Transcripts For CSPAN2 Federal Reserve Chair Makes Statement On The Economy 20170921

Committee decided to maintain the target range for the federal funds rate at 1 1 and a quarter percent. This accommodative policy should support for the strengthening in the job market and return to 2 inflation. We also decided in october we will begin the Balance Sheet Normalization Program that we outlined in june. This program will reduce our Securities Holding in gradual and predictable manner. I will have more to say about this decision shortly. First, ill review recent Economic Development of 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 have shown greater strength. In part reflecting improved Economic Conditions abroad. Overall, we expect the economy will continue to expand at a moderate pace over the next few years. In the third quarter, Economic Growth will be held down by the severe disruptions caused by hurricanes harvey, irma, and maria. As the economy resumes in building gets underway, will likely bounce back. Based on past experiences, these effects will unlikely alter the course of the economy beyond the next couple of quarters. Of course for the families and communities that have been devastated by the storms, recovery will take time. On behalf of the Federal Reserve let me express her sympathy for those who have suffered losses. In the market job gains average 185,000 per month over the three months ending in august. A solid rate of growth that remained well above estimates of the pace necessary to absorb new entrants into the labor force. We know from timely indicators such as initial claims run employment insurance at the hurricane severely disrupted the labor market in the affected areas. Payroll employment may be substantially affected in september. Meanwhile, the Unemployment Rate has stayed loaded in recent months at 4. 4 in august was modestly below the median and therefore participants of its longer run normal level. Participation in the wake it 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, relatively steady Participation Rate is a further sign of improving conditions in the labor market. We expect the job market will strengthen touch further. Turning to inflation, the 12 month change for personal consumption expenditures was 1. 4 in july, down noticeably from earlier in the year. Corn inflation which excludes the volatile food categories has moved lower. For some time inflation has been money below the committees 2 longer run objective. However, we believe this years inflation primarily reflects developments that are largely unrelated to broader Economic Conditions. For example runoff reductions earlier this year in certain categories of prices such as Wireless Telephone Services are currently holding down inflation. The effect should be transitory. Developments are not uncommon and as long simulation expectations remain well anchored there not a great concern from the policy perspective because they are fixed stayed away. The recently hurricane increases in gas prices will likely root boost inflation but only temporarily. The employment assessments of the maximum sustainable level. The label market is continuing to strengthen the committee expects inflation to move up and stabilize around 2 over the next couple of years in line with our longer run objective. Our understanding of the forces driving inflation is imperfect. In light of the unexpected lower inflation rate is fisher the committee is monitoring inflation to moments closely. The committee is prepared to look at Monetary Policy is needed to achieve its inflation and employment objectives over the medium term. Let me turn to the Economic Projections that was submitted for this meeting which now extend through 2020. As always, participants condition their projections on their individual views with appropriate Monetary Policy. That entrance on the assessments of the many factors that shape the outlook. The meeting projection for growth of inflation adjusted Gross Domestic Product or real gdp is 2. 4 this year and about 2 in 2018 and 19. By 2020 the median growth production moderates to 1. 8 . In line with the estimated longer one rate. The medium protection of the Unemployment Rate stands at 4. 3 . Thats in the Fourth Quarter of this year, roads a little over 4 over the next three years. Modestly below the median estimate of its longer run normal. Finally, the median inflation projection is 1. 6 this year, 1. 9 next year and 2 in 2019 in 2020. Compared with projections made in june, low gdp growth is a bit stronger this year and inflation, particularly core inflation is slightly softer. Otherwise, the projections are little changed from june. Returning to Monetary Policy, the committee decided at this meeting to maintain its target for the federal funds rate we expect the ongoing strength of the economy will warrant gradual increases to sustain healthy labor markets and stabilize inflation around 2 objective. But expectation spaced on the abuse that the federal funds rate remains below its neutral level. That is, the level that is neither expansionary nor contractionary and keeps economy operating on an even keel. Because the neutral rate appears to be low by historical standards the funds rate would not have to go much further to get to a neutral policy stance. Because we also expect a neutral level to widen some over time, additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion. The committee continues to anticipate that the longer run neutral level of the funds rate is likely to remain below level. This is consistent with participant projections of the apartment Monetary Policy. The media 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 the end of 2018, and 2. 