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Recent FedSpeak Highlights

  • Stanley Fischer "The big goals of the reforms and regulation that took place in Dodd-Frank have been achieved in certain areas of the banking sector, and I worry a little bit about the fact that we in the United States do not have very good mechanisms for dealing with the nonbank sector, the shadow banking system."

    [ October 7, 2016 ]

    On regulatory matters, Mr. Fischer defended the 2010 Dodd-Frank law, even though he said areas for improvement remain.

    “The big goals of the reforms and regulation that took place in Dodd-Frank have been achieved in certain areas of the banking sector, and I worry a little bit about the fact that we in the United States do not have very good mechanisms for dealing with the nonbank sector, the shadow banking system,” he said.

  • Stanley Fischer The virtues of sound monetary policy notwithstanding, we must not forget, as former Fed Chairman Ben Bernanke reminded us on numerous occasions, that "monetary policy is not a panacea." For instance, as I mentioned recently elsewhere, policies to boost productivity growth and the longer-run potential of the economy are more likely to be found in effective fiscal and regulatory measures than in central bank actions. Some combination of improved public infrastructure, better education, more encouragement for private investment, and more-effective regulation is likely to promote faster growth, which would increase the natural rate of interest and, thus, reduce the probability that we may find ourselves again struggling to avoid Keynes's infamous liquidity trap.

    [ October 5, 2016 ]

    Monetary and fiscal policies could ameliorate some, though not all, of the potential causes of ultralow rates--such as excessive precautionary saving and weak demand for physical capital. In other words, ultralow interest rates are not necessarily here to stay, especially if the right policies are put in place to address at least some of their root causes.

    What are some of these policies? First, transparent and sound monetary policies here and abroad have helped mitigate downside risks and improve economic conditions, likely boosting confidence in the sustainability of the recovery. Without them, we probably would have had a more pronounced increase in precautionary saving and a deeper decline in fixed investment, which together would have put additional downward pressure on the natural rate of interest and, more important, further damaged the economy's growth potential.

    But, second, the virtues of sound monetary policy notwithstanding, we must not forget, as former Fed Chairman Ben Bernanke reminded us on numerous occasions, that "monetary policy is not a panacea." For instance, as I mentioned recently elsewhere, policies to boost productivity growth and the longer-run potential of the economy are more likely to be found in effective fiscal and regulatory measures than in central bank actions. Some combination of improved public infrastructure, better education, more encouragement for private investment, and more-effective regulation is likely to promote faster growth, which would increase the natural rate of interest and, thus, reduce the probability that we may find ourselves again struggling to avoid Keynes's infamous liquidity trap. If the natural rate can be lifted by appropriate policies, the economic near-stagnation that many countries have experienced in recent years may well turn out not to be that secular after all.

  • Jeffrey Lacker Independence with regard to short-term choices of monetary policy instrument settings – that is, policy interest rates – must be paired with strong accountability for the economic results of policymaking over time. The economics literature has contrasted “instrument independence,” which we have, with “goal independence,” which we do not: Congress sets the Fed’s monetary policy objectives, and the FOMC chooses a succession of instrument settings in pursuit of them

    [ October 5, 2016 ]

    Across the history of central banks around the world, when monetary policy has been subject to high-frequency political winds, the results have not been good. And our own history shows that the temptation of short-sighted monetary policies is a bipartisan vulnerability, just as the Fed’s founders feared.
    ...
    Monetary policy independence is essential to achieving good economic outcomes. Undue political influence can and has happened even under our current structure, and as a country we should be wary of changes to Fed governance that could make such breaches easier. Nations around the world came to similar conclusions in the 1980s and 1990s – after long, hard struggles to tame inflation – that central banks delivered better results when insulated from short-run political pressures. Most accordingly structured their monetary policy decision-making processes to include independence.

    The apolitical aspects of Reserve Bank governance seem especially useful given the potential for political influence on the publicly appointed parts of the Fed. Governors are politically appointed, as noted, but to staggered 14-year terms. When enacted in the 1930s, this was envisioned as a way to prevent their terms from overlapping with electoral cycles. In practice, the tenure of governors is typically less than half of a full term and has fallen substantially since the 1970s. A byproduct is that the composition of the Board of Governors is less insulated from the political process than was originally envisioned. Indeed, by the end of a president’s term in the White House, it has typically been the case that the majority or every member of the Board of Governors was appointed by a president of the same party. So in practice, the views of Governors may not be as diverse as intended.

