize it and some will praise it, and it will certainly be examined for decades.

    [ May 27, 2008 ]

    Timothy F. Geithner, president of the Federal Reserve Bank of New York, and a close Bernanke ally, defines the Fed chief’s “doctrine” as the overpowering use of monetary policies and lending to avert an economic collapse. “Ben has, in very consequential ways, altered the framework for how central banks operate in crises,” he said. “Some will criticize it and some will praise it, and it will certainly be examined for decades.”

  • Randall Kroszner My central tendency forecast is for the majority of markets to stabilize toward the end of this year and the beginning of next year, though in some regions it will take much more time.

    [ May 27, 2008 ]

    My central tendency forecast is for the majority of markets to stabilize toward the end of this year and the beginning of next year, though in some regions it will take much more time.

    From Q&A as reported by Market News International and Reuters

    More From:

    See Also:

    Source:

    http://www.reuters.com/article/topNews/idUSWAT00955620080527

    Venue:

    Banco Central do Brasil Annual Seminar on Banking, Financial Stability, and Risk
  • Kevin Warsh Even if the economy were to weaken somewhat further, we should be inclined to resist expected, reflexive calls to trot out the hammer again.

    [ May 21, 2008 ]

    Consistent with Munger's admonition, the Fed saw it necessary to expand our toolkit beyond the proverbial hammer of the policy rate in the last nine months. And as I discussed in remarks last month, the Fed's nontraditional policy response included the use of innovative liquidity tools to counter the market turmoil and improve the functioning of financial and credit markets.4

    In my remarks today, I would like to discuss the use of the hammer--the setting of the federal funds rate--particularly in extraordinary times. Of course, determining the proper level of the federal funds rate is rarely simple, given typical imprecision on key economic variables and relationships. It is far more challenging still when the financial architecture is in the early stages of redesign, the economy is adjusting to the aftermath of a credit bubble (witnessed most acutely in the housing markets), and inflation risks are evident.

    The Federal Reserve has employed the hammer with considerable force in the last nine months, lowering the federal funds rate by 3-1/4 percentage points, with wide-ranging implications for the economy. Of substantial import, we have filled the toolkit with other implements to provide liquidity and improve the provisioning of credit during the turmoil. But now, policymakers may be well served encouraging a new financial architecture to emerge, aided, in part, by the actions we have taken. Even if the economy were to weaken somewhat further, we should be inclined to resist expected, reflexive calls to trot out the hammer again.

    Policy actions should reinforce the notion with stakeholders that further hammering needs to be done, but it needs to be accomplished by the financial institutions themselves in retooling their businesses and rebuilding the credit channel to help ensure a stronger, more durable economy.