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No surprises though dismissive of Hurricane affects despite their size is an interesting one – though not surprising main street v. ivory towers.
FOMC Press Conference Live
https://www.youtube.com/watch?v=SpX20Pf8sFoYellen opening statement Sept 20
Highlights
Low inflation doesn’t reflect broad economic conditions
Effects holding down inflation should be transitory
Our understanding of forces behind inflation is imperfect
Fed prepared to adjust monetary policy as needed to get back to 2%
Payrolls may be impacted in Sept by hurricanes
Exports have picked up on stronger global economy
Business investment has picked up
Economy will warrant continued, gradual rate hikes
Policy is not on a pre-set course
Balance sheet will decline gradually and predictably
Fed funds will not have to rise much further to get to neutral stanceSeptember 20, 2017 Chair Yellen’s Press Conference Opening Statement
1
Transcript of Chair Yellen’s Press Conference Opening Remarks
September 20, 2017CHAIR YELLEN: Good afternoon. At our meeting that concluded earlier today, my
colleagues and I on the Federal Open Market Committee decided to maintain the target range for
the federal funds rate at 1 to 1-1/4 percent. This accommodative policy should support some
further strengthening in the job market and a return to 2 percent inflation, consistent with our
statutory objectives. We also decided that in October we will begin the balance sheet
normalization program that we outlined in June. This program will reduce our securities
holdings in a gradual and predictable manner. I’ll have more to say about these decisions
shortly, but first I’ll review recent economic developments and the outlook.As we expected, and smoothing through some variation from quarter to quarter,
economic activity has been rising moderately so far this year. Household spending has been
supported by ongoing strength in the job market. Business investment has picked up, and
exports have shown greater strength this year, in part reflecting improved economic conditions
abroad. Overall, we expect that the economy will continue to expand at a moderate pace over
the next few years.In the third quarter, however, economic growth will be held down by the severe
disruptions caused by Hurricanes Harvey, Irma, and Maria. As activity resumes and rebuilding
gets underway, growth likely will bounce back. Based on past experience, these effects are
unlikely to materially alter the course of the national economy beyond the next couple of
quarters. Of course, for the families and communities that have been devastated by the storms,
recovery will take time, and on behalf of the Federal Reserve, let me express our sympathy for
all those who have suffered losses.In the labor market, job gains averaged 185,000 per month over the three months ending
in August–a solid rate of growth that remained well above estimates of the pace necessary to
absorb new entrants to the labor force. We know from some timely indicators such as initial
claims for unemployment insurance that the hurricanes severely disrupted the labor market in the
affected areas, and payroll employment may be substantially affected in September. However,
such effects should unwind relatively quickly. Meanwhile, the unemployment rate has stayed
low in recent months and, at 4.4 percent in August, was modestly below the median of FOMC
participants’ estimates of its longer-run normal level. Participation in the labor force has
changed little, both recently and over the past four years. Given the underlying downward trend
in participation stemming largely from the aging of the U.S. population, a relatively steady
participation rate is a further sign of improving conditions in the labor market. We expect that
the job market will strengthen somewhat further.Turning to inflation, the 12-month change in the price index for personal consumption
expenditures was 1.4 percent in July, down noticeably from earlier in the year. Core inflation–
which excludes the volatile food and energy categories–has also moved lower. For quite some
time, inflation has been running below the Committee’s 2 percent longer-run objective.
However, we believe this year’s shortfall in inflation primarily reflects developments that are
largely unrelated to broader economic conditions. For example, one-off reductions earlier this
year in certain categories of prices, such as wireless telephone services, are currently holding
down inflation, but these effects should be transitory. Such developments are not uncommon
and, as long as inflation expectations remain reasonably well anchored, are not of great concern
from a policy perspective because their effects fade away. Similarly, the recent, hurricanerelated
increases in gasoline prices will likely boost inflation, but only temporarily.broadly, with employment near assessments of its maximum sustainable level and the labor
market continuing to strengthen, the Committee continues to expect inflation to move up and
stabilize around 2 percent over the next couple of years, in line with our longer-run objective.
Nonetheless, our understanding of the forces driving inflation is imperfect, and in light of the
unexpected lower inflation readings this year, the Committee is monitoring inflation
developments closely. As always, the Committee is prepared to adjust monetary policy as
needed to achieve its inflation and employment objectives over the medium term.
