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Recent FedSpeak Highlights

  • William C. Dudley I’ve never really been that concerned about the inflation outlook, as long as the economic growth materialized and that put pressure on the excess labor resources... I felt that as long as we got the economic growth, and that used up the excess slack we had in the labor market, the inflation problem would take care of itself. And I think that’s the trajectory that we’re on.

    [ October 14, 2016 ]

    I’ve never really been that concerned about the inflation outlook, as long as the economic growth materialized and that put pressure on the excess labor resources. So my focus has always been on the growth side. I didn’t feel that inflation was dramatically below our objective, when you look at core inflation. I also felt that—I’ve felt for a long time that inflation expectations were quite well-anchored in the U.S., which is quite different than the case of other regions, such as Japan and to a lesser degree Europe.

    So I felt that as long as we got the economic growth, and that used up the excess slack we had in the labor market, the inflation problem would take care of itself. And I think that’s the trajectory that we’re on.

  • William C. Dudley I expect that we’re going to be raising interest rates relatively soon... I would expect this year.

    [ October 14, 2016 ]

    DUDLEY: If the economy continues to evolve along the path that we expect, I expect that we’re going to be raising interest rates relatively soon.

    WSJ: What does “relatively soon” mean?

    DUDLEY: I would expect this year.

    ...

    DUDLEY:  As the chair has said, I mean, [November] is a live meeting. So I’m going to repeat that. But at the same time, as I just said a little bit earlier, there isn’t this tremendous urgency to act on monetary policy right now. There’s not that—it’s not like if we wait a meeting or don’t wait a meeting that it has huge consequences for the trajectory of the economy. And I’ll leave it at that.

    ...

    DUDLEY:  It’s not for me to say whether markets are too hung up [on the prospect of a rate hike].  I mean, I suppose if I was an investor I might be hung up on it too. But I think that, you know, we’re here to generate as good outcomes as we can for Americans broadly in terms of employment and inflation. We’re not here to satisfy market participants. That’s really not what our goal of policy is. So I think it’s important to recognize that, you know, if we move or we don’t move in a particular meeting, we’re not talking about this huge, you know, cataclysmic event.

  • Janet L. Yellen The natural ... question is to ask whether it might be possible to reverse these adverse supply-side effects by temporarily running a "high-pressure economy," with robust aggregate demand and a tight labor market.

    [ October 14, 2016 ]

    If we assume that hysteresis is in fact present to some degree after deep recessions, the natural next question is to ask whether it might be possible to reverse these adverse supply-side effects by temporarily running a "high-pressure economy," with robust aggregate demand and a tight labor market.

  • Eric Rosengren If one were concerned about the historically low 10-year Treasury and commercial real estate capitalization rates, perhaps because of potential financial stability concerns, the balance sheet composition could be adjusted to steepen the yield curve.

    [ October 14, 2016 ]

    Overall, anomalies in this recovery are leaving an imprint on only some financial asset classes. Price to earnings ratios for stocks and price to rent for residential real estate are only somewhat elevated and are well below previous peaks in these series. In contrast, 10-year Treasury rates and commercial real estate capitalization rates are unusually low relative to the past. Figure 13 shows that the duration of the Federal Reserve System Open Market Account (SOMA) holdings rose as asset-purchase programs increased the holdings of longer-term Treasury and agency mortgage-backed securities. More recently, there has been some decline in the duration of the Federal Reserve’s portfolio as the previously purchased, longer-term securities holdings continued to age. However, if one were concerned about the historically low 10-year Treasury and commercial real estate capitalization rates, perhaps because of potential financial stability concerns, the balance sheet composition could be adjusted to steepen the yield curve.

  • Eric Rosengren At this point, I'm as concerned about overshooting on what is a sustainable unemployment rate. And at that point, I have to be concerned about whether if we did overshoot significantly on the unemployment rate, whether we would end up tightening much faster and possibly shortening the recovery.

    [ October 14, 2016 ]

    CNBC: I think this is a great opportunity for you to walk us through why you dissented [at the September meeting]. You went away from the majority of the committee. What were you thinking?

