Federal Reserve press conference, 2014-03-19 — Chair Janet Yellen

Question (Martin Crutsinger, Associated Press): Madam Chair, Marty Crutsinger with the Associated Press. Could you give us a little insight in how the decision was made on dropping the 6½ percent numerical target in the forward guidance? Was there any concern expressed that there’s been criticism on forward guidance, that it’s confusing markets, not helping them in some ways? Was there concern expressed that perhaps it would have been better to go to just a lower target, say, 6 percent? And could you also address the concerns raised in the dissent that by dropping this, it lowers the commitment on fighting low inflation? Thank you.
Answer: Thanks. Well, as I mentioned in my statement, the reason the Committee felt that the time had come to revise the forward guidance is not because we think it has not been effective. I believe the Committee does think it’s been effective. I think it’s had a very useful impact in helping markets understand our expectations and shaping their own. But it is becoming—as the unemployment rate gets closer and closer to 6½ percent, to breaching that threshold that seems like the one that is likely to be breached. The question is: Markets want to know, the public wants to understand, beyond that threshold, how will we decide what to do? So the purpose of this change is simply to provide more information than we have in the past, even though it is qualitative information, about what we will be looking at as the unemployment rate declines below 6½ percent in deciding how long to hold the federal funds rate at this 0 to ¼ percent range. And, as I said, we’ve tried to give a general formulation of what we’ll be looking at, which is: How far are we? How large are the shortfalls in achieving our goals? And how fast do we expect progress to be? That will be the main factors we’ll be looking at. We initially started with an unemployment rate as a threshold. That was easy enough for the Committee to say, “With an unemployment rate above 6½ percent, we know we’re not close to full employment, not close to an employment level consistent with our mandate, and unless inflation were a significant concern, we wouldn’t dream of raising the federal funds rate target.” Now, the Committee has never felt that the unemployment rate is a sufficient statistic for the labor market. I think if I had to choose one indicator of the labor market, the unemployment rate is probably as good a one as I could find. But in assessing the real state of slack in the labor market and ultimately of inflationary pressures that might—or deflationary pressures that could result from that—it’s appropriate to look at many more things. And that’s why the Committee now states we will look at a broad range of information. So the closer we get as we narrow in on coming closer to the target we want to achieve, we will be carefully considering many indicators of how close are we to our targets. So those are the main reasons. Now, you asked as well about the dissent. President Kocherlakota felt—I believe he noted in his dissent that he endorses the new guidance about the likely path of the federal funds rate after we begin to finally raise it. And that indicates that it’s unlikely to be back to normal levels for some time, but he questions whether or not the reformulated forward guidance shows sufficient commitment of the Committee to its 2 percent inflation objective. And I will simply say on my own behalf, and on behalf of the Committee, that we are fully committed to the 2 percent inflation objective, and we do not want to undershoot inflation for a prolonged period of time. As I mentioned, monetary policy operates with lags, so, the policies we have in place, we think, will gradually—only gradually—move inflation back to 2 percent. But if the Committee had real concerns that inflation were going to remain persistently below 2 percent, I feel confident that the Committee would act to prevent that.

Question (James Puzzanghera, Los Angeles Times): Hi, Madam Chairwoman. I’m Jim Puzzanghera with the L.A. Times. You’ve been on—you’ve served on the Fed previously. I’m wondering, now, in the past few weeks as Chairwoman, what’s been different about being on the Fed in your responsibilities as Chair, compared to being just a Board of Governors member?
Answer: Well, thanks. I feel I’m very lucky that I’ve had a lot of Fed experience to draw on as I approach this role because it’s complicated, and now in many ways I feel the buck stops with me in terms of management of the FOMC and responsibility to assure that the Federal Reserve makes progress on its goals of getting the economy back on track and making progress on our financial stability and regulation objectives. So I feel that weight of responsibility keenly in the new role I have, and I’m very committed to making sure that I provide the leadership that’s necessary for the Federal Reserve System to move forward on these goals. But, you know, in terms of the conduct of business, it’s pretty much the same as usual. I’m not envisioning, nor have there been so far, any radical changes in how the Federal Reserve does its business, and that includes operating the FOMC.