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Recent FedSpeak Highlights

  • 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:

    See Also:

    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.

  • Eric Rosengren As part of the monetary policy normalization strategy, the FOMC should, of course, continue to consider whether it needs to maintain such a large balance sheet.

    [ January 9, 2017 ]

    My own view is that the SEP median forecast seems reasonable if we continue to see real GDP growing faster than the so-called “potential” rate. My own forecast is that we will achieve both elements of the dual mandate by the end of 2017 – and as a result, I believe that a still gradual but somewhat more regular increase in the federal funds rate will be warranted.

    In addition to short-term interest rates, the Federal Reserve has a second policy tool at its disposal, the balance sheet, shown in Figure 14. The central bank’s balance sheet has been roughly level over the past two years. With the federal funds rate expected to continue its gradual rise from the zero lower bound, the risk of returning to the zero lower bound should diminish. The FOMC has published a statement on its policy normalization principles and plans. As part of the monetary policy normalization strategy, the FOMC should, of course, continue to consider whether it needs to maintain such a large balance sheet.

  • Jerome H. Powell I would also agree that monetary policy may sometimes face tradeoffs between macroeconomic objectives and financial stability. Indeed, it would be a divine coincidence if that were not the case.

    [ January 7, 2017 ]

    Thank you for this invitation to discuss low interest rates and the financial system. The framing of this topic raises the question of whether low interest rates have somehow undermined the stability and functioning of the financial system. I will argue that "low for long" interest rates have supported slow but steady progress to full employment and stable prices, which has in turn supported financial stability…

    Isolating the effects of these policies is challenging, but studies generally show that they lowered rates across the curve and moved other asset prices as well. It is even more challenging to evaluate their effects on aggregate demand. Low rates and higher asset prices should support household and business spending and investment through various channels. But low rates may also perversely induce some households to save more in order to meet their targets for retirement.

    ...

    I have argued that low rates have supported aggregate demand and brought us very close to full employment and 2 percent inflation; that forces other than monetary policy have been pushing rates lower for more than 30 years; and that the core of the financial system is now much stronger and more resilient than before the crisis. All of that said, I would also agree that monetary policy may sometimes face tradeoffs between macroeconomic objectives and financial stability. Indeed, it would be a divine coincidence if that were not the case…

    The question is whether low rates have encouraged excessive risk-taking through the buildup of leverage or unsustainably high asset prices or through misallocation of capital. That question is particularly important today. Historically, recessions often occurred when the Fed tightened to control inflation. More recently, with inflation under control, overheating has shown up in the form of financial excess. Core PCE inflation remained close to or below 2 percent during both the late-1990s stock market bubble and the mid-2000s housing bubble that led to the financial crisis. Real short- and long-term rates were relatively high in the late-1990s, so financial excess can also arise without a low-rate environment. Nonetheless, the current extended period of very low nominal rates calls for a high degree of vigilance against the buildup of risks to the stability of the financial system.

    If we look at the channels listed here, the picture is mixed, but the bottom line is that there has not been an excessive buildup of leverage, maturity transformation, or broadly unsustainable asset prices.

  • Charles L. Evans I still think two moves is not an unreasonable expectation for next year, but it's going to depend on how the data roll out. If it's a little bit stronger, three is not going to be implausible. Whether it starts in March or it starts in midyear it's going to depend on how the data are, what expectations look like.

    [ January 6, 2017 ]

    "I still think two moves is not an unreasonable expectation for next year, but it's going to depend on how the data roll out. If it's a little bit stronger, three is not going to be implausible. Whether it starts in March or it starts in midyear it's going to depend on how the data are, what expectations look like."

    "We're going to have to wait and see what the details are on that in order to properly assess that," he said. But, "We added a little bit of expected fiscal stimulus [to our December forecasts] just because we thought it was a more positive development as opposed to just a more contractionary financial development."

    Still, the fiscal stimulus assumptions had a "very modest effect" on the Chicago Fed's forecasts, he emphasized.

    And he still does not expect the inflation rate to reach 2% until 2018 at the earliest, Evans said.

  • John Williams Right now, my view is a lot of the fiscal stimulus people have been talking about would have a relatively modest effect.

    [ January 6, 2017 ]

    WILLIAMS: More fiscal stimulus, I think, will have a modest effect on economic growth over the next couple of years.

    CNBC: Can you give us kind of the ranges around which we mean growth? I mean, there's numbers thrown out that growth could accelerate to 3%, 4%, 5%, but my guess is you think the natural growth rate of the economy is below 2%?

    WILLIAMS: Right. So my view in terms of the demographic and productivity trend we've been seeing for the last decade or so is growth is likely to be 1.5% to 1.75%. Now, some policies could change that if we find ways to do a lot more to invest in people and technology. More broadly in infrastructure. I think we can shift that upwards. Right now, my view is a lot of the fiscal stimulus people have been talking about would have a relatively modest effect.

    CNBC: When you say shift upwards, are you looking for an extra half point, extra point? What kind of numbers can an economy do of this size? Can we add two percentage points of growth?

