FOMC Press Conference - 2016-03-16
Central bank: fed | Type: press_conference | Date: 2016-03-16

March 16, 2016 Chair Yellen’s Press Conference FINAL
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Transcript of Chair Yellen’s Press Conference
March 16, 2016
CHAIR YELLEN. Good afternoon. Today the Federal Open Market Committee decided
to maintain the target range for the federal funds rate at ¼ to ½ percent. Our decision to keep
this accommodative policy stance reflects both our assessment of the economic outlook and the
risks associated with that outlook. The Committee’s baseline expectations for economic activity,
the labor market, and inflation have not changed much since December: With appropriate
monetary policy, we continue to expect moderate economic growth, further labor market
improvement, and a return of inflation to our 2 percent objective in two to three years. However,
global economic and financial developments continue to pose risks. Against this backdrop, the
Committee judged it prudent to maintain the current policy stance at today’s meeting. I will
come back to our policy decision momentarily, but first let me review recent economic
developments and the outlook.
The labor market continues to strengthen. Over the most recent three months, job gains
averaged nearly 230,000 per month, similar to the pace experienced over the past year. The
unemployment rate was 4.9 percent in the first two months of the year, about in line with the
median of FOMC participants’ estimates of its longer-run normal level. A broader measure of
unemployment that includes individuals who want and are available to work but have not
actively searched recently and people who are working part time but would rather work full time
has continued to improve. Of note, the labor force participation rate has turned up noticeably
since the fall, with more people working or actively looking for work as the prospects for finding
jobs have improved. But there is still room for improvement: Involuntary part-time employment
remains somewhat elevated, and wage growth has yet to show a sustained pickup.
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The improvement in employment conditions so far this year has occurred as economic
growth appears to have picked up from the modest pace seen in the fourth quarter of last year.
Household spending is expanding at a moderate rate, supported by continued job gains and
increases in inflation-adjusted incomes. In contrast, business investment has been weak, in part
reflecting further reductions in oil drilling as a result of low oil prices. Net exports also remain
soft as a consequence of subdued foreign growth and the earlier appreciation of the dollar.
Looking ahead, the Committee expects that, with gradual adjustments in the stance of monetary
policy, economic activity will continue to expand at a moderate pace and labor market indicators
will continue to strengthen.
Ongoing economic growth and additional strengthening in labor market conditions are
important factors underpinning the inflation outlook. Overall consumer price inflation—as
measured by the price index for personal consumption expenditures—stepped up to 1¼ percent
over the 12 months ending in January, as the sharp decline in energy prices around the end of
2014 dropped out of the year-over-year figures. Core inflation, which excludes energy and food
prices, has also picked up, although it remains to be seen if this firming will be sustained. In
particular, the earlier declines in energy prices and appreciation of the dollar could well continue
to weigh on overall consumer prices. But once these transitory influences fade and as the labor
market strengthens further, the Committee expects inflation to rise to 2 percent over the next two
to three years.
The Committee’s inflation outlook rests importantly on its judgment that longer-run
inflation expectations remain reasonably well anchored. However, the stability of longer-run
inflation expectations cannot be taken for granted. Survey-based measures of longer-run
inflation expectations are little changed, on balance, in recent months, although some remain
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near historically low levels. Market-based measures of inflation compensation also remain low.
Movements in these indicators reflect many factors and therefore may not provide an accurate
reading on changes in the inflation expectations that are most relevant for wage and price setting.
Nonetheless, our statement continues to emphasize that, in considering future policy decisions,
we will carefully monitor actual and expected progress toward our inflation goal.
This general assessment of the outlook is reflected in the individual economic projections
submitted for this meeting by FOMC participants. As always, each participant’s projections are
conditioned on his or own—his or her own view of appropriate monetary policy, which, in turn,
depends on each person’s assessment of the multitude of factors that shape the outlook.
Participants’ projections for growth of inflation-adjusted gross domestic product or GDP are just
a touch lower than the projections made in conjunction with the December FOMC meeting. The
median growth projection edges down from 2.2 percent this year to 2 percent in 2018, in line
with its estimated longer-run rate. The median projection for the unemployment rate falls from
4.7 at the end of this year to 4.5 percent at the end of 2018, somewhat below the median
assessment of the longer-run normal unemployment rate. The median path of the unemployment
rate is a little lower than in December, in part reflecting a slightly lower median estimate of the
longer-run normal unemployment rate. Finally, with the transitory factors holding down
inflation expected to abate and labor market conditions anticipated to strengthen further, the
median inflation projection rises from 1.2 percent this year to 1.9 percent next year and 2 percent
in 2018. The median inflation projection for this year is a little lower than in December, but
thereafter the median projections are unchanged.
