Transcripts For BLOOMBERG Bloomberg Markets Americas 20170920

From a 2 e decline forecast in june. Unemployment falls 4. 1 in the next two years. Inflationerm level of and full employment remains. In the statement, fed officials suggest hurricanes will not have a longterm impact on the overall economy. Hurricanes harvey, irma, andrea has devastated communities conflicting severe hardship and rebuilding will affect Economic Activity in the near term. Passive experience suggest storm is unlikely to alter the course of the National Economy over the medium term. They will affect prices. Higher prices for gasoline will likely boost inflation temporarily. Remain 2 xpected to in the near term. Back tosay it will come the target. As expected, the announcement would be october 9 and treasuries will be announced as well october 21. We can do this with Jeffrey Rosenberg mike, let me go to you first. The reduced inflation along with real gdp is the Macro Economic advisers as a runway to 1. 7 percent, the third quarter. Is this a subpar American Economy, is it 4 nominal gdp . It is not what you see on the forecast. It it depends on inflation. Not lowering the gdp forecast. They raise it are 2 the next two years after that, what they previously forecast. Is what question happens to inflation. They brought down inflation figures. The we could charts on the screen. Moves in the market with a twoyear out trying to find a , higher yield, stronger dollar, weaker euro. Scarlet Jeff Rosenberg, what did you take away from that . Jeff you did not get more dovishness out, i think that is the first takeaway. The second one is in terms of the path. It shall is a bit outward. A new 2020 forecast keys people a little on the runway the runway. If im looking at this correctly, if it it did come down a bit. It was not unexpected but it offset some of the disappointment, if there was some, in terms of the x dictation of post pushing off december with lower long run levels out of the forecast. Tom this is interesting. There is a lot to talk about. I want to show folks, here is june right now. Keeping them up if you can. Of the feline comes in as Michael Mckee says a little bit, 3 year. Translate for the global , translate what a reduced terminal rate means . That is the most key date that Michael Mckee mentioned, from 3 down to 2. 80i believe. Collected does mean the fed has a lot less wiggle room moving forward. If they have to again, it is it is important there are two a very Important Role in the institutional muscle member memory as we go without governors in washington as a get into next year. That is important. The other point is i disagree with the fed. Theyre looking at his hurricanes as if their pastor hands and not marking it down this year is a mistake. We have seen this quarter effective. Hitting its this late in the we do not we already have workers to build, this is a time where we could in inflation more persistent the overall economy related to the hurricanes. I know scarlet wants to get back to mr. Mckee in washington. Terminal rate to me is one of the toughest concepts to get here you look out into the there is an estimate out. We are bringing down our future growth, our future guesstimate. We are and it is part of a andral rate discussion debate about what is the level of todays Economic Growth and in terms of growth and inflation, it has put some pressure on the longer run expectation. Coming down from 3. 5 . It is critical to a we do bloomberg. The politicians have to adjust to the new regime they were talking about. It is politically inconvenient. Mike mckee, talk about the Balance Sheet reduction which will begin in october. Up until now, we have gotten the sense of the mechanics but we did not have the date and now we have the date. A little more in terms of mechanics, nothing that will. Urprise Jeff Rosenberg they will put a cap on reinvestment, six billion dollars for treasuries, 4 billion and they will raise those every quarter until they get to 30 billion a month. No change there. Thing people are not really focused on and it may be because they are so well telegraphed is the possibility it will lead to a change in the regime. Rates. Raise interest that will increase to mend that will affect yields in the other direction. In terms of october and size, debate is still on what is the terminal size of the Balance Sheet and guess to your point about the amount of reserves and how it interacts with liquidity requirements to hold highquality treasuries, that part of the debate, they still left outstanding. In terms of what you are thatighting, the impact has on valuations and the demand for safe asset. There is a big part of the mixture going on. As well as the evolution in terms of what you are referring on unwindingt flattening global structures, it will not just be a conversation aboutthe fed, it will be so a lot of stuff involved. Diane, how critical is it that chair yellen see a to provide the underpinning confidence to a december move . I think that is one of the issues the fed has been struggling with. The term structure and the yield curve, and how much the Financial Conditions have eased. That is interesting. We are losing an important voice on the Federal Reserve. Dan fischer has been someone who has been more of a moderating voice and has said listen, there is the inflation issue and people say we should not because inflation is too low. Side, the idea that maybe we should have higher rates at a different inflation rate than we once did. That is coming into the debate and we are losing a critical voice on that. It has to do with term structure on the yield curve and whether or not we have a yield curve to support it. The fact is not want to narrow the yield curve too much but on the other side of it, part of the reason to start reducing the Balance Sheet is to eventually allow the yield curve to spread spread to widen again. Thank you so much. Minutes until the yellen press conference. Yields elevated three basis points higher on the yield. Goese move, and the end off to 112 and the weaker yen gets my attention. Coming up, putting the fed messes massive Balance Sheet focus. What happens after Stanley Fischer leaves the fomc. That is the room fed chair janet yellen will be meeting shortly. She begins the News Conference at the bottom of the hour. This is bloomberg. Scarlet welcome back. We are for janet yellen to take to the podium in 