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  • Janet L. YellenWhile there's no fixed time table for removing {the Fed's accomodative policy], many of my colleagues indicated in their recent projections, the majority that they would see it as appropriate to make a move to take a step in that direction this year if things continue on the current path and no significant new risks arise.

    [ September 28, 2016 ]
  • Stanley Fischer“It bothers me, it really bothers me,” he said when asked about low rates at an event for economics students at Howard University in Washington.

    “I think there’s also a problem in going to a zero interest rate in the sense that it says that capital isn’t very productive, there’s not much going on in the economy,” Mr. Fischer said, adding that “we would be better off if there was a price for using money.”

    “I don’t like it, but I don’t want to raise the interest rate too much. I think we should at some point. I don’t know when,” he said. “The interest rate I believe is not at zero at a normal level and it should be [normal] at some point, not immediately.”

    [ September 27, 2016 ]
  • Robert S. Kaplan“I would have been comfortable in seeing some removal of accommodation in September,” Kaplan told the Independent Bankers Association of Texas meeting in San Antonio on Monday. While there aren’t signs the U.S. economy is overheating, “I am concerned about distortions rates this low are creating,” he said.

    [ September 26, 2016 ]
  • Daniel K. TarulloOne of the most important lessons of the financial crisis was that prudential regulation, including capital regulation, had been dominantly microprudential in nature, even for the largest firms. That is, the regulation was designed and applied with a view mostly to the idiosyncratic risks faced by a bank in isolation, without regard to the interaction of the bank and the financial system as a whole. Thus, for example, capital regulation did not take account of fire sale effects--the reduction in portfolio values for one bank by other banks selling certain types of assets in order to enhance their own solvency or to counter a reduction in funding availability. Similarly, microprudential capital regulation allows a bank to meet its capital ratios by reducing lending--that is, by reducing the denominator of its ratio--as well as by increasing capital. If many banks were to follow this strategy, even creditworthy borrowers would be adversely affected, thereby exacerbating an economic downturn.

    [ September 26, 2016 ]
  • Jeffrey LackerI think we got more credit when the economy was going really well in the ‘90s than we deserved. Our job is to keep inflation low and stable, we did a good job of that in the 90s, but the tech boom wasn’t our responsibility, we didn’t bring that about.

    Similarly, I think we get more blame for a sluggish recovery than we deserve. There really isn’t anything monetary policy can do about the rate of productivity growth, the rate of capital formation that goes into that... I think we’ve done a good job since the recession ended and people need to realize that there’s a range of policy out there. We’re responsible for a narrow slice of economic policy, just what affects the inflation rate.

    [ September 25, 2016 ]
  • Neel Kashkaridark trader
    @neelkashkari do u see a bubble/over heated housing market? #askneel

    Neel Kashkari
    We monitor such markets closely. Don’t see a housing bubble. Admittedly these are hard to spot in advance, so we must be humble & vigilent [sic]

    [ September 23, 2016 ]
  • Robert S. Kaplan“We don’t think the economy is overheating,” Robert Kaplan, president of the Dallas Fed, said in Houston. “We can afford to be patient in removing accommodation. We are not as accommodative, probably, as people would think.”

    [ September 23, 2016 ]
  • Eric RosengrenUnemployment this low may well have the desirable effect of bringing more workers into the labor force – but, unfortunately, only temporarily. Historical experience suggests it also risks overheating the economy, the effects of which include heightened pressure on inflation and potentially increasing financial-market imbalances. Gently backing the economy away from such imbalances has proven to be very difficult in the past. In fact, such overshoots have in the past always resulted in a recession, rather than a return to the full employment level. Accomplishing a soft landing is difficult, and very rarely achieved. This is true whether reducing the unemployment rate, such as from its recent high of 10 percent, or raising it back to its full employment value from below.

    My goal is to achieve a long and durable recovery – a sustainable expansion. For the reasons articulated above, I believe a significant overshoot of the full employment level could shorten, rather than lengthen, the duration of this recovery…

    As a result I am arguing for modest, gradual tightening now, out of concern that not doing so today will put the recovery’s duration and sustainability at greater risk, by generating the sorts of significant imbalances that historically have led to a recession.