Since the turn of the year, concerns about global economic prospects have led to
increased financial market volatility and somewhat tighter financial conditions in the United
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States, although financial conditions have improved notably more recently. In addition,
economic growth abroad appears to be running at a somewhat softer pace than previously
expected. These unanticipated developments, however, have not resulted in material changes to
the Committee’s baseline outlook. One reason for this is that market expectations for the path of
policy interest rates have moved down, and the accompanying decline in longer-term interest
rates should help cushion any possible adverse effects on domestic economic activity. Indeed,
while stock prices have fallen slightly since the December meeting and spreads of investment-
grade corporate bond yields over those on comparable-maturity Treasury securities have risen,
mortgage rates and corporate borrowing costs have moved lower. Of course, the Committee will
continue to monitor these developments closely and will adjust the stance of monetary policy as
needed to foster our goals of maximum employment and 2 percent inflation.
Returning to monetary policy, as I noted earlier, the Committee decided to maintain its
target range for the federal funds rate. This decision partly reflects the implications for the U.S.
economy of the global economic and financial developments I just mentioned. In addition,
proceeding cautiously in removing policy accommodation at this time will allow us to verify that
the labor market is continuing to strengthen despite the risks from abroad. Such caution is
appropriate given that short-term interest rates are still near zero, which means that monetary
policy has greater scope to respond to upside than to downside changes in the outlook.
As we indicated in our statement, “the Committee expects that economic conditions will
evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal
funds rate is likely to remain, for some time, below levels that are expected to prevail in the
longer run.” This expectation is consistent with the view that the neutral nominal federal funds
rate—defined as the value of the fed eral funds rate that would be neither expansionary nor
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contractionary if the economy was operating near potential—is currently low by historical
standards and is likely to rise only gradually over time. The low level of the neutral federal
funds rate may be partially attributable to a range of persistent economic headwinds that weigh
on aggregate demand, including developments abroad, a subdued pace of household formation,
and meager productivity growth. There is considerable uncertainty regarding the evolution of
the neutral funds rate over time. However, if these headwinds abate, as we expect, the neutral
federal funds rate should gradually move higher as well.
This view is implicitly reflected in participants’ projections of appropriate monetary
policy. The median projection for the federal funds rate rises only gradually to 0.9 percent late
this year and 1.9 percent next year. As the factors restraining economic growth are projected to
fade further over time, the median rate rises to 3 percent by the end of 2018, close to its longer-
run normal level. Compared with the projections made in December, the median path is about
½ percentage point lower this year and next; the median longer-run normal federal funds rate has
been revised down as well. In other words, most Committee participants now expect that
achieving economic outcomes similar to those anticipated in December will likely require a
somewhat lower path for policy interest rates than foreseen at that time.
I would like to underscore, however, that the participants’ projections for the federal
funds rate, including the median path, are not a “plan” for future policy. Policy is not on a preset
course. These forecasts represent participants’ individual assessments of what appropriate policy
would be given each person’s own current projections of the most likely outcomes for economic
growth, employment, inflation, and other factors. However, considerable uncertainty attaches to
each participant’s forecasts of economic outcomes. Hence, their assessments of appropriate
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policy are also uncertain and will change in response to adjustments to the economic outlook and
associated risks, as was the case between December and now.
Also, it is important to note that the Committee makes its decisions on a meeting-by-
meeting basis and does not and need not decide on a likely future path for the federal funds rate.
Indeed, the future path of policy is necessarily uncertain because the economy will surely evolve
in unexpected ways. As we note in our statement, “the actual path of the federal funds rate will
depend on the economic outlook as informed by incoming data.”
Finally, the Committee will continue its policy of reinvesting proceeds from maturing
Treasury securities and principal payments from agency debt and mortgage-backed securities.
As highlighted in our policy statement, we anticipate continuing this policy “until normalization
of the level of the federal funds rate is well under way.” Maintaining our sizable holdings of
longer-term securities should help maintain accommodative financial conditions and should
reduce the risk that we might have to lower the federal funds rate to zero in the event of a future
large adverse shock.
