wricaplogo

Keyword Search

RETURN

Categories

Recent FedSpeak Highlights

  • John Williams "We do want to run a hot economy for a while (but) we don’t want it to be too hot for too long."

    [ November 9, 2016 ]

    "It makes sense, I would say, to ease off on the gas a bit," Williams said. "We do want to run a hot economy for a while (but) we don’t want it to be too hot for too long."

  • Charles L. Evans “I am worried that inflation expectations have been moving down in a way that’s not consistent with 2 percent.”

    [ November 8, 2016 ]

    “We’ve finally gotten core PCE inflation of 1.7 percent,” he told the Council on Foreign Relations in New York Tuesday. “We’re close, we’re getting there, and if I had even more confidence about getting to 2 percent I’d feel better about monetary policy re-normalization. We’ll see how that goes.”
    ...
    Evans, who will vote on the FOMC next year, said there were reasons to “have not quite as much confidence that we’re going to get to 2 percent and we’re going to get there quickly,” chief of which was expectations.

    “I am worried that inflation expectations have been moving down in a way that’s not consistent with 2 percent,” he said. The way to change that was to assure the public the Fed would meet its goal and “in order to do that, we’re not going to pull back too quickly,” he said.

    “I’m probably the only FOMC participant who uses the word ‘overshooting’ in their speeches for inflation,” Evans said. “I don’t think it’s a crime if we were to overshoot.”

  • Robert S. Kaplan I don’t see the economy running away from us because of [broader] secular forces. I think we have to understand that near the zero lower bound that it’s a lot easier to tighten than to ease. So I think that means we should be patient. I don’t know if that means that we should let the economy run too hot, but I think in terms of the balance of risks, we can afford to be patient. But even within that, I think it would be wise to remove some accommodation, because of the distortions that rates this low – this high a level of accommodation – can have on savers, asset allocation, business decisions, and some of those imbalances and distortions can be tough to unwind and are a lot easier to recognize in hindsight.

    [ November 4, 2016 ]

    BLOOMBERG: What do you think of the idea of a high-pressure economy that Janet Yellen raised as a theoretical idea – letting inflation overshoot for a little while? Are you willing to do that?

    KAPLAN: I’d put it a little differently. I think we can afford to be patient – I don’t see the economy running away from us because of [broader] secular forces. I think we have to understand that near the zero lower bound that it’s a lot easier to tighten than to ease. So I think that means we should be patient. I don’t know if that means that we should let the economy run too hot, but I think in terms of the balance of risks, we can afford to be patient. But even within that, I think it would be wise to remove some accommodation, because of the distortions that rates this low – this high a level of accommodation – can have on savers, asset allocation, business decisions, and some of those imbalances and distortions can be tough to unwind and are a lot easier to recognize in hindsight.

  • Dennis Lockhart I do not see rates marching higher for an extended period in a preprogrammed tightening campaign. The economy does not call for that, at least not at this time.

    [ November 4, 2016 ]

    I anticipate a very gradually rising interest rate environment over the next two years. At the same time, I do not see rates marching higher for an extended period in a preprogrammed tightening campaign. The economy does not call for that, at least not at this time. Rate decisions will continue to be data-dependent and, therefore, meeting-to-meeting, in my view.

  • Patrick Harker I do think the market is possibly underestimating the rate of normalization, but we’ll see, right?

    [ October 26, 2016 ]

    WSJ: What do you think the dynamic is between financial markets and the Fed right now? Is it – is it a healthy dynamic? Or is there – is there a problem?

    HARKER: I don’t think there’s a problem. I do think the market is possibly underestimating the rate of normalization, but we’ll see, right?

    And part of the challenge is, when it comes to communication, the dot plots are all forecasts, but people take the path of the Fed funds rate as a policy statement, not as a forecast. And we have not made that clear, right? We’re asked to forecast what we think the Fed funds rate will be. That’s a different question than saying, you know, what will the Fed funds rate be? And so that one dot plot I think causes us some problems when it comes to communication.

  • John Williams If things continue to do as I expect with core inflation moving up further next year and overall inflation moving up further next year, getting closer and closer, inching, you know, into the 2 percent, up to the 2 percent range, and my view that unemployment will be around moving down to, you know, below 4¾ percent or something like that, I think we do need to keep moving on raising interest rates and faster than one increase a year.

