Federal Reserve press conference, 2016-03-16 — Chair Janet Yellen

Question (Steven Mufson, Washington Post): Two questions. The oil—lower oil prices. I think a lot of people expect it to lead to more consumer spending. What do you—how do you see and how do you explain that that hasn’t worked out as well—the way a lot of people expected? And also, if oil prices were to pop back up to, say, $50, not that high by some standards, what impact would that have on inflation? And would you be paying more attention to the overall inflation rate? Or would you then look to the core rate to—to—to determine what the Fed’s policies would be?
Answer: So let me start with the impact of oil prices on consumer spending. I have to say, it’s very difficult when you look at patterns of consumer spending to—there are many factors that influence it, and to definitively say that lower oil prices have not boosted consumer spending, I’m not sure we can really arrive at that conclusion in any—in any rigorous way. The typical—the average household in the United States with oil prices where they are now is probably benefiting around $1,000 a year. And some very detailed microdata that I’ve seen on household spending patterns suggest that there may be a link, as you would expect, from reduced bills—you know, reduced amounts that people pay at the pump to other spending, like eating out at—for restaurant meals and other things. But the aggregate data, I—you know, is not as strong as it—and spending is not as strong as it could be, given the decline. And, of course, on the other side, we are—and, you know, it may be that it will take a while, and it’s something that will slowly strengthen over time if oil prices stay low. On the other side, of course, we have seen a marked decline in drilling activity, which has depressed investment spending, and, of course, very substantial layoffs in the energy sector. With respect to impact of oil prices on inflation and what would happen if they move up, the Committee has generally tended to look through movements in oil prices, whether they were on the upside or on the downside, viewing it as a factor that should have a transitory influence. And when I say that, what I mean is that if oil prices move up during the time that it’s moving up, it raises inflation. But they don’t need to move down again to their previous levels for that influence to disappear, they only need to stabilize at a higher level. And, similarly, oil prices have obviously moved down a great deal over the last year, and we’re not expecting them to move back to their previous levels but to stabilize at some level. They’re obviously volatile, but, as they stabilize, the influence will move out of both headline—of headline inflation. And that’s what you see in the forecasts of participants. So if oil prices were to increase to 50, I mean, that would probably slightly move up our expected path for core inflation, maybe speed how rapidly we would move back to 2 percent, but I wouldn’t think that that would be something alone that would have great policy significance.

Question (Erik Schatzker, Bloomberg): Erik Schatzker, Bloomberg Television. Madam Chair, thank you. Notwithstanding what the dots tell us about rate expectations, has there been any discussion among members of the Committee about the potential need for further stimulus? And even if there hasn’t been such a discussion yet, could you share with us what you have learned from the reevaluation of negative interest rates, whether you consider negative interest rates effective, how effective relative to quantitative easing, and whether the Committee would hypothetically use them instead of or in conjunction with quantitative easing in the event that the economy should warrant further stimulus?
Answer: Okay. So what I would like to make clear is that this is not actively a subject that we are considering or discussing. The Committee continues to feel that we are on a course where the economy is improving and inflation is moving back up. And, as I indicated, if events continue to unfold in that way, we are likely to gradually raise rates over time. Again, that’s not fixed in stone. We’ll watch how the economy behaves. We’re prepared to respond if things transpire differently, but we are not spending time actively debating and considering things we could do for additional accommodation and certainly not actively considering negative rates. We are looking at the experience in other countries, and I guess I would judge they seem to have mixed effects, you know, some positive and some negative things. But, look, if we found ourselves in the unlikely situation where we needed to add accommodation, we have a range of tools. And we know from the things we did in the past that we have a number of options with respect to the maturity, for example, of our portfolio, with respect to asset purchases or forward guidance that remain available to us, that are tools we could turn to in the unlikely event that we need to add accommodation. So negative rates is not something that we’re actively considering.