Thank you, and I’ll be happy to take your questions.
STEVE LIESMAN. Steve Liesman, CNBC. Madam Chair, as you know, inflation has
gone up the last two months. We had another strong jobs report, the tracking forecasts for GDP
have returned to 2 percent, and yet the Fed stands pat while it’s in a process of what it said it
launched in December was a “process of normalization.” So I have two questions about this:
Does the Fed have a credibility problem, in the sense that it says it will do some—one thing
under certain conditions but doesn’t end up doing it? And then, frankly, if the current conditions
are not sufficient for the Fed to raise rates, well, what would those conditions ever look like?
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CHAIR YELLEN. Well, let me start—let me start with the question of the Fed’s
credibility, and you used the word “promises” in connection with that. And, as I tried to
emphasize in my opening statement, the paths that the participants project for the federal funds
rate and how it will evolve are not a preset plan or commitment or promise of the Committee.
Indeed, they are not even—the median should not be interpreted as a C ommittee-endorsed
forecast, and there’s a lot of uncertainty around each participant’s projection. And they will
evolve—those assessments of appropriate policy are completely contingent on each participant ’s
forecast of the economy and how economic events will unfold. And they are, of course,
uncertain, and you should fully expect that forecasts for the appropriate path of policy on the part
of all participants will evolve over time as shocks, positive or negative, hit the economy that alter
those forecasts. So you have seen a shift this time in most participants’ assessments of the
appropriate path for policy, and, as I tried to indicate, I think that largely reflects a somewhat
slower projected path for global growth—for growth in the global economy outside the United
States—and for some tightening in credit conditions in the form of an increase in spreads. And
those changes in financial conditions and in the path of the global economy have induced
changes in the assessment of individual participants in what path is appropriate to achieve our
objectives. So that’s what you see. That’s what you see.
Now, I guess you asked me also what would we need to see to continue raising rates, and
I think it’s worth pointing out here that the Committee—most participants do continue to
envision that if economic developments unfold as they expect, that further increases in the
federal funds rate will prove appropriate over time. Most participants anticipate that, and that the
pace will be gradual. As I emphasized, most empirical work attempting to assess what the
equilibrium level of the fed funds rate is, a level that would be neither expansionary nor
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contractionary is—those assessments are quite low at this time. So there is accommodation in
the stance of policy, and we do expect, over time, that neutral rate to move up, but, you know,
we’re not positive what rate—what the pace of change of that will be over time. But, given that
the economy is now close to our maximum employment objective, you know, hopefully inflation
is moving up— I mentioned, as you mentioned, recent readings on inflation have moved up.
There may be some— you know, I want to warn that there may be some transitory factors that are
influencing that. But, certainly, our projections are for a gradual increase in inflation, and the
Committee—at least , most participants continue to expect that if we follow along this course,
that some further adjustments in the federal funds rate will be appropriate but gradual.
SAM FLEMING. Sam Fleming from the Financial Times. Can I just follow up on this
inflation point? Because the numbers have been ticking up, as you said—s omewhat, at least.
And we’re also, as you said, also at a point where we have quite close to full employment. Is
there a risk that we’re heading for an overshoot in inflation, and is there, given the greater
symmetry the Fed has been flagging up, in terms of its inflation target, a greater tolerance for a
modest overshoot, especially given the long period of undershoots that we’ve been through?
CHAIR YELLEN. So I want to make clear that our inflation objective is 2 percent, and
we are projecting a move back to 2 percent. And we are not trying to engineer an overshoot of
inflation, not to compensate for past undershoots, so 2 percent is our objective. But it is a
symmetric objective, and we certainly don’t seek to overshoot our objective. But some
undershoots and overshoots are part of how the economy operates, and our tolerance for those is
symmetric with respect to under- and overshoots. We did take note in the statement of the fact
that inflation has picked up in recent months. I see some of that as having to do with unusually
high inflation readings in categories that tend to be quite volatile without very much significance
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for inflation over time. So I’m wary and haven’t yet concluded that we have seen any significant
uptick that will be lasting in, for example, in core inflation. But we note—the C ommittee notes,
as it did in December, that we continue to monitor development trends and developments
closely, and that would include both the fact that recent inflation readings have been on the high
side, and, as I mentioned, on the other side, that readings on measures of inflation compensation
and some survey measures have been on the low side. So, in that sense, there are risks around
the inflation forecast in both—in both dire ctions.
