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Recent FedSpeak Highlights

  • William C. Dudley Countries need to compete better, not compete less.

    [ May 11, 2017 ]

    Protectionism can have a siren-like appeal.  Viewed narrowly, it may be potentially rewarding to particular segments of the economy in the short term.  Viewed more broadly, it would almost certainly be destructive to the economy overall in the long term.

    Countries need to compete better, not compete less.  Trade barriers are a very expensive way to preserve jobs in less competitive or declining industries.  They blunt opportunities in export industries and they reduce the affordability of goods and services to households.  Indeed, such measures often backfire, resulting in harm to workers and diminished growth.

  • Eric Rosengren Along with a gradual reduction in the level of the balance sheet, it would still be reasonable to have three rate increases over the remainder of this year.

    [ May 10, 2017 ]

    Along with a gradual reduction in the level of the balance sheet, it would still be reasonable to have three rate increases over the remainder of this year.

  • Esther L. George My own view is that the process [of reducing the Fed’s balance sheet] should begin sometime this year by reducing reinvestments in mortgage-backed securities (MBS) and long-term Treasury securities.

    [ May 9, 2017 ]

    The FOMC also must begin to adjust the size and composition of its securities holdings.

    My own view is that the process should begin sometime this year by reducing reinvestments in mortgage-backed securities (MBS) and long-term Treasury securities. Once it begins, however, the runoff in the portfolio should be on autopilot and not reconsidered at each subsequent FOMC meeting. Otherwise, the Committee would need to re-evaluate and make adjustments that will potentially complicate monetary policy and provide few benefits to the real economy.

  • James Bullard On inflation the numbers were disappointing. We have been telling a story that we are trending back towards 2 percent and we went the other way.

    [ May 8, 2017 ]

    On inflation the numbers were disappointing. We have been telling a story that we are trending back towards 2 percent and we went the other way.

  • Stanley Fischer The strength of the financial system is absolutely essential to the ability of the economy to continue to grow at a reasonable rate, and taking actions which remove the changes that were made to strengthen the structure of the financial system is very dangerous.

    [ April 21, 2017 ]

    The strength of the financial system is absolutely essential to the ability of the economy to continue to grow at a reasonable rate, and taking actions which remove the changes that were made to strengthen the structure of the financial system is very dangerous.

  • Eric Rosengren By initially retiring only a small percentage of maturing securities, and then very gradually shrinking the volume of the securities being reinvested, the tightening of short-term interest rates should not need to be much different than it would be in the absence of shrinking the balance sheet.

    [ April 19, 2017 ]

    Many observers suggest that central banks’ use of their balance sheets should be limited solely as a response to the type of severe economic conditions that occurred during the financial crisis and in its aftermath. Others suggest – as I will today – that structural changes in the macroeconomy may necessitate more frequent use of large scale asset purchases during recessions…

    Low equilibrium rates would have noteworthy implications in a downturn… [A] 3 percent federal funds rate would imply a high probability that short-term interest rates would have to be lowered again to zero in response to future recessions. As a result, the central bank may need to again deploy its balance sheet to augment traditional policy, spur economic activity, and achieve its mandates from Congress associated with employment and price stability. One important implication, then, is that the exit from a large balance sheet may not prove to be a one-time event. So if done appropriately, the exit from the current large balance sheet can serve as an important “playbook” for future recovery periods should it prove necessary.

    To preview my argument a bit, while the FOMC is still carefully considering its balance sheet exit strategy, in my own view an ideal policy would take a very gradual approach to balance-sheet reduction. In my view that process could begin relatively soon and should not significantly alter the FOMC’s continuing gradual normalization of short-term interest rates. That is, by initially retiring only a small percentage of maturing securities, and then very gradually shrinking the volume of the securities being reinvested, the tightening of short-term interest rates should not need to be much different than it would be in the absence of shrinking the balance sheet.

