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Recent FedSpeak Highlights

  • Dennis Lockhart What I now detect is simply that the reality of crafting those policies may take a little longer than perhaps many believed a few weeks ago. So their impact on the economy could well come later rather than sooner.

    [ February 14, 2017 ]

    Lockhart said the chief distinction between policymakers who foresee two versus three rates hikes this year hinges on the direction of the new administration. So far, he said, it seems that any boost to growth may come later.

    "What I now detect is simply that the reality of crafting those policies may take a little longer than perhaps many believed a few weeks ago. So their impact on the economy could well come later rather than sooner," Lockhart said.

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    Source:

    http://www.reuters.com/article/us-usa-fed-lockhart-idUSKBN15T2MC?il=0

    Venue:

    Huntsville Rotary Club and the Greater Huntsville Rotary Club
  • Janet L. Yellen Waiting too long to remove accommodation would be unwise...  At our upcoming meetings, the Committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate

    [ February 14, 2017 ]

    As I noted on previous occasions, waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession. Incoming data suggest that labor market conditions continue to strengthen and inflation is moving up to 2 percent, consistent with the Committee's expectations. At our upcoming meetings, the Committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate.

    ...

    The Committee's view that gradual increases in the federal funds rate will likely be appropriate reflects the expectation that the neutral federal funds rate--that is, the interest rate that is neither expansionary nor contractionary and that keeps the economy operating on an even keel--will rise somewhat over time. Current estimates of the neutral rate are well below pre-crisis levels--a phenomenon that may reflect slow productivity growth, subdued economic growth abroad, strong demand for safe longer-term assets, and other factors. The Committee anticipates that the depressing effect of these factors will diminish somewhat over time, raising the neutral funds rate, albeit to levels that are still low by historical standards.

  • Jeffrey Lacker My own view, as I’ve said, is that the magnitude of the gap suggests that rates need to rise more briskly than markets now seem to expect. And the elevated uncertainty now surrounding fiscal policy, particularly the potential for substantial fiscal stimulus, suggests that our next increase should come sooner rather than later in order to reduce the risks associated with having to raise rates more rapidly later on.

    [ February 14, 2017 ]

    I have been arguing for some time that the Fed’s interest rate target is exceptionally low and that upward adjustment is needed.7 I have based that in part on the behavior of benchmarks that capture the historical behavior of interest rates — that is, how policy rates respond to inflation and employment — during times when monetary policy has been relatively effective. These benchmarks, often referred to as “policy rules,” come in slightly different formulations and are useful for assessing the stance of monetary policy. Currently, almost all of these benchmarks recommend higher interest rates, in most cases substantially higher rates. Some have made the case for versions whose current recommendations lie at the lower end of the range of plausible alternatives and thus align with the current low level of our policy rates.8 That case is not without merit, but there are risks associated with placing too much weight on any one estimate. Taking the range of plausible alternatives into account, my view is that, with unemployment at or below levels corresponding to maximum sustainable employment and with inflation very close to our announced target of 2 percent, significantly higher rates are warranted.

    Historical experience strongly suggests that significant deviation from these benchmarks can increase the risk of adverse outcomes. In particular, delaying interest rate increases when unemployment falls below levels corresponding to full or maximum employment can result in an unanticipated rise in inflation pressures that necessitates relatively sharp upward adjustments in rates. Such rapid adjustments can be hard to calibrate, and they heighten the risk of overdoing it and sending the economy into an unnecessary recession.

    At the present time, I am skeptical of justifications for the large and growing departure of current policy from the policy rule recommendations. My own view, as I’ve said, is that the magnitude of the gap suggests that rates need to rise more briskly than markets now seem to expect. And the elevated uncertainty now surrounding fiscal policy, particularly the potential for substantial fiscal stimulus, suggests that our next increase should come sooner rather than later in order to reduce the risks associated with having to raise rates more rapidly later on. Such an approach would maximize our chance of continuing to benefit from price stability and healthy employment growth.

  • Stanley Fischer Sometimes a monetary policy committee will make a decision that is not consistent with the prescriptions of standard monetary rules--and that may well be the right decision. Further, in modern times, the policy statement of the monetary policy committee will seek to explain why the committee is making the decision it is announcing. The quality of those explanations is a critical part of the policy process, for good decisions and good explanations of those decisions help build the credibility of the central bank--and a credible central bank is a more effective central bank.

    [ February 11, 2017 ]

    [I]n reaching its decision, the Committee will examine the prescriptions of different monetary rules and the implications of different model simulations. But it should never decide what to do until it has carefully discussed the economic logic that underlies its decision. A monetary rule, or a model simulation, or both, will likely be part of the economic case supporting a monetary policy decision, but they are rarely the full justification for the decision. Sometimes a monetary policy committee will make a decision that is not consistent with the prescriptions of standard monetary rules--and that may well be the right decision. Further, in modern times, the policy statement of the monetary policy committee will seek to explain why the committee is making the decision it is announcing. The quality of those explanations is a critical part of the policy process, for good decisions and good explanations of those decisions help build the credibility of the central bank--and a credible central bank is a more effective central bank.

