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Recent FedSpeak Highlights

  • Janet L. Yellen It would be imprudent to keep monetary policy on hold until inflation is back to 2 percent.

    [ September 26, 2017 ]

    How should policy be formulated in the face of such significant uncertainties? In my view, it strengthens the case for a gradual pace of adjustments. Moving too quickly risks overadjusting policy to head off projected developments that may not come to pass. A gradual approach is particularly appropriate in light of subdued inflation and a low neutral real interest rate, which imply that the FOMC will have only limited scope to cut the federal funds rate should the economy be hit with an adverse shock.  But we should also be wary of moving too gradually. Job gains continue to run well ahead of the longer-run pace we estimate would be sufficient, on average, to provide jobs for new entrants to the labor force. Thus, without further modest increases in the federal funds rate over time, there is a risk that the labor market could eventually become overheated, potentially creating an inflationary problem down the road that might be difficult to overcome without triggering a recession. Persistently easy monetary policy might also eventually lead to increased leverage and other developments, with adverse implications for financial stability. For these reasons, and given that monetary policy affects economic activity and inflation with a substantial lag, it would be imprudent to keep monetary policy on hold until inflation is back to 2 percent.

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    Source:

    https://www.federalreserve.gov/newsevents/speech/yellen20170926a.htm

    Venue:

    NABE Annual Economic Policy Conference
  • Janet L. Yellen The FOMC's outlook depends importantly on the view that longer-run inflation expectations have been stable for many years at a level consistent with PCE price inflation that will average around 2 percent in the longer run.

    [ September 26, 2017 ]

    The FOMC's outlook depends importantly on the view that longer-run inflation expectations have been stable for many years at a level consistent with PCE price inflation that will average around 2 percent in the longer run. 

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    Source:

    https://www.federalreserve.gov/newsevents/speech/yellen20170926a.htm

    Venue:

    Federal Reserve Bank of Cleveland
  • Charles L. Evans Inflation has been lower than the FOMC’s 2 percent target for too long, and there is little in the recent data to suggest that inflation will soon rise to target. So I believe maintaining policy accommodation until we are more demonstrably on a sustainable path to 2 percent is key for reaching that objective—and for maintaining the credibility of our price stability goal.

    [ September 25, 2017 ]

    The fundamentals for economic growth in the U.S. are sound, and we are close to our full employment goal. But inflation has been lower than the FOMC’s 2 percent target for too long, and there is little in the recent data to suggest that inflation will soon rise to target. So I believe maintaining policy accommodation until we are more demonstrably on a sustainable path to 2 percent is key for reaching that objective—and for maintaining the credibility of our price stability goal.

  • William C. Dudley I expect inflation will rise and stabilize around the FOMC’s 2 percent objective over the medium term. In response, the Federal Reserve will likely continue to remove monetary policy accommodation gradually.

    [ September 25, 2017 ]

    With a firmer import price trend and the fading of effects from a number of temporary, idiosyncratic factors, I expect inflation will rise and stabilize around the FOMC’s 2 percent objective over the medium term. In response, the Federal Reserve will likely continue to remove monetary policy accommodation gradually.

  • Robert S. Kaplan I’ve got an open mind about December.

    [ September 22, 2017 ]

    “I’ve got an open mind about December, but I want to take a little bit more time” to observe economic data, said Mr. Kaplan, referring to the Fed’s final scheduled policy meeting of the year, on Dec. 12-13, during remarks at an energy conference here.

  • John Williams My own view is that [low inflation] has not been that baffling.

    [ September 22, 2017 ]

    "My own view is that it has been not that baffling," Mr. Williams said, referring to low inflation. He noted that prices in some sectors such as health care and cellular services have been hit by downward movements, and that prices typically reflecting developments in the economy have been rising.

    "With a strong economy, history teaches us that inflation tends to move up," he said.

    Assuming the U.S. remains on a path of rising inflation and modest economic growth -- Mr. Williams expects 2.5% gross domestic product growth this year and slightly less than 2% in 2018 -- the Fed should be able to raise interest rates gradually toward what he sees as the "normal" longer-term policy rate of about 2.5%.

    That could include another rate increase this year and around three in 2018, he said, which is in line with projections released Wednesday by the Fed.

  • William C. Dudley [Our early estimates would suggest] a normalized balance sheet size of, perhaps, $2.4 trillion to $3.5 trillion in the early 2020s.