    [ October 25, 2016 ]

    WSJ: Are you ready to say how you feel things might play out in 2017 in terms of—I’m not trying to necessarily lock you down to say, like, how many, but, you know, just your sense of how do you think monetary policy might play out or how you’d like it to play out in 2017?

    WILLIAMS: Well, I think that, you know, if things continue to do as I expect with core inflation moving up further next year and overall inflation moving up further next year, getting closer and closer, inching, you know, into the 2 percent, up to the 2 percent range, and my view that unemployment will be around moving down to, you know, below 4¾ percent or something like that, I think we do need to keep moving on raising interest rates and faster than one increase a year.

    But again, we don’t have to raise them more than a very gradual pace.

  • Charles L. Evans I think the most important part of our communications is really around not when is the next increase, but what are the terms of the subsequent increases going to be,

    [ October 24, 2016 ]

    “I think the most important part of our communications is really around not when is the next increase, but what are the terms of the subsequent increases going to be,” Evans said Monday while answering questions from reporters after a speech in Chicago.

    Evans said if the economy continues to grow in line with his forecast, it may be appropriate to raise rates three times by the end of 2017, but revamping communications with the public would allow for a more flexible approach in case those forecasts don’t pan out, especially given the downside risks he sees clouding the outlook for inflation.
    “With that type of messaging, we might be well served by not so many increases,” Evans said. “It would depend on whether or not we are making that kind of progress.”

    --------------

    From MarketWatch coverage

    The U.S. central bank needs to “demonstrate commitment to achieving the inflation target sustainably, symmetrically, and sooner rather than later,” Evans said in a speech to the University Club in Chicago.

    This might require undershooting the unemployment rate and overshooting the 2% inflation target, Evans said.

  • John Williams Williams said that he will be “definitely not losing sleep” if the Fed overshoots its inflation target, and that it’s “absolutely essential that we demonstrate that we can hit this 2 percent inflation goal.”

    [ October 21, 2016 ]

    Williams said that he will be “definitely not losing sleep” if the Fed overshoots its inflation target, and that it’s “absolutely essential that we demonstrate that we can hit this 2 percent inflation goal.”

  • Stanley Fischer We are very close to our targets" of full employment and 2-percent inflation, said Stanley Fischer. "So we're not in deep trouble with monetary policy at the moment," he responded when asked about the concept of raising the Fed's inflation target..."To change that target if you are so close, that's a problem." 

    [ October 17, 2016 ]

    We are very close to our targets of full employment and 2-percent inflation.  To change that target if you are so close -- that's a problem. 

  • Eric Rosengren No one’s talking about raising interest rates quickly. We’re talking about a gradual rate either way. My own concern is that we be sure that it is a gradual rate. And the longer we wait to continue on the process the more concerned I become that eventually it won’t be gradual, that we would have to raise rates more quickly. And given some of the uncertainties that this entire conference is highlighting, having to start raising rates much more quickly raises the risk that we would end up raising it quickly enough that we would shorten rather than lengthen the recovery.

    [ October 17, 2016 ]

    WSJ: There was a steady decline in the unemployment rate through most of this expansion, and now it’s changed. So how do you explain the change? And what signal do you take from it about the outlook for slack and for monetary policy?

    ROSENGREN: It’s definitely a positive sign for the economy. To the extent that we can continue to bring people in who are outside the labor force, that is a positive. There’s a risk to assuming that you’re going to continue to do that without starting to create more imbalances in the economy.

    So a lot of this discussion is about risks. So one side of a risk is we may have more slack than our economic models are estimating, and maybe full employment is lower than we actually expect. And so, if we tighten too quickly, you would not be able to bring those people back into the labor force. That would be a real loss for the economy. On the other side, if we’re overly confident that GDP growing faster than potential is going to bring a lot of people in, then the result would be that you would end up with labor markets being much tighter than you’re expecting, and either asset prices or inflation would start to react to the fact that the economy is overly tight.

    No one’s talking about raising interest rates quickly. We’re talking about a gradual rate either way. My own concern is that we be sure that it is a gradual rate. And the longer we wait to continue on the process the more concerned I become that eventually it won’t be gradual, that we would have to raise rates more quickly. And given some of the uncertainties that this entire conference is highlighting, having to start raising rates much more quickly raises the risk that we would end up raising it quickly enough that we would shorten rather than lengthen the recovery.

  • 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.