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  • William C. DudleyI think it is premature to rule out further monetary policy tightening this year. As I said before, it depends on the data, broadly defined, and, as we all know, that is not something one can predict with any accuracy.

    [ July 31, 2016 ]
  • John Williams“There’s definitely a data stream that could come through in the next couple of months that I think would be supportive of two rate increases,” Williams told reporters Friday after speaking in Cambridge, Massachusetts. “There’s data that we could get that wouldn’t be supportive of that -- it could be one, maybe, or none. Time will tell.”
    “It makes sense to continue on the process of the gradual removal of accommodation -- my personal view is it makes sense, assuming the data will support that, to raise rates again this year, but it is data-dependent,” Williams said. “We’ll get a couple more employment reports, more data on inflation before our next meeting.”

    [ July 29, 2016 ]
  • Narayana Kocherlakota Back in December 2015, when the Fed increased rates for the first time in seven years, it seemed to have a framework in place: Although it did say that the exact pace of further increases would depend on the incoming economic data, it clearly indicated that it intended to raise rates by a quarter percentage point about every three months for the next three years. Now, that guidance seems obsolete: As of Wednesday, the Fed will have raised rates exactly zero times since December.

    So what's the framework now?
    My forecast is that the Fed will remain reluctant to raise rates until inflationary pressures are much stronger, at which point it will feel compelled to move at a faster pace than four times per year. This is similar to Chicago Fed President Charles Evans’s suggestion that the central bank should wait to raise rates until core inflation reaches 2 percent. If prices start rising at that rate, the Fed will be right to put a lot more weight on inflationary concerns than on downside risks.

    That said, I don’t have any inside knowledge of what the Fed's policy makers are thinking. They'll have to engage in some collective soul-searching over the next couple days, and figure out what one or two factors have been most critical in shaping their decisions so far this year. Then Yellen can use her Jackson Hole speech to explain what those factors are, and how they will guide policy over the next six months. That would be a lot more useful than providing yet another forecast path of interest rates -- one that that is almost sure to be wrong.

    [ July 25, 2016 ]
  • James BullardI have been an advocate of a system with smaller financial institutions which can be allowed to fail, if necessary. Generally speaking, however, size restrictions seem arbitrary. Why should a particular bank size be risky and another size not be risky? In addition, recent evidence suggests that substantial economies of scale exist, perhaps even for the largest financial institutions. Furthermore, the primary concern could be that complexity or interconnectedness is the trigger toward financial fragility rather than size itself.

    [ July 18, 2016 ]
  • Neel Kashkari"The real risk is that we undershoot," Kashkari added. "Recent inflation data is at least creeping in the right direction so we hopefully won't have to deal with that."

    [ July 15, 2016 ]
  • Dennis LockhartThough Fed officials often speak of headwinds holding back the economy, Lockhart said he has become increasingly worried about longer-lasting structural problems that have left the Fed and other central banks in the position of "adapting to realities we cannot influence."

    The list of those "realities" has grown long, as Lockhart elaborated in an interview on the sidelines of the Global Interdependence Center's Rocky Mountain Economic Summit in Victor, Idaho.

    [ July 15, 2016 ]
  • Robert S. Kaplan“Rates this low create distortions,” Mr. Kaplan said. “My fear is there are distortions you can see and distortions you can only see after the fact.” Still, Mr. Kaplan said interest rates should be raised gradually. “We should be looking toward removing accommodation. We just should be doing it in a gradual way,” he said.

    [ July 14, 2016 ]
  • Esther L. George[George] repeated her view that moderate U.S. growth and progress toward the central bank’s twin goals of maximum employment and price stability warranted a hike.

    “It is important to move gradually as we go through this normalization process,” she said. “But I continue to think that the current level of interest rates today is too low relative to the performance of the economy.”

    [ July 14, 2016 ]
  • Dennis LockhartIf uncertainty is a real causative factor in economic slowdowns, it needs to be better understood. Policymaking would be aided by better measurement tools. For example, it would help me as a policymaker if we had a firmer grip on the various channels through which uncertainty affects decision-making of economic actors.
    Taking a long view, policymaking may have to adapt to an altered environment. To avoid letting uncertainty become a nebulous rationale for repeated inaction, refinements to how we measure uncertainty and how we gauge its effects are to be encouraged. Economists have useful work under way on the problem. I look forward to more and better tools.