    Monetary policy independence has its limits, however. Independence with regard to short-term choices of monetary policy instrument settings – that is, policy interest rates – must be paired with strong accountability for the economic results of policymaking over time. The economics literature has contrasted “instrument independence,” which we have, with “goal independence,” which we do not: Congress sets the Fed’s monetary policy objectives, and the FOMC chooses a succession of instrument settings in pursuit of them.

  • Charles L. Evans I think the pace of policy normalization necessary to bring inflation back up to 2 percent in a timely manner has to be shallow enough to result in the unemployment rate falling below its natural level. I should note, too, that achieving a symmetric target means having enough accommodation in place to generate a reasonable likelihood that inflation in the future could moderately exceed 2 percent. If you eliminate all chance of inflation rising above target, then you are effectively making your inflation target a ceiling. A very shallow path for policy normalization is likely needed to deliver these results.

    [ October 4, 2016 ]

    I think a very shallow funds rate path, such as the one envisioned by the median FOMC participant, is appropriate and needed to support my forecasts for growth and inflation. Indeed, I think the pace of policy normalization necessary to bring inflation back up to 2 percent in a timely manner has to be shallow enough to result in the unemployment rate falling below its natural level. I should note, too, that achieving a symmetric target means having enough accommodation in place to generate a reasonable likelihood that inflation in the future could moderately exceed 2 percent. If you eliminate all chance of inflation rising above target, then you are effectively making your inflation target a ceiling. A very shallow path for policy normalization is likely needed to deliver these results.

  • Charles L. Evans I think the pace of policy normalization necessary to bring inflation back up to 2 percent in a timely manner has to be shallow enough to result in the unemployment rate falling below its natural level. I should note, too, that achieving a symmetric target means having enough accommodation in place to generate a reasonable likelihood that inflation in the future could moderately exceed 2 percent. If you eliminate all chance of inflation rising above target, then you are effectively making your inflation target a ceiling. A very shallow path for policy normalization is likely needed to deliver these results.

    [ October 4, 2016 ]

    I think a very shallow funds rate path, such as the one envisioned by the median FOMC participant, is appropriate and needed to support my forecasts for growth and inflation. Indeed, I think the pace of policy normalization necessary to bring inflation back up to 2 percent in a timely manner has to be shallow enough to result in the unemployment rate falling below its natural level. I should note, too, that achieving a symmetric target means having enough accommodation in place to generate a reasonable likelihood that inflation in the future could moderately exceed 2 percent. If you eliminate all chance of inflation rising above target, then you are effectively making your inflation target a ceiling. A very shallow path for policy normalization is likely needed to deliver these results.

  • Jeffrey Lacker Lacker, one of seven policymakers who currently do not have a vote but who participate in policy discussions, made clear on Tuesday he would have been in the camp gunning for higher rates. "I would have dissented,"

    [ October 4, 2016 ]

    Lacker, one of seven policymakers who currently do not have a vote but who participate in policy discussions, made clear on Tuesday he would have been in the camp gunning for higher rates.

    "I would have dissented," Lacker told reporters in Charleston, West Virginia where he gave a speech on the economic outlook.

  • Loretta J. Mester So I think that all meetings are live. And I would include November in that – all meetings are live. As I said in September, I thought the case was compelling to take another step on the gradual path. If the data come in as we anticipate, consistent with my forecasts over the medium run, then I would expect that the case will remain compelling.

    [ October 3, 2016 ]

    BLOOMBERG: If the outlook doesn’t change, if the reports come in strong, are you going to argue for a rate hike in November?

    MESTER: So I think that all meetings are live. And I would include November in that – all meetings are live. As I said in September, I thought the case was compelling to take another step on the gradual path. If the data come in as we anticipate, consistent with my forecasts over the medium run, then I would expect that the case will remain compelling.

    BLOOMERG: So you’ll push, and you think other FOMC members will vote for a rate hike – if called for – even six days before an election?

    MESTER: I think we’re apolitical. Politics doesn’t play into it.

