Transcripts For BLOOMBERG Bloomberg Markets 20160316

Formust be asking why, and that we turn to the statement, where there are some important changes in the language that the policymakers are using. The fed is explicitly pointing to external factors as potential drags on the u. S. Economy, and i will quote directly from the statement. Economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. However, Global Economic and financial developments continue to pose risks. That is tom, michael, the immediate reading from the fomc policy state. We can go into more details. Scarlet we are looking at stocks rising in the wake of that announcement. We will be back with you shortly. In the meantime, we want to bring in former vice fed chairman alan blinder. Fed reducingee the the path of Interest Rates, at least the majority expecting they will need fewer of them to get the economic results they are forecasting. Does that comport with your view of what the economy is going to do, and what it needs . An i think it was expected that the diagram would get a downward tilt. I do not have the new one in front of me, but that is what everyone was looking for, including me, and it is largely because of the weakness we had at the end of last year, some of which is dribbling into the beginning of this year. You saw the retail sales report yesterday, did not look very good. Most of the data did look pretty good for gdp growth this year in the low 2s. Scarlet if you look at Market Reaction, the dollar is declining in the wake of this shift. Alan blinder, does the Federal Reserve want to see a weaker dollar . I think if they thought they could wave a magic monde, they would, but a weaker dollar probably comes, in this context, from a looser Monetary Policy. They are not looking to project a looser Monetary Policy, except in very little. Blinder, my quick math, this is a fed modeling under 4 nominal gdp. Dovetail our Economic Growth with our new caution on inflation. We saw this from mr. Osborne today in the u. K. Its becoming a habit of dampening down nominal gdp. How does chair yellen adapt to that reality . Frankly, the fed looks at nominal gdp, but they do not really fixate on that. They are looking at the two components. You have an inflation component and a real growth component. I do not think chair yellen and most other members of the fed think there is a virtue in adding them up and looking at that summary number. Inflation is coming in a little 2 likely, pce inflation, real growth probably a little above 2. The puts you right around 4 mark for nominal gdp, but i dont think that number has any magic at the fomc. Bring in ourant to other guests, Richard Clarida and ira jersey. As we were getting the highlights of what the Federal Reserve decided, you were saying this was a huge move in terms of citations on where the fed funds target rate would be. Richard my own view with that byy would lower the dots one, but i thought it was a close call about whether they would remove two. 10 minutes ago i said janet yellen likes or optionally. By going to two, it would be very hard later in the year two hike. To me, that is the most significant part of the statement. Ira but frankly, this is much more realistic. If you are going to have the dots and try communication, you may as well try to be realistic. Just want to say, Ellen Zentner looks like a genius right now. A lot of people said the forecast was way out of line. Ira, how do you trade this . The fed will probably hike this year and a front end is reacting to this, so twoyear is lower now than it was before. It was a little more dovish than people expected. But you are still likely to see twoyear yields over 1 later this year. You still want to see in high quality assets. You want to be farther out in the curve. Even though inflation is not an issue now, and even though inflation is picking up a little bit, its still not a problem, and the fed will deal with it. You have this environment where longterm yields will find it difficult to move higher when you have negative yields in places like germany and japan. We have ira jersey, Richard Clarida, and alan blinder. We want to bring back in erik schatzker. You have had time to look through the economic projections. What can you tell us . lets start with economic projections, and then we can go back to the state. We have been talking about the difference between nominal growth and real growth, and the influence inflation has on that. 4. 