    [ September 23, 2016 ]
  • Janet L. YellenThe decision not to raise rates today and to wait for some further evidence that we're continuing on this course is largely based on the judgment that we're not seeing evidence that the economy is overheating and that we are seeing evidence that people are being drawn in in larger numbers than at least I would have expected into the labor market and that that's healthy to continue.

    [ September 21, 2016 ]
  • Lael BrainardIn the case of unexpected strength, we have well-tried and tested tools and ample policy space in which to react... In the face of an adverse shock, however, our conventional policy toolkit is more limited, and thus the risk of being unable to adequately respond to unexpected weakness is greater. The experience of the Japanese and euro-area economies suggest that prolonged weakness in demand is very difficult to correct, leading to economic costs that can be considerable.

    This asymmetry in risk management in today's new normal counsels prudence in the removal of policy accommodation. I believe this approach has served us well in recent months, helping to support continued gains in employment and progress on inflation. I look forward to assessing the evolution of the data in the months ahead for signs of further progress toward our goals, bearing in mind these considerations.

    [ September 12, 2016 ]

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  • Neel Kashkari“There doesn’t appear to be a huge urgency to do anything,” Kashkari said in an interview on CNBC.

    The Minneapolis Fed president, who is not a voting member of the Fed’s policy committee, this year, said he wanted to see “more movement” in core inflation, which he said was “stuck” at a 1.6% annual rate.

    [ September 12, 2016 ]
  • Dennis LockhartFinancial markets seem to be very sensitive to remarks of Fed speakers at the moment. I'd like to avoid any chance of contributing to market volatility in advance of the September 20 and 21 meeting, so this morning I don't plan to offer an opinion on what will likely be done at the September, November, or December meetings.


    In interviews at the Jackson Hole meeting in late August, I took the position that if the incoming data leading up to next week's meeting remained consistent overall with my sense of the economy, I would encourage "serious discussion" of a policy rate increase.

    Notwithstanding a few recent weak monthly reports—from the Institute for Supply Management, for example—I am satisfied at this point that conditions warrant that serious discussion.


    The 12-month trend in payroll jobs growth has slowed a bit from its peak in the beginning of 2015, and I think it's reasonable to expect some further slowing in jobs growth as the economy approaches full employment. Importantly, I consider the most recent number—151,000—to be comfortably above the various estimates of "break even," the number needed to hold the unemployment rates constant...

    That said, we are not yet seeing inflation data confirming that we're near full employment. I find the continuing shortfall from the Committee's inflation target and the ambiguous evidence of movement toward target to be a frustrating element in the picture...

    I am a big believer in a dashboard approach to assessing the run rate of inflation. So, working with my team at the Atlanta Fed, I look at a wide range of price measures. For policy purposes, we are always trying to discern the fundamental underlying behavior of prices separate from transitory influences. Recently we have been closely monitoring the Dallas Fed's trimmed-mean inflation index as a reasonable proxy for the underlying inflation trend.

    This measure of inflation has been very constant for four years now. It's been consistently around 1.6 percent and has varied from that reading by only two-tenths or less. By this measure, progress toward the Committee's inflation objective appears to have stalled.

    [ September 12, 2016 ]
  • Daniel K. TarulloCNBC: One more question. Your colleague on the FOMC, Eric Rosengren, he's a voter this year, president of Boston, is very concerned about financial stability when it comes to these low rates. Is that something that animates your thinking about rates that we've had rates so low for so long that we've created excesses in the financial system?

    TARULLO: There's no question, but that when rates are low for a long time, that there are opportunities for frothiness and, perhaps, overleverage in particular asset markets. And I do think we need to be aware of that. But being aware of it is different from saying, therefore, the answer is to raise rates. Now, I, again, myself, don't exclude the possibility that in some circumstances, the federal funds rate increase could be an appropriate response to financial stability concerns. I think those would be pretty unusual circumstances and I don't think we're in them right now.

