Federal Reserve press conference, 2015-09-17 — Chair Janet Yellen

Question (Peter Barnes, Fox Business): Hi, Chair Yellen. Peter Barnes, Fox Business. Could you talk about—a little bit more specifically about what foreign developments you discussed in the meeting today, what you’re concerned about? We all assume it might be China—that was in the July minutes. Are you concerned about the Chinese economy slowing, the markets there? Do you have any concerns about the European economy? And then, related to stock markets, could I ask you how you feel about U.S. equity markets right now? Because you did talk about your concerns about them back in May. You saw they were generally quite high and were worried about potential dangers in U.S. equity market valuations, but now equity prices have pulled back. Thank you.
Answer: So, with respect to global developments, we reviewed developments in all important areas of the world, but we’re focused particularly on China and emerging markets. Now, we’ve long expected, as most analysts have, to see some slowing in Chinese growth over time as they rebalance their economy. And they have planned that, and I think there are no surprises there. The question is whether or not there might be a risk of a more abrupt slowdown than most analysts expect. And I think developments that we saw in financial markets in August in part reflected concerns that Chinese—there was downside risk to Chinese economic performance and perhaps concerns about the deftness with which policymakers were addressing those concerns. In addition, we saw a very substantial downward pressure on oil prices and commodity markets, and those developments have had a significant impact on many emerging market economies that are important producers of commodities as well as more advanced countries, including Canada, which is an important trading partner of ours that has been negatively affected by declining commodity prices, declining energy prices. Now, there are a lot of countries that are net importers of energy that are positively affected by those developments, but emerging markets—important emerging markets—have been negatively affected by those developments. And we’ve seen significant outflows of capital from those countries, pressures on their exchange rates, and concerns about their performance going forward. So a lot of our focus has been on risks around China, but not just China— emerging markets, more generally, and how they may spill over to the United States. In terms of thinking about financial developments and our reaction to them, I think a lot of the financial developments were really—so, we don’t want to respond to market turbulence. The Fed should not be responding to the ups and downs of the markets, and it is certainly not our policy to do so. But when there are significant financial developments, it’s incumbent on us to ask ourselves what is causing them. And, of course, while we can’t know for sure, it seemed to us as though concerns about the global economic outlook were drivers of those financial developments. And so they have concerned us in part because they take us to the global outlook and how that will affect us. And, to some extent, look, we have seen a tightening of financial conditions during— as I mentioned, during the intermeeting period. So the stock market adjustment, combined with a somewhat stronger dollar and higher risk spreads, does represent some tightening of financial conditions. Now, in and of itself, it’s not the end of story in terms of our policy because we have to put a lot of different pieces together. We are looking at, as I emphasized, a U.S. economy that has been performing well and impressing us by the pace at which it’s creating jobs and the strength of domestic demand. So we have that. We have some concerns about negative impacts from global developments and some tightening of financial conditions. We’re trying to put all of that together in a picture. I think, importantly, we say in our statement that in spite of all of this, we continue to view the risks to economic activity and labor markets as balanced. So it’s a lot of different pieces, different cross currents, some strengthening the outlook, some creating concerns, but overall, no significant change in the economic outlook.

Question (Martin Crutsinger, Associated Press): Well, no, not uncertainty, just the fact that the market turbulence—a lot of people in August said part of that was a concern about the Fed was about to raise interest rates, and you didn’t mention that as one reason for the turbulence.
Answer: So I think the main drivers of the turbulence have been concerns about the global outlook, that’s how I read it. But I know that, of course, there is uncertainty about Fed policy. As I mentioned, we’re well aware that there’s been a huge focus on the decision today. And, you know, I would ask you to appreciate that there are a lot of cross- currents in economic and financial developments that we need to take into account in deciding on what the appropriate course of policy is. And we don’t make continuous decisions every single day about our policy, we meet periodically. We do our darndest to pull together the best analysis we can and to exchange views and to arrive at Committee decisions. I do understand that, during this intermeeting period, that every word that an FOMC member has said has been parsed for its potential implications for what our decision will be. I think it’s, you know—that’s an unfortunate state of affairs, but I understand, and I think it’s natural when you’re at a point when conditions may be falling in place for there to be a shift in policy. It’s natural that that should happen, and it does, to some extent, contribute to uncertainty in financial markets.