9 in 2020. Compared with predictions made in june, this essentially unchanged. Although the median estimate of the longer run normal value for stunted 2. 8 . As always, the Economic Outlook is highly answered. Participants will adjust their assessments if the appropriate path for the federal funds rate in response to changes to Economic Outlooks and views of risk to the outlook. As i noted, the Kid Committee announced today that it will announce the Balance Sheet in october. This program described in the june addendum tour policy normalization principles and plants will gradually decrease our reinvestment of proceeds from maturing treasury securities and principal payments from agency securities. As a result, the Balance Sheet will decline gradually and productively. For october through december the decline in Securities Holdings will be kept a 6 billion per month for treasuries and 4 billion for agencies. Caps on gradually rise over the course of the following year to a maximum of 30 billion per month for treasuries and 20 billion for agency securities. It will remain in place to the process of normalizing our Balance Sheet. By limiting the volumes of securities that private investors will absorb as we reduce the holdings, the cap should guard against outside moose in Interest Rates and other potential market strengths. Finally, as previously changing the target range for the federal funds rate is our primary means for adjusting Monetary Policy. It is not intended to be an active tool for Monetary Policy in normal times. We do not plan on making adjustments to our Balance Sheet Normalization Program. As we stated in june, the committee would be prepared to resume her investments of material deterioration which warrants a sizable deduction in the federal funds rate. Thank you. Ill be happy to take your questions. With bloomberg news, story your term as chair and lowering several measures of unemployment and underemployment and all while inflation has remained subdued. Some people are asking why stop there . The chief economist who you know well criticized the fed last week for seeking to maintain unemployment above 4 which he notes means keeping down the employment rate among black americans about 8 . He described this as a deliberate policy to sacrifice hundreds of thousands of potential workers and their families out of your future inflation. When the preferred measure of inflation has not exceeded 3 more than 25 years. Im wondering how you would respond to his frustration over the feds desire to continue raising rates when core inflation shows no sign of heading above the symmetrical of inflation. Employment is a very important part of her mandate. We are charged by congress with trying to pursue maximum employment and we take that very seriously. Very pleased by the improvement we seen in the labor market and 4. 4 . The Unemployment Rate has fallen to quite a low level. As that happened the Unemployment Rates for less advantaged groups in the labor market, particularly africanamericans and hispanics household dramatically in the nation as a whole reversing the outsized increases that those groups experienced when the financial crisis and Great Recession hit. These are very positive developments. We certainly seek a strong labor market. We have a dual mandate which is inflation and unemployment. We also have to be mindful of our obligation to achieve 2 inflation objective over the median term. I recognize, and the support that inflation has been running under 2 objective for a number of years. It is a concern, particularly if it were to translate into lower Inflation Expectations. For number of years theyre very understandable reasons for that shortfall. And they included a lot of slack in the main labor market which was a very large reductions in Energy Prices and a large appreciation of the dollar with lowered import prices in the mid 2014, this year, the shortfall of inflation from 2 when none of those factors is operative is more of a mystery. I will not see the committee clearly understands what the causes are that. We do in our regular projection show fan charts indicating the typical size of forecaster and all the variable gdp Unemployment Rate and inflation are forecast by yourself private forecasters with heirs. So there is variation in the economic variables from yeartoyear. Our judgment is a sin this statement is with the shortfalls not largely related to cyclical considerations. You can see from projections that the Committee Participants submitted that we anticipate that corn headline inflation will move up close to 2 objective next year. Namely, the shortfall this year is due to transitory trackers that are likely to disappear over the course of the coming year. I want to help us on emphasize that we do have a commitment to raise inflation to 2 . As we watch incoming data the assessment cc participants rate down about the path of the federal funds rate. They are not set in stone. Theyre not definite plans. We will look at incoming data on inflation and on other economic variables including the labor market and deciding what we should do Going Forward. If it proves contrary to our expectations at this shortfall is persisted will be necessary to address Monetary Policy. While there are risks inflation could continue below 2 , which would need to take account of an Monetary Policy. Monetary policy operates with the leg. Experience suggests that tightness in the labor market gradually and with the leg tends to push up inflation. That is also a risk that we want to be