LINDSAY DUNSMUIR. Hi, Lindsay Dunsmuir with Reuters. Your statement did note
that, as you’re saying, that inflation has picked up in recent months, and you do still see it going
back to 2 percent over the medium term. Yet policymakers have downgraded GDP growth
forecasts for this year and one of the inflation measures. So that to me would indicate a
weakening economic environment, and I’m wondering how, in that environment, you justify the
possibility of two rate hikes this year.
CHAIR YELLEN. So there has been a slight downgrading of the assessment of
economic growth for this year. But, nevertheless, growth is expected to run in—somewhat i n
excess of potential, so that the labor market is expected to continue to tighten, and by the end of
the year, even edge below levels that—of the unemployment rate —that are estimated to be
longer in the normal run, and inflation is expected to gradually move back to 2 percent over time.
We still have, weighing on inflation, the influence of earlier declines in energy prices and a
prolonged effect from the appreciation of the dollar, but we do expect those transitory influences
to fade. And with a continuing—continuing improvement in the labor market, I think we’ll see
upward pressure on inflation. And, in that context, the Committee sees it appropriate to—if
things unfold in that way, to have some further increases in the federal funds rate. It remains
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accommodative. As I indicated in December—the C ommittee indicated in December, we want
inflation to go back to 2 percent. But we also want to be careful not to see some significant
overshoots, so that we would get behind the curve and potentially be faced with a need to tighten
in a very rapid fashion later in a way that could undermine the sustainability of the employment
gains we have had. But we do see some continued tightening in monetary policy to be
appropriate in that event.
PETER BARNES. Chair Yellen, over here. Hi, Peter Barnes with Fox Business. Could
you get a little bit more specific about the global and economic financial developments that
continue to pose risks to the U.S. economy? You did mention a strong dollar there just a second
ago and slowing global growth. But are you specifically concerned about, for example, China,
the emerging markets, and the E.U.? Could you expand on the risks?
CHAIR YELLEN. So there has been, by many forecasters, a slight downgrading of
forecasts of global growth in—over the coming several years. The IMF has slightly downgraded
their forecasts, and other international agencies have as well. Chinese growth hasn’t proven a
great surprise. We’ve anticipated that it would slow over time, and it seems to be slowing as
well. Japanese growth in the fourth quarter was negative, and that was something of a surprise.
And with respect to the euro area, recent indicators suggest perhaps slightly weaker growth. So
there’s been a number of emerging markets—a s you know, we’re suffering under the weight of
declines in oil prices that are affecting their economic activity. Our neighbors both to the north
and south, Canada and Mexico, are feeling the impacts of lower oil prices on their growth. So
our projection for global growth, for those reasons, is slightly lower—not dramatically lo wer, but
enough lower to make some difference to our forecast. And, as I indicated, I think that’s part of
the reason, along with the associated increase we have seen in some spreads that are involved
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in—enter into corporate borrowing rates, and can affect investment decisions. It’s a reason to
think that a slightly lower path for the federal funds rate will be appropriate to achieve our
objectives. And so what you see here is a virtually unchanged path of economic projections and
a slightly more accommodative path that most participants are writing down for what’s necessary
to achieve that.
KATE DAVIDSON. Thank you. Kate Davidson from the Wall Street Journal. Madam
Chair, you’ve emphasized repeatedly that every meeting of the FOMC is a live meeting. You
have a meeting next month. Is it possible that you could get enough information between now
and then to, you know, get you comfortable with raising rates again in April, and what would
you need to see?
CHAIR YELLEN. So I will say again that every meeting is a live meeting. April
remains a live meeting, and we will be tracking incoming data. It’s a slightly shorter period. We
have six weeks, but there will be additional data on the labor market and on various factors that
pertain to inflation. So that’s, you know, that’s— that is certainly a live possibility.
STEVEN MUFSON. Two questions. The oil—lower oil prices . I think a lot of people
expect it to lead to more consumer spending. What do you—how do you see and how do you
explain that that hasn’t worked out as well—the way a lot of people expect ed? And also, if oil
prices were to pop back up to, say, $50, not that high by some standards, what impact would that
have on inflation? And would you be paying more attention to the overall inflation rate? Or
would you then look to the core rate to—to —to determine what the Fed ’s policies would be?