    ROSENGREN: My views haven't changed. What's changed is the economic conditions. So when we have an unemployment rate that is around 10%, we should be very aggressive in our monetary stimulus. When we have conditions like we have right now, which is we're very close to full employment, unemployment rate currently is at 5%, and core inflation is 1.7%. It's relatively close to 2%. Still below our 2% target. Those conditions are very different. At this point, I'm as concerned about overshooting on what is a sustainable unemployment rate. And at that point, I have to be concerned about whether if we did overshoot significantly on the unemployment rate, whether we would end up tightening much faster and possibly shortening the recovery.

  • Patrick Harker It may be that our toolbox is getting duller: Recent studies have found that monetary policy’s efficacy has been waning since the mid-1980s, and that this can be linked to the aging of the population.

    [ October 13, 2016 ]

    A lower natural funds rate has implications for the speed at which current monetary policy should normalize. The lower the natural funds rate, the closer the current funds rate will be to that level, which means policy will have a shorter distance to travel to full normalization. That’s important because it gives us less room to maneuver. Monetary policy is a relatively blunt tool; a smaller window for operation is more appropriate for a scalpel.

    And it may be that our toolbox is getting duller: Recent studies have found that monetary policy’s efficacy has been waning since the mid-1980s, and that this can be linked to the aging of the population. Given our demographic realities, this puts even more pressure on fiscal and other policies to take a long-term look at policies that can nurture growth.

  • Patrick Harker “What I’m worried about is, depending on the outcome of the election and what happens after that, if there are policies that would have distortive effects that we would have to respond to.”

    [ October 13, 2016 ]

    “What I’m worried about is, depending on the outcome of the election and what happens after that, if there are policies that would have distortive effects that we would have to respond to,” he told reporters Thursday after giving a speech in Philadelphia. In that case, “it may be prudent -- and I emphasize may be prudent -- to wait until we resolve some of that uncertainty,” he said.
    ...
    “I do think sooner rather than later is appropriate,” he said. “I don’t think that we should take any meeting off of the table, but I am worried about some of the risks that we face.”

  • William C. Dudley I think we can be quite gentle as we go in terms of gradually removing monetary policy accommodation.

    [ October 12, 2016 ]

    "We’re at a point where the economic expansion has plenty of room to run. Inflation’s a little bit below our target, rather than above our target,” Dudley said. “So, I think we can be quite gentle as we go in terms of gradually removing monetary policy accommodation.”

    ...

    “You certainly want to go as far as you can,” Dudley told the Business Council of New York State on Wednesday in Albany, New York. “You don’t want to keep people unemployed just because you think you’re already at the full employment rate."

  • Charles L. Evans Some are still focused on the risk that Fed policy will overstimulate the economy, pushing inflation above our 2 percent target in a way that would require a sharply restraining policy response. But I would say that such fears currently are exaggerated and are a bit like the problem of generals fighting the last war. Today, looking at experiences from around the world, I think the bigger risk is that inflation in the U.S. will not get back to our symmetric 2 percent objective within an acceptable period of time.

    [ October 10, 2016 ]

    Some are still focused on the risk that Fed policy will overstimulate the economy, pushing inflation above our 2 percent target in a way that would require a sharply restraining policy response. But I would say that such fears currently are exaggerated and are a bit like the problem of generals fighting the last war. Today, looking at experiences from around the world, I think the bigger risk is that inflation in the U.S. will not get back to our symmetric 2 percent objective within an acceptable period of time.

    Much of my perspective derives from how I view the symmetry of our inflation target. I would say that the FOMC has been challenged to describe what is meant by symmetry for our 2 percent inflation objective. I typically point out that a successful symmetric approach would have inflation average 2 percent over long stretches of time. In order to average 2 percent, some time will be spent above 2 percent and some time will be spent below 2 percent.

    So, in the current situation, after many years of very low inflation, one has to ask, Would overshooting 2 percent be a failure or a virtue?

    Current SEP forecasts from FOMC participants have inflation rising to 2 percent without overshooting our target level. I call this threading the needle to get to 2 percent. This might be consistent with a symmetric approach to inflation. But that can’t really be known with much certainty until sometime in the future when inflation is shocked above 2 percent. At that juncture, we would be able to see whether or not the FOMC responds by similarly trying to thread the needle with a shallow decline in inflation back down to 2 percent.

