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Recent FedSpeak Highlights

  • John Williams I’m definitely not one of those who thinks we should wait until we see inflation get to 2 percent before we raise rates. I think that would put us significantly behind the curve.

    [ August 11, 2016 ]

    WP: How does [your economic outlook] translate into the appropriate path for monetary policy?

    WILLIAMS: Based on where we are relative to goals, we still need to be accommodative. I still want to see the good, strong labor market continue. I still want to see inflation moving back up to 2 percent. I do want to see monetary policy still having the foot on the gas, not on the brakes.

    But we need to continue to execute on the basic strategy that we’ve laid out over the past couple of years, and that’s a gradual path of removing accommodation, taking our foot very gradually off the gas. We’re not getting anywhere close to the brakes here, and I think we can do that in an orderly, systematic way based on the flow of data.

    WP: So, just cutting to the chase here, does that gradual path of rate increases include any this year, in your view?

    WILLIAMS: In my view, it does. We’ve been adding enormous policy accommodation over the past several years. As the economy gets closer to its goals, we can again pull our foot off the gas a bit and hopefully execute a nice, soft landing over the next couple of years.
    ...
    We want to continue with a gradual path of increases. I don’t think that would interfere in any way with our growth continuing. That would not in any way stall the economy. I just think that would be consistent with the positive developments we’ve seen.

    In terms of my own view of whether a rate hike makes sense at the upcoming meetings, it would really be based on how are we doing on our dual mandate goals. I don’t necessarily need to see signs that the labor market is continuing to roar ahead and unemployment continuing to plummet. I just need to see a labor market that is at, or even better than, a normal measure of full employment. On the inflation data, I’m just looking for confirmation that the data are continuing to show the inflationary trends are consistent with the outlook that I’ve written down.

    I’m definitely not one of those who thinks we should wait until we see inflation get to 2 percent before we raise rates. I think that would put us significantly behind the curve. People say, "What are you worried about? Why not raise rates then?" I think then we would have to raise rates relatively quickly, and I think that abrupt shift in policy could be disruptive.

  • Charles L. Evans “We ought to get to a point where the probability that inflation is above 2 percent is somewhat higher than the probability that we are going to continue to under-run it.”

    [ August 3, 2016 ]

    “We ought to get to a point where the probability that inflation is above 2 percent is somewhat higher than the probability that we are going to continue to under-run it,” the Chicago Fed chief said. “One way to do that is if we sort of go through 2 percent a bit -- I would say we can do that in a controlled fashion.”

  • Dennis Lockhart We’ve said many times as members of the FOMC- and I remember Chairman Bernanke making this point several times- it would be best if monetary policy had a fiscal partner. It would be best if everyone were rolling in the same direction.

    [ August 2, 2016 ]

    We’ve said many times as members of the FOMC- and I remember Chairman Bernanke making this point several times- it would be best if monetary policy had a fiscal partner. It would be best if everyone were rolling in the same direction.

  • Robert S. Kaplan I have been suggesting that removal of accommodation should be done in a gradual and patient manner, based on a realistic assessment of progress toward achieving the Federal Reserve’s dual-mandate objectives regarding full employment and price stability.

    [ August 2, 2016 ]

    I am closely monitoring how slowing growth, high levels of overcapacity and high levels of debt to GDP in major economies outside the U.S. might be impacting economic conditions in the U.S. I am also closely tracking how these issues might be affecting the slope of the U.S. Treasury yield curve as well as measures of tightness in financial conditions.

    In light of these challenges, I have been suggesting that removal of accommodation should be done in a gradual and patient manner, based on a realistic assessment of progress toward achieving the Federal Reserve’s dual-mandate objectives regarding full employment and price stability. I am also very cognizant that, from a risk-management point of view, our monetary policies have an asymmetrical impact at or near the zero lower bound.