15 minutes time. Jeffreyh us is rosenberg fixed income strategist and in chicago, founder and ceo what a joy it is to have the interviews we have. With thearticular joy former governor of bank of england. Michael mckee reddit cover to cover. Here is governor k on Forward Guidance. A clearu dont have understanding of where you are to speak so unwise much. None of us know what the future holds. Remarkably candid this morning. Any punches. Ull he is very abrupt. They are not trying to lead the market. These are just their view of what the appropriate rate would for any particular status of the economy and with all the changes coming to the fed next year, does the market think there is funding . Imagine herer trying to smoke a pipe. Things have changed over the years. Where are we in our dialogue and transparency at sign central bankers . More conferences . Know. I raised that with some of my friends in the Federal Reserve. They thinking they think now. Is plenty right we have got to get the announcements so they do not get rolled into an idea that the preconditions, that will never move between. If every meeting is live, make them live. We cannot do that at the moment but that is the next place it has to go. As mike said, what is the credibility of any Forward Guidance . It has been debated again in the minutes will be critical. It openly . , it isto janet yellen clearly something the governor has talked about and that Charlie Evans has talked about, the symmetry of the inflation target and they need to get them out there. N where only want to does it help you or hurt you . Policymakers were looking for other ways to bring down Interest Rates and accommodation , and the issues are pivoting. Were moving away from the era and moving to the normalization era. Mike went through, it is not the kind of, we have calendarbased Forward Guidance. To issues are evolving addressing a couple of key points. One is what is the role of Financial Conditions . We look beyond december and into next year, and if we look into what does it even meanness the makeup does really change . It does not mean as much when and 19 arel 18 effectively missing. The issue is how does the policy revolves as far as the Financial Conditions, that is one issue. The fed and Global Central Bank policy response, meaning they lag in responding to Financial Condition loosening. Tom cole and guys like Michael Mckee in the bright lights of the press conference have to adapt rapidly. Questions he will ask chair yellen, will they change or are youief working with the same believes has 10 00 a. M. In the morning. Asked know that will get wide not make the whole thing shallower . The assessment of the economy, do they still see with all going on in washington, do they see them growing at the same pace for the next four years . Is not to be any kind of downturn building at all. Tom diane will stay with us. Important comments from chair yellen we are looking for that in 11 minutes. Will be interesting. I refuse to believe it is boring. It is not. Stay with us. Tom she will be with us later. It bailey describes the competence of alan of radcliffe from a long time ago. Scarlet . Scarlet fed chair Janet Yellen Holding her News Conference in 7. 5 minutes. She will likely be asked again about her future with the fed. Still with us is Jeffrey Rosenberg, black rocks chief income strategist. It comes to personal perhaps net yellen metlife any changes will not affect decisionmaking as much as people think. Take a listen. Is one of theff most professional groups of people you will meet. Culture in that organization. People come into the fed and they are indoctrinated with the culture. This in the most positive sense, it is the most positive bureaucracy that exists. The fed drives the culture rather than driving policy or personal driving culture. I want to ask about the vacancies. The white house has been a little bit slow to move on that. Other vacancies remain. It is seeking less regulation. Now eight have people deregulation will be personnel driven. That,ortant component of the vice chair of bank regulation. I think that is very important. That said, without more governors, it is stretching the fed dinner thinner. Are people going to come to strapped, and without those positions filled, there will not be those disruptors there. There is a muscle memory with the fed itself. About the largest regime change since 1936. We are talking about people who could, it brings up the critical of what role that Financial Conditions play. People coming and would place a much higher weight on raising. Ates more aggressively if you get five of seven seats understand me us decision of the fed but that being said, your changing the helm. What they want to raise rates faster . President trump has made clear he is a fan of low Interest Rates. There is the regulatory side of the fed, and then what drew was probably referring to is more the Monetary Policy side and how much reliance on the forecast really depends on the background and character of the people coming in. Mold kind ofde person coming into the chair without a lot of Monetary Policy background. Are more likely to went withely, if you someone with a much deeper Monetary Policy background, it would intentionally be a bigger change relative to a has been the policy path of the current fed. When we gameplay who are the different potential folks and what the Market Impact is, it depends character by character. Said i will be on with diane smart, give me something pithy. Here is adam on the fed. List will bethat playing with arthur burns p are the president will demand loyalty as is clear with this treatment of gary cohn and others. Means you get low rates no matter what and you use flattering and bullying as nixon did to arthur burns. These are jokes but they are not. It is serious stuff. I want you to explain to the audience worldwide by this matters. Why does the chairman matter given the standard deviation crisis . That we saw is the best example. The deliver of the message, believe it or not, his mentor says you have got to use up. He wrote a memo and now discovered it was pat buchanan basement saying inflation would go over 80 but you have got to do it. They eased up to ensure the reelection of president action nixon. The helped to seed inflation in the 1970s. It took a lot of effort to do that and one would hope, and i because thea danger president expects