    [ September 9, 2016 ]
  • Eric RosengrenMy personal view, based on data that we have received to date, is that a reasonable case can be made for continuing to pursue a gradual normalization of monetary policy.


    [N]ot all the risk is on the downside. It is important to note that an overheated economy – one that significantly exceeds sustainable output and employment – would pose risks to maintaining full employment over time. Here history is instructive... monetary policy has not been a precise tool, capable of gently guiding the economy back to full employment in periods when we have exceeded sustainable, full employment... [T]he calibration of monetary policy during such a tightening cycle is difficult: The U.S. economy often slows down more than is optimal, frequently resulting in a recession...

    This problem could be compounded if delays in tightening earlier in the cycle lead to conditions that require more rapid increases in interest rates later in the cycle, risking a more pronounced slowing in growth and rise in unemployment.

    A second risk of waiting too long to tighten is that some asset markets become too ebullient. Figure 12 shows that real commercial real estate prices have risen quite rapidly over the past five years, particularly for multifamily properties. Because commercial real estate is widely held in the portfolios of leveraged institutions, commercial real estate cycles can amplify the impact of economic downturns as financial institutions need to write down the value of loans and cut back on lending to maintain their capital ratios.

    In sum, the risks to the forecast are becoming increasingly two-sided, in my view. Weakness emanating from abroad poses short-term downside risks to the domestic U.S. economy. However, the U.S. economy has been relatively resistant to shocks from abroad of late, as evidenced recently by the aftermath of the Brexit vote. Yet as I have described today, there are also longer-term risks from significantly overshooting the U.S. economy’s growth – given the bluntness of monetary policy tools, and the possibility of growing imbalances in some asset classes.


    So if we want to ensure that we remain at full employment, gradual tightening is likely to be appropriate. A failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery.  


    [ September 9, 2016 ]
  • John WilliamsIn the context of a strong economy with good momentum, it makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later. Let me be clear: In arguing for an increase in interest rates, I’m not trying to stall the economic expansion. It’s just the opposite: My aim is to keep it on a sound footing so it can be sustained for a long time.

    History teaches us that an economy that runs too hot for too long can generate imbalances, potentially leading to excessive inflation, asset market bubbles, and ultimately economic correction and recession. A gradual process of raising rates reduces the risks of such an outcome. It also allows a smoother, more calibrated process of normalization that gives us space to adjust our responses to any surprise changes in economic conditions. If we wait too long to remove monetary accommodation, we hazard allowing imbalances to grow, requiring us to play catch-up, and not leaving much room to maneuver. Not to mention, a sudden reversal of policy could be disruptive and slow the economy in unintended ways.

    [ September 6, 2016 ]
  • Jeffrey LackerIn principle, we know the remedy for unraveling inflation expectations: raise rates rapidly. But in such a scenario, it would be hard to calibrate policy settings carefully enough to avoid precipitating a contraction in real activity.

    [ September 2, 2016 ]
  • Jeffrey LackerIn the last couple of years, U.S. monetary policy has frequently been described as “data dependent.” By itself, however, that phrase conveys little beyond the premise that the current stance of monetary policy has not been irrevocably locked in. The question is how does monetary policy depend on the data? Benchmarks like the Taylor rule provide a concrete and quantitative answer to that question by linking policy to inflation and employment, the Fed’s two mandate goals. Responding to additional developments that are not clearly related to inflation and employment has the potential to confuse the public, increasing uncertainty about our future conduct and raising doubts about our commitment to our two goals.

    [ September 2, 2016 ]
  • Eric RosengrenIn my view, commercial real estate is, by itself, unlikely to trigger financial stability problems. But should prevailing economic conditions change in response to a large negative economic shock, commercial real estate prices could decline relatively quickly, leading to large losses at leveraged firms. Because commercial real estate debt is widely held by depository institutions, this could cause a contraction of credit – similar to the credit crunch experience in the United States in the early 1990s.
    So the concern I put forward today is the scenario where widespread declines in commercial real estate prices could ripple through the financial sector and lead to a significant tightening of credit for many borrowers. And given that, I would pose the natural next question: if one agrees that there is building pressure in commercial real estate, should it have any bearing on the setting of monetary policy?

