Federal Reserve press conference, 2017-03-15 — Chair Janet Yellen

Question (James Puzzanghera, Los Angeles Times): Hi, Jim Puzzanghera with the Los Angeles Times. You said you and your colleagues aren’t making assumptions about stimulative fiscal policies, but many other people are. Business and consumer confidence has jumped since the election. Homebuilder sentiment today was at its highest level since 2005. Are you concerned about the effects on the economy if some of these policies, such as tax cuts and infrastructure spending, don’t get enacted or are delayed?
Answer: So we recognize—our statement actually last time noted that there had been an improvement, a marked improvement in business and household sentiment. It’s uncertain just how much sentiment actually impacts spending decisions. And I wouldn’t say at this point that I have seen hard evidence of any change in spending decisions based on expectations about the future. We exchange around the table what we learn from our many business contacts, and I think it’s fair to say that many of my colleagues and I note a much more optimistic frame of mind among many—many businesses in recent months. But, I’d say, most of the business people that we’ve talked to also have a wait-and-see attitude and are very hopeful that they will be able to expand investment and are looking forward to doing that but are waiting to see what will happen. So we will watch that. And, of course, if we were to see a major shift in spending reflecting those expectations, that could very well affect the outlook. I’m not seeing it—I’m not seeing that at this point, but the shift in sentiment is obvious and notable.

Question (Kathleen Hays, Bloomberg): Chair Yellen, Kathleen Hays. Oh, excuse me, Kathleen Hays from Bloomberg. I’m going to try to take the opposite side of this because—on this question about market expectations and how the markets got things wrong, and then how you say the Fed suddenly clarified what it already said. But, for example, if the—if you look at the Atlanta Fed’s latest GDP tracker for the first quarter, it’s down to 0.9 percent. We had a retail sales report that was mixed. Granted the, you know, upward revisions of previous months make it look better, but the consumer does not appear to be roaring in the first quarter, kind of underscoring the wait- and-see attitude you just mentioned. If you look at measures of labor compensation, you note in the statement that they’re not moving up, and, in fact, they are. And if you look at average—there are so many things you can look at. And you yourself have said in the past that the fact that that is happening is perhaps an indication there’s still slack in the labor market. I guess my question is this: In another sense, what happened between December and March? GDP is tracking very low. Measures of labor compensation are not threatening to boost inflation any time fast. The consumer is not picking up very much. Fiscal policy—we don’t know what’s going to happen with Donald Trump. And yet you have to raise rates now. So what is the—what is the motivation here? The economy is so far from your forecast in terms of GDP, why does the Fed have to move now? What does this signal, then, about the rest of the year?
Answer: So GDP is a pretty noisy indicator. If one averages through several quarters, I would describe our economy as one that has been growing around 2 percent per year. And as you can see from our projections, we—that’s something we expect to continue over the next couple of years. Now, that pace of growth has been consistent with a pace of job creation that is more rapid than what is sustainable if labor force participation begins to move down in line with what we see as its longer-run trend with an aging population. Now, unemployment hasn’t moved that much, in part because people have been drawn into the labor force. Labor force participation, as I mentioned in my remarks, has been about flat over the last three years. So, in that sense, the economy has shown over the last several years that it may have had more room to run than some people might have estimated, and that’s been good. It’s meant we’ve had a great deal of job creation over these years. And there could be— there could be room left for that to play out further. In fact, look, policy remains accommodative. We expect further improvement in the labor market. We expect the unemployment rate to move down further and to stay down for the next several years. So we do expect that the path of policy we think is appropriate is one that is going to lead to some further strengthening in the labor market.

Question (Jeanna Smialek, Bloomberg): Hi, Jeanna Smialek, Bloomberg News. You emphasized in the statement that the Fed’s inflation target is “symmetric.” Would you be able to expand a little bit on why you did that, why it was included, how much of an overshoot would the Fed be willing to tolerate, and for how long?
Answer: Well, a couple of years ago, we included the word “symmetric” in our statement of longer-run goals, and this seemed like an appropriate time to introduce that word into the statement because we had previously indicated that there was a shortfall of inflation from our 2 percent objective. Now, headline inflation has moved almost back up to 2 percent. As I indicated, a better forward-looking measure of inflation, core inflation—that’s not our target, but I think it’s worth looking at because it’s a better forward-looking predictor of headline inflation—I think that’s still running a little bit under 2 percent, but we expect it’s going to move up to 2. And this seemed like a good time to remind Americans that what our objective is is 2 percent inflation. Inflation is not always going to be at 2 percent. It’s—like all economic variables, it fluctuates. Sometimes it’s going to be below 2 percent, sometimes it’s going to be above 2 percent. We’ve had a long period in which inflation has run under 2 percent. As we move back to 2 percent, which is where we’re heading, there will be some times when it’s above 2 percent as well. And it’s a reminder—2 percent is not a ceiling on inflation, it’s a target. It’s where we always want inflation to be heading. And there will be some times when inflation is above 2 percent, just like it’s been below 2 percent. We’re not shooting for inflation above 2 percent, but it’s a reminder that there will be deviations above and below when we’re achieving our objective.