careful not to allow the economy to overheat in the way that would force us later on summer down the road to have to tighten Monetary Policy rapidly which could cause a recession and threatened the desirable labor Market Conditions that we have now. The debate about reining in stimulus. Have they help counter some of the concerns youve had to counter inflation shortfalls . At every meeting we try to assess the Economic Outlook and take into account information thats been accumulated about the real economy and developments in Financial Markets and put it all together in assessing the course of the economy. Developments affecting asset prices and longerterm Interest Rates, the acid prices can reflect the change in Market Participants estimates of the longer run Interest Rates. There have been downward revisions both to the committees of Market Participants estimates of the longer running Interest Rates which reflects a sense of aggregate demand globally is likely to be weekend by continuing low productivity growth and aging populations. We dont know if the views correct. But that is a factor that could be reflected in one reason why the prices have moved as they had. Why your asset prices are moving thats important in determining the impact on the overall outlook. Certainly were taken into account movement of massive prices and evaluating the stance of politics. Madam chair, you just said in your opening remarks that reducing the Balance Sheet should not be an active tool for Monetary Policy in normal times and you dont want to make an adjustment on the Balance Sheet. Are there any sensitive you trance sensitive he to the plan you announce. Theres a plunge in the stock market, weakness and growth, and the june statement you indicated the only reason you would change the Balance Sheet is if it required a change in the funds rate. Is that true or some Unexpected Development and market, for example given we done with the plants on the fiscal side for the deficit in terms of tax cuts will the Balance Sheet Reduction Plan b immune to that . The idea that this has never been done before, why so much certainty about monetary conditions to meet our economic goals and the shocked the economy by adjusting the federal funds rate. That is the technique, monetary control that we have for a long time that we are familiar with, were familiar with the reason why we understand what the effects are in the economy, Market Participants understand how the tool has been used and would likely be adjusted in response to shocks within the economy. When we met different tools we can use to actively adjust the stance of policy to prefer make a commitment that to the maximum extent possible the federal funds rate will be the active tool policy. Thats what we intend to use unless we think the threat to the economy is sufficiently great that we might have to cut the federal funds rate if we moved it up to one and a quarter percent and expected to go further. Its a significant negative effect that the economy could conceivably go back to the zero lower band. If it were that type of material deterioration in the outlook where we could face a situation where the funds rate is not a sufficient tool for us to adjust Monetary Policy, we might stop in the Balance Sheet. As slaves we believe we can use the federal funds rate is a tool, thats what we intend to do. Less confusing a more effective in terms of conducting policy. From the new york times, youve not committed to a policy of reducing your Balance Sheet for gradually. You described raising Interest Rates more gradually than recently. Locked in to a long time that it will keep things at a low level on a Balance Sheet at a high level. If something goes wrong, does the fed have room to respond under these conditions . Could you describe what your plans are for a response, should it be warranted . Nothing i reject to their is a set were locked in. I would say we are not locked in. We believe Economic Conditions will evolve in the way that will work gradual further increases in her federal funds rate target. If conditions evolve differently than that, whichever direction that maybe it might be the growth is more rapid in the labor market type titans more quickly than we assume an affliction seems to be picking up more rapidly than expected. We have not promised a matter but that the path for Interest Rate increases will be gradual. We believe it will be appropriate that were always watching economy and adjusting policy were appropriate. The hurdle to changing our plans with respect to the Balance Sheet in some senses high. If conditions were to weekend, we would really only consider resuming reinvestment if it were what we refer to as the material deterioration. I tried to explain what that is, we will adjust Monetary Policy, what you see is each participants best guess based on information they have today about what will be appropriate in light of expectations on how the economy will leave all. We think its helpful to show the public some sense, were assessing incoming data. These plans are subject to change. What is not subject to change is our commitment of doing everything in our power to achieve the goals congress has assigned witches price stability at 2 inflation and maximum employment. [inaudible question] certainly if it stronger or relation picks up rapidly we have room. We have a certain amount of room now and we have raise the funds rate four times. We believe we are on a path and will likely be further increases over the next couple of years which will give us greater room. We think the recovery is on the strong track. The reason for the actions