CHAIR YELLEN. So let me start with the impact of oil prices on consumer spending. I
have to say, it’s very difficult when you look at patterns of consumer spending to—t here are
many factors that influence it, and to definitively say that lower oil prices have not boosted
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consumer spending, I’m not sure we can really arrive at that conclusion in any—in any rigorous
way. The typical—t he average household in the United States with oil prices where they are
now is probably benefiting around $1,000 a year. And some very detailed microdata that I’ve
seen on household spending patterns suggest that there may be a link, as you would expect, from
reduced bills— you know, reduced amounts that people pay at the pump to other spending, like
eating out at—for restaurant meals and other things. But the aggregate data, I— you know, is not
as strong as it—and spending is not as strong as it could be, given the decline. And , of course,
on the other side, we are—and , you know, it may be that it will take a while, and it’s something
that will slowly strengthen over time if oil prices stay low. On the other side, of course, we have
seen a marked decline in drilling activity, which has depressed investment spending, and, of
course, very substantial layoffs in the energy sector.
With respect to impact of oil prices on inflation and what would happen if they move up,
the Committee has generally tended to look through movements in oil prices, whether they were
on the upside or on the downside, viewing it as a factor that should have a transitory influence.
And when I say that, what I mean is that if oil prices move up during the time that it’s moving
up, it raises inflation. But they don’t need to move down again to their previous levels for that
influence to disappear, they only need to stabilize at a higher level. And, similarly, oil prices
have obviously moved down a great deal over the last year, and we’re not expecting them to
move back to their previous levels but to stabilize at some level. They’re obviously volatile, but,
as they stabilize, the influence will move out of both headline—of headline inflation. And that ’s
what you see in the forecasts of participants. So if oil prices were to increase to 50, I mean, that
would probably slightly move up our expected path for core inflation, maybe speed how rapidly
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we would move back to 2 percent, but I wouldn’t think that that would be something alone that
would have great policy significance.
MARTIN CRUTSINGER. Marty Crutsinger, Associated Press. You said in—t he policy
statement in December said that the risks to the outlook were “balanced,” and you raised rates.
That phrasing disappeared then in January and March. Could you talk a little bit about—but in
your comments today, you seem to be indicating that not that much has changed. Could you
help us understand what needs to happen to get back to “balanced,” and is that the language we
need to look for to see the next rate hike?
CHAIR YELLEN. So let me say that, in recent weeks, I think the Committee certainly
thinks that risks to the outlook have diminished. Nevertheless, we continue to see risks, which
we highlighted. Now, I would point out that we decided not to describe the balance of risks as
weighted to the downside. So the Committee did not reach that judgment, and there is no
collective judgment in this statement on whether the risks are balanced or not. My—w e declined
to make a collective assessment. You know, my guess is that some participants see them as
balanced, and some see them as weighted somewhat to the downside.
But I think it is important to note a couple of things. First of all, the U.S. economy has
been very resilient in recent months in the face of shocks, and we highlighted that right at the
beginning of our statement, where we said that “economic activity has been expanding at a
moderate pace despite the global economic and financial developments of recent months.” And
that—that is important, that the U .S. economy continues to do well. Second, I would say that
while global developments do pose some downside risks, the risks are not all one sided. A
number of countries—including China, the e uro area, the Bank of Japan—have taken measures
to stimulate the economy, so there is also upside risk to the economic outlook. And, in addition,
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oil prices have rebounded from their lows, and that eases concerns about the financial condition
of some energy firms and the stresses facing some oil-producing economies. And, at the same
time, low oil prices continue to boost household purchasing power. So there are risks. We’re
attentive to them. We have not described them as unbalanced to the out—to the downside , and
they are two sided. One can identify both upside and downside risks there.
JIM PUZZANGHERA. Hi, Jim Puzzanghera with the L.A. Times. Wage growth thus far
has been disappointing. It’s been very uneven. It was disappointing, figures in last month’s jobs
report. Why do you think that is, and how important is sustained wage growth to removing your
wariness on inflation?