Let me turn to the economic projections that Committee participants submitted for this
meeting, which now extend through 2020. As always, participants conditioned their projections
on their own individual views of appropriate monetary policy, which, in turn, depend on each
participant’s assessments of the many factors that shape the outlook. The median projection for
growth of inflation-adjusted gross domestic product (or real GDP) is 2.4 percent this year and
about 2 percent in 2018 and 2019. By 2020, the median growth projection moderates to 1.8
percent, in line with its estimated longer-run rate. The median projection for the unemployment
rate stands at 4.3 percent in the fourth quarter of this year and runs a little above 4 percent over
the next three years, modestly below the median estimate of its longer-run normal rate. Finally,
the median inflation projection is 1.6 percent this year, 1.9 percent next year, and 2 percent in
2019 and 2020. Compared with the projections made in June, real GDP growth is a touch
stronger this year and inflation, particularly core inflation, is slightly softer this year and next.Otherwise, the projections are little changed from June.
Returning to monetary policy, although the Committee decided at this meeting to
maintain its target for the federal funds rate, we continue to expect that the ongoing strength of
the economy will warrant gradual increases in that rate to sustain a healthy labor market and
stabilize inflation around our 2 percent longer-run objective. That expectation is based on our
view that the federal funds rate remains somewhat below its neutral level–that is, the level that is
neither expansionary nor contractionary and keeps the economy operating on an even keel.
Because the neutral rate currently appears to be quite low by historical standards, the federal
funds rate would not have to rise much further to get to a neutral policy stance. But because we
also expect the neutral level of the federal funds rate to rise somewhat over time, additional
gradual rate hikes are likely to be appropriate over the next few years to sustain the economic
expansion. Even so, the Committee continues to anticipate that the longer-run neutral level of
the federal funds rate is likely to remain below levels that prevailed in previous decades.
This view is consistent with participants’ projections of appropriate monetary policy.The median projection for the federal funds rate is 1.4 percent at the end of this year, 2.1 percent
at the end of next year, 2.7 percent at the end of 2019, and 2.9 percent in 2020. Compared with
the projections made in June, the median path for the federal funds rate is essentially unchanged,
although the median estimate of the longer-run normal value edged down to 2.8 percent.
As always, the economic outlook is highly uncertain, and participants will adjust their
assessments of the appropriate path for the federal funds rate in response to changes to their
economic outlooks and views of the risks to their outlooks. Policy is not on a pre-set course.
As I noted, the Committee announced today that it will begin its balance sheet
normalization program in October. This program, which was described in the June addendum to
our Policy Normalization Principles and Plans, will gradually decrease our reinvestments of
proceeds from maturing Treasury securities and principal payments from agency securities. As a
result, our balance sheet will decline gradually and predictably. For October through December,
the decline in our securities holdings will be capped at $6 billion per month for Treasuries and $4 billion per month for agencies. These caps will gradually rise over the course of the following year to maximums of $30 billion per month for Treasuries and $20 billion per month for agency securities and will remain in place through the process of normalizing the size of our balance sheet. By limiting the volume of securities that private investors will have to absorb as we reduce our holdings, the caps should guard against outsized moves in interest rates and other
potential market strains.Finally, as we’ve noted previously, changing the target range for the federal funds rate is
our primary means of adjusting the stance of monetary policy. Our balance sheet is not intended
to be an active tool for monetary policy in normal times. We therefore do not plan on making
adjustments to our balance sheet normalization program. But, of course, as we stated in June, the
Committee would be prepared to resume reinvestments if a material deterioration in the
economic outlook were to warrant a sizable reduction in the federal funds rate.Thank you. I’d be happy to take your questions
Yellen Q&A:
The shortfall of inflation this year is more of a mystery
I will not say that the committee fully understands the shortfall
If inflation shortfall persists, it will be necessary to change monetary policy to address it
Tightness in labor market will lag in pushing up wages and pricesMore:
We are certainly taking into account movements in asset prices in setting policy
As long as we believe we can use Fed funds rate as a tool, that’s how we plan to calibrate policy, not with balance sheet
We would only consider resuming reinvestment if there was a material deterioration in the outlookSo are they admitting ignorance or blaming on inflation
Yellen ‘Idiosyncratic factors don’t full explain inflation miss” and then “If the Fed view on inflation changes, it would require an alteration in monetary policy”
Mmmm Yellen says she hasn’t met with Trump since early in his term … so is she staying around much longer?
[quote=”TradersCom” post=1619]Yellen Q&A:
The shortfall of inflation this year is more of a mystery
I will not say that the committee fully understands the shortfall
If inflation shortfall persists, it will be necessary to change monetary policy to address it
Tightness in labor market will lag in pushing up wages and prices[/quote]Isn’t it the job of the Federal Reserve to understand inflation? How can the Fed be “data dependent” when they don’t understand the data?
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