today and beginning to run down the Balance Sheet is we think the economy is performing well and we have confidence in the outlook. Of course there shocks and if the negative shock were sufficient we recognize that we might be unable to pursue objectives by cutting the federal funds rate. That is why we say explicitly that we would be prepared in that event to resume reinvestments and other tools that we used in the financial crisis would also be available to us. The recently speech was given which they said trend inflation appeared to move lower about half a percentage point. Do you agree . And what would the fed need to do if anything to boost trend inflation if it is falling . You said you expected to prove transitory. How firm is your current expectation of the slowdown in what implications would that have for Monetary Policy if it is not . The term trend inflation usually theres a variety of statistical techniques that can be used to extract a trend from a series. Exactly what that means is statistical things. There are methodologies that would show a modest decline in recent years. It have a number of years in which inflation has been low. In answer to an earlier question, i think if you go back to 2013 and consider until this year the reasons why inflation was low is not hard to understand. It is a combination of slack in the labor market, decline in Energy Prices and a strong dollar that pulled down import price inflation. So whats important in determining inflation Going Forward is Inflation Expectations. By some measures of professional forecasters are those that have been rock solid, we look at Household Expectations which have come down some. Marketbased measures of inflation compensations have declined and stable in recent months. Theyve declined to levels that are low by historical standards. That might suggest Inflation Expectations have come down. You cant get it clear read. It makes it impossible to extract records that employment expectations are. There is a myth this year. I cannot say i can easily point to a set of factions. But low inflation is more broad base than idiosyncratic things. The fact that inflation is unusually low does not mean it will need to continue. In january and february court we look to be very close and weve had several months of data and have meaningfully pulled that down. We need to figure out whether or not the factors that lowered inflation are likely to improve transitory. Well try to do that on the basis of incoming data. Our view changed it came to the views that it would be persistent and require Monetary Policy to move inflation back up to 2 . Im here with writers market seem to be pricing, or what you think markets might be missing here in what is your conviction about the connect one or the pace that has gradual means which seems to be faster than what markets are pricing im not really going to try to explain what Market Participants are experiencing. I think the paths have come down, not the last couple of quarters but in the last several years. The loophole Interest Rate to hit at maximum employment. That rate seems to have come down and most of the economic papers and research bearing on this topic suggest its quite low. If the participants you can see by the estimates of the longer run normal rate of interest, this time it came down from the median came down from 3 to 2. 75 . That shows in the long run the participants in incoming data are adjusting their views. I would say that they still believe in real terms that neutral rate will be rising somewhat over the next two years. So now its 75 basic points which is higher than the positive rates now. Thats one factor that explains the path and the sec. Market participants may have lower estimates or believe that alone neutral rate may be more persistent. As i said before, theres nothing set in stone about the policy paths to see in the summary projections. Theres a great deal of uncertainty. Not only disagreement but uncertainty. Participants have been revising and will continue to do so theres a couple of reasons why its difficult to compare what you see in the sep and market employed paths. One is that participants are writing down what they think is the most likely outcome for rates. Of course there are Downside Risks and the mean rate would take into account all possible outcomes and likely would be lower than what participants would be writing down of the most likely outcome. Many economists have suggested that there are term premiums. In the view of what the future federal funds rate path is if these are negative in the condom is likely think they are it is much different between what you see in the fomc plot. Thank you. Your term expires in february. Have you had a chance to meet with or discuss your situation with President Trump yet . If so, what were your impressions of him and was he looking for for the Federal Reserve. I intend to serve out my term as chair and i am really not going to comment on my intentions beyond that. I will say that i have not had a further meeting with the President Trump. I met with him early my term and i will not have a further meeting with him. Im with foxbusiness. A month ago you had a speech in which the balance of research that we put in place its a twopart question, first, what message to congress and President Trump to hear from that statement . In regarding Economic Growth, the accommodative process the fed has followed his help bring us to full employment. Economists say there have been people have not benefited, for instance 52 on stock, theyve not participated in gains in stock market. The median house prices at record