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Recent FedSpeak Highlights

  • 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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    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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    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.

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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
  • William Poole I think that the market is reading the current numbers in a very sensible way.

    [ April 7, 2006 ]

    I think that the market is reading the current numbers in a very sensible way. And what I think we are - need to pay attention to are not little nuances around the current numbers but rather the bigger things that may come along and surprise us. When everything is coming in on-track, no surprises, there really shouldn't be very much to talk about. We need to be thinking ahead to surprises.

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    Venue:

    Bloomberg TV
  • Ben Bernanke The surge in energy prices since late 2003 has significantly reduced the purchasing power of households and decreased the profits of non-energy firms, thereby restraining both consumer spending and business investment.

    [ April 4, 2006 ]

    The surge in energy prices since late 2003 has significantly reduced the purchasing power of households and decreased the profits of non-energy firms, thereby restraining both consumer spending and business investment. By rough estimate, these increases in energy prices have probably reduced real GDP growth between 1/2% and 1% per year over this period. Although some of this loss in output will be made up in the longer run as the U.S. economy adjusts to higher energy prices, the level of productivity is likely to remain lower than it otherwise would have been, as firms use less energy per worker.

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    Source:

    http://www.usatoday.com/money/economy/fed/2006-04-18-fed-usat_x.htm?POE=MONISVA

    Venue:

    Letter to Congressman J. Gresham Barrett
  • Thomas Hoenig I would expect that employment will grow by between 1.5 million and 2 million jobs in 2006. That translates into an increase of 125,000 to 167,000 jobs per month.

    [ April 4, 2006 ]

    My view is similar to the consensus of private sector forecasters. I would expect growth of around 3 ½ percent (Q4/Q4) for 2006, which is just slightly above most estimates of trend GDP growth. That said, growth in the first quarter may come in well above 3 ½ percent, as the economy rebounds from the sluggish fourth quarter. But over the course of the year, I would expect to see GDP decelerate to around its trend growth rate...

    The solid growth forecast for the economy also should translate into steady growth in employment. The increases will be somewhat less than employment gains seen in the past two years due to two factors.  First, as growth slows and converges toward the economy’s trend growth rate, fewer additional workers will be needed. And second, strong productivity growth over the past few years is expected to continue, suggesting that the existing workforce will be able to produce a sizeable portion of the projected increase in output.  Based on these factors, I would expect that employment will grow by between 1.5 million and 2 million jobs in 2006. That translates into an increase of 125,000 to 167,000 jobs per month.

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    Source:

    http://www.kansascityfed.org/SPCH&BIO/HoenigKCForum0406.pdf

    Venue:

    Rolling Hills Museum and Conference Center
  • Ben Bernanke Although macroeconomic forecasting is fraught with hazards, I would not interpret the currently very flat yield curve as indicating a significant economic slowdown to come, for several reasons.

    [ March 20, 2006 ]

    Although macroeconomic forecasting is fraught with hazards, I would not interpret the currently very flat yield curve as indicating a significant economic slowdown to come, for several reasons. First, in previous episodes when an inverted yield curve was followed by recession, the level of interest rates was quite high, consistent with considerable financial restraint. This time, both short- and long-term interest rates--in nominal and real terms--are relatively low by historical standards.

    Second, as I have already discussed, to the extent that the flattening or inversion of the yield curve is the result of a smaller term premium, the implications for future economic activity are positive rather than negative.

    Finally, the yield curve is only one of the financial indicators that researchers have found useful in predicting swings in economic activity. Other indicators that have had empirical success in the past, including corporate risk spreads, would seem to be consistent with continuing solid economic growth. In that regard, the fact that actual and implied volatilities of most financial prices remain subdued suggests that market participants do not harbor significant reservations about the economic outlook.

  • Ben Bernanke A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money. 

    [ November 20, 2002 ]

    A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money.  [18]

    [18] A tax cut financed by money creation is the equivalent of a bond-financed tax cut plus an open-market operation in bonds by the Fed, and so arguably no explicit coordination is needed. However, a pledge by the Fed to keep the Treasury's borrowing costs low, as would be the case under my preferred alternative of fixing portions of the Treasury yield curve, might increase the willingness of the fiscal authorities to cut taxes.

  • Alan Greenspan In an economy that already has lost some momentum, one must remain alert to the possibility that greater caution and weakening asset values in financial markets could signal or precipitate an excessive softening in household and business spending.

    [ December 5, 2000 ]

    Nonetheless, in the face of the energy price spike and the erosion of optimism in financial markets, consumer confidence, or sentiment, appears to be holding up reasonably well to date, though there have been some mixed signals of late...

    ...[I]n an economy that already has lost some momentum, one must remain alert to the possibility that greater caution and weakening asset values in financial markets could signal or precipitate an excessive softening in household and business spending.

     

  • Paul Volcker In a way, I suppose full confidence in a simple, unified view of economic policy is a comforting thing: a kind of security blanket in an uncertain world. But Alfred North Whitehead, in a different context, once pointed to the danger: “There are no whole truths; all truths are half truths. It is trying to treat them as whole truths that plays the devil.”

    [ September 16, 1976 ]

    Back in the days when I was learning economics and central banking, the General Theory had cast fresh light on old problems. The intellectual contributions were immense. But popularized, bowdlerized, and pressed to extremes, it lost fashion for good reason.

    The monetarists – emphasizing old truths in modern clothing – have provided a large service in redressing the balance. It is in pressing the point to an extreme that the danger lies – the impression that only money matters and that a fixed rate of reserve expansion can answer most of the complicated problems of economic policy.

    In a way, I suppose full confidence in a simple, unified view of economic policy is a comforting thing: a kind of security blanket in an uncertain world. But Alfred North Whitehead, in a different context, once pointed to the danger: “There are no whole truths; all truths are half truths. It is trying to treat them as whole truths that plays the devil.”

    He overstated the case. The practical man cut adrift from our sense of what is the greater truth – distinguishing, if you will, the one-eighth truths from the seven-eighths truths – will soon lose his way. But in assessing those truths, he can never afford to lose sight of the messy reality of the world in which we live.

  • John Williams From Reuters:  San Francisco Federal Reserve Bank President John Williams on Wednesday said he expects the U.S. central bank to raise interest rates later this year, three times next year, and a little bit further in 2019.

    [ October 12, 1714 ]

    San Francisco Federal Reserve Bank President John Williams on Wednesday said he expects the U.S. central bank to raise interest rates later this year, three times next year, and a little bit further in 2019.