Janet Yellen’s June 15, 2016 Press Conference – Notable Aspects

On Wednesday, June 15, 2016 Janet Yellen gave her scheduled June 2016 FOMC Press Conference. (link of 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 June 15, 2016, with the accompanying “FOMC Statement” and “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, June 2016“ (pdf).

From Janet Yellen’s opening comments:

CHAIR YELLEN: Good afternoon. Today, the Federal Open Market Committee (FOMC) maintained the target range for the federal funds rate at 1/4 to 1/2 percent. This accommodative policy should support further progress toward our statutory objectives of maximum employment and price stability. Based on the economic outlook, the Committee continues to anticipate that gradual increases in the federal funds rate over time are likely to be consistent with achieving and maintaining our objectives. However, recent economic indicators have been mixed, suggesting that our cautious approach to adjusting monetary policy remains appropriate. As always, our policy is not on a preset course and if the economic outlook shifts, the appropriate path of policy will shift correspondingly. I will come back to our policy decision, but first I will review recent economic developments and the outlook.


Our inflation outlook also rests importantly on our judgment that longer-run inflation expectations remain reasonably well anchored. However, we can’t take the stability of longer-run inflation expectations for granted. While most survey measures of longer-run inflation expectations show little change, on balance, in recent months, financial market-based measures of inflation compensation have declined. Movements in these indicators reflect many factors and therefore may not provide an accurate reading on changes in the inflation expectations that are most relevant for wages and prices. Nonetheless, in considering future policy decisions, we will continue to carefully monitor actual and expected progress toward our inflation goal.


Although the financial market stresses that emanated from abroad at the start of this year have eased, vulnerabilities in the global economy remain. In the current environment of sluggish global growth, low inflation, and already very accommodative monetary policy in many advanced economies, investor perceptions of, and appetite for, risk can change abruptly. As our statement notes, we will continue to closely monitor global economic and financial developments.

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

BINYAMIN APPLEBAUM. The Fed created a Labor Market Conditions Index a couple of years ago that was designed to sort of bring together a lot of these factors in labor market that you’ve talked about, as I’m sure you know it’s been falling since January. That suggests to some people that it was your decision to raise rates in December that has caused this weakening in the labor market. Could you address what role if any you think the Fed’s decision to raise rates has played in the slow down we are now seeing?

CHAIR YELLEN. Well, let me just say the Labor Market Conditions Index is a kind of experimental research product that’s a summary measure of many different indicators and essentially that measure tries to assess the change in the labor market conditions. As I look at it and as that index looks at things, the state of the labor market is still healthy, but there’s been something of a loss of momentum. The 200,000 jobs a month we saw, for example, in the first quarter of the year that’s slowed in recent months. Exactly what the reasons are for that slowing, it’s difficult to say. It may turn out– you know, again, we should never pay too much attention to, for example, one job market report. There’s a large error around that we often see large revisions, we should not over blow the significance of one data point especially when other indicators of the labor market are still flashing green. Initial claims for unemployment insurance remain low, perceptions of the labor market remain fine. Data from the jolts on job openings continue to reach new highs. So, there’s a good deal of incoming data that does signal continued progress and strength in the labor market, but, as I say, it does bear watching. So, the committee doesn’t feel and doesn’t expect and I don’t expect that labor market progress in the labor market has come to an end. We have tried to make clear to the public and through our actions and through the revisions you see have seen over time in the dot plot that we do not have a fixed plan for raising rates over time, we look at incoming data and are prepared to adjust our views to keep the economy on track and in light of that data dependence of our policy I really don’t think that a single rate increase of 25 basis points in December has had much significance for the outlook. And we will continue to adjust our thinking in light of incoming data and whatever direction is appropriate.


JUSTINE UNDERHILL. Justine Underhill, Yahoo Finance. So, now that the Fed has started the process of raising rates, various Fed officials have said, including Ben Bernanke, that the Fed could go cash flow negative in this scenario as capital losses are taken on the portfolio bonds. Do you still see this happening, and when might this happen?

CHAIR YELLEN. So, you’re talking about our income going negative?


CHAIR YELLEN. Well, it is conceivable in a scenario when–where growth and inflation really surprise us to the upside that we would have to raise short-term interest rates so rapidly that the rates we would be paying on reserves would exceed what we’re earning on our portfolio. Now even then, we have about $2 trillion of liabilities, namely currency on which we pay no interest. So, this does requires an extreme scenario with very rapid increases in short-term interest rates. So, it is conceivable, but quite unlikely that that it could happen. But, you know, if it were to happen, we would have an economy that would be doing very well. This is probably an economy that everybody would feel very pleased, was performing well and better than expected, and where monetary policy–you know, our goal is price stability and maximum employment, and we would probably feel that we had done very well in achieving that. So, we usually make money. We’ve been making a lot of money in recent years. But the goal of monetary policy is not to maximize our income. And, you know, in a very strong economy like that, the Treasury we would be seeing a lot of inflows in the form of tax revenues, too.


NANCY MARSHALL-GENZER. How much do you–oh, Nancy Marshall-Genzer from Marketplace. How much are you watching oil process and their impact on inflation and how that could affect the timing of future rate increases and how much you might increase rates?

CHAIR YELLEN. Well, oil prices have had many different effects on the economy, and so, we’ve been watching oil prices closely. As you said, falling oil prices pull down inflation. You know, it takes falling oil prices to lower inflation on a sustained basis. Once they stabilize at whatever level, their impact on inflation dissipates over time. So, we’re beginning to see that happening. Not only have they stabilized, they have moved up some, and their inflation is–their impact on inflation is winning over time. But oil prices have also had a very substantial negative effect on drilling and mining activity that’s led to weakness in investment spending and job loss in manufacturing and, obviously, in the energy sector. Now, you know, it has different effects in different countries and different sectors. For American households, it’s been a boon. We’ve estimated that since mid-2014 the decline in energy prices and oil prices has probably resulted in gains of about $1,400 per U.S. household, and that’s had an offsetting positive impact on spending. But in many countries around the world that are important commodity exporters, the decline we’ve seen in oil prices has had a depressing effect on their growth, their trade with us and other trade partners, and caused problems that have had spillovers to the global economy as well. So, it’s a complicated picture.



The Special Note summarizes my overall thoughts about our economic situation

SPX at 2077.99 as this post is written