    WILLIAMS: I think when you look back at history, and the periods where we have had very rapid productivity growth that would give us an extra two points of growth, that's periods of groundbreaking changes and technology and how the economy works. That could happen in the future. I don't have a crystal ball about that, but you're talking about transformative change to the economy.

  • Jeffrey Lacker While there is currently tremendous uncertainty around the shape and size of any federal policy initiatives, the direction of the effect on monetary policy seems pretty clear.

    [ January 6, 2017 ]

    Do post-election economic developments have implications for monetary policy? Any significant shift in the fundamental factors underlying the economic outlook is likely to have monetary policy consequences. While there is currently tremendous uncertainty around the shape and size of any federal policy initiatives, the direction of the effect on monetary policy seems pretty clear. Pursuing our congressionally mandated objectives for price stability and employment means that, all other things equal, greater fiscal stimulus implies higher interest rates than would otherwise be warranted. Otherwise, inflation pressures are likely to become elevated, as we saw in response to expanded fiscal deficits in the late 1960s.

  • Loretta J. Mester “I’ve been a little more, seeing a little more strength in the economy,” she said. “I have a little more built-in inflation pressures in my forecast, so you know, I’m probably a little steeper than that in my forecasts but I think the three, the median path is a good summary of where the tenor of the committee is.”

    [ January 6, 2017 ]

    “My own view is that we’re basically at full employment from the point of view of the monetary policy goal, one of our dual mandate goals,” Mester told FOX Business Network’s Peter Barnes.

    When asked if her forecast for interest rate hikes was in line with the Fed forecast of three rate hikes in 2017, Mester said that, although her view differed a bit from the consensus, she was comfortable with the compromise.

    “I’ve been a little more, seeing a little more strength in the economy,” she said. “I have a little more built-in inflation pressures in my forecast, so you know, I’m probably a little steeper than that in my forecasts but I think the three, the median path is a good summary of where the tenor of the committee is.”

    “I wouldn’t be surprised if our forecast will be more variable this year just because we’re going to incorporate, as more information comes out about what those fiscal packages will look like in terms of tax policy and other policies that the new administration is promulgating.”

  • Patrick Harker I’m penciled in for three increases next year, however, that’s subject to a lot of uncertainty.

    [ January 6, 2017 ]

    "I’m penciled in for three increases next year, however, that’s subject to a lot of uncertainty,” referring to the current lack of clarity over Trump’s future fiscal proposals.

    Speaking on Sirius radio Friday, he said “as the policy uncertainty resolves itself, we’ll be able to see whether it’s 3, 2, 4.” Harker is also an FOMC voter this year.

  • John Williams The central tendency of the views of my colleagues is around three rate hikes. That's a pretty reasonable assumption.

    [ January 5, 2017 ]

    Clearly, if a number of countries have trade barriers, that would have a negative impact on growth and it would also raise inflation, too. So I mean, there's are a lot of factors that can come out of various policy actions, and, again, from my perspective we just try to analyze them all and what it means for the economy.

    ...

    My own view is it's very hard to know what fiscal policy will be over the next couple of years, but the way I viewed it was relative to a few months ago, I think the distribution of likely outcome in terms of fiscal policy is more stimulus that I was thinking a few months ago and I built that into my own forecast.

    ...

    I will say that i think that that's -- you know, the central tendency of the views of my colleagues is around three rate hikes. That's a reasonable view given unemployment is 4.6%, economy's growing at 2% and inflation going back to 2%. That's a pretty reasonable assumption.

  • John Williams I will say that my underlying view for next year is broadly consistent with the central tendency of the committee.

    [ December 20, 2016 ]

    Q: But surely the pace of future rate hikes will depend in part on fiscal policy?

    A: The thing about conducting monetary policy in this time, it’s really important to reiterate that we’re focused on our maximum employment and price stability goals. There are decisions that are made by the elected representatives in Congress and the administration, and that’s the process that should happen. What we need to do and what we will do is focus on any changes in the economic outlook, what does that mean for achieving our goals and for the right path of policy decisions to achieve those goals. I know everyone likes to talk about fiscal policy in terms of what does it mean for the outlook. In the last couple of years we’ve also had some big shocks to the economy that came from across the globe. There’s a lot of things that can change and we have to stay focused on our goals and continue to be data dependent in terms of analyzing what do these changes mean for our outlook.

    ...

    I will say that my underlying view for next year is broadly consistent with the central tendency of the committee. My view is that the economy is going to grow roughly as it did this year, unemployment is going to edge down a little bit, inflation moving back to 2 percent, and that calls for gradual removal of policy accommodation.

    ...

    Obviously I don’t have any particular insights into what the new Congress or the new administration is going to do around fiscal policy. There’s a lot of uncertainty about what policies are going to be enacted, and that matters a lot in terms of thinking about any effects on the economy. I do think, even though I’m definitely “wait and see” in terms of learning what happens, the main effect on my outlook is that my view on the risks to the outlook have shifted a little. Those risks used to be maybe balanced and if anything a little bit to the soft side because of global developments and other factors that might cause growth to weaken. And I think that the possibility of greater fiscal stimulus and other changes in policies would if anything move those risks a little bit to the right. But it’s not a big effect.