  • Janet L. Yellen There could be benefits to the ability to buy either equities or corporate bonds

    [ September 29, 2016 ]

    From Reuters:

    Referring to asset purchase stimulus programs in a video conference with a minority bankers meeting in Kansas City, Yellen said: "If we found, I think as other countries did, that they could reach the limits in terms of purchasing safe assets like longer-term government bonds, it could be useful to be able to intervene directly in assets where the prices have a more direct link to spending decisions."

    She added that buying equities and corporate bonds could have costs and benefits.

    From the WSJ:

    “There could be benefits to the ability to buy either equities or corporate bonds,” she said in reply to a question from the audience. “There would also be costs as well that would have to be carefully considered in deciding whether that would be a good idea.”

  • Neel Kashkari I am agreeing with people [on the FOMC] in terms of interest rates who I shouldn’t be agreeing with, if it were up to politics.

    [ September 29, 2016 ]

    Politics does not factor at all into the Fed's decisions, Kashkari said. "I am agreeing with people in terms of interest rates who I shouldn’t be agreeing with, if it were up to politics," said Kashkari, who ran as a Republican for California governor and was an appointee to the Treasury by a Republican president.

  • Jerome H. Powell One of the clearest lessons from our most recent recession is that, when it comes to bank regulation and supervision, one size does not fit all. As we seek to promote safety and soundness and ensure consumer compliance, we increasingly tailor rules and supervisory approaches to the differing risks posed by institutions of different size and complexity.

    [ September 29, 2016 ]

    I think the key question for policymakers is whether the recent acceleration in the rate of decline in the number of small banks is primarily a structural change attributable to increasing economies of scale--or, perhaps more accurately, diseconomies of very small scale--or whether recent efforts by the FDIC and others to encourage more chartering of new banks, combined with a return to higher interest rates and stronger economic growth, will mitigate the decline in numbers. At this point, I think it is too soon to say.

    The Federal Reserve and the Conference of State Bank Supervisors began this conference three years ago in order to stimulate research on community banks, with the goal of improving our understanding of their condition and their important contributions to economic growth and prosperity. We plan to continue our own research efforts across the Federal Reserve System, as well as our efforts, through initiatives such as this conference, to encourage academics to focus their attention on community banks.

    Of course, the Federal Reserve's support for community banks goes well beyond research. One of the clearest lessons from our most recent recession is that, when it comes to bank regulation and supervision, one size does not fit all. As we seek to promote safety and soundness and ensure consumer compliance, we increasingly tailor rules and supervisory approaches to the differing risks posed by institutions of different size and complexity. This way, we can achieve our aims without creating undue regulatory burden. The Federal Reserve is committed to this approach to community bank oversight and to ensuring that new and existing regulations are not unduly burdensome for community banks.

  • Patrick Harker BLOOMBERG: As a modeler, would you get rid of the dot plot? HARKER: I’m not sure. I think it does provide value, and you need to think of lots of ways to communicate and be transparent. It does provide that. It’s really the interpretation of that particular dot plot, not for GDP or inflation, because people understand that’s our forecast. The one I worry about is the fed funds rate dot plot.

    [ September 29, 2016 ]

    BLOOMBERG: Do you think the central bank has a communications problem, particularly with Wall Street, because you have forecast a lot of interest rate moves that haven’t happened?

    HARKER: I think one of the fundamental problems we’ve had is that in the SEP – the dot plot – the path of the fed funds rate is often taken as some sort of commitment as opposed to our best guess or estimate of what will happen. And I think that’s been a communications issue, that it really isn’t saying this is exactly what we’re going to do. It’s saying given what we know today, this is our best estimate of where that will be, assuming that proper policy is followed.

    BLOOMBERG: As a modeler, would you get rid of the dot plot?

    HARKER: I’m not sure. I think it does provide value, and you need to think of lots of ways to communicate and be transparent. It does provide that. It’s really the interpretation of that particular dot plot, not for GDP or inflation, because people understand that’s our forecast. The one I worry about is the fed funds rate dot plot.

  • Dennis Lockhart “That phrase -- for the time being -- appeared in the statement suggesting, as I see it, that a change in policy could occur before long,”

    [ September 29, 2016 ]

    “That phrase -- for the time being -- appeared in the statement suggesting, as I see it, that a change in policy could occur before long,” Lockhart, who doesn’t vote on policy this year and will retire in early 2017, said Thursday in the text of a speech in Orlando, Florida. “I did support the consensus view that, before taking the next move, it makes sense to see a little more evidence of progress toward our statutory policy objectives.”

