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Recent FedSpeak Highlights

  • Charles L. Evans We clearly must be vigilant about these risks to economic growth. However, overly accommodative liquidity provision could endanger price stability.

    [ November 27, 2007 ]

    We clearly must be vigilant about these risks to economic growth. However, overly accommodative liquidity provision could endanger price stability, which is the second component of the dual mandate. After all, inflation is a monetary phenomenon. Indeed, one of the many reasons for the Fed's commitment to low and stable inflation is that inflation itself can destabilize financial markets.

    ...

    That is, the Fed must adjust the stance of policy to guard against the risk of events that may have low probability but, if they did occur, would present an especially notable threat to sustainable growth or price stability...  But while the risk is still present of notably weaker-than-expected overall economic activity, given the policy insurance we have put in place I don't see this as likely.

  • Charles Plosser Arbitrarily lowering interest rates or providing liquidity to the market does not provide the answers the market seeks. Indeed, in some circumstances, lowering interest rates may prolong the painful process of price discovery.

    [ November 27, 2007 ]

    It is important to recognize that the Federal Reserve cannot resolve this price discovery problem. The markets will have to figure this out.  Arbitrarily lowering interest rates or providing liquidity to the market does not provide the answers the market seeks.  Indeed, in some circumstances, lowering interest rates may prolong the painful process of price discovery.

    ...

    In the current environment, providing insurance through a reduction in the fed funds rate creates its own set of additional risks. It may exacerbate moral hazard problems as I suggested earlier.

  • Randall KrosznerA sequence of data releases consistent with the rough patch for economic activity that I expect in coming months would not, by themselves, suggest to me that the current stance of monetary policy is inappropriate. 

    Note:  Some hours after Gov. Kroszner suggested that further rate cuts might not be necessary, the chairman of the Senate Banking Committee, Chris Dodd,  told the press that he might not act on Kroszner's confirmation for a full term as governor until after the 2008 elections.

    [ November 16, 2007 ]

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    Source:

    http://www.federalreserve.gov/newsevents/speech/kroszner2007116a.htm

    Venue:

    Institute of International Finance
  • William Poole [I]f the fourth quarter comes in exactly as anticipated, and given that there's already been 75 basis points of easing, and given that we can't affect the fourth quarter anyway - the fourth quarter is going to be irrelevant to the December decision unless it tells us something about next year we don't already know.

    [ November 16, 2007 ]

    [I]f the fourth quarter comes in exactly as anticipated, and given that there's already been 75 basis points of easing, and given that we can't affect the fourth quarter anyway - the fourth quarter is going to be irrelevant to the December decision unless it tells us something about next year we don't already know.

     

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    Venue:

    Dow Jones Newswires Interview
  • Thomas Hoenig So when I say, and I always do in my speeches, it is a matter of waiting watching and seeing, I really mean it this time.

    [ November 15, 2007 ]

    At present, Hoenig said he is "not at all opposed to necessary action either way." 

    "So when I say, and I always do in my speeches, it is a matter of waiting watching and seeing, I really mean it this time," he said.

    As reported by MarketWatch

  • Dennis Lockhart If I were to use one word to characterize our current economic circumstances, that word would be uncertain." Much of this uncertainty relates to the potential depth

    [ November 7, 2007 ]

    If I were to use one word to characterize our current economic circumstances, that word would be "uncertain." Much of this uncertainty relates to the potential depth, length, and impact of the housing downturn and potential flow-back to Main Street from the turbulence we have seen on Wall Street.

  • Frederic Mishkin I think that the cumulative policy easing the FOMC put in place at its past two meetings reduced significantly the downside risks to growth so that those risks are now balanced by the upside risks to inflation.

