Janet Yellen’s March 15, 2017 Press Conference – Notable Aspects

On Wednesday, March 15, 2017 Janet Yellen gave her scheduled March 2017 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 March 15, 2017, with the accompanying “FOMC Statement” and “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, March 2017“ (pdf).

From Janet Yellen’s opening comments:

CHAIR YELLEN. Good afternoon. Today, the Federal Open Market Committee decided to raise the target range for the federal funds rate by 1/4 percentage point, bringing it to 3/4 to 1 percent. Our decision to make another gradual reduction in the amount of policy accommodation reflects the economy’s continued progress toward the employment and price stability objectives assigned to us by law. For some time the Committee has judged that, if economic conditions evolved as anticipated, gradual increases in the federal funds rate would likely be appropriate to achieve and maintain our objectives. Today’s decision is in line with that view and does not represent a reassessment of the economic outlook or of the appropriate course for monetary policy. I’ll have more to say about monetary policy shortly, but first I’ll review recent economic developments and the outlook.

The economy continues to expand at a moderate pace. Solid income gains and relatively high levels of consumer sentiment and wealth have supported household spending growth. Business investment, which was soft for much of last year, has firmed somewhat, and business sentiment is at favorable levels. Overall, we continue to expect that the economy will expand at a moderate pace over the next few years.

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

SAM FLEMING. Thanks very much, Sam Fleming from the Financial Times. Picking up on the last topic, balance sheet normalization. Clearly you said you don’t want to start pulling in the size of the balance sheet until normalization is well under way. Could you give us some sort of sense about what well under way means, at least in your mind? What kind of hurdles are you setting? What kind of economic conditions would you like to see? Is it just a matter of the level of the short-term federal funds rate as being the main issue? And what kind of role do you see the role of the balance sheet playing in the normalization process over the longer term? Is it an active tool, or is it a passive tool? Thanks.

CHAIR YELLEN. So let me start with the second question first. We’ve emphasized, for quite some time, that the Committee wishes to use variations in the Fed Funds Rate target, our short-term interest rate target as our key active tool of policy. We think it’s much easier in using that tool to communicate the stance of policy. We have much more experience with it, and have a better idea of its impact on the economy. So, while the balance sheet asset purchases are a tool that we could conceivably resort to if we found ourselves in a serious downturn where we were, again, up against the zero bound, and faced with substantial weakness in the economy. It’s not a tool that we would want to use as a routine tool of policy. You asked what well under way means. I can’t give you a specific answer to that. And I think the right, the right way to look at it is in qualitative, and not quantitative, terms. It doesn’t mean some particular cutoff level for the federal funds rate that, when we’ve reached that level, we would consider ourselves well under way. I think what we want to have is confidence in the economy’s trajectory. A sense that the economy will make progress, that we’re not overly worried about downside risks, and adverse shocks that could hit the economy, that could quickly after setting it off on the path to shrinking the balance sheet gradually over time cause us to want to begin to add monetary policy accommodation. So I think it has to do with the balance of risks and confidence in the economic outlook, and not simply the level of the federal funds rate.


BINYAMIN APPELBAUM. Binyamin Appelbaum, the New York Times. The Bank for International Settlement has raised concerns that central banks are being insufficiently attentive to asset, price — excuse me, asset price inflation. And stock market investors in the United States certainly don’t seem to be waiting for the Trump administration to actually implement its fiscal policies. And I guess I’m just curious to know how much of a concern that is for you. And, if not, why not, given the remarkably elevated level of stock price evaluation?

CHAIR YELLEN. Well, we do look at financial conditions in formulating our view of the outlook. And stock prices do figure into financial conditions. So, I think, the higher level of stock prices is one factor that looks like it’s likely to somewhat boost consumption spending. We also notice that, in the last several months, that risk spreads particularly for lower grade corporate issuers have narrowed, which is another signal that financial conditions have become somewhat easier. Now, on the other side, longer term interest rates are up some in recent months, and the dollar is a little stronger. How does that net out? There are private sector analysts that produce financial conditions, indices that attempt to aggregate all these different factors affecting financial conditions. And, for some of the more prominent analysts and indices, I think the conclusion they’ve reached is that financial conditions on balance have eased. And that’s partly driven by the stock market. So, that is a factor that affects the outlook.


