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Recent FedSpeak Highlights

  • Janet L. Yellen In summary, monetary policymakers again are doing a balancing act, seeking the best way to temper inflationary pressures while not exposing the business cycle expansion to undue risk.

    [ October 9, 2006 ]

    In summary, monetary policymakers again are doing a balancing act, seeking the best way to temper inflationary pressures while not exposing the business cycle expansion to undue risk. Holding the stance of policy steady for a time makes sense to me. First, we appear to be within range of the moderately restrictive policy setting that seems appropriate. Second, pausing gives us time to observe the effects of previous policy actions and other factors to allow for adjustments to the policy setting that will keep us moving toward the desired outcome for inflation, output, and employment. 

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    http://www.frbsf.org/news/speeches/2006/1009.html

    Venue:

    California Independent Bankers Annual Convention
  • Sandra Pianalto We are under no illusion that we are perfect forecasters.

    [ October 5, 2006 ]

    [T]he judgments associated with monetary policy are not always as obvious as they might appear. Economic conditions can be unpredictable, and we are under no illusion that we are perfect forecasters. To paraphrase former Federal Reserve Chairman Alan Greenspan, we are essentially risk managers. We need to make policy choices that stand the best chance of moving us toward our objectives, given our imperfect understanding of the changing environment around us.

  • Charles Plosser Moreover, trying to use monetary policy to stabilize output and employment in the short run — can actually do more harm than good.

    [ October 5, 2006 ]

    A few minutes ago I made the point that monetary policy cannot influence the economy’s growth or employment potential over the long run. The fact is that economists have had a very difficult time identifying any reliable and exploitable link between monetary policy actions and real output or employment in the short run either. Policymakers have neither the knowledge nor the tools to manage aggregate demand with the timing and precision necessary to neutralize the impact of unexpected shocks on output or employment.

    Nonetheless, it is the economy’s best interest for policy to respond to conditions in a manner that is consistent with the goal of price stability. So, for example, if stronger productivity growth enables the economy to sustain higher output growth, then the market will demand a higher level of interest rates…

    …Now, I recognize that the policy approach I am advocating here is difficult to implement. We often don’t observe economic shocks in a timely way, nor are we able to precisely measure the level of interest rates the economy is seeking in response to such shocks. Consequently, monetary policy should not be overly sensitive to short-run fluctuations. Thus, keen judgment is called for, and a little luck doesn’t hurt either.

    But I believe the principle behind the approach is sound. Indeed, it is simply an elaboration of my first principle: the central bank should always set interest rates consistent with the goal of maintaining long-run price stability so as to foster maximum economic growth and employment. Moreover, trying to use monetary policy to stabilize output and employment in the short run — can actually do more harm than good.  A look back at the 1970s underscores the point quite dramatically. When the economy was hit with a series of oil price shocks, the Fed responded with stimulative policies intended to maintain output and employment growth. These policies largely failed, generating excessive inflation even as the unemployment rate rose and the economy weakened. The Fed was relying on a short-run relationship between economic activity and inflation that is simply not reliable.

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    http://www.philadelphiafed.org/publicaffairs/speeches/2006_plosser1.html

    Venue:

    CFA Society of Philadelphia
  • Donald Kohn I think that the risks to my outlook for economic activity may be skewed a bit to the downside, while those to my forecast of gradually declining inflation are tilted to the upside. In my view, in the current circumstances, the upside risks to inflation are of greater concern.

    [ October 4, 2006 ]

    I think that the risks to my outlook for economic activity may be skewed a bit to the downside, while those to my forecast of gradually declining inflation are tilted to the upside. In my view, in the current circumstances, the upside risks to inflation are of greater concern.

  • Ben Bernanke We do believe that inflation is going to be coming down gradually over time, but it is something that we have to watch very carefully to make sure that it doesn't rise or even remain where it is.

    [ October 4, 2006 ]

    We do believe that inflation is going to be coming down gradually over time, but it is something that we have to watch very carefully to make sure that it doesn't rise or even remain where it is.

    From the Q&A session, as reported by Bloomberg News

  • William PooleWhether the August decision to hold the target funds rate unchanged will turn out to be a pause in the process of raising rates, a longer-lasting stop or even the peak, will depend on the economy’s evolution in coming months.

    [ September 29, 2006 ]

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    Venue:

    Middle Tennessee State University Annual Economic Outlook Conference
  • Jeffrey LackerI am not comfortable that we have got a downward trend that I can be that confident in at the present. And I am worried about the danger of inflation staying, remaining, about where it's been.

    The question is how are we going to bring about restoring price stability.  My colleagues' views differed from mine. I thought that we needed another policy move to ensure that we had a high enough probability of getting back (to lower inflation levels).

    Growth doesn't slow inflation, central banks slow inflation. It has to do with what really drives inflation dynamics.

    [ September 27, 2006 ]

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    Reuters News

    Venue:

    Reuters Interview
  • Randall Kroszner We are still seeing some continued potential for inflation pressure.  There has been some mitigation of these pressures with recent declines in energy.