high and 30 million americans spend more than 30 for housing. But would you say to those about fed policies and the impact theyve had on their lives . So i was the main message of my speech . I would say that it is we put in place since the financial crisis, a set of core reforms in the Financial System and in my personal view is important they remain in place. Those core reforms are more capital, higherquality capital, more liquidity especially systemically in important banking institutions. Stress testing and resolution plants. In those four prongs of improvements in banking supervision have strengthened the Financial System and made it more resilient. I believe they should stay in place. I also tried to emphasize that i believe they have contributed to growth and durability of credit. Ive tried to emphasize that all lenders should be attentive to on derogatory burden and look for ways to try to scale it back. This is true after years in which we implemented a large number of complex regulations. We have been committed to doing that. Particularly Community Banks are laboring under significant regulatory burden. Weve been looking for ways to scale back burdens. One in the process is listening to concerns among Community Banks and looking for ways to example taxable standards and reduce burdens. Thats where important. More generally, we want to tailor, wed like to see congress as well, we can do things to appropriately tailor regulations to the risk posed by different banking organizations, theres Things Congress could do to help that process. We have made some concrete suggestions. Some regulations that were put in place with other regulators like the vocal rules are quite complex. We are working with other regulators to try to see if we can find ways while carrying out what dodd frank intended, that banking organizations not be involved in proprietary trading. Nevertheless, the implementation can be complex. That was my main message. Your second question asked about what impact the fed has had on Income Distribution because of the fact that stocks in homes tend to be disproportionate. Look, we are faced with a huge recession that took an enormous toll in terms of depriving large numbers of people and disproportionately lowering people who are less advantaged and the labor market from of cells without work. When a 10 Unemployment Rate and our congressional mandate. So, we spent Monetary Policy not with a view towards affecting the distribution of income but to have looked at that unemployment goal. Every other measure that i know of pertain to the labor market showed dramatic improvement over the sears. That is on hugely important for the economic wellbeing, not at the top end of the wealth and Income Distributions, but to the bottom end. They have grown significantly. I marty with associated press. Madam chair, the next month with the departure of the vice chair fisher, the fed will lose its core, the fed board. Is that going to present operational challenges for you . To have a contingency plan . Has the senate ensures you that his confirmation will be approved . In your discussions with the administration have they given you any assurances that the pace of nominations will pick up soon . First let me say i will greatly miss the vice chair fisher. Hes made enormous contributions to the board and the work of the Federal Reserve. I have really enjoyed working with him and appreciated his wise counsel and friendship. It is conceivable will be down to three governors, i have full confidence that if that happens we will be able to carry out complement of responsibilities. There is a reaction that we are allowed to take under the Federal Reserve act can be taken even if we are a board of three. Although we will have to abide by the restrictions that are part of the government in the sunshine act. Id welcome a full complement of colleagues. We have a lot of work to do. It would be nice to distribute over more people. Perhaps more important than th that, i think its important to have a broad range of user on the table as we deliberate on policy actions. Ive had good interactions with. As you know, congress is considering a major tax reform package. Dear any Committee Members have concerns of that package does not end up in deficit neutral and ends up adding to the debt, with that be problematic for the economy . That is something for matter of 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 other economies run the globe is low productivity growth. It would be very desirable fiscal package had the potential in it to create incentives that would raise productivity growth. We do face in terms of longerterm deficits as the population ages, and unsustainable debt path and it will require some adjustments to fiscal policy. I Hope Congress will keep that in mind. Beyond the few principles i dont want to weigh in on details. From marketplace, when you testified before Congress Last july, you said you might be prepared to take a forstmann actions against wells fargo if it proved to be appropriate. Do you think its appropriate . And what actions would you take . I consider the behavior of wells fargo towards its customers to have been egregious and on acceptable. We take our supervision responsibilities at the company very seriously. We are attempting to understand what the root causes of those problems are and to address them. Im not able to discuss confidential supervisory information. Im not it yet able to tell you what actions we may take. I do want to say that we are committed to taking the actions we regard as necessary and appropriate to make sure the right set of controls