  • Esther L. George Balance sheet adjustments will need to be gradual and smooth, which is an approach that carries the least risk in terms of a strategy to normalize its size. Importantly, once the process begins, it should continue without reconsideration at each subsequent FOMC meeting. In other words, the process should be on autopilot.

    [ April 18, 2017 ]

    Balance sheet adjustments will need to be gradual and smooth, which is an approach that carries the least risk in terms of a strategy to normalize its size. Importantly, once the process begins, it should continue without reconsideration at each subsequent FOMC meeting. In other words, the process should be on autopilot and not necessarily vary with moderate movements in the economic data. To do otherwise would amount to using the balance sheet as an active tool of policy outside of periods of severe financial or economic stress, and would increase uncertainty rather than reduce it.

    Based on economic conditions, I would support beginning the process of reducing the balance sheet this year. This would further normalize the stance of policy and leave more highly liquid, safe securities available to the market. I do not favor prolonging action for the purpose of allowing inflation to overshoot the 2 percent goal or to press labor markets into a condition where they are overheating.

  • Stanley Fischer My tentative conclusion from market responses to the limited amount of discussion of the process of reducing the size of our balance sheet that has taken place so far is that we appear less likely to face major market disturbances now than we did in the case of the taper tantrum.

    [ April 17, 2017 ]

    My tentative conclusion from market responses to the limited amount of discussion of the process of reducing the size of our balance sheet that has taken place so far is that we appear less likely to face major market disturbances now than we did in the case of the taper tantrum. But, of course, as we continue to discuss and eventually implement policies to reduce our balance sheet, we will have to continue to monitor market developments and expectations carefully.

  • Janet L. Yellen You know, there is a lot of focus on regulatory burden. I don't think if you look at objective data on lending that it's possible to make the case that regulation has simply stifled lending. Lending has grown in a very healthy way as the economy has recovered, and I think what we see is stronger banks that are better capitalized are in a better position to lend.

    [ April 10, 2017 ]

    I think we've accomplished a lot. We have a much safer system, but we always have to be aware of risks outside the perimeter of what we regulate, and when we regulate one sector, there's a natural tendency for activity to migrate outside its boundaries. And so we do have to be attentive to what's happening in the shadow banking system as well...

    You know, there is a lot of focus on regulatory burden. I don't think if you look at objective data on lending that it's possible to make the case that regulation has simply stifled lending. Lending has grown in a very healthy way as the economy has recovered, and I think what we see is stronger banks that are better capitalized are in a better position to lend.

  • James Bullard Post-crisis, if I have my numbers right, you [arrive at what the St. Louis Fed sees as a more reasonable long-term] balance sheet size of about $2 trillion.

    [ April 10, 2017 ]

    $4.5 trillion is higher than anybody thinks it should be… Post-crisis, if I have my numbers right, you [arrive at what the St. Louis Fed sees as a more reasonable long-term] balance sheet size of about $2 trillion.

  • William C. Dudley Presumably at the time that you make the decision on the balance sheet you might want to forgo the decision on short-term rates just to make sure that [it] doesn’t turn out to be a bigger decision than you thought you were making. So, I would emphasize the words ’little pause'.

    [ April 7, 2017 ]

    Presumably at the time that you make the decision on the balance sheet you might want to forgo the decision on short-term rates just to make sure that the balance-sheet decision doesn’t turn out to be a bigger decision than you thought you were making. So, I would emphasize the words ’little pause'.

    As reported by Dow Jones

  • Patrick Harker We have to balance [our reduction of the Fed’s balance sheet] off the path of the fed funds rate. As we cease reinvestment it will remove some accommodation. These two things are related.

    [ April 3, 2017 ]

    "Possibly by the end of this year or the beginning of next year would be an appropriate time to stop reinvesting (maturing assets), but that's all dependent on how the economy evolves between now and then," Harker told reporters in Philadelphia.