    [ November 5, 2007 ]

    In voting to ease policy, I carefully considered the effect of that decision on our other objective--price stability. I reasoned that the anticipated softening of economic growth and perhaps the emergence of some slack in the labor market might reduce those pressures, and I judged that a cut of 25 basis points in the target federal funds rate would not materially alter that modal outlook. However, I recognized the risk that, even if readings on core inflation have improved modestly this year, recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation. Consequently, in considering appropriate future adjustments to policy, I will monitor inflation developments carefully.

    Overall, I think that the cumulative policy easing the FOMC put in place at its past two meetings reduced significantly the downside risks to growth so that those risks are now balanced by the upside risks to inflation. In these circumstances, I will want to carefully assess incoming data and gauge the effects of financial and other developments on economic prospects before considering further policy action. As always, my colleagues on the FOMC and I will act to foster our dual objectives of price stability and sustainable economic growth.

  • Charles L. Evans To me, the uncertainties about how financial conditions might evolve and affect the real economy mean that risk management considerations have an important role in the current policy environment.

    [ October 22, 2007 ]

    To me, the uncertainties about how financial conditions might evolve and affect the real economy mean that risk management considerations have an important role in the current policy environment. The cutback in nonconforming mortgage originations and the continued high level of inventories of unsold homes will result in further weakness in housing markets. Under one scenario, the effects on overall growth will be fairly isolated to declines in residential construction similar to our experience in 2006 and early 2007. However, there is a less benign possibility. Housing demand and prices could weaken a good deal more than we expect either because a new shock hits the sector or because we have underestimated the weakness already in train. A more pronounced downturn could weigh more heavily on consumer spending. In addition, further delinquencies and foreclosures could add to the problems with mortgage-backed securities. This, in turn, could generate further adverse effects on financial conditions that support economic activity. Together, such events would pose a more serious downside risk to growth. I want to emphasize that I do not see this extreme outcome as likely. But it is one of those high cost outcomes that we should guard against.

  • Thomas Hoenig The U.S. economy still has a lot going for it...  I want to also remain alert as we move through this tender time.

    [ October 17, 2007 ]

    Federal Reserve Bank of Kansas City President Thomas Hoenig said he's ``optimistic'' about the U.S. economy, though it's important to remain ``alert'' because of risks posed by the housing slump.

    ``The U.S. economy still has a lot going for it,'' Hoenig said in a speech yesterday in Tulsa, Oklahoma, citing continued job and consumer spending growth and gains in exports, helped by a weaker dollar. At the same time, ``I want to also remain alert as we move through this tender time,'' he said.

    As reported by Bloomberg News

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    Venue:

    Federal Reserve Bank of Kansas City
  • Ben Bernanke The Committee chose to cut its target for the federal funds rate by 50 basis points at the September meeting... The risks to inflation from this action seemed acceptable, especially as the Committee was prepared to reverse the policy easing if inflation pressures proved stronger than expected.

    [ October 15, 2007 ]

    [T]he Committee chose to cut its target for the federal funds rate by 50 basis points at the September meeting. This action was intended to help offset the tightening of credit conditions resulting from the financial turmoil. Risk-management considerations also played a role in the decision, given the possibility that the housing correction and tighter credit could presage a broader weakening in economic conditions that would be difficult to arrest. By doing more sooner, policy might be able to forestall some part of the potential adverse effects of the disruptions in financial markets. As most of the meeting participants saw growth likely to run below trend for a while and with the incoming inflation data on the favorable side, the risks to inflation from this action seemed acceptable, especially as the Committee was prepared to reverse the policy easing if inflation pressures proved stronger than expected.

    More From:

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    Source:

    http://www.federalreserve.gov/newsevents/speech/bernanke20071015a.htm

    Venue:

    Economic Club of New York
  • Donald Kohn I thought that economic performance would be better served by the Federal Reserve taking its chances on responding too much, or too rapidly, to the turmoil in financial markets rather than acting too little, or too slowly...  With inflation expectations seemingly well anchored, I believed that we would be able to offset the cut in the federal funds rate--if it turned out to be larger than needed--in time to preserve price stability.