    ...

    And now to the bottom line: The title of my speech is an incomplete quotation of something Paul Samuelson once said. What Samuelson said was this, "I'd rather have Bob Solow than an econometric model, but I'd rather have Bob Solow with an econometric model than without one." And Samuelson, who was a shameless eclectic, would almost certainly have said essentially the same thing about policy rules.

  • Charles L. Evans It's more likely that a rest point for the balance sheet is somewhere north of $1 trillion, maybe, you know, $1.5 trillion.

    [ February 9, 2017 ]

    "It's more likely that a rest point for the balance sheet is somewhere north of $1 trillion, maybe, you know, $1.5 trillion. But we're going to see quite a lot roll off" as assets mature, Evans told a meeting of investors and financial advisors. "We want to withdraw gradually from that."

  • James Bullard It is unlikely that fiscal uncertainty will be meaningfully resolved by the March meeting...  We don’t have to move and we have got a lot of fiscal uncertainty, so why not wait until that gets resolved -- or more clearly resolved? ...adjustments to balance sheet policy might be viewed as a way to normalize Fed policy without relying exclusively on a higher policy rate path.

    [ February 9, 2017 ]

    It is unlikely that fiscal uncertainty will be meaningfully resolved by the March meeting...  We don’t have to move and we have got a lot of fiscal uncertainty, so why not wait until that gets resolved -- or more clearly resolved?

    Adjustments to balance sheet policy might be viewed as a way to normalize Fed policy without relying exclusively on a higher policy rate path...

    The current FOMC policy is putting some upward pressure on the short end of the yield curve through actual and projected movements in the policy rate. At the same time, current policy is putting downward pressure on other portions of the yield curve by maintaining a $4.45 trillion balance sheet. This type of “twist operation” does not appear to have a theoretical basis. A more natural normalization process would allow the entire yield curve to adjust appropriately as normalization proceeds. 
  • Patrick Harker I think March should be considered as a potential for another 25-basis point increase.

    [ February 6, 2017 ]

    "I still am supportive of three rate hikes this year, of course with a major caveat, depending on how the economy evolves and policy, fiscal policy, evolves," Harker told reporters after a speech on the regulation of fintech firms." I think March should be considered as a potential for another 25-basis point increase."
    ...
    "I don’t think we are behind the curve now," Harker added. "I want to make sure we don’t get behind the curve."

  • John Williams From a risk management point of view, there’s an argument to move sooner, rather than wait...  Honestly, I think there’s a lot of potential that this economy is going to perhaps get more of a boost than the [three rate-hike] base case.

    [ February 3, 2017 ]

    The Federal Reserve shouldn't be "too timid" or "delay too long" to raise interest rates, said San Francisco Fed President John Williams on Friday. In an interview on Bloomberg TV, Williams challenged the Wall Street view that a rate hike in March is now off the table given the January jobs report. "I don't agree. All our meetings are live," he said. He also disagreed the Fed needed to wait to see details of Trump's fiscal policy legislation before raising rates. "This economy is proving it can grow at a steady rate without as much monetary stimulus as we've been giving," he said. "We actually can make decisions based on that without knowing what happens in terms of fiscal policy later in the year."

    -------

    “From a risk management point of view, there’s an argument to move sooner, rather than wait,” he said in an interview Friday at the Bloomberg News office in San Francisco.

    “There’s some optionality to moving sooner rather than waiting this year,” he said. “Three rate increases, like I said, it’s a reasonable guess, a reasonable perspective to have as a base case. But honestly, I think there’s a lot of potential that this economy is going to perhaps get more of a boost than the base case.”

    He also noted that there could be arguments for “caution” that would support holding off in March and waiting to collect more information.

  • Charles L. Evans Mr. Evans  told reporters after the speech he anticipates two rate increases this year, but didn't rule out a third.  "The way things are going, I could see three hikes," he said. "I could be comfortable with that." 

    [ February 3, 2017 ]

    Mr. Evans, often known as a "dove" for his preference for accommodative monetary policy, told reporters after the speech he anticipates two rate increases this year, but didn't rule out a third.

    "The way things are going, I could see three hikes," he said. "I could be comfortable with that." 