CHAIR YELLEN. So I must say I’m— I do see broad-based improvement in the labor
market, and I’m somewhat surprised that we’re not seeing more of a pickup in wage growth. But
at least—and I have to say , in anecdotal reports, we do hear quite a number of reports of firms
facing wage pressures and even broad-based, slightly faster increases in wages— wage increases
that they’re granting. But in the aggregate data, one doesn’t yet see any convincing evidence of
a pickup in wage growth. It’s mainly isolated to certain sectors and occupations. So I do think,
consistent with the 2 percent inflation objective, that there is certainly scope for further increases
in wages. The fact that we have not seen any broad-based pickup is one of the factors that
suggests to me that there is continued slack in the labor market, but I would expect wage growth
to move up some.
PATRICK GILLESPIE. Patrick Gillespie with CNNMoney. Chair Yellen, numerous
polls show—by CNN and others —show that the U .S. economy is American voters’ number one
concern right now. There’s a lot of negative sentiment about the economy, yet unemployment is
low, job gains have been pretty good for the past year, and consumer confidence has picked up.
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Why do you think there is such disparity between the progress—between the economy and its
progress and how voters feel? And my second question is, how does any negative sentiment
about the economy factor into your economic outlook and the decisions you make on monetary
policy? Thank you.
CHAIR YELLEN. Let me start with your second question, if I might. So in trying to
judge the outlook for the economy, we do look at measures pertaining to consumer sentiment,
and they are in solid territory. Household balance sheets are much improved. Gains in inflation-
adjusted disposable income are running at a healthy pace. As I mentioned, households have
benefited pretty significantly from lower oil prices, and measures of consumer sentiment do
reflect—do reflect that. So they are not at low levels. And, really, the labor market, I think, has
improved a great deal. And every demographic group that, you know, we track regularly has
seen improvement in their labor market situation—perhaps not all equally , but almost all
demographic groups have seen improvement. So I— I think it’s right to say the economy is
improving, and most groups are seeing benefits.
That said, we know that inequality has been rising in the United States over many years,
not just the last several but going back to the mid-’80s. There has been downward pressure on
real wage groups—on real wage gains for groups , particularly those that are less skilled and
educated, and those longer-term trends that may be associated with a number of factors—
technological change and globalization—have been a concern for many, many years, a nd that
may be part of what you’re—we ’re seeing expressed.
CHRISTOPHER CONDON. Thank you, right here. Chair Yellen, there seems to be
some growing sentiment that even if the direct economic ties between the U.S. and other
economies is still relatively modest, that the impact through financial markets and exchange rates
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has become more robust. And because of that, it’s becoming more difficult or will become more
difficult for the Fed to diverge from other major central banks with its benchmark interest rate.
Would you generally agree with that sentiment? Why or why not?
And, very briefly, second, if I may—in your mind, does it undermine in any way the
standing of the Federal Reserve as a nonpartisan institution when one of its sitting Governors
contributes to the campaign of a national political figure? Thank you.
CHAIR YELLEN. So let me start with the question pertaining to exchange rates. We
have global capital markets. In—in a world with highly integrated capital markets, monetary
policy actions in any country have effects—spillovers to other countries. T hat’s true of our
monetary policy, and it’s true of other countries’ monetary policies. In part, that shows up
through movements in exchange rates, and those movements are a factor that any country needs
to take into account in deciding what is the appropriate stance of monetary policy. So the fact
that there are these linkages is an important factor in designing a monetary policy.
But it does not mean that monetary—U .S. monetary policy is somehow constrained in a
way that makes it impossible for our monetary policy to diverge from policies abroad. There are
many periods when monetary policies in different countries have moved in different directions,
and, you know, the United States has been growing more strongly and had better success in the
labor market than many other advanced countries. And, at this point, it’s natural that there
should be some divergence in our monetary policies. Movements in exchange rates partly reflect
So I wouldn’t want to endorse the notion if, you know—that you ’re suggesting, that our
policy is in some way crippled by the fact that there are these interlinkages. That’s simply how
the global financial system works. We—this is one reason we meet —meet frequently with other
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economic policymakers in other countries, exchange notes about how we see economic
developments evolve, and try to keep one another apprised of economic developments and likely
policy responses.
Your second question concerned the political contributions. So I want to start by saying
independent institution devoted to pursuing our congressionally mandated objectives, and I have
never seen political views in any way influence the policy judgments that are made inside the
Federal Reserve. I want to say that emphatically.
The political activities of Governors, participants, government employees are governed
by the Hatch Act. We are all subject to that, and the Hatch Act does allow campaign
contributions to be made. It outlaws other forms of partisan activity. And I would say, within
that, so it is each—it’ s up to each individual to decide what is appropriate, in their point of view.