    I viewed both the implications of the June jobs report and the outcome of the Brexit vote as uncertainties with some resolution over a short time horizon. We’ve seen, now, that the vote outcome may be followed by a long tail of uncertainty of quite a different character.
    If uncertainty is a real causative factor in economic slowdowns, it needs to be better understood. Policymaking would be aided by better measurement tools. For example, it would help me as a policymaker if we had a firmer grip on the various channels through which uncertainty affects decision-making of economic actors.

    I have been thinking about the different kinds of uncertainty we face. Often we policymakers grapple with uncertainty associated with discrete events. The passage of the event to a great extent resolves the uncertainty. The outcome of the Brexit referendum would be known by June 24. The interpretation of the May employment report would come clear, or clearer, with the arrival of the June employment report on July 8. I would contrast these examples of short-term, self-resolving uncertainty with long-term, persistent, chronic uncertainty such as that brought on by the Brexit referendum outcome.

    Measuring uncertainty is quite difficult, as you would expect. We have some tools, but they are imperfect. There are uncertainty indexes. We also have survey data. At the Federal Reserve Bank of Atlanta, in partnership with the University of Chicago and Stanford University, we conduct large-sample surveys of business leaders to gauge how they assess the risks they face and how these risks inform their decisions. In a post-Brexit survey a few days ago, roughly one-third of the businesses we surveyed indicated that the result of the referendum made their sales outlook more uncertain. They indicated they would be more cautious in hiring and capital spending decisions as a result of Brexit. We had a spirited internal discussion of whether one-third is a big number or not-so-big.

    Taking a long view, policymaking may have to adapt to an altered environment. To avoid letting uncertainty become a nebulous rationale for repeated inaction, refinements to how we measure uncertainty and how we gauge its effects are to be encouraged. Economists have useful work under way on the problem. I look forward to more and better tools.

    [ July 14, 2016 ]
  • Patrick HarkerConsidering the [Philadelphia Fed’s] economic projections, I anticipate that it may be appropriate for up to two additional rate hikes this year and that the funds rate will approach 3.0 percent by the end of 2018.

    [ July 13, 2016 ]
  • Robert S. KaplanEvan Koenig and Alan Armen at the Dallas Fed use movements in slack to help identify the neutral real rate. They focus on shorter-run r* and, rather than make r* a direct function of growth in potential output, Koenig and Armen draw on signals from the financial markets and changes in household wealth. They argue that wealth growth and long-term yields do a good job of picking up changes in growth prospects and capture movements in other r* determinants.

    The Koenig–Armen model says that the short-run neutral real rate was negative 1.3 percent in the first quarter of 2016, about 1.5 percentage points below the latest Laubach–Williams estimate of the longer-run rate and only 15 basis points above the actual real rate. Policy was only modestly accommodative last quarter, according to Koenig–Armen.

    While these approaches yield different estimates of the neutral real rate, they each indicate that there has been a significant decline over the past several years.

    I am strongly persuaded by arguments that aging demographics in advanced economies, a decline in productivity growth and the continued emergence of the U.S. as a source of safe assets have all contributed to the decline in the neutral rate. I also believe that high levels of debt to GDP in advanced economies and higher levels of political polarization have, at a minimum, limited the capacity of these countries to use fiscal policy and structural reforms that could have stimulated higher rates of growth. This situation has, in turn, caused the neutral rate to be lower than it would be otherwise.

    [ July 13, 2016 ]
  • James BullardHe then described how the St. Louis Fed’s new narrative differs from the previous one. “In the new narrative, the concept of a single, long-run steady state is abandoned. Instead, there is a set of possible regimes that the economy may visit,” he said. Bullard added that regimes are considered persistent and that switches between regimes, while possible, are not forecastable. In terms of monetary policy under this new narrative, the implication is that “the policy rate would likely remain essentially flat over the forecast horizon to remain consistent with the current regime.”

    Bullard noted that the new approach delivers a simple forecast of U.S. macroeconomic outcomes over the next two and a half years. He indicated that the St. Louis Fed’s forecast is for real gross domestic product (GDP) growth of 2 percent, an unemployment rate of 4.7 percent and a Dallas Fed trimmed-mean personal consumption expenditures (PCE) inflation rate of 2 percent.

    A regime-dependent policy rate path of 0.63 percent over the forecast horizon supports these forecasts for output, unemployment and inflation, he said, adding that “risks associated with this projected policy rate are likely to the upside.”