    [ September 7, 2017 ]

    This leads us to the next question:  Assuming that a floor system is retained, what amount of reserves will be needed in the banking system so that day-to-day open market operations are not necessary to keep the federal funds rate within its target range?

    As a rough starting point, we have suggested that the necessary amount of excess reserves could be in a range of $400 billion to $1 trillion.   Coupled with uncertainty about the likely growth in other factors, such as currency outstanding, this implies a normalized balance sheet size of, perhaps, $2.4 trillion to $3.5 trillion in the early 2020s.  

  • Loretta J. Mester There hasn’t been enough evidence that inflation is on a different trajectory now. This gradual path balances the risks on both sides, and I would stick with it longer.

    [ September 7, 2017 ]

    “The conditions remain in place for inflation to gradually return over the next year or so to our symmetric goal of 2 percent on a sustained basis,” Mester, one of the more hawkish officials at the U.S. central bank, said in a speech Thursday in Pittsburgh.

    “There hasn’t been enough evidence that inflation is on a different trajectory now,” she said. “This gradual path balances the risks on both sides, and I would stick with it longer.”

  • Neel Kashkari These premature rate hikes that we are embarking on, they’re not free, and I think we need to remind ourselves of that.

    [ September 5, 2017 ]

    “It’s very possible that our rate hikes over the past 18 months are leading to slower job growth, leaving more people on the sidelines, leading to lower wage growth, and leading to lower inflation and inflation expectations,” Kashkari said Tuesday during a talk at the University of Minnesota in Minneapolis. “These premature rate hikes that we are embarking on, they’re not free, and I think we need to remind ourselves of that.”

  • Lael Brainard I consider normalization of the federal funds rate to be well under way, the criterion for commencing balance sheet normalization. The approaching change to our reinvestment policy has been clearly communicated and is well anticipated.

    [ September 5, 2017 ]

    I consider normalization of the federal funds rate to be well under way, the criterion for commencing balance sheet normalization. The approaching change to our reinvestment policy has been clearly communicated and is well anticipated.

  • Lael Brainard I am concerned that the recent low readings for inflation may be driven by depressed underlying inflation, which would imply a more persistent shortfall in inflation from our objective. In that case, it would be prudent to raise the federal funds rate more gradually. We should have substantially more data in hand in the coming months that will help us make that assessment.

    [ September 5, 2017 ]

    Once balance sheet normalization is under way, I will be looking closely at the evolution of inflation before making a determination about further adjustments to the federal funds rate. We have been falling short of our inflation objective not just in the past year, but over a longer period as well. My own view is that we should be cautious about tightening policy further until we are confident inflation is on track to achieve our target.

    To the extent that the neutral rate remains low relative to its historical value, there is a high premium on guiding inflation back up to target so as to retain space to buffer adverse shocks with conventional policy. In this regard, I believe it is important to be clear that we would be comfortable with inflation moving modestly above our target for a time.

    ...

    To conclude, much depends on the evolution of inflation. If, as many forecasters assume, the current shortfall of inflation from our 2 percent objective indeed proves transitory, further gradual increases in the federal funds rate would be warranted, perhaps along the lines of the median projection from the most recent SEP. But, as I noted earlier, I am concerned that the recent low readings for inflation may be driven by depressed underlying inflation, which would imply a more persistent shortfall in inflation from our objective. In that case, it would be prudent to raise the federal funds rate more gradually. We should have substantially more data in hand in the coming months that will help us make that assessment.

  • Loretta J. Mester I am not there yet. I still think we need to start bringing back some of the accommodation... [Risks to the Fed's current median forecast of one more rate hike this year and three next year] are balanced.

    [ August 16, 2017 ]

    "I am not there yet. I still think we need to start bringing back some of the accommodation," by raising rates and pressing forward with plans to reduce the size of the Fed's asset holdings, Mester, who is toward the central bank's hawkish wing, told Reuters.

    Risks to the Fed's current median forecast of one more rate hike this year and three next year "are balanced," she added.