    U.S. monetary policymakers should focus on achieving maximum employment consistent with stable prices currently, of course, but also over time. Very low interest rates may move the economy closer to the central bank’s dual mandate goals more quickly than would higher interest
    rates, but it is important to evaluate “at what cost.” When the economy is far away from achieving the dual mandate goals, asset prices tend to be weak – providing an added rationale for accommodative policy. However, when the economy is close to achieving the dual mandate – as the U.S. economy is now – very low rates may cause the economy to attain and exceed sustainable employment, risking greater imbalances that could negatively impact the economy in the future. And this may be an unfavorable tradeoff.

    In other words, a somewhat faster move to rate normalization may defer somewhat how quickly we achieve the dual mandate goals of full employment and price stability, but could reduce the risk of a larger divergence from the dual mandate in the next downturn. This is one of the challenges of monetary policymaking that requires empirical analysis, historical perspective, and judgment.

    [ August 31, 2016 ]
  • Charles L. EvansSome worry that if the FOMC gets behind the curve and has to raise the funds rate moderately faster than, say, what is in the Fed’s most recent SEPs, fixed-income markets will be spooked and we’ll see a spike in long-term interest rates that could be detrimental both to growth and to financial stability.
    Normally, the risks of large spikes in long-term rates are probably intensified by fast-money investors (hedge funds and the like) making carry trade bets on low-term premia. These investors have an eye toward a quick exit when rates begin to rise — behavior that can snowball into something like the taper tantrum we saw in 2013 when long-term rates spiked 100 basis points in response to a sudden change in expectations for the path of Fed asset purchases. Instead, today I have been talking about the positions of real-money, long-horizon investors. Given their expectations of low-for-long policy rates, they are less likely to think that some unexpected tightening will lead to substantially higher rates over the long term. Rather, such a tightening would likely be seen as simply flattening the yield curve.

    Put differently, long-run expectations for policy rates provide an anchor to long-run interest rates. So lower policy rate expectations act as a restraint on how much long-term rates could rise following a surprise over the near-term policy path.

    Finally, if inflation or term premium risks rose substantially, the alternative funds rate path for funds rate increases that might accompany a tighter-than-expected policy is still likely to be quite gradual.
    No one discusses that 2004–06 pace of tightening as anything but gradual — it was certainly not steep enough to generate financial stability concerns. And while there are important differences in the environment today, this example does lead one to believe that, if necessary, we could normalize policy much faster than currently envisioned and still keep the pace gradual enough to avoid a disorderly change in financial conditions.

    [ August 31, 2016 ]
  • Stanley FischerFederal Reserve Vice Chairman Stanley Fischer said negative interest rates seem to be working in other countries, while reinforcing that they aren’t on the table in the U.S.

    While the Fed isn’t “planning to do anything in that direction,” the central banks using them “basically think they’re quite successful,” Fischer said Tuesday on Bloomberg Television with Tom Keene in Washington. He reiterated that Fed rate increases will be data dependent without giving a specific timeline.

    Fischer’s comments on negative rates come days after Chair Janet Yellen left the subject out of a speech on the future U.S.
    monetary policy toolkit, suggesting that they’re not an option that’s up for discussion at the Fed. Fischer is a former Bank of Israel governor and a prominent figure in international economics, so his remarks constitute an important acceptance that the unconventional and often controversial policy might be working in other jurisdictions.

    “We’re in a world where they seem to work,” Fischer said, noting that while negative rates are “difficult to deal with”
    for savers, they typically “go along with quite decent equity prices.”

    Fischer’s assessment compares with the views of Mark Carney, the governor of the Bank of England, who earlier this month rejected the idea of negative rates as an effective option. “What we’ve seen in other countries is, to be honest, they’ve got this a bit wrong,” Carney said in a radio interview in early August.

    Swiss National Bank President Thomas Jordan has said that negative rates are “absolutely necessary” in his country.

    [ August 30, 2016 ]