  • Esther L. George CNBC: And you still think at, so for example, a 1% funds rate, the economy would still be accommodative? The Fed would still be accommodative? GEORGE: Under my forecast it would still be accommodative and the economy can still grow.

    [ September 29, 2016 ]

    CNBC: And you still think at, so for example, a 1% funds rate, the economy would still be accommodative? The Fed would still be accommodative?

    GEORGE: Under my forecast it would still be accommodative and the economy can still grow.

  • Patrick Harker I tend to be in the camp of normalizing sooner rather than later.

    [ September 29, 2016 ]

    “I tend to be in the camp of normalizing sooner, rather than later,” he said Thursday in Dublin during an interview on Bloomberg Television with Michael McKee. He said the Fed was making progress toward its target for 2 percent inflation and “I am somewhat concerned about falling behind the curve,” he said.

    ...

    Harker, who became president of the Philadelphia Fed in July 2015 and will vote on policy next year, said that every FOMC meeting was “live” for a policy decision. “To take any meeting of the table is a mistake,” he said.

  • Patrick Harker “If things continue on the trajectory that I anticipate, December would be an appropriate time for a rate increase,”

    [ September 29, 2016 ]

    “If things continue on the trajectory that I anticipate, December would be an appropriate time for a rate increase,” Mr. Harker said. He was speaking to reporters after an address at an event hosted by the Global Interdependence Center, a U.S. think tank that promotes free trade.

  • Loretta J. Mester If we continue to delay even as we make further progress on our inflation goal and labor markets continue to tighten, we risk having to undertake a considerably steeper policy path later on. Such a strategy is inconsistent with what we have been communicating; it risks confusing the public about our policy rationale and undercutting the credibility of Fed communications. This would cause problems for future policymaking... In the face of evidence that the economy is on track to meet our goals over the medium run, sometimes being prudent means moving the policy rate up.

    [ September 28, 2016 ]

    I, and two of my FOMC colleagues, dissented from that decision [to hold rates steady], preferring to see a 25-basis-point increase in September.
    ...
    I view another small step on the gradual upward path as appropriate, not because I want to curtail the expansion, but because I believe gradually moving rates up as we continue to make progress on our goals will help prolong the expansion. It is also consistent with the policy communications we have been issuing for quite a while. I note that the gradual path I’m anticipating means that policy will remain accommodative for some time, continuing to lend support to the economic expansion going forward. The gradual path will also allow us to recalibrate policy over time as we gain more insights into the underlying structural aspects of the post-crisis economy.

    Now, one can always say it’s better to wait for more information before making a move, and a cautious approach has served us well so far during the expansion. But there are also risks to delaying for too long. If we continue to delay even as we make further progress on our inflation goal and labor markets continue to tighten, we risk having to undertake a considerably steeper policy path later on. Such a strategy is inconsistent with what we have been communicating; it risks confusing the public about our policy rationale and undercutting the credibility of Fed communications. This would cause problems for future policymaking. In addition, if we delay too long and then find ourselves in a situation where the labor market becomes unsustainably tight, price pressures become excessive, and we have to move rates up steeply, we could risk a recession, a bad outcome that history tells us disproportionately harms the more vulnerable parts of our society. I think we also have to recognize that if we fail to exit gracefully from the nontraditional policy actions we took in the aftermath of the crisis — actions I thought were necessary and effective — we could jeopardize their use in the future, should the need arise again.

    For these reasons, I favor taking the next step on the gradual path of rising interest rates. The lesson that policy should be forward looking is based on the history of poor outcomes when that strategy hasn’t been followed. In the face of evidence that the economy is on track to meet our goals over the medium run, sometimes being prudent means moving the policy rate up.

  • Janet L. Yellen The majority [of FOMC members say] that they would see it as appropriate to make a move to [tighten] this year if things continue on the current path and no significant new risks arise.

    [ September 28, 2016 ]

    While 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.

  • Stanley Fischer I don’t like [ultra-low rates]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.

    [ September 27, 2016 ]

    “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.”

  • Robert S. Kaplan I would have been comfortable in seeing some removal of accommodation in September... [While there aren’t signs the U.S. economy is overheating], I am concerned about distortions rates this low are creating.

    [ September 26, 2016 ]

    “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.

  • Daniel K. Tarullo One 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.

    [ September 26, 2016 ]

    One 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.