    Given what I see today, I am skeptical that the public believes a future FOMC would act in such a manner. Indeed, when I say in speeches or panel discussions that the FOMC has a symmetric inflation target, I am often greeted with skepticism. To ensure more public confidence that the Fed’s inflation objective is indeed symmetric, we need to provide a substantial and credible example of symmetric behavior with regard to our inflation target. And we need to do it sooner rather than later.

  • Stanley Fischer Given that generally positive view of the economic outlook, one might ask, why did we not raise the federal funds rate at our September meeting? Our decision was a close call, and leaving the target range for the federal funds rate unchanged did not reflect a lack of confidence in the economy.

    [ October 9, 2016 ]

    Given that generally positive view of the economic outlook, one might ask, why did we not raise the federal funds rate at our September meeting? Our decision was a close call, and leaving the target range for the federal funds rate unchanged did not reflect a lack of confidence in the economy. Conditions in the labor market are strengthening, and we expect that to continue. And while inflation remains low, we expect it to rise to our 2 percent objective over time. But with labor market slack being taken up at a somewhat slower pace than in previous years, scope for some further improvement in the labor market remaining, and inflation continuing to run below our 2 percent target, we chose to wait for further evidence of continued progress toward our objectives.

    As we noted in our statement, we continue to expect that the evolution of the economy will warrant some gradual increases in the federal funds rate over time to achieve and maintain our objectives. That assessment is based on our view that the neutral nominal federal funds rate--that is, the interest rate that is neither expansionary nor contractionary and keeps the economy operating on an even keel--is currently low by historical standards. With the federal funds rate modestly below the neutral rate, the current stance of monetary policy should be viewed as modestly accommodative, which is appropriate to foster further progress toward our objectives. But since monetary policy is only modestly accommodative, there appears little risk of falling behind the curve in the near future, and gradual increases in the federal funds rate will likely be sufficient to get monetary policy to a neutral stance over the next few years.

  • Loretta J. Mester Unfortunately, referring to policy as “data-dependent” could be giving the wrong impression that policy is driven by short-run movements in a couple of different data reports. It may even suggest that policy-setting is unsystematic in that the salient data reports may be viewed as changing from meeting to meeting. We seem to find ourselves in a situation where market participants and commentators view any one monthly or quarterly data release as the definitive piece of evidence that will result in either a policy action or no action.

    [ October 7, 2016 ]

    Recently, the FOMC has been describing its policymaking approach as being “data dependent.” Unfortunately, I believe there is some confusion about what the Fed actually means by “data dependent.” This phrase has provided a transition from a period of explicit forward guidance, which was used as a policy tool during the recession and early in the recovery, back to more normal policymaking times. But this transition has posed somewhat of a challenge for FOMC communications. After the Great Inflation of the 1970s, the FOMC became more predictable and systematic in how it reacted to changes in economic activity and inflation. So the public had a pretty good sense of the Fed’s so-called reaction function and explicit forward guidance was rarely used. But the Great Recession required the Fed to behave in a way quite distinct from its past behavior, and consequently, there is less understanding today about how policymakers are likely to react to incoming economic information. Another factor complicating communication is that market participants prefer more explicit statements and less uncertainty. Thus, they may interpret the forecasts of the economy and the appropriate policy path as having more certitude than they actually do, which creates some communications issues when the forecasts and policy path change.

    The concept of “data dependence” was meant to reinforce the idea that the economy is dynamic and will be hit by economic disturbances that can’t be known in advance. Some shocks will result in an accumulation of economic information that changes the medium-run outlook for the economy and the risks around the outlook in a way to which monetary policy will want to respond. But some of these shocks will not materially change the outlook or policymakers’ view of appropriate policy. Unfortunately, referring to policy as “data-dependent” could be giving the wrong impression that policy is driven by short-run movements in a couple of different data reports. It may even suggest that policy-setting is unsystematic in that the salient data reports may be viewed as changing from meeting to meeting. We seem to find ourselves in a situation where market participants and commentators view any one monthly or quarterly data release as the definitive piece of evidence that will result in either a policy action or no action.

  • 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.