loyalty, and i understand that, but one would hope when we that we do get an independent fed chair. The independents harry truman ago, duly risks said independence . The relationship between the president and the fed nominee, the institutional structure grants you that independence. We have a number of bills in congress in congress, and antifed move in congress. That is the other element it terms of eroding independence of the fed that we have to look out for here. As the doctor mentioned, why not lower that is what the president wants. Really important because we have forgotten what a shock is. That is a good point. Part of the reason may be because Financial Conditions not even with the Interest Rate increases we have seen. It chart here, something we have shown a number of times. The white line shows the step ladder of increases. The blue line shows Financial Conditions. As you can see, Financial Conditions remain fairly loose even with more Interest Rate increases. How determined are they to raise rates come december . I think the votes are there but there will be more than one dissent and that is interesting, too. Theres a legacy issue for janet yellen, if she doesnt stay on. She has begun this unwinding process. They feel its justified in the majority of the votes. Governors are more powerful than the president s, they dont like that, but thats a fact of life. I think that is important Going Forward. Another issue is just where is the opportunity going to be. Scarlet diane, thank you so much. Federal open Market Committee decided to maintain the target range for the federal funds rate at one to 1. 25 . Policy in thetive job market is a return to the 2 inflation consistent with our statutory objectives. That in october we will begin the Balance Sheet Normalization Program that we outlined in june. This program will reduce our Securities Holdings in a gradual and predictable manner. I will have more to say about this decision shortly, but first i will review recent economic developments in the outlook. As we expected, smoothing through some variations from quarter to quarter, Economic Activity has been rising moderately so far this year. Household spending has been supported by ongoing strength in the job market. Business investment has picked up and exports are shown greater strength this year. Reflecting Economic Conditions of rod. Overall we expect that the economy will continue to expand at a moderate for moderate pace over the next few years. In the third quarter, however, Economic Growth will be held down by the severe disruptions caused by hurricanes harvey, irma, and maria. As activity resumes and building gets underway, growth will likely bounce back. Based on past experience, these effects are unlikely to materially alter the course of the National Economy beyond the next couple of quarters. The families and communities that have been devastated by these storms, for them recovery will take time and on behalf of the Federal Reserve , let me express our sympathy for all of those who have suffered losses. In the labor market, job gains averaged 185,000 per month over the three months ending in august. A solid rate of growth the remained well above the estimates of the pace necessary to absorb new entrance to the labor force. We know from timely indicators that these initial playing claims for Unemployment Insurance that the hurricanes severely disrupted the labor market in the affected areas. Such effects should unwind relatively quickly. Meanwhile, the Unemployment Rate has stayed low in recent months and 4. 4 in august was modestly ofow the median at the midst its longer run normal level. Participation in the labor force has changed little, both recently and over the past four years. Given the underlying downward trend in participation stemming largely from the aging of the u. S. Population, a relatively steady Participation Rate is a further sign of improving conditions in the labor market. We expect that the job market strengthen somewhat further. Turning to inflation, the 12 month change in the price index for personal consumption expenditures was 1. 4 in july, down noticeably from earlier in the year. Core inflation, which excludes volatile food and energy categories, has also moved lower. For quite some time inflation has been running below the committees 2 longer run objection of. However we believe that the shortfall in inflation primarily reflects developments that are largely unrelated to broader Economic Conditions. For example, oneoff reductions earlier this year in certain categories and prices, such as wireless telephone services, are currently holding down inflation. But these effects should be transitory. Such developments are not uncommon and as long as Inflation Expectations remain reasonably well anchored, are not of great concern from a policy perspective because there affects stayed away. Similarly the recent hurricane related rate increases in gasoline prices will likely boost inflation, but only temporarily. More broadly, with employment near its assessment of maximum sustainable levels and the labor market continuing to strengthen, the committee continues to expect inflation to move up and stabilize around 2 over the next couple of years, in line with our longer run objective. Nonetheless, our understanding of the forces driving inflation isnt perfect and in light of the unexpected lower inflation readings this year, the committee is monitoring inflation developments closely. As always, the committee is prepared to adjust Monetary Policy as needed to achieve its inflation and employment objectives over the medium term. Let me turn to the Economic Projections that Committee Participants submitted to this meeting, which now extend through 2020. As always, participants conditioned their objectives on their own individual views of appropriate Monetary Policy, which in turn depends on each participants assessment of the many factors that change the outlook. The median projection for growth of inflationadjusted gross , or real gdp,ct is 2. 4 this year. And 2019. 2. 4 in 2018 1. 8 , int moderates to line with its estimated longer run rate. The median projection for the 4. 3 loyment rate stands at in the Fourth Quarter of this year and runs a little above 4 over the next three years, modestly below the median estimate of its longer run normal rate. Finally, the median inflation year,tion is 1. 6 this 1. 