    [ October 5, 2007 ]

    In addition, I thought that economic performance would be better served by the Federal Reserve taking its chances on responding too much, or too rapidly, to the turmoil in financial markets rather than acting too little, or too slowly.  Sluggish or inadequate easing risked a weaker real economy that might cause lenders to pull back even more, leading to a deteriorating situation that could prove difficult to reverse.  With the news on inflation relatively favorable of late and with inflation expectations seemingly well anchored, I believed that we would be able to offset the cut in the federal funds rate--if it turned out to be larger than needed--in time to preserve price stability.

    More From:

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    Source:

    http://www.federalreserve.gov/newsevents/speech/kohn20071004a.htm

    Venue:

    Greater Philadelphia Chamber of Commerce
  • Charles Plosser If inflation begins to creep up or expectations of future inflation rise in the coming months – which is a risk given our decision to cut rates – the outlook will be affected and policy may have to be adjusted.

    [ September 25, 2007 ]

    We will also have to remain vigilant on the inflation front. The reduction in the funds rate runs the risk of higher inflation and expected inflation in the future. While the inflationary signs this summer have been encouraging, I do not think we are in a position to be sanguine. If inflation begins to creep up or expectations of future inflation rise in the coming months – which is a risk given our decision to cut rates – the outlook will be affected and policy may have to be adjusted.

  • Donald Kohn Anchored inflation expectations ... permit central banks to respond more forcefully to output fluctuations. 

    [ September 21, 2007 ]

    Anchored inflation expectations damp the pass-through of supply-related price shocks.  They also permit central banks to respond more forcefully to output fluctuations.  Most significantly, the improved inflation performance has come with, not at the expense of, output stability.  Although a consensus has not formed on how much of the "Great Moderation" in the growth of real output can be attributed to monetary policy, everyone agrees that at least a portion of it can.

  • Ben Bernanke The Federal Open Market Committee lowered its target for the federal funds rate by 50 basis points ... to help forestall some of the adverse effects on the broader economy that might arise from the disruptions in financial markets and to promote moderate growth over time. 

    [ September 20, 2007 ]

    Earlier this week, [the] Federal Open Market Committee lowered its target for the federal funds rate by 50 basis points.  The action was intended to help forestall some of the adverse effects on the broader economy that might arise from the disruptions in financial markets and to promote moderate growth over time.  Recent developments in financial markets have increased the uncertainty surrounding the economic outlook.  The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.

    More From:

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    Source:

    http://www.federalreserve.gov/newsevents/testimony/bernanke20070920a.htm

    Venue:

    Testimony to House Financial Services Committee
  • Ben Bernanke Term premiums appear recently to have risen from what may have been unsustainably low levels, in part because of the greater recent volatility in financial markets and investors' demands for increased compensation for risk-taking.

    [ September 11, 2007 ]

    Since I discussed these issues in March 2005, real interest rates have reversed some of their previous declines.  For example, in the United States, real yields on inflation-indexed government debt averaged 2.3 percent in 2006 as compared with 1.85 percent in 2004.  In the past few weeks, that yield has averaged about 2.4 percent.  Inflation-adjusted yields in other industrial countries have also started to move back up after falling in 2005.8      

    How does this all fit together?  My reading of recent developments is that although some of the details have changed, the fundamental elements of the global saving glut remain in place. ..

    Further increases in net capital flows from the developing economies, all else being equal, should have further depressed real interest rates around the world.  But as I have noted, in the past few years, real interest rates have moved up a bit.  This increase does not imply that the global saving glut has dissipated.  However, it does suggest that, at the margin, desired investment net of desired saving must have risen in the industrial countries enough to offset any increase in desired saving by emerging-market countries...

    Once again, however, I do not want to rely exclusively on this line of explanation for the behavior of long-term real interest rates, as other factors have no doubt been relevant.  In particular, term premiums appear recently to have risen from what may have been unsustainably low levels, in part because of the greater recent volatility in financial markets and investors' demands for increased compensation for risk-taking.