  • Robert S. Kaplan For the past eight years, advanced economies have relied heavily on monetary policy and much less on fiscal policy or structural reforms. However, at this stage, if we are going to generate higher sustainable rates of GDP growth and address key secular issues, there needs to be policy action beyond monetary policy.

    [ August 2, 2016 ]

    I am strongly persuaded by arguments that aging demographics in advanced economies, slower 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 implement 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.
    ...
    In light of the decline in the neutral rate, using monetary policy to help manage the economy has become more challenging.

    Monetary policy has a key role to play in economic policy. However, at or near the zero lower bound, it may be less effective than other tools of economic policy. Monetary policy is not designed, by itself, to address the key structural issues we face today stemming from demographic changes, lower rates of productivity growth and high levels of debt to GDP as well as dislocations created by globalization and increasing rates of economic disruption.

    For the past eight years, advanced economies have relied heavily on monetary policy and much less on fiscal policy or structural reforms. However, at this stage, if we are going to generate higher sustainable rates of GDP growth and address key secular issues, there needs to be policy action beyond monetary policy.

  • Robert S. Kaplan "September is very much on the table but I think we’ll have to see how events unfold and so it’s too soon to jump to a conclusion,"

    [ August 1, 2016 ]

    "September is very much on the table but I think we’ll have to see how events unfold and so it’s too soon to jump to a conclusion," Kaplan said. "We still believe the consumer will be strong in 2016, but it makes us also be very watchful for the next number of data releases to see what trend we’re on."

  • William C. Dudley There is a lot as well that is outside the Fed’s purview [following the 2007 financial crisis] that could have been done to make the U.S. economy perform better. This includes tax reform, job retraining programs and infrastructure investment.

    [ July 31, 2016 ]

    There is a lot as well that is outside the Fed’s purview [following the 2007 financial crisis] that could have been done to make the U.S. economy perform better. This includes tax reform, job retraining programs and infrastructure investment.

    Could things have been done differently in the U.S. in such a way that would have led to better outcomes? Absolutely. With the benefit of hindsight, we could have and should have been even more aggressive on the monetary policy side. While we made progress with some of the innovations on monetary policy that we eventually introduced—such as the open-ended purchase of $85 billion of Treasury and MBS securities per month—it would have been better if we had done this sooner.

    There is a lot as well that is outside the Fed’s purview that could have been done to make the U.S. economy perform better. This includes tax reform, job retraining programs and infrastructure investment.

    So, what can we do to bolster global growth in the future? The first is to undertake the necessary structural reforms to make our economies more efficient. Productivity growth is not preordained. The steps we take as countries to eliminate and lessen bottlenecks and improve our human and physical capital are important. The second is to ensure that our financial systems are well-functioning. Tremendous progress has been made globally in implementing higher capital and liquidity standards post-crisis. But we still see some important banking systems impaired by bad loans, low profitability and inadequate capital.

  • William C. Dudley I think it is premature to rule out further monetary policy tightening this year.

    [ July 31, 2016 ]

    I 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.

  • 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.”

    [ July 29, 2016 ]

    “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.”

  • Narayana Kocherlakota 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 ]

    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.

  • James Bullard Generally speaking, however, size restrictions seem arbitrary. Why should a particular bank size be risky and another size not be risky?

    [ July 18, 2016 ]

    I 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.

  • Neel Kashkari "The real risk is that we undershoot."

    [ July 15, 2016 ]

    "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."

  • Dennis Lockhart 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."

    [ July 15, 2016 ]

    Though 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.

  • 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.”

    [ July 14, 2016 ]

    “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.

  • Esther L. George "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 ]

    [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.”

  • Dennis Lockhart 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.
    ...
    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 ]

    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.
    ...
    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.

  • Patrick Harker 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 ]

    Considering 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.

  • Robert S. Kaplan 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.

    [ July 13, 2016 ]

    Evan 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.

  • James Bullard 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 ]

    He 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.”

  • Loretta J. Mester I rely more on the survey measures than I do of the market expectation-derived measures.

    [ July 7, 2016 ]

    I 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.