    [ September 27, 2006 ]

    We are still seeing some continued potential for inflation pressure.  There has been some mitigation of these pressures with recent declines in energy.

    In remarks to reporters after an appearance at the Forecasters Club of New York

  • Paul VolckerI'm a little bit more worried about inflation than Mr. Corrigan, I mean, although he's best to worry. Not that it's high, not that it's going to go running away, but it's kind of creeping up.

    And I am impressed by the degree of pressure, if that's the right word, psychological pressure, political pressure there is not to do anything about it. A lot of people out there on Wall Street and on Main Street are operating on the assumption that nothing very startling will happen in terms of the strength. And that's reflected in attitudes pretty globally. But once people are convinced that that's the case, it can creep up on you. And the more it creeps up on you, the more difficult it becomes to do something about it.

    [ September 25, 2006 ]

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    Source:

    Bloomberg transcript 9/26/2006 20:10

    Venue:

    Women's Economic Round Table
  • William Poole Credibility is not, however, one-dimensional. Sustained low inflation is desired for its own sake but even more for the contribution it makes to high employment and economic growth. Thus, while inflation damages credibility, so also can high unemployment.

    [ September 11, 2006 ]

    Credibility is not, however, one-dimensional. Sustained low inflation is desired for its own sake but even more for the contribution it makes to high employment and economic growth. Thus, while inflation damages credibility, so also can high unemployment. There is a fine balance here. We know that monetary policy cannot affect employment in the long run, but we also know that monetary policy mistakes can create unemployment over an uncomfortably long short run. When unemployment rises, policymakers need to be able to explain in credible fashion why the problem is not a consequence of a monetary policy mistake, for that perception is always present among some observers in such circumstances. There is, after all, some historical justification for such a perception given that almost all economists agree that monetary policy mistakes contributed to the severity of the Great Depression. Given the importance of high employment, a period of sustained excessive unemployment may create doubts about future policy, and this uncertainty is a manifestation of impaired credibility.

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    http://www.stlouisfed.org/news/speeches/2006/09_11_06.html

    Venue:

    NABE Annual Meeting 2006
  • Cathy Minehan Yet, as near as we in Boston can tell, the best baseline forecast is that U.S. growth will moderate from its average of around 4 percent in the first half of 2006 to something slightly below its potential of a bit less than 3 percent over the next year or so.

    [ September 11, 2006 ]

    Yet, as near as we in Boston can tell, the best baseline forecast is that U.S. growth will moderate from its average of around 4 percent in the first half of 2006 to something slightly below its potential of a bit less than 3 percent over the next year or so.

  • Janet L. Yellen The inflation outlook remains highly uncertain, and until we actually see inflation begin to slow down, I will be focused on the notable upside risks in the outlook.

    [ September 7, 2006 ]

    The inflation outlook remains highly uncertain, and until we actually see inflation begin to slow down, I will be focused on the notable upside risks in the outlook...

    The bottom line is this.  With inflation too high, policy must have a bias toward further firming.  However, our past actions have already put a lot of firming in the pipeline. With the lags in policy we haven't yet seen the full effect of our past actions. These will unfold gradually over time. By pausing, we allowed ourselves more time to observe the data and more time to gauge how much, if any, additional firming is needed to pursue our dual mandate.

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    Source:

    http://www.frbsf.org/news/speeches/2006/060907.pdf

    Venue:

    Community Outreach Luncheon
  • Sandra Pianalto When you get right down to it, we really know very little about how people form their inflation expectations.

    [ September 7, 2006 ]

    When you get right down to it, we really know very little about how people form their inflation expectations.  To what extent are expectations based on past inflation experience versus looking into the future? Do people scour all of the available data to predict inflation, or do they just consider the information most readily available to them? And, perhaps most important, how do people act on the inflation expectations that we measure through the household surveys?

    There is much at stake in the answers to these questions. We might discover important differences between household survey information and financial market data. We may also find an answer to one of the great questions - and obstacles - in the monetary policy process. Namely, are inflation expectations responsible for the long time it takes for monetary policy actions to show up in the inflation data?

    Understanding what lies behind our measures of inflation expectations could greatly enhance the design and conduct of monetary policy. For example, it could help us understand what types of institutional arrangements and communication policies help the central bank retain credibility for meeting its price stability objective, even when large and persistent relative price changes ripple through the inflation data.

    To that end, unlocking some of the mysteries about inflation expectations may help central banks decide whether, and how, to incorporate a numerical inflation objective into the monetary policy process.  Some central banks have used these numerical objectives as a tool to help anchor inflation expectations. Economists refer to a numerical inflation objective as a "commitment device," that is, a means for holding a central bank's feet to the fire. That may be so. But whether or not there is an explicit numerical objective, anchoring inflation expectations requires a central bank to keep inflation low and stable, to reinforce its commitment to price stability, and to clearly communicate its policies in pursuit of that commitment

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    http://www.clevelandfed.org/dsp_showdetail.cfm?contentId=613&detailId=568

    Venue:

    Copper Development Association, Global Market Trends Conference
  • Jeffrey Lacker I think that everyone believes we wouldn't let the '70s happen again. But an erosion from 1.5(%), to let inflation, core inflation, drift from 1.5% up to 3%, I'm not sure people are convinced we wouldn't let that happen, and I think we ought to take action to prevent that notion from becoming lodged in peoples' minds.