But the Federal Reserve is not—is not a partisan political organization.
BINYAMIN APPELBAUM. Binya Appelbaum, the New York Times. The policy, the
projections—the new economic projections appear to reflect an increase in your estimate of the
extent of labor market slack. You talked about one possible reason for that, which is the softness
of wage growth. Are there other considerations that have led you to increase your estimate of
how much slack there is in the labor market?
CHAIR YELLEN. So I should point out that I think what you’re talking about is the
slight decline in the median estimate of the longer-run normal unemployment rate. Is that—is
that what you’re—
BINYAMIN APPELBAUM. That, and the slope of the path of rate increases combined
with projections of relatively low inflation.
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CHAIR YELLEN. So I—the path of rate increases maybe slightly reflects the modest
decline in estimates of the longer-run normal unemployment rate. That, I would say, reflects, for
those who brought it down, an estimate of greater slack in the labor market. The fed funds rate
projection is not just that. It’s also, as I mentioned, a reflection of shifts in other views about, for
example, the likely pace of global growth that affects what we need, as a policy path, to achieve
our objectives. But the slow pace of wage growth, the fact that part-time employment for
economic reasons and voluntary part-time employment remains high— we have seen an upward
move in labor force participation, which is heartening and suggests that there was scope there for
further improvement in the labor market. My guess is that those things influenced individuals
who wrote down a slightly lower number for the longer-run unemployment rate.
NANCY MARSHALL-GENZER. Nancy Marshall-Genzer from Marketplace. We’ve
heard a lot of talk today about President Obama’s pick for the Supreme Court, but there are a
Chair[man] for Supervision, that the President hasn’t even nominated anyone for. Would you
like the President to nominate someone for that position, and what effect are those vacancies
having on the Fed?
CHAIR YELLEN. Well, I think Congress intended for the Federal Reserve Board to
have seven members, and that tends to bring on board people with a wide spectrum of views and
experience and perspectives. I think that’s valuable, and I would like to see the Senate move
forward and consider these nominees so that we could operate with a full complement.
With respect to the nomination for Vice Chair[man] [for] Supervision, that’s a question
that I think you need to pose to the White House. I, you know, would say that we are doing a
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very good job on supervision, and, you know, we are very focused on and devote a great deal of
time to that issue. So, really, it’s—the nomi nation question is one for the White House.
JOHN HELTMAN. Thank you, Madam Chair. John Heltman with American Banker.
The President last week expressed concern about what he termed “cynicism” on both sides of the
aisle concerning progress made since the crisis to reform the banking sector and the financial
sector more generally. Do you share that concern about, kind of, public attitudes that either not
enough has been done or what has been done has not been effective in changing the regulatory
landscape in banking? Just what are your thoughts?
CHAIR YELLEN. So I feel a great deal has been done. We have been working at this
for a number of years, and I believe we have made very substantial progress. We have a—much
more capital, higher-quality capital, liquidity in the banking system. Our supervision has—we
have made very meaningful changes for—in our supervision, for example. The stress tests—the
stress-test methodology that we use routinely to evaluate the robustness of the capital positions
and plans of the largest institutions constitutes a quantum leap in terms of, I think, the quality of
the supervision we are providing, especially of the largest firms. So we have finished writing
most of the Dodd-Frank rules. We are working very hard on “too big to fail,” which is of grave
concern to the American people.
In addition to having a financial system that is more robust and less likely to experience a
failure, we have also worked very hard, continue to work on making sure we have the ability to
resolve a firm if it were to fail in spite—in spite of having more capital and liquidity. And there,
too, I think, we have made very substantial progress.
A month or so ago, we came out with a rule—so -called TLAC rule—that would require
the largest firms to hold a substantial buffer of long-term debt that, in the event that they were to
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fail, could be bailed in to protect the taxpayer from having to bear any burden in terms of
injecting capital into the firms—it would provide loss absorption in that event. And working
jointly, closely with the FDIC, firms have made a great deal of progress with their living wills.
We’re in the process of evaluating the most recent submissions. And working with the FDIC, I
think, potential techniques that could be used in the event of a failure of a significant financial
institution, we have also made a lot of progress there.
