Federal Reserve press conference, 2016-06-15 — Chair Janet Yellen

Question (Jeanna Smialek, Bloomberg): Jeanna Smialek, Bloomberg. You mentioned in your remarks at the beginning that we are getting a slightly different signal when you look at inflation versus when you look at inflation expectations. Could you detail a little bit which you look at and sort of weight more? Are you more concerned with the inflation expectations or focusing more on the slight pickup in actual inflation?
Answer: Well, we’re looking at both. You know, I would say, with respect to the behavior of inflation, inflation is behaving roughly in the manner I would have expected; I have really not seen significant surprises there. We’ve long said that an important reason that inflation is as low as it’s been is because of past declines in energy prices and increases in the value of the dollar, and as those factors began to dissipate, we would see inflation moving up. Now, that’s exactly what we’re seeing, what we’re—that’s in line with our thinking and with the data. So, those things have stabilized, their influence is dissipating. And with respect to core inflation, which—now, that’s partly influenced also by the dollar, but trying to pull out the dollar and import price influence—core inflation seems to be behaving roughly as one would expect with well-anchored inflation expectations and in improving labor markets. So I’m not seeing anything—inflation, even core inflation, is running under 2 percent. I continue to think the evidence supports a projection that it will move up over the next couple of years back toward our 2 percent objective. But, we’ve seen in the past, and economic theory suggests, that inflation expectations are relevant to price and wage setting decisions. So we do monitor indicators of inflation expectations carefully. Now, it’s very hard to know exactly what inflation expectations are relevant to actual price and wage decisions. And so, for example, we have seen the Michigan survey, a measure of household inflation expectations, move down. It’s hard—that’s a preliminary number, it’s hard to know what to make of it. We’ve certainly taken note of it. But survey-based measures that— where forecasters are queried—have really all been quite stable. And measures of inflation compensation—I always try to be careful to call it “inflation compensation” rather than “inflation expectations” because they’re not inflation expectations. Inflation expectations influence those market measures, but there’s also an inflation risk premium. And there are actually good reasons to think that the inflation risk premium could have declined significantly and may be depressing those measures. So we watch them, we’ve taken note in the statement that they’ve moved down, but actual inflation is behaving more or less as would be expected.