are in place within the organization. Can you give me any timeline . We are working hard on it. Im David Harrison with the dow jones. I want to follow up on the Balance Sheet question. What specifically would you take to reverse the decision to wind down and how would you consider adding to the Balance Sheet and the followup to that looking more broadly, how do you think history will judge the effectiveness of the actions . If these actions were successful to make those Financial Condition is more accommodative and to stimulate that Disaster Recovery with the recent stating working paper estimated with those set of actions that we took with the crisis will move longterm Interest Rates. Obviously there are different estimates but i would say it is effective. It is up to future policy makers to decide whether they think it is appropriate to adding assets to a Balance Sheet so if the economists are correct when that lovell of neutral interestrate around the world due to slow productivity growth but it is a view that many it here to that they will be faced with a severe downturn. So what other actions are available . And for my own part i would want to keep those in the tool kit. Whether or not there might be other options but this could will be the decision that they face in the face of economic shock. So what would it take for us to resume reinvestment . And with that died in is that we provided of that deterioration with that Economic Outlook and to be faced with a situation where we need to substantially cut the fed funds rate. This is that type of determination that might lead us to reinvestment. Said to be unanimous with this statement of intentions that is a high bar and why in answering previous questions the first tool is the fed funds rate but it is a material deterioration. You have been on the Financial Oversight Committee and what about that process for important financial all institutions . And with the separate and related question with equifax with as systemic issues. He first about that designation a process so while i have been here but met life was designated during that time. Eidenshink a do think the designation is important during the financial crisis that that produces broad systemic consequences that were adverse for the u. S. Economy and to designate the firms and mix with the determination to have systematic repercussions with the important policy tool it is it meant to be a oneway street with those designated procedures to require and to change of Business Models and we should welcome that designation to be changed in the way of those failures and with those decisions that we made and to be satisfied with that process. Added say process that works. And that is part of that process. You asked about equifax and the data breach we now urge consumers to be very careful to monitor their financial situation through supervision to take appropriate actions. With those bridges are fraudulent transactions that the Credit Information could be contaminated. But generally and with cybersecurity. And were very diligent with their banking supervision and with that Equifax Breach of the is important. But with those rate increases behind to that is before you began and two over stimulate the economy. Because stock bonds and real estate so expensive so how do you explain what that is doing and how that does that for the American People . First of all, because we do feel the u. S. Economy is performing well. We are working down the Balance Sheet. And with that stimulus so that basic message is in the performance is good and to strengthen substantially or every member with the broader Unemployment Rate and those that want fulltime work. That is the difficulty and with those surveys and that points to fasting continuing improvement in the labor market in terms of spending growth with the epson downs. In with that improvement of the labor market. And to give that substantial progress. This is a mysterious in the past and with that objection and we are close to achieving that. In the past the my colleagues are writing their projections with that Economic Conditions and then to maintain a sustainable basis. So with that path of policy that the call will be persistence and even to lower levels and that becomes ingrained. But on the other hand, we have a strong labor market. But that is not as strong as 2016 averaging 175 talking about 100. And then to move in that manner that we expect. So to which that policy accommodation. And with that Financial Conditions but with ample girl objective into a tight policy so there are risks to rebel sides of the jet objectives while constantly watching that incoming data. And revising expectations. What is the most important issue of your state . One of the most important issues in delaware there is a 43point 5 tax rate. The people from the casinos are lobbying to lower that the great source of revenue may be the tax burden could be lowered a little bit. I am a freshman hearer the Biggest Issue right now with the fact that President Trump has decided to take the dreamer actor way but we are students in americans and we are here to stay. Im a junior here at university they should focus on issues of drug abuse and narcotics with situations like that but i were given the of rehab. My name is emily clark my major is mass communications. Sole what the representatives could help out with College Funds not just sports but other areas within the of College University with music or science to help further our education to make that a better place in the long run the most important thing that the government can do to have more community involvement