9 this year, next year, and 2. 6 in 2019 and 2020. Growth is attached stronger this year with core inflation softer this year the next. Otherwise the projections are little changed from june. Returning to Monetary Policy, though the committee decided that this meeting to maintain its target for the federal funds rate, we continue to expect that the ongoing strength of the economy will warrant gradual increases in net rate to sustain a healthy labor market and stabilize inflation around our 2 longer run objective. That expectation is based on a review that the federal funds rate remains somewhat below its level. [coughing] that is [coughing] a level that is neither expansionary nor contractionary and keeps the economy operating on an even keel. Because the neutral rate currently appears to be quite low by historical standards, the federal funds rate would not have to rise much further to get to a neutral policy stance. But because we also expect the neutral level of funds rates to rise over time, additional gradual rate hikes are likely to be appropriated over the next few years to sustain the economic expansion. Even so, the committee continues to anticipate that the longer run neutral level at the federal funds rate is likely to remain below levels that prevailed in previous decades. This view is consistent with participants projections of appropriate Monetary Policy. The median projection for the federal funds rate is 1. 4 at the end of this year, 2. 1 at the end of next year, 2. 7 at , 2. 9 in 2020. Compared with the projections made in june, the median path to the federal funds rate is essentially unchanged. Although the median estimate of the longer run normal value gets down to 2. 8 . As always, the Economic Outlook is highly uncertain and participants will adjust their assessments of the appropriate path for the federal funds rate in response to changes to their Economic Outlooks and views of the risks to their outlooks. Courseis not on a preset. As i noted, the committee announced today that it will begin its Balance Sheet Normalization Program in october. This program, which was described in the june addendum to our policy normalization principles and plans will gradually decrease the reinvestment of proceeds from maturing treasury securities and principal payments from Agency Securities. As a result, the Balance Sheet will decline gradually and predictably, for october through december the decline will be month at 6 billion per for treasuries and 4 billion per month for agencies. These cats will rise over the forse of the following year 20 billion per month for Agency Securities and will remain in place through the process of normalizing the size of our Balance Sheet, but limiting the volume of securities to private investors that will have to absorb as we reduce our holdings , the cap should guard against outsize moves in Interest Rates and other potential market strains. Finally, as we have noted previously, changing the target range for the federal funds rate is the primary means of adjusting the Monetary Policy. Our Balance Sheet is not intended to be an active tool for Monetary Policy in normal times. We, therefore, do not plan on making adjustments to our Balance Sheet Normalization Program. That of course, as stated in june, the committee would be prepared to resume reinvestment if a material deterioration in warranted a outlook sizable reduction in the federal funds rate. Thank you, i will be happy to take your questions. Crests chris, bloomberg news. There has been extraordinary progress during your term as chair in lowering several measures of unemployment and underemployment. All while inflation has remains subdued. Some people are even asking why stop there. Bill spriggs, chief economist at the aflcio, why think you know well, criticized the fed last week for seeking to maintain unemployment above 4 , which he notes necessarily means keeping the Unemployment Rate among black americans above 8 . He described this as a deliberate policy to sacrifice many of hundreds of thousands of potential workers and their families out of fear of future inflation when, in fact, the preferred fed measure for inflation has not exceeded 3 in more than 25 years. Im wondering how you would respond to his frustration over the feds desire to continue raising rates when core inflation really shows no sign of heading above the feds symmetric goal for inflation. Thank you. Yellen let me first say is a firstment charge of our mandate. We are charged with this by congress and we have taken that very seriously. Bym pleased and heartened the improvement we have seen in the labor market and at 4. 4 , the Unemployment Rate has really fallen to quite a low level. As that happened, the Unemployment Rates for less advantaged groups in the labor market, particularly africanamericans and hispanics, has fallen more dramatically than that for the nation as a whole, reversing the outsized increases that those groups experienced when the financial crisis and Great Recession hit. These are really very positive developments. We certainly seek a strong labor market, but we have a dual mandate that is inflation and unemployment. We also have to be mindful of to achieve 2 inflation objectives over the mediumterm. Recognize, and it is important to note that inflation has been running under a 2 objective for a number of years and that is a concern, particularly if it were to translate into lower Inflation Expectations. For a number of years, there were understandable reasons for that shortfall and they included quite a lot of slack in the labor market, for which my judgment would be that it has largely disappeared with large reductions in Energy Prices and a large appreciation of the dollar at lowered import prices starting in mid2014. This year the shortfall of 2 , when none of those factors is operative, is more of a mystery. I will not say that the committee clearly understands what the causes are of that. We do in our regular projections show charts indicating the typical size of forecasters and all the variable gdp, the Unemployment Rate and inflation for cast by ourselves. So, there is very asian in these economic variables from yeartoyear. I would say that our judgment, as i said in this statement, is that the shortfall is not largely related to cyclical considerations. You can see from the projections that the Committee Participants submitted that we anticipate