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

    With regard to current risk-management issues, many have made the following argument, and so I’ll just state it briefly. Central bankers have a pretty good handle on how to address rising inflation concerns: Use conventional policies and raise short-term policy interest rates. But when inflation is too low and our policy rate is stuck at the zero lower bound, we struggle to provide adequate accommodation with unconventional policies. Because of this asymmetry, risk-management policies would favor skewing policy today to lower the chances of facing more difficult zero-lower-bound outcomes in the future. I think this strategy is important now. And it will likely continue to be important as we adjust to a low equilibrium interest rate environment. With these considerations in mind, I believe that appropriate policy calls for a slow pace of normalization in order to give the real economy an adequate growth buffer to withstand downside shocks that might otherwise drive us back down to the ZLB.

  • Jeffrey Lacker Right now I think we are at risk of getting behind the curve, so lately I've been an advocate of pushing rates up a little more aggressively than my colleagues.

    [ January 23, 2017 ]

    Jeffrey Lacker, the hawkish president of the Federal Reserve Bank of Richmond, said on Monday he is worried inflation could surge unless the U.S. central bank raises interest rates faster than his fellow policymakers anticipate.

    "Right now I think we are at risk of getting behind the curve, so lately I've been an advocate of pushing rates up a little more aggressively than my colleagues," Lacker said in an interview on WCVE, a Richmond public radio station.

  • Patrick Harker I see three modest hikes as appropriate for the coming year, assuming the economy stays on track. Fed policymakers enjoy saying we’re data-dependent and this is an area where that rings especially true.

    [ January 20, 2017 ]

    After December’s meeting, that makes a brisk average of one 25-basis-point hike per year for the last two years.

    But I see three modest hikes as appropriate for the coming year, assuming the economy stays on track. Fed policymakers enjoy saying we’re data-dependent and this is an area where that rings especially true.

    I’ve said it before, and it’s worth repeating, that monetary policy is a fairly limited set of tools with a fairly limited reach. We will respond to changes in the economy with moves in the federal funds rate, and we can do a very good job of creating the conditions that are consistent with economic growth. But the kinds of policies that will deliver that growth — employment programs, development, taxation, and trade policies — are up to elected officials at the local, state, and national levels.

  • Janet L. Yellen Allowing the economy to run markedly and persistently "hot" would be risky and unwise.

    [ January 19, 2017 ]

    I think that allowing the economy to run markedly and persistently "hot" would be risky and unwise. Waiting too long to remove accommodation could cause inflation expectations to begin ratcheting up, driving actual inflation higher and making it harder to control. The combination of persistently low interest rates and strong labor market conditions could lead to undesirable increases in leverage and other financial imbalances, although such risks would likely take time to emerge.9 Finally, waiting too long to tighten policy could require the FOMC to eventually raise interest rates rapidly, which could risk disrupting financial markets and pushing the economy into recession. For these reasons, I consider it prudent to adjust the stance of monetary policy gradually over time--a strategy that should improve the prospects that the economy will achieve sustainable growth with the labor market operating at full employment and inflation running at about 2 percent.

  • Janet L. Yellen Waiting too long to begin moving toward the neutral rate could risk a nasty surprise down the road--either too much inflation, financial instability, or both. In that scenario, we could be forced to raise interest rates rapidly, which in turn could push the economy into a new recession.

    [ January 18, 2017 ]

    Nevertheless, as the economy approaches our objectives, it makes sense to gradually reduce the level of monetary policy support. Changes in monetary policy take time to work their way into the economy. Waiting too long to begin moving toward the neutral rate could risk a nasty surprise down the road--either too much inflation, financial instability, or both. In that scenario, we could be forced to raise interest rates rapidly, which in turn could push the economy into a new recession.

    More From:

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    Source:

    https://www.federalreserve.gov/newsevents/speech/yellen20170118a.htm

    Venue:

    Commonwealth Club of California
  • Lael Brainard I am pleased to see that full employment is within reach and could prove sustainable with the right policy mix... I have been encouraged by recent signs of gradual progress toward our inflation target, as the effects of earlier dollar appreciation and oil price declines appear to be waning. 

    [ January 18, 2017 ]

    Overall, I am pleased to see that full employment is within reach and could prove sustainable with the right policy mix. Payroll growth has remained sufficiently strong to continue eroding slack, increasingly along margins that had previously seemed stubbornly elevated--including the long-term unemployed, those on the margins of the labor force, and most recently those who are working part time but would prefer full-time work. Moreover, wage growth appears to be picking up gradually in a further sign that slack continues to be taken up...

    Following a long period of stubbornly below-target inflation, I have been encouraged by recent signs of gradual progress toward our inflation target, as the effects of earlier dollar appreciation and oil price declines appear to be waning. Over the 12-month period ending in November, core personal consumption expenditures prices increased 1.6 percent. This rate is still noticeably below 2 percent, but it is up 1/4 percentage point from a year earlier. In addition, market measures of longer-run inflation compensation based on nominal and inflation-protected Treasury yields have improved about 40 basis points relative to the very depressed levels prevailing through much of the preceding year, although, even with this increase, inflation compensation remains well below historical norms.