KATHLEEN HAYS. Chair Yellen, Kathleen Hays. Oh excuse me, Kathleen Hays from Bloomberg. I’m going to try to take the opposite side of this because, on this question about market expectations and how the markets got things wrong, and then how you say the Fed suddenly clarified what it already said. But, for example, if the–if you look at the Atlanta Fed’s latest GDP tracker for the first quarter, it’s down to 0.9 percent. We had a retail sales report that was mixed, granted the, you know, upper divisions of previous months make it look better, but the consumer does not appear to be roaring in the first quarter, kind of underscoring the waitand-see attitude you just mentioned. If you look at measures of labor compensation, you note in this statement that they’re not moving up. And, in fact, they are–and if you look at average–there are so many things you can look at. And you, yourself, have said in the past that the fact that that is happening is perhaps an indication there’s still slack in the labor market. I guess my question is this, in another sense, what happened between December and March? GDP is tracking very low. Measures of labor to compensation are not threatening to boost inflation any time fast. The consumer is not picking up very much. Fiscal policy–we don’t know what’s going to happen with Donald Trump. And, yet, you have to raise rates now. So what is the, what is the motivation here? The economy is so far from your forecast, in terms of GDP, why does the Fed have to move now? What is this signal, then, about the rest of the year?

CHAIR YELLEN. So, GDP is a pretty noisy indicator. If one averages through several quarters, I would describe our economy as one that has been growing around 2 percent per year. And, as you can see from our projections, we, that’s something we expect to continue over the next couple of years. Now that pace of growth has been consistent with a pace of job creation that is more rapid than what is sustainable if labor force participation begins to move down in line with what we see as its longer run trend with an aging population. Now, unemployment hasn’t moved that much, in part because people have been drawn into the labor force. Labor force participation, as I mentioned in my remarks, has been about flat over the last 3 years. So, in that sense, the economy has shown, over the last several years, that it may have had more room to run than some people might have estimated, and that’s been good. It’s meant we’ve had a great deal of job creation over these years. And there could be, there could be room left for that to play out further. In fact, look, policy remains accommodative. We expect further improvement in the labor market. We expect the unemployment rate to move down further, and to stay down for the next several years. So, we do expect that the path of policy we think is appropriate is one that is going to lead to some further strengthening in the labor market.

KATHLEEN HAYS. Just quickly then, I just want to underscore. I want to ask you, so following on that, you expect it to move. What if it doesn’t? What if GDP doesn’t pick up? What if you don’t see wage measures rising? What if you don’t, what if the core PCE gets stuck at 1.7 percent, would you, is it your view, perhaps, that if there’s a risk right now in the median forecast for dots, that it’s fewer hikes this year rather than the consensus or more?

CHAIR YELLEN. Well, look, our policy is not set in stone. It is data dependent and we’re, we’re not locked into any particular policy path. Our, you know, as you said, the data have not notably strengthened. I, there’s noise always in the data from quarter to quarter. But we haven’t changed our view of the outlook. We think we’re on the same path; not, we haven’t boosted the outlook projected faster growth. We think we’re moving along the same course we’ve been on, but it is one that involves gradual tightening in the labor market. I would describe some measures of wage growth as having moved up some. Some measures haven’t moved up, but there’s some evidence that wage growth is gradually moving up, which is also suggestive of a strengthening labor market. And we expect policy to remain accommodative now for some time. So we’re, we’re talking about a gradual path of removing policy accommodation as the economy makes progress, moving toward neutral. But we’re continuing to provide accommodation to the economy that’s allowing it to grow at an above-trend pace that’s consistent with further improvement in the labor market.


JO LING KENT. Hi, Chair Yellen. I’m Jo Ling Kent with NBC News. I just want to know, what message are you trying to send consumers with this particular rate hike?

CHAIR YELLEN. I think that’s a great question; I appreciate your asking it. And the simple message is the economy’s doing well. We have confidence in the robustness of the economy and its resilience to shocks. It’s performed well over the last several years. We’ve created, since the trough in employment after the financial crisis, around 16 million jobs. The unemployment rate has moved way down. And many more people feel optimistic about their prospects in the labor market. There’s job security. We’re seeing more people who are feeling free to quit their jobs, getting outside offers, looking for other opportunities. So, I think the job market, which is an important focus for us, is certainly improving. That’s not to say that it’s good labor market conditions for every individual in the United States. We know there are problems that face, particularly people with less skill and education, and certain sectors of the economy, but many Americans are enjoying a stronger labor market and feel better, feel very much better about that. And inflation is moving, moving up, I think, toward our 2 percent objective. And we’re operating in a, in an environment where the U.S. economy is performing well, and we seem pretty balanced. So, I think people can feel good about the economic outlook.


NANCY MARSHALL-GLENZER Some Fed critics have said it’s too soon to raise interest rates because wages haven’t risen enough to justify a rate increase. What would you say to that?

CHAIR YELLEN. Well, I don’t, I would like to see wages increase and think there’s some scope for them to increase somewhat further. But our objectives are maximum employment and inflation. And we need to consider what path of rates is appropriate to foster those objectives. Unfortunately, one of the things that’s been holding down wage increases is very slow productivity growth. And I think we are seeing some upward pressure as the labor market tightens. I take that as a signal that we’re coming closer to our maximum employment objectives. But productivity is, for those focusing on wage growth, productivity is an additional important factor.



The Special Note summarizes my overall thoughts about our economic situation

SPX at 2381.38 as this post is written