that core and headline inflation will move up close to our 2 objective next year. Namely that this shortfall this year is due to transitory that are likely to disappear over the course of the coming year, but i want to emphasize that we do have a commitment to raising inflation to 2 and as we watch incoming data, the assessments that you see, the participants write them down about the path of the federal funds rate, they are not set in stone. They are not definite plans. We will look at incoming data on inflation and on other economic variables including the labor market in deciding what we should actually do Going Forward and if it proves contrary to our expectations that this shortfall is persistent, it will be necessary to adjust Monetary Policy to address that. I want to point out that while there are risks that inflation could continue below 2 , which we need to take account of an Monetary Policy, Monetary Policy also operates with a lag and experience suggests that tightness in the labor market gradually ending with a lag tends to push up the Price Inflation and thats also a risk that we want to be careful not to allow the economy to overheat in a way that would force us later on somewhere down the road to have to tighten Monetary Policy rapidly, which could cause a recession and threaten the very desirable labor Market Conditions that we have now. Thanks very much. Sam simon, from the financial times. The fed discussed recently elevated asset prices in the markets in their most recent meeting that was held today. How are Market Conditions affecting the debate at the moment about how quickly to rein in stimulus . In your own mind have they helped to counter the concerns you have had about the inflation shortfalls we have been seeing . At every meeting we try to assess the Economic Outlook and take account of information that has been accumulated about the and alsoomy developments in Financial Markets and put all of that together in assessing the course of the economy. So, developments affecting asset prices and longerterm interest , the exchange rate, all of those aspects of Financial Conditions factor into our thinking. To get a clearsy read on the implications of asset prices for the overall outlook. Sometimes movements, upward movements in asset rices can, for example, reflect a change in Market Participants, a reduction in Market Participants estimates of the longer run level of Interest Rates. So, there has been there have been dad downward revisions both to committees and Market Participant estimates of the longer run normal levels of Interest Rates, which in turn reflects in some sense a view that going out many years, aggregate demand globally is likely to be weekend by continuing low productivity. Rowth and aging populations of course, we dont know if that view is correct, but that is a factor that could be reflected, could be one reason why asset prices have moved as they have. So, why are asset prices moving . Thats important in determining on the overall outlook, but certainly we are taking accounts of movements in asset prices in evaluating the appropriate stance of policy. Steve leishman, cnbc. In your opening remarks you just said that reducing the Balance Sheet should not be an active tool for Monetary Policy in normal times and you dont plan on making adjustments to the Balance Sheet. Can we explore if there is any sensitivity to the planet you Just Announced . If there is a spike in Interest Rates, a plunge in the stock market, weakness and growth, in the june statement you indicated that the only reason you would the onlyuggested reason to change the Balance Sheet was if it required first to change in the funds rate. Is that true, if there is some Unexpected Development in example, given that we dont know the plans on the fiscal side for the deficit in terms of tax cuts, there could be a sudden spike in the deficit. Will the Balance Sheet Reduction Plan b immune to all of that . Given that question and the idea that this has never then done before, why so much certainty about the plan you have Just Announced an apparent unwillingness to adjust it . Chair yellen so, we have two policy tools for us to use. Historically the committee has operated to adjust monetary conditions to meet our economic goals when there are shocks to the economy by adjusting the federal funds rate, or shortterm Interest Rate target. That is something, a technique of monetary control that we have used for a very long time that we are familiar with. We believe we understand pretty well what the effects are on the economy of Market Participants understanding how that tool has been used and would likely be adjusted in response to shocks to the economy. Our preference is, when we have two different tools that we could use to actively adjust the prefer andolicy, to to make a commitment that, to the maximum extent possible, the federal funds rate will be the active tool of policy. Thats our goto tool. That is what we intend to use. Unless we think that the threat to the economy is sufficiently great that we might have to cut the federal funds rate. After all, if we moved it up and expected it to go up further, a very significant negative shock to the economy could conceivably forces back to the socalled zero lower bound. We have said that if there were not that type of material deterioration in the outlook, where we could face a situation where the federal funds rate isnt the sufficient tool for us to adjust Monetary Policy, we might stop, we might stop roll ups from the Balance Sheet and resume reinvestment. As we believe that we can use the federal funds rate as a tool, that is what we intend to do. Strongs small changes in the outlook that require the recalibration of Monetary Policy, we will change on an anticipated path and federal fundse rate, but not for example changed to caps on reinvestment or stop continued reinvestment and then change it. We think that that provides to marketarity participants about how policy and will beucted less confusing and more effective in terms of conducting policy. Daniel appelbaum, the new york times. You have committed to reducing your Balance Sheet readily and described plans to raise Interest Rates even more gradually than previously. You are locked in for a long time to a forecast that Monetary Policy will keep Interest Rates at a low level and keep the Balance Sheet at a high level. If something