Federal Reserve press conference, 2016-09-21 — Chair Janet Yellen

Question (Howard Schneider, Reuters): Hi. Howard Schneider with Reuters. Chair, thanks for this. I was wondering if you could comment a little bit on the apparent tension between the steady drift down in the long-run rate and the steady drift down in some of the projections and the seeming march toward a rate hike. If the neutral rate’s coming down over time and continues coming down and you’re eating up accommodation that way anyway, why not wait for the dust to settle on that before moving rates up?
Answer: So it is true that our estimates of the neutral rate are coming down, and that’s what’s largely responsible for that shift. At the same time, we generally agree that the stance of monetary policy is somewhat accommodative. So 180,000 jobs a month is a faster pace of employment growth than is sustainable in the longer run. Now, we have seen people come into the labor force and maybe more than would be expected, which is why the unemployment rate hasn’t fallen. But that’s probably not something that is possible without the economy overheating on an indefinite basis. So policy needs to be forward looking. We don’t want the economy to overheat and significantly overshoot our 2 percent inflation objective. That’s one risk that we need to address. And I think we generally agree that some gradual increases to remove that accommodation will be appropriate if we stay on this course. But, as I emphasized, it’s not that much accommodation, and the economy has shown evidence that there are more people who are being attracted back into the labor force. So, in that sense, I would characterize it as, we found the economy has a bit more running room. Nevertheless, we don’t want the economy to overheat, and if things continue on the current course, I think that some gradual increases will be appropriate. And, mainly, what we discussed today were issues affecting the timing of such increases.

Question (Jim Tankersley, Washington Post): Hi. Jim Tankersley, Washington Post. Over the past year we’ve seen American policymakers begin to have maybe our most serious discussion about tariffs in the last several decades. If tariffs were to be enacted in the coming year or so, does the Fed have an opinion on what that would do to growth in America?
Answer: So, you know, that’s a political issue that’s currently being debated that I really don’t want to get into. You know, so—I’m going to—I’m going to pass on that one.

Question (John Heltman, American Banker): So, “No”?
Answer: So I’m not—I’m not endorsing a general conclusion that banks are— banks of that size are too big to manage. I believe they can be, but it may be challenging, and that’s what we expect.