  • Robert S. Kaplan We should be removing accommodation, probably sometime later this year or early next year, looking at the Fed balance sheet in order to examine how we might let that run off or reduce it.

    [ January 18, 2017 ]

    Kaplan said he forecasts economic growth of about 2.3 percent this year, even without any new fiscal policies, and sees tight labor markets and a gradual increase in inflation toward the Fed's 2-percent inflation target.

    In response, said Kaplan, who has a vote this year on interest-rate policy, "We should be removing accommodation, probably sometime later this year or early next year, looking at the Fed balance sheet in order to examine how we might let that run off or reduce it."

  • James Bullard Now that the policy rate has been increased, the Committee may be in a better position to allow reinvestment to end or to otherwise reduce the size of the balance sheet.

    [ January 12, 2017 ]

    Now that the policy rate has been increased, the Committee may be in a better position to allow reinvestment to end or to otherwise reduce the size of the balance sheet. Adjustments to balance sheet policy might be viewed as a way to normalize Fed policy without putting exclusive emphasis on a higher policy rate path.

  • Patrick Harker When we are at or above 100 basis points - and we are moving toward that - I think it is time to start serious consideration of first stopping reinvestment and then over a period of time unwinding the balance sheet.

    [ January 12, 2017 ]

    "When we are at or above 100 basis points - and we are moving toward that - I think it is time to start serious consideration of first stopping reinvestment and then over a period of time unwinding the balance sheet," Harker, who has a vote on monetary policy this year, told reporters. He was referring to the fed funds rate for interbank lending which the central bank tries to guide.

  • William C. Dudley As I see it, the problem occurs when an organization’s culture equates “what is right” with what is legally permissible, and when “what is wrong” becomes equivalent to what is legally impermissible.

    [ January 11, 2017 ]

    What’s more, establishment of too many brightline rules may prove counterproductive in encouraging a good culture. For one thing, intricate and detailed rules can be construed as implying that the responsibility for good conduct rests with supervisors and regulators. For another, rules may create opportunities or incentives for legal or regulatory arbitrage—finding creative ways around rules. And this activity may, in itself, have insidious effects on culture.

    As I see it, the problem occurs when an organization’s culture equates “what is right” with what is legally permissible, and when “what is wrong” becomes equivalent to what is legally impermissible. The technical legality of the rule, not the propriety of our conduct, becomes the arbiter of our actions. A proliferation of rules may prompt us to ask first what we can do, not what we should do. Legal arbitrage is intellectually energetic, but ethically lazy.

  • Dennis Lockhart During the Great Recession and the recovery phase, the Fed and monetary policy took the lead. Now I think it's time for the Fed and monetary policy to shift to more of a support role.

    [ January 9, 2017 ]

    The job of cyclical recovery is largely done. The Federal Reserve is quite close to achieving its mandated policy objectives of full employment and stable prices. The job of mitigating secular trends and implementing structural adjustments lies ahead. This set of challenges will define the next phase.

    This juncture feels transitional to me. During the Great Recession and the recovery phase, the Fed and monetary policy took the lead. Now I think it's time for the Fed and monetary policy to shift to more of a support role.

    The Fed's monetary policy mostly affects demand conditions. Inducing supply-side and structural change is more the domain of Congress, the administration, and the private sector.

  • Eric Rosengren The recent movement in financial market prices should provide greater confidence that the Federal Reserve is finally closing in on both elements of its dual mandate, and that an increased pace of the gradual monetary policy normalization in the United States is appropriate.

    [ January 9, 2017 ]

    [Y]ou may recall that from 2007 to 2014, I was a strong advocate for exceptionally accommodative monetary policy to combat the severe recession we experienced in the wake of the financial crisis. More recently, my comments have moved in the other direction, advocating for a gradual return to a more normal monetary policy. It is not that my underlying views or economic analysis have changed; rather, economic circumstances have evolved and now imply the need for a different stance of monetary policy.

    Despite the relatively slow pace of increases reflected in market expectations for the federal funds rate, longer-term rates have increased significantly since the November FOMC meeting. The ... 10-year U.S. Treasury rate has increased by more than 50 basis points, and long rates in the United Kingdom, Germany, and Japan have also increased – although by much less. These results may reflect the expectation of potentially more stimulative fiscal policy, greater confidence that inflation will increase toward targets, and more optimism about global prospects.

    The recent movement in financial market prices should provide greater confidence that the Federal Reserve is finally closing in on both elements of its dual mandate, and that an increased pace of the gradual monetary policy normalization in the United States is appropriate. This is particularly noteworthy considering that central banks in other developed countries are still easing monetary policy in attempts to reach their inflation targets.