goes wrong, does the fed have room to respond under these conditions in the next several years . Can you describe your plans for a response should it be warranted . Chair yellen the only thing that i would object to their is that you said we are locked in and we are not locked in. We believe that Economic Conditions will evolve in a way that will warrant gradual further increases in the federal , but ifte target conditions evolve differently direction whichever that might be, it might be the growth thats more rapid, the labor market tightens more quickly than we assumed and inflation appears to be ticking up more rapidly than we had expected, we have not promised, no matter what, that the path of Interest Rate increases will be gradual. We believe that that will be appropriate, but we are always watching the economy and will adjust policies as appropriate. As i said, the hurdle to changing our plans with respect to the Balance Sheet, in some sense, is high. Weaken, wens were to would really only consider resuming reinvestment if it were what we refer to as a material deterioration. And i tried to explain my that is. , we will adjust Monetary Policy. What you see in the dot plot is based on the guess information that we have today about what will be appropriate in light of their expectations about how the economy will evolve. To show its helpful the public that it helps to understand our evaluation of the economy that we are assessing incoming data and those plans are subject to change. To doing everything in our power to achieve the goals that congress has assigned to us, which are price stability and 2 inflation and maximum employment. [inaudible] responded to an economic downturn . If growth is stronger or inflation picks up more rapidly, we have room. We have a certain amount of room now. And we have raised the funds rate four times. We believe that we are on a path where there will likely be further increases over the next couple of years that will give and we thinkom that the recovery is on a strong track. The reason for our actions today and beginning to run down the Balance Sheet is we think that the economy is performing well and we have confidence in the outlook for the real economy. Of course, there are shocks and if the negative shock to the economy were sufficient, we , we might bet we unable to pursue objectives purely by cutting the federal funds rate. And that is why we say exclusively that we would be prepared in that event to resume reinvestment with the tools that we used in the financial crisis for guidance the wall street journal. There was a speech that set of trend inflation appeared to move lower by half a percentage point. A do you agree, and what with the fed needed and what what the fed need to do to boost trend inflation . Compared to three months ago, what is your current expectation of the slowdown. Will it remain transitory, and what expectations will there be for Monetary Policy . Are ayellen there variety of techniques that can be used to extract trends. Is aly what that means statistical thing. There are technologies that would show some decline in recent years in the trend. We have had a number of years in which inflation has been low. As i said, i think you can go consider, until this year, the reasons why inflation were hard to understand is a combination of the labor market, declines in the Energy Prices, and a strong import Price Inflation. What is important in determining inflation Going Forward is Inflation Expectations. Measures, the professional forecasters, those have been rock solid. We do look at Household Expectations which have come down some. Marketbased measures of inflation compensation, they have declined in recent months. They have declined to levels that are low by historical standards. They might suggest that Inflation Expectations have come down. But we cant get a clear read. This makes it impossible to extract directly what Inflation Expectations are. Is i cant say i can easily point to a sufficient set of factors that explain this r my inflation has been why inflation has been this way. Low inflation is more broadbased than bureau socratic u syncratic things idiosyncratic things. Ate inflation was running around 1. 9 in january of 2012. We look to be close to 2 now. We have several months of data. We need to figure out whether or not the factors that have lowered inflation are likely to transitory. Tent or that is what we going to try to be determining on the basis of incoming data. You asked me about the policy implications. If instead of thinking, the factors holding inflation down or transitory, were transito ry, this would require an alteration in Monetary Policy to move inflation back up to 2 . Would be committed to making that adjustment. We would be committed to making that adjustment. With reuters. Markets seem to be pricing in a shallower path of rate hikes that the fed does and the sep. What do you think that markets might be missing, and what is your conviction that interview is the correct one your view is the correct one on gradual means . This seems to be faster than what markets are pricing. Chair yellen i am not going to try to explain what Market Participants are thinking. Participants paths have come down, over the last several years. There has been a growing recognition in the neutral Interest Rate, consistent with the economy operating at maximum employment. That rate seems to have come down in most of the research bearing on this topic. It suggests it is quite low. Fomc participants, you can see either estimates of longer runs, normal rate of interest, given this time it came down from the median came down from 3 to 2. 