I think I was at the meeting of financial regulators with the President when he made those
comments, and I understood that what he was trying to tell the American people, that they should
understand there really has been very substantial progress, and that’s something they should be
JOHN HELTMAN. Can I follow up, just real quick? Sorry. But do you think that,
despite all that progress, that there—why hasn ’t that message—why hasn ’t—w hy haven’t these
improvements made its way to the public? And perhaps, like, do you find that that is an obstacle
either among people that you meet, people in the public, or the representatives in Congress that
maybe have this pervasive view that nothing has changed? Is that an obstacle? Is that a
CHAIR YELLEN. Well, I think— I think it’s our job as we make these improvements to
explain what we’re doing and to try to educate the public about what’s happened, and they may
not understand how much has changed. It’s certainly part of my own responsibility to try to
explain that to the American people.
KAREN MRACEK. Karen Mracek with Market News International. In the SEP today,
the unemployment rate forecast for future years—for 2017, 2018—was marked dow n without
changes to inflation, and there seems to be a growing debate about the relationship between
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higher—lower unemployment and higher i nflation. What is your view about the strength of this
relationship, the Phillips curve, and how does that view weigh in to just how much actual
inflation versus anticipation—anticipated inflation you ’ll need to see?
CHAIR YELLEN. Okay, so that was a complicated question, and there—let me start
with the Phillips curve. So the Phillips curve posits that there is a relationship between the
degree of slack in the labor market and inflation, and it is an empirical relationship that, while
not absolutely tight, has been a consistent relationship over time, and I believe that relationship
still holds. But the impact of shifts in the unemployment rate on inflation should not be
overstated. The Phillips curve has become, according to most estimates, quite flat in the sense
that movements in unemployment have only a modest impact on inflation, so we shouldn’t
overblow how large that is.
In addition, the Phillips curve theory suggests that inflation expectations are also an
important driver of actual wage- and price-setting decisions and inflation behavior, and I believe
there’s also solid empirical evidence for that. And it’s one of the reasons that I highlighted in my
statement, and we continue to highlight in the FOMC statement, that we are tracking indicators
of the inflation expectations that matter to wage and price setting.
Now, unfortunately, we don’t have perfect measures of these things. We have survey
measures. We know that household measures, even when households are asked about longer-
term inflation—at longer -term inflation, they tend to move in response to salient changes in
prices that they see every day. In particular, when gas prices go down, which is very noticeable
to most households, you tend to see a view— you tend to see responses about long-term inflation
marked down. So that’s kind of an overresponse to something that’s transitory. So it’s difficult
to get a clear read from those survey measures.
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Inflation compensation as measured in financial markets also embodies a variety of risk
premia and liquidity premia. And so, it’s also—we monitor those closely and discuss them in the
statement in paragraph one, but, again, there’s not a straight read on what’s happening to the
expectations that influence wage and price setting. But this model continues to at least influence
my own thinking, and it certainly is a factor that I and at least some of my colleagues are
incorporating in these projections.
ERIK SCHATZKER. Erik Schatzker, Bloomberg Television. Madam Chair, thank you.
Notwithstanding what the dots tell us about rate expectations, has there been any discussion
among members of the Committee about the potential need for further stimulus? And even if
there hasn’t been such a discussion yet, could you share with us what you have learned from the
reevaluation of negative interest rates, whether you consider negative interest rates effective,
how effective relative to quantitative easing, and whether the Committee would hypothetically
use them instead of or in conjunction with quantitative easing in the event that the economy
should warrant further stimulus?
CHAIR YELLEN. Okay. So what I would like to make clear is that this is not actively a
subject that we are considering or discussing. The Committee continues to feel that we are on a
course where the economy is improving and inflation is moving back up. And, as I indicated, if
events continue to unfold in that way, we are likely to gradually raise rates over time. Again,
that’s not fixed in stone. We’ll watch how the economy behaves. We’re prepared to respond if
things transpire differently, but we are not spending time actively debating and considering
things we could do for additional accommodation and certainly not actively considering negative
rates. We are looking at the experience in other countries, and I guess I would judge they seem
to have mixed effects, you know, some positive and some negative things.
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But, look, if we found ourselves in the unlikely situation where we needed to add
accommodation, we have a range of tools. And we know from the things we did in the past that
we have a number of options with respect to the maturity, for example, of our portfolio, with
respect to asset purchases or forward guidance that remain available to us, that are tools we could
turn to in the unlikely event that we need to add accommodation. So negative rates is not
something that we’re actively considering.