    [ July 12, 2016 ]
  • Loretta J. MesterI rely more on the survey measures than I do of the market expectation-derived measures, just because we’re in a period of a lot of volatility, so I think it’s harder to infer inflation expectations.

    [ July 7, 2016 ]
  • Daniel K. TarulloMR. HILSENRATH: So let’s talk about the U.S. backdrop and let’s talk about monetary policy. That and regulatory policy are the two things that a lot of people are hearing discussed. The Fed raised short-term interest rates in December. We’ve been talking all year about when you’re going to do it again, and keep waiting. What are you going to need to see in this economy, and in the financial system for that matter, to get to a point of comfort to raise interest rates again?

    MR. TARULLO: But I think my—I think it’s useful to give a little context here. I don’t think of this as a normalization process. You know, people sometimes write about it, talk about it, using the term “normalize” or “normalization.” And I don’t believe that there’s some target that the Federal Reserve should be moving towards. What the right level of interest rates is depends upon the manifold factors that are affecting the economy in the short term and over the longer term. So, for me, it is a judgment as to how—taking a pragmatic look at things, how we can best pursue the dual aims of maximum employment and price stability.
    For some time now, I have thought that it was the better course to wait to see more convincing evidence that inflation is moving towards and would remain around the 2% target.

    [ July 6, 2016 ]
  • Daniel K. Tarullo"I think we’re going to continue to pay attention to funding because when it comes right down to it, funding, and the runnability of funding, is core to financial stability, the potential for runs and panics throughout the economy. And, you know, through our annual comprehensive liquidity assessment exercises we’re going to be paying more attention there. So there will be more—there will be more changes."

    [ July 6, 2016 ]
  • John WilliamsWilliams said U.S. monetary policy is currently cautious, and if growth persists despite global risks, that stance needs to change.

    “If the data come in strong, or come in consistent with my outlook, that would argue to step away somewhat from that more cautious approach,” Williams said. “Being cautious forever would just lead us to need to raise rates much more aggressively in the future, and I think that could have some potentially negative consequences.”

    [ July 5, 2016 ]
  • William C. DudleyIf it’s confined just to the United Kingdom, [the effects of the Brexit vote are] pretty small. But if there is broad contagion through financial markets, if it leads to greater questions about the stability of the European Union, then it could have more significant consequences.

    [ July 5, 2016 ]
  • Loretta J. MesterSo why, then, did I think it appropriate not to raise rates in June? The reason was timing. There was considerable uncertainty about the outcome of the upcoming U.K. referendum on membership in the European Union. The vote was being held a week after the June FOMC meeting. It was clear there was going to be volatility in financial markets surrounding the vote. If the vote favored exit, there was the potential for disruption in markets. Given that I do not think U.S. monetary policy is behind the curve yet, I saw little cost in waiting to take the next step.

    [ July 1, 2016 ]
  • Stanley FischerFISCHER: Well, one of the things you learn if you're a central banker is never say never. But if there is one thing we don't want to do, it's that.  We have no plans to move into negative territory and we will try to avoid ever getting to that position.

    EISEN: Do you see it as a policy that doesn't work?

    FISCHER: There have been some doubts about what's been happening lately. It's certainly worked – well, it's certainly worked early in its usage in Europe and in Japan, but lately, there have been some questions about it and we are appraising the most recent empirical results that come out of the data and we haven't changed our minds as far as I know, but we certainly look at it all the time.

    EISEN: What else is in the tool kit then that would be more preferable to negative interest rates?

    FISCHER: Well, I mean, there's a whole host of things that we did in the years 2009 through 2014. Purchasing securities, quantitative easing, making statements, decisions about future interest rates, forward guidance, and so forth, so they're all there. They worked. And I don't think it's worth speculating on whether we are going to be driven to any of that. I hope it goes the other way. I hope that we strengthen and that the economy strengthens and that we continue along the slow, very gradual path we've been on and that the rest of the world is recovering in such a way that that wouldn't create negative reflex effects on us that would have to be taken very, very seriously into account. But we'll watch all that.

    [ July 1, 2016 ]
  • James Bullard“The verdict so far is that Brexit will not have a big impact on the U.S., possibly zero,” Bullard said in a Bloomberg Television interview Friday with Francine Lacqua and Tom Keene. “There is some flight to the dollar, the dollar is a little bit stronger, but not enough to really have a big impact. Yields are lower. That’s usually considered a bullish factor for the U.S. Those two probably offset so you get to zero.”

    [ July 1, 2016 ]