75 . Fomc participants, in light of incoming data, are adjusting their views. They still believe that in real terms, the neutral rate would be rising somewhat over the next few years. In real inflation rate to 75 basisunting points. Explainsne factor that the past in the sep. Market participants may have lower estimates or believe that the neutral rate may be more persistent. As i said before, there is nothing set in stone about the policy paths you see in the summary of projections. There is a great deal of uncertainty around them. There is disagreement and uncertainty. Fomc participants have been revising their views over time. They will continue to do so. I would point out a couple of technical reasons why it is difficult to compare what you see in the sep and marketimplied paths. Writingticipants are down what they think is the most likely or modal outcome for rates. There are downside risks. Account rate would take of all possible outcomes and would be lower than what participants are writing down is there most likely outcome. Eir most likely outcome. Many economists have suggested there are term premia that can move from the market implied is allo what the future funds rate passes. Arehose term premia negative, there is a little bit less difference between what you see in the fomc plot and the market implied plot. With the los angeles times. Your term expires in february. Have you had a chance to discuss your situation with President Trump . What were your impressions of him and what he is looking for from the Federal Reserve . Chair yellen i intended to serve out my terminal intend to serve out my term as taylor. Term as chair. I will say i have not had a further meeting with President Trump. I met with him early in my term and i have not had a further meeting with him. Business. You delivered a speech in wyoming in which you said the bounds of researchers suggest the apartment forms we put in place have boosted resilience without limiting creditability Credit Availability or Economic Growth. What message do you Want Congress and President Trump to hear from that statement . The accommodative process the fed has followed for the last 10 years has brought us to full employment. Americans 48 have not participated in the gains in the stock market. 39 million americans spend more than 30 for housing. What would you say to those people about fed policies and the impact they have had on their lives . Chair yellen what was the main message of my speech . Place, since the financial crisis, a set of core reforms that have strengthened the Financial System. It is important they remain in place. Core co reformsre reforms are higherquality capital, more liquidity, especially systemically important banking institutions. Stresstesting and resolution plans. Those prongs of improvements in banking supervision have strengthened the Financial System and made it more resilient. I believe they should stay in place. I have tried to emphasize, and they have contributed to growth and the availability of credit, i have tried to emphasize all regulators should be attentive to undo regulatory burdens ande regulatory burdens look for ways to try to scale that back. Weve implemented a large number of complex regulations over the years. I would point out community laboring under significant regulatory burdens. We have been looking for ways to scale back burdens. We will listen to concerns among Community Banks and are looking for ways to simplify capital standards and reduce burdens. That is really important. We would like to see congress we can do things to appropriately taylor regulations tailor regulations to risks by banking organizations. Dore are Things Congress can to help that process. We have made some concrete suggestions. Regulation in place since the crisis like the full le are reallyr ru quite complex. Were working with other regulators to try and see if we ngn find ways, while carryi intended,oddfrank that Bank Organizations not be trading in proprietary unless the limitations can be less complex. That was my main message. Your second question asked about what impact the fed is had on in has had on incomes distribution. Stocks can be disproportional. A huge faced with recession that took an enormous toll in terms of depriving large numbers of people and disproportionally disproportionately lower income people who are less advantaged in the labor markets. Our congressional mandate is maximum employment price stability. Policy not with a view toward affecting the distribution of income, but toward pursuing those congressionally mandated goals. I am pleased to see the Unemployment Rate in every other measure i know of pertaining to the labor markets show dramatic improvement. Important to the economic wellbeing, not that the top end of the wealth and Income Distribution, but to the bottom end of the Income Distribution. We have seen Median Income rise significantly with games to the Income Distribution this year. Associated press. The next month with the departure of vice chair fisher, the fed will lose its core on the fed board. Is that going to present operational challenges . Do have contingency plans . That thebeen assured confirmation will be approved . Has the administration to view any assurance given you any assurances that the pace of nominations will pick up . Chair yellen i will greatly miss vice chair fisher. An enormousan contributions to the fomc and the border work of the Federal Reserve. I enjoyed working with him and appreciated his counsel and friendship. It is conceivable we will be down to three governors. I have full confidence that even if that happens, we will be able lementiveout our comp responsibilities. Every action we are allowed to take under the Federal Reserve act can be taken, even if we are a board of three. We will have to abide, as we always do, by the restrictions part of the government. Fullld welcome a complement of colleagues. Do, it a lot of work to would be nice to distributed over more people. Perhaps more important than that, it is important to have a thed range of views around table as we deliberate on policy actions. I have had very good interactions with people who would be confirmed. I hope the administration will make other nominations to fill our slots. The washington post. Congress is considering a major tax reform package. Do have concerns is that packet doesnt end up if that packet doesnt end up being deficit neutral . Would that be problematic for the economy . Chair yellen that is a matter for the congress and the white house to decide. I have put forward a few principles about fiscal policy that i would reiterate. One of the problems the American Economy suffers from, along with many other economies around the globes productivity growth. Around the globe is productivity growth. It would be desirable if this package could create incentives that would raise productivity growth. We do face, in terms of longerterm deficits, as the population ages, and unsustainable debt pass that will unsustainable debt path that will require adjustments to fiscal policy. I Hope Congress can keep that in mind. I dont want to wait in on details weigh in on