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    Source:

    reuters

    Venue:

    Reuters Interview
  • Stanley Fischer It took almost 80 years after 1930 to have another financial crisis that could have been of that magnitude. And now after 10 years everybody wants to go back to a status quo before the great financial crisis. And I find that really extremely dangerous and extremely short-sighted

    [ August 16, 2017 ]

    It took almost 80 years after 1930 to have another financial crisis that could have been of that magnitude. And now after 10 years everybody wants to go back to a status quo before the great financial crisis. And I find that really extremely dangerous and extremely short-sighted. One can understand the political dynamics of this thing, but one cannot understand why grown intelligent people reach the conclusion that [you should] get rid of all the things you have put in place in the last 10 years.

  • William C. Dudley If [the economy] evolves in line with my expectations, I would be in favor of doing another rate hike later this year.

    [ August 14, 2017 ]

    If [the economy] evolves in line with my expectations, I would be in favor of doing another rate hike later this year.

  • William C. Dudley I don't think the expectations of market participants [for a September start for the balance sheet reduction process] are unreasonable.

    [ August 14, 2017 ]

    I don't think the expectations of market participants [for a September start for the balance sheet reduction process] are unreasonable.

  • Neel Kashkari People are worried that, if wages start to climb, if businesses have to compete with each other, you may not get gradual wage growth, you might all of a sudden get an acceleration in wages… I call this -- and I mean this with no disrespect -- I call this a ghost story.

    [ August 11, 2017 ]

    “People are worried that, if wages start to climb, if businesses have to compete with each other, you may not get gradual wage growth,” he said Friday during a talk in Bloomington, Minnesota. “You might all of a sudden get an acceleration in wages.”

    “I call this -- and I mean this with no disrespect -- I call this a ghost story, meaning, I cannot prove to you that there’s not a ghost underneath this table,” he said. “I cannot prove it definitively. There may be. But there is no evidence that there is a ghost under this table. There is no evidence in any of the data that wages have this acceleration factor and are all of a sudden going to take off.”

  • Charles L. Evans I personally think that it would be quite reasonable to [begin trimming the Fed's balance sheet] in September

    [ August 9, 2017 ]

    A move to begin shrinking the balance sheet makes sense because it probably won’t have a big impact on financial markets or the economy, and “I personally think that it would be quite reasonable to do that in September, on the basis of the data I’ve seen so far,” he said.

  • John Williams My own view is that it will be appropriate to start [the balance sheet reduction] process this fall.

    [ August 2, 2017 ]
  • Janet L. Yellen As I noted earlier, the economic outlook is always subject to considerable uncertainty, and monetary policy is not on a preset course... In this regard, as we noted in the FOMC statement last month, inflation continues to run below our 2 percent objective and has declined recently; the Committee will be monitoring inflation developments closely in the months ahead.

    [ July 12, 2017 ]

    As I noted earlier, the economic outlook is always subject to considerable uncertainty, and monetary policy is not on a preset course. FOMC participants will adjust their assessments of the appropriate path for the federal funds rate in response to changes to their economic outlooks and to their judgments of the associated risks as informed by incoming data. In this regard, as we noted in the FOMC statement last month, inflation continues to run below our 2 percent objective and has declined recently; the Committee will be monitoring inflation developments closely in the months ahead.

  • Janet L. Yellen I try not to opine on the level of asset prices, although our report notes that valuations, generally, are toward the top of their historical ranges. What I try to think about is, if there are adjustments in asset prices, what consequences would they have on our financial system, in our economy.  And, in that context, look for evidence that searching asset prices might be leading to imprudent borrowing, a build up in leverage in the economy that would be dangerous if the prices were to unwind. And we're not seeing that so ...  financial stability risks, at this point, [appear] moderate.

    [ July 12, 2017 ]

    In looking at asset prices and valuations, we try not to opine on whether they are correct or they're not correct. But as you asked what the potential spillovers or impacts on financial stability could be of asset price revaluations, my assessment of that is that, as asset prices have moved up, we have not seen a substantial increase in borrowing based on those asset price movements. We have a financial system, a banking system that's well-capitalized and strong, and I believe it's resilient. 

    [And later...]

    I try not to opine on the level of asset prices, although our report notes that valuations, generally, are toward the top of their historical ranges. What I try to think about is, if there are adjustments in asset prices, what consequences would they have on our financial system, in our economy.  And, in that context, look for evidence that searching asset prices might be leading to imprudent borrowing, a build up in leverage in the economy that would be dangerous if the prices were to unwind. And we're not seeing that so ... [we judge that] financial stability risks, at this point, are moderate.