Janet Yellen’s September 17, 2014 Press Conference – Notable Aspects

On Wednesday, September 17, 2014 Janet Yellen gave her scheduled press conference. (video and related materials)

Below are Janet Yellen’s comments I found most notable – although I don’t necessarily agree with them – in the order they appear in the transcript.  These comments are excerpted from the “Transcript of Chairman Yellen’s Press Conference“(preliminary)(pdf) of September 17, 2014, with the accompanying “FOMC Statement” and “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, September 2014“ (pdf).

From Janet Yellen’s opening comments:

The Committee continues to see sufficient underlying strength in the economy to support ongoing improvement in the labor market. Although real GDP rose at an annual rate of only about 1 percent in the first half of the year, that modest gain reflected in part transitory factors, including a dip in net exports. Indeed, private domestic final demand—that is, spending by domestic households and businesses—grew about twice as fast as GDP. Indicators of spending and production for the third quarter suggest that economic activity is expanding at a moderate pace, and the Committee continues to expect a moderate pace of growth going forward.


Regarding interest rates, the Committee reaffirmed its forward guidance that it likely will
be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and longer-term inflation expectations remain well anchored. This judgment is based on the Committee’s assessment of realized and expected progress toward its objectives of maximum employment and 2 percent inflation—an assessment that is based on a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. Further, once we begin to remove policy accommodation, it is the Committee’s current assessment that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Janet Yellen’s responses as indicated to the various questions:

YLAN MUI. Hi, Ylan Mui, Washington Post. My question is about the new exit principles. You guys say that you don’t plan to end reinvestments until after the first rate hike. Can you give us a little bit of a sense of what are the conditions you’re going to be looking for when you eventually began to end the reinvestments? It sounds like tapering the reinvestments is also on the table. What might go into your decision on whether or not to end them altogether, whether or not to taper them? And do you have a general timeline for how long you think it will take to shrink the balance sheet once you actually start?

CHAIR YELLEN. OK. All good questions. So, I think the Committee would–will be focused on, we intend to use the path of short-term interest rates as our key tool of policy. And of course, market participants will be very focused, as we are, on what is the appropriate timing and pace of interest rate increases when that time comes. And I think the Committee would like to feel that it has successfully begun the normalization process and that we’re successfully  communicating with markets about how that process will be playing out over time. And I think when the Committee is comfortable that that process is established, is working well, and we’re comfortable with the outlook, that they will begin the process of ceasing–or possibly tapering–but eventually ceasing reinvestments. So, we say that it will depend on economic and financial conditions, but we want to make sure normalization is successfully underway. If we were only to shrink our balance sheet by ceasing reinvestments, it would probably take, to get back to levels of reserve balances that we had before the crisis. I’m not sure we will go that low but we’ve said that we will try to shrink our balance sheet to the lowest levels consistent with the efficient and effective implementation of policy. It could take to the end of the decade to achieve those levels.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 2011.37 as this post is written