details. From marketplace. Mightthat might be be prepared to take Enforcement Actions against wells fargo if it proved to be appropriate. Do you think it is appropriate and what actions would you take . Chair yellen i consider the behavior of wells fargo toward its customers to have been egregious and unacceptable. Supervision responsibilities of the company very seriously. We are attempting to understand what the root causes of those problems are and to address them. I am not able to discuss confidential supervisory not be able to tell you what actions we may take. There committing to taking actions with regard to necessary and appropriate to make sure the rights of controls are in place. Timeline . Give me a chair yellen we are working hard. David harrison with downj what would it take for you to wind down the Balance Sheet . How doup to that you think history will judge the effectiveness of your asset purchases and the conditions under which that policy should be used . Starting with the last part of the question, my own judgment based on my experience and the Economic Research that has tried to estimate the effectiveness of our bounce sheet Balance Sheet actions starting in 2008 and has looked at similar Balance Sheet actions in other parts of the world, including europe. These actions were successful in making Financial Conditions more accommodative. I believe in stimulating a faster recovery than we otherwise would have had. A recent fed working paper ofimated that the full set Balance Sheet actions we took during the crisis, they have lowered longterm Interest Rates by 100 basis points. Asre are different estimates to what difference it made. I would say it is effective. It will be up to future policymakers to decide in the event of a severe downturn whether they think it is appropriate to resort to Balance Sheet, to adding assets to a Balance Sheet. I would say if economists are correct, that we are living in a world where the delivery of neutral Interest Rates, not only in the u. S. , but around the world is likely to be low in the future due to slow productivity growth and demographics and we dont know that view well out,bear ou will bear but it is a view many people will appear to. To. Ell will adhere in the event of a severe downturn, where they are not able to provide as much stimulus by cutting overnight Interest Rates, what other actions are available to them . We bought longerterm assets during the crisis and he was and used Forward Guidance. I would want to keep those things metal kit as being available. In thehe tool kiut as tool kit as being available. I dont think this issue will go away. A decisionwell be that future policymakers will have to face the event of a significant passage of economic shock. You asked me what it would take reinvestment . Ume i cant say much more than we have said in the guidance we have provided. If there is a material deterioration in the Economic Outlook, we thought we might be faced with a situation where we would need to substantially cut the federal funds rate, which could be limited by the lower bound. It is that type of determination our committee is saying would might leave us to resume reinvestment. Our committee has been unanimous in affirming this statement of intentions. I think that is where our committee stands. That is a high bar, to resume reinvestments. Our first tool against a negative shock will be the federal funds rate. Shock,e is a significant some material deteriorations, we would consider resuming reinvestment. Politico. Q has been on the Financial Stability Oversight Council for a few years. Theou have any thoughts on process for systemic we important Financial Institutions should be changed for systemically important Financial Institutions should be changed . Is there anything related to equifax that might raise systemic issues . Chair yellen you asked about the designation process. During the time i have been on this committee, only one firm was designated, metlife. I have seen how the process works. Designation is important. We saw during the financial crisis that systemically important nonbanking distressions, their produced broad consequences that were adverse for the u. S. Economy. Having the ability to designate firms when the Committee Makes the determination that the distress or failure could have systemic repercussions, that is an important policy tool for fsoc to have available. It is not meant to be a oneway firmt, in the sense that a designated, the procedures require in will reviews. Annual reviews. Firms may change their Business Model. Thehould welcome designation of firms if their Business Model has changed in a way that leads us to believe there failure and distress would no longer be systemically important. I am satisfied with that process. Ge capital dramatically changed its Business Model. It is a process that works. The treasury is looking at this and making recommendations. I will be glad to consider them as part of the fsoc process. It has been important in working. Quifax. Ed about e that is a very serious data breach. We urge consumers to be very careful in monitoring credit reports and financial situations. Through our supervision, we are working with banks. We supervise them to make sure that they take appropriate actions with respect to their business processes in light of the fact that there could be breaches or fraudulent transactions or information they receive they might use in credit determinations. This could be contaminated by bad data. It points to the importance of a strong cybersecurity control and attention to affiliated risks, which we see as one of the most significant risks to the financial sector. We are very focused in our banking supervision in making sure that banks have appropriate controls in place. Equifax breach highlights the importance of that. Michael mckee from bloomberg. We talked about what you were going to do, but not necessarily why. Financial conditions are looser than before you begin. Does that bother you . Are you concerned about overstimulating the economy . Are you concerned about inflation breaking out much more quickly . How would you explain what the fed is doing, why the fed is doing it to the American People . It, tothe fed is doing the American People . Wind every measure of the labor market, whether it is narrow Unemployment Rate, the number of people working in parttime jobs who want fulltime