        

  • Frederic Mishkin Economic activity could be affected more severely in other sectors should heightened uncertainty lead to a broader pullback in household and business spending.  That scenario cannot, in my view, be ruled out, and I believe it poses an important downside risk to economic activity.

    [ September 10, 2007 ]

    As best we can tell thus far, the imprint of these developments on economic activity appears likely to be most pronounced in the housing sector.  However, economic activity could be affected more severely in other sectors should heightened uncertainty lead to a broader pullback in household and business spending.  That scenario cannot, in my view, be ruled out, and I believe it poses an important downside risk to economic activity.

  • Richard Fisher My guess is that a great deal of the potential dislocation resulting from corrective reactions to the subprime boom will be resolved by regulatory initiatives rather than by monetary policy.

    [ September 10, 2007 ]

    My guess is that a great deal of the potential dislocation resulting from corrective reactions to the subprime boom will be resolved by regulatory initiatives rather than by monetary policy...

    Any new regulations that might now be crafted to prevent future recurrences must be well thought out, for two reasons. First, financial institutions will quickly adapt to defeat any regulation that is poorly designed, morphing into new, vaccine-resistant strains. Second, heavy-handed regulations are sometimes worse than the disease against which they are meant to protect. I would be wary of any regulatory initiatives that interfere with market discipline and attempts to protect risk takers from the consequences of bad decisions for fear of creating a moral hazard that might endanger the long-term health of our economic and financial system simply to provide momentary relief.  

  • Dennis Lockhart Last Thursday, I said in a speech that I have not seen conclusive signs of weakness in the broader economy.  Friday's data, however, shows employment was beginning to soften back in June.  This news should be evaluated with recently positive reports in retail sales.

    [ September 10, 2007 ]

    "Last Thursday, I said in a speech that I have not seen conclusive signs of weakness in the broader economy,'' Lockhart, 60, said at an event sponsored by the Atlanta Business Chronicle. ``Friday's data, however, shows employment was beginning to soften back in June. This news should be evaluated with recently positive reports in retail sales.''    

    As reported by Bloomberg News

  • Charles Plosser I believe disruptions in financial markets can be addressed using the tools available to the Federal Reserve without necessarily having to make a shift in the overall direction of monetary policy.

    [ September 8, 2007 ]

    A change in monetary policy would be required if the outlook for the economy changes in a way that is inconsistent with the Fed’s goals of price stability and maximum sustainable economic growth. Certainly, standing here today, it is obvious that tighter credit conditions and disruptions in financial markets have increased the uncertainty surrounding our forecasts of the economy. The FOMC continues to monitor incoming data and other economic information for signs that these disruptions are having a broader impact on the economy. In my view, it will be very important to assess such information in light of the Fed’s commitment to achieving its long-run goals of price stability and sustainable economic growth.

  • Charles Plosser The Committee usually does not base its decision to change monetary policy on any one number, but instead assesses the cumulative impact of all incoming data for the outlook in light of its ultimate goals.

    [ September 8, 2007 ]

    As you are no doubt aware, the monthly statistics reported on the economy are very volatile and subject to revision. The FOMC works hard to differentiate those factors that may have only a temporary impact on the economy or inflation from those of a more sustained nature...

    The Committee looks at a variety of data and economic information in formulating its economic outlook. When information indicates that the outlook for economic growth and inflation has changed, one still has to ask whether it has changed enough to impede the achievement of the Fed’s goals of price stability and maximum sustainable economic growth. As I mentioned, the economy is remarkably resilient. One must also ask how much monetary policy can influence that forecast over the relevant time horizon. Thus the Committee usually does not base its decision to change monetary policy on any one number, but instead assesses the cumulative impact of all incoming data for the outlook in light of its ultimate goals.