    "We have to balance this off the path of the fed funds rate. As we cease reinvestment it will remove some accommodation. These two things are related," Harker added, reinforcing the similarly growing view that the Fed could temporarily pause interest rate hikes when it starts the portfolio process.

    Harker said it was unclear how much the Fed should shrink the portfolio. But he supports a "Treasury-heavy" portfolio in the future, adding that the Fed may not dump all of its nearly $2 trillion in mortgage-backed securities.

  • James Bullard This is not an environment where the data is screaming at the Fed that you have to move.

    [ March 31, 2017 ]

    “This is not an environment where the data is screaming at the Fed that you have to move,” Bullard said.

    Bullard said he would not oppose one more rate hike this year but said that might be all.

    “We don’t think you need to have a 200 point basis point adjustment in interest rate in this type of environment,” he said.

  • William C. Dudley If and when we decide to begin to normalize the balance sheet we might actually decide at the same time to take a little pause in terms of raising short-term interest rates.

    [ March 31, 2017 ]

    "It wouldn't surprise me if some time later this year or some time in 2018, should the economy perform in line with our expectations, that we will start to gradually let the securities mature rather than reinvesting them," Dudley, a close ally of Fed Chair Janet Yellen, said on Bloomberg TV.

    "If we start to normalize the balance sheet, that's a substitute for short-term rate hikes because it would also work in the direction of tightening financial conditions," he said. "If and when we decide to begin to normalize the balance sheet we might actually decide at the same time to take a little pause in terms of raising short-term interest rates."

  • William C. Dudley I don’t think we are removing the punch bowl, yet.  We’re just adding a bit more fruit juice. 

    [ March 30, 2017 ]

    William McChesney Martin, the ninth chair of the FOMC, once famously opined that the Federal Reserve is “in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up.”  I don’t think we are removing the punch bowl, yet.  We’re just adding a bit more fruit juice. 

  • John Williams I think [balance sheet] normalization will start later this year.

    [ March 30, 2017 ]

    [The challenge for the FOMC] is really trying to get that normalization process [started] both in terms of interest rates, but also our balance sheet, which I think that normalization will start later this year, getting that process underway.

  • Eric Rosengren (Asset markets are) a little rich relative to where the averages have been.

    [ March 29, 2017 ]

    (Asset markets are) a little rich relative to where the averages have been.

  • John Williams As we move forward, I see the unemployment rate nudging down a bit further, ultimately bottoming out near 4½ percent by the end of the year.

    [ March 29, 2017 ]

    As we move forward, I see the unemployment rate nudging down a bit further, ultimately bottoming out near 4½ percent by the end of the year.

  • Charles L. Evans The FOMC’s long-run price stability goal is 2 percent for overall PCE inflation. But it is important to remember that we strive for sustained symmetric achievement of 2 percent.

    [ March 29, 2017 ]

    The rise in energy prices probably will carry headline PCE inflation higher only for a time. It is more likely to fall back to the underlying rate as measured by core inflation. Today that rate is 1.7 percent. And I don’t expect it to achieve 2 percent until 2019.

    The FOMC’s long-run price stability goal is 2 percent for overall PCE inflation. But it is important to remember that we strive for sustained symmetric achievement of 2 percent.

    I still worry about darker scenarios in which we return to the zero lower bound (ZLB). That is one reason why I think it’s so important to get inflation and inflation expectations up to target, so that we have maximum rate cutting capacity.

  • Charles L. Evans If I thought that I was inclined to four rate hikes for 2017 I would presumably be seeing a much stronger lift in inflation.

    [ March 27, 2017 ]

    Evans said he saw three rate hikes in 2017 as "plausible", but added that two or four increases were also a possibility.

    "I don't see the data, I don't have the confidence," Evans said, asked whether there was a strong case for a fourth rate hike. "If I thought that I was inclined to four rate hikes for 2017 I would presumably be seeing a much stronger lift in inflation, I think it would be accompanied by a meaningful increase in long term inflation expectations."