    [ September 5, 2006 ]

    In response to the question:  "Are you worried that the Fed could lose its inflation-fighting credibility?"

    I'm very concerned.  And it's not a big black or white thing, losing our credibility.  I think that everyone believes we wouldn't let the '70s happen again.  But an erosion from 1.5%, to let inflation, core inflation, drift from 1.5% up to 3%, I'm not sure people are convinced we wouldn't let that happen, and I think we ought to take action to prevent that notion from becoming lodged in peoples' minds.

  • William Poole My own personal view is that there is too much emphasis on housing.  It's also true that there's a very substantial boom taking place that many people don't seem to realize in business structures.

    [ August 31, 2006 ]

    My own personal view is that there is too much emphasis on housing.  It's also true that there's a very substantial boom taking place that many people don't seem to realize in business structures...  That part of the economy is going gangbusters.  The economy, to me, does not seem to be fragile with that kind of activity.

    From Q&A session as reported by Bloomberg News

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    http://www.stlouisfed.org/news/speeches/2006/08_31_06.html

    Venue:

    Dyer County Chamber of Commerce Annual Membership Luncheon
  • Ben Bernanke Our objective is to make sure {the rising price of energy} doesn't pass through into other wages and prices, in other words, that there are not second-round effects... In the long run, what we would like to control is headline inflation.  After all, that's what is determining the value of money, and it's what people need for their planning

    [ August 31, 2006 ]

    The Fed, in the short run, tolerates the pressure rising energy prices exert on headline price measures, Mr. Bernanke said. "Our objective is to make sure it doesn't pass through into other wages and prices, in other words, that there are not second-round effects," he said.

    "In the long run, what we would like to control is headline inflation," Mr. Bernanke said, "After all, that's what is determining the value of money, and it's what people need for their planning," along with being the force that "affects real wages and real incomes," he said.

    "It is very difficult to eliminate the inflationary impact of the immediate effects of an increase in energy prices," he said. "Doing so would require forcing down wages and other prices quite dramatically to keep the overall price level from rising."

    From Q&A session reported by the Wall Street Journal

  • Jeffrey Lacker I think there's a danger of inflation becoming entrenched at the level it is now with core inflation well over two and I think that most people and I myself personally would like to see it down around one-and-a-half percent.

    [ August 30, 2006 ]

    I think there's a danger of inflation becoming entrenched at the level it is now with core inflation well over two and I think that most people and I myself personally would like to see it down around one-and-a-half percent..

    Right now it's difficult at all times to get a hand on where people in the economy generally expect inflation to be. But right now I think there's, you know, a sense that inflation expectations are contained but having said that, there's a dispersion. There's, you know, a range of view about how rapidly inflation will come back down.
        The longer we let inflation remain, core inflation, remain where it is I think the more likely it is that expectations collapse on core inflation remaining about where it is now rather than declining as I would like to see it decline.
         So that's what I mean by becoming entrenched, becoming firmly lodged in the public's mind as an expectation that that's the inflation rate we're going to tolerate and I think that would be a mistake.

  • Janet L. Yellen It appears to me that the federal funds rate currently lies in a vicinity tht is roughly appropriate for the Fed to attain its key objectives over the medium run.

    [ July 30, 2006 ]

    It appears to me that the federal funds rate currently lies in a vicinity that is roughly appropriate for the Fed to attain its key objectives over the medium run...

    In the present circumstances, I would consider it appropriate for the actual rate to be a bit above the neutral rate—in other words, I'd like it to be modestly restrictive—to promote price stability, especially given that the economy may be operating with labor and product markets that are a bit on the tight side.

  • Susan Bies There's a variety of views on the FOMC, but everyone agrees we're getting closer to the stopping point. 

    [ April 13, 2006 ]

    There's a variety of views on the FOMC, but everyone agrees we're getting closer to the stopping point.  And that's why we're so much focused on incoming data and how that's changing our outlook to make the call on when we're actually there.

    More From:

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    Venue:

    Community Leaders Luncheon
  • Donald Kohn Overshooting is something we are very aware of as a risk in policy today. 

    [ April 13, 2006 ]

    [Fed officials] are trying to pick up early signs that the rate of economic growth might be cooling off, and we are also very alert to what is happening to price inflation...  Overshooting is something we are very aware of as a risk in policy today. 

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    Source:

    http://www.federalreserve.gov/boarddocs/speeches/2006/20060413/default.htm

    Venue:

    Bankers and Business Leaders Luncheon