Federal Reserve press conference, 2014-09-17 — Chair Janet Yellen

Question (Steve Liesman, CNBC): Thank you. Chair Yellen, there was some debate going into this meeting about the phrase “considerable time,” and whether it would remain in the statement. I want to know if you could tell me just a couple things about it. First, was it debated at the FOMC as to whether or not it should be included? And, I’m sorry, we’ve been over this before, but what does it mean timewise? And that’s just two questions. I have just a couple more here. Is the statement a form of forward guidance? And, finally, how do you square this idea of a date when you and others on the FOMC have continuously said that you’re data dependent to the point where, if the data were to turn, would it not necessarily be a considerable time until you raise rates? Thank you.
Answer: So, of course, the Committee discussed its forward guidance today, and it discusses what the appropriate forward guidance is at every meeting. This is part of our assessment of economic conditions and the appropriate stance of monetary policy. In terms of what the term “considerable time” means, the Committee decided that, based on its assessment of economic conditions, that characterization remains appropriate, and it was comfortable with it. I think if you look, for example, at the projections of individual participants that are revealed in the SEP—well, that’s the view of each participant, and, again, I’d emphasize, not a Committee collective view—there is relatively little change in the assessment of the outlook by participants between this meeting and the assessment in June. So the outlook is little changed—a slight decline in the anticipated path of the unemployment rate and a very slight uptick in the inflation projection, but really quite minimal. So, the outlook hasn’t changed that much from June, and the Committee felt comfortable with this characterization. Now, you said, “Isn’t this calendar-based guidance?” I want to emphasize that there is no mechanical interpretation of what the term “considerable time” means. And, as I’ve said repeatedly, the decisions that the Committee makes about what is the appropriate time to begin to raise its target for the federal funds rate will be data dependent. And in my opening comments just now, I again emphasized something I’ve said previously, which is that if the pace of progress in achieving our goals were to quicken, if it were to accelerate, it’s likely that the Committee would begin raising its target for the federal funds rate sooner than is now anticipated and might raise—might then raise the federal funds rate at a faster pace. And the opposite is also true, if the projection were to change. So there is no fixed mechanical interpretation of a time period. I think it would not be accurate to describe the Committee’s guidance about the timing of the federal funds rate and when it will move above zero as being calendar based. The Committee has started with a broad general statement of what determines how long it will keep the federal funds rate target at zero. It has said that it will be looking at the actual and projected pace at which the gaps between our employment and inflation, and our goals for those variables, are closing. And then what the Committee does at each meeting is—after saying that the assessment will take into account many different indicators and take into account inflation pressures and other things—it goes on to provide at that meeting its assessment of the implications of its view of the data at that time. And that assessment really hasn’t changed over the last several meetings. The Committee, based on its assessment at each meeting, has felt comfortable saying that, based on its assessment of those factors, it considers that it will be likely appropriate to maintain the current target range for a considerable time after the asset purchase program ends, especially if inflation remains below the 2 percent objective. So I wouldn’t describe that as—I know “considerable time” sounds like it’s a calendar concept, but it is highly conditional, and it’s linked to the Committee’s assessment of the economy.

Question (Pedro Da Costa, Dow Jones Newswires): Thank you. Pedro da Costa with Dow Jones Newswires. My question is about your particular views about whether a gradual approach to tightening is better than a more aggressive and less predictable one, because there was some discussion about— internally and externally, about whether it was the Fed’s predictability in the 2004-ish period that kind of created the conditions of complacency that led to the housing bubble. So I wonder if you’d be more inclined to be gradualist in your approach and more transparent in outlining future moves or whether you think keeping the market guessing—there’s some value to that. Thanks.
Answer: You know, this is something the Committee is going to have to discuss when the time comes to normalize policy. Looking back on the period, the run-up to the financial crisis, I don’t think, by any means, “measured pace” and the very predictable pace of 25 basis points per meeting explains why we had a financial crisis, but it may have diminished volatility and been a small contributing factor, and the Committee will have to think about how to do this. I think many people in the aftermath of that episode think that somewhat less of a mechanical pace would perhaps be better, but this is a matter that we will, in due time, have to discuss.