5 unemployment by 2018. This is an economic picture that is steady, and by some measures slightly improving. Going back to the statement briefly, it is this Global Economic that drop that appears to be concerning the fomc the t, this i am obsessing of the use of the word despite. Words, the fed thinks that u. S. Economic activity should have suffered, but it hasnt. Lets go to the data check. , equitiesclarida rallied, neil coming in, you saw the intraday on the 10day. A solid seven basis points move. Oil lifting, as is gold. Let me go back to professor blinder. Textbook . This in your alan the basics of Monetary Policy, certainly, but they today, certainly not. We do not teach freshmen how to fix it on the twoyear versus the 10year, or anything like that. The one thing i would mention that caught me by surprise was that important mention of global events. Not that they are irrelevant, but you are member a few mins ago, they had that sentence about the i cannot remember the words but it was read as if china is in trouble and we are worried. Then the next meeting, they took it out. Now here it is back again. I was not expecting that. Index, ithe dollar want to ask you as politely as i can, and of the same time, go into the bloomberg terminal. It has fallen off a cliff here. Did janet yellen just screw the ecb and the jack bank of japan . I am sure she would not put it that way. You janet yellen would tell , if you had her on camera right now, is that the feds business, as defined by congress, is to do what is right in terms of his dual mandate or the United States of america. Ofe or less irrespective whether the people in frankfurt and tokyo get up and applaud or around frown. Im sure that is what she would tell you, and that is an honest answer. Tom helpful is the punch bowl right now . A lot of accommodation, dovish talk. Mentioned,ome have an asset bubble . In the 19 50s, maybe you needed a punch bowl, but now we need a swimming pool. That is the amount of liquidity we have. , you have tost answer that the way i would, which is on balance, the policies have been supportive. There may be unintended negative consequences down the road, but im not in the camp that we are bubblethrough a great mania right now. Essentially, the fed has lowered the discount rate to support asset valuations at healthy levels given a 2 growth rate. Within the context of where productivity is, the bust in emerging markets, it is a lot of liquidity, but on balance, the appropriate amount from where the Global Economy is. Ira im not sure there is as much liquidity as we think. When you look at Consumer Lending growth, household is startingts, debt to grow, but you would expect in the precrisis world, if we had this kind of Monetary Policy for this long, you would expect crazy amount of leverage in the markets. And that is starting, but it is going so slowly that it is hard to see a lot of bubbles in credit markets that can spoil the punch bowl. Tom you are dead on on dollar weakness. Scarlet off by. 6 . And that is from three. Instead of two. Right now, we want to get over to erik schatzker, who is getting ready to leave for the News Conference with janet yellen i know you have a bunch of questions. Tell us what you will be listening for. Erik i want to know what janet yellen has to say about any number of things. Initially, everyone will be listening for the relationship between the data and what the fed believes is happening outside of the domestic economy. Clearly, whether it is the use thehe word despite mention of the global backdrop, i am sure that is where everyone will be focusing on. We want to know what the fed has to say about the impact of negative rates and further accommodation. The dollar,ment of how that complicates the work of the fed going forward. Those are some of the things we will be listening for. It is an hourlong press conference and im headed in now. Tom thank you. You bring up the negative rate. Blinder in the wall street journal in december 2013. This is a really important essay, written with traditional blinder clarity. If the Federal Reserve turns the negative, banks would hold fewer excess reserves, maybe a lot fewer. Theyd find other uses for the money. One such use would be by shortterm securities. Another you look at what would happen further on. Professor blinder, could you write that same essay today, or have you learned so much that you have to amend it to a new negative rate world . Not write the same essay today because back then in 2013, all the talk by the fed and fed watchers was how they could ease more and more. That is not the question today. It is a question in europe and japan, as you know. The fed has tried to back off of its super easy policies. It would not be appropriate in the u. S. Context today. Content, given there has been so much experience with negative rates, i am less optimistic than i was three years ago to what extent the banks would react to negative rates by shunning reserves. It has not been as dramatic in europe, for example, as i would have guessed three years ago. Thelet as we look at dollar continuing to plummet to lows of the session, stocks are pulling back a little bit. They had soared in the aftermath of the announcement that now back to unchanged. At 9. 62 . R now michael we were up almost 2 after cpi came out, so people seem to be looking at this as a dovish meeting. It is not just a statement, but it is also the dot plot. Lets take a look at what we are talking about. The fed has taken out two rate increases from what we saw in december, moved down now to a 90 basis points for the fed funds rate at the end of the year, which would imply just two rate inreases, down from 1. 4 december. Then they lose another 50 basis points in 2017, 1. 9 . 2018, 3 . Longer run, potential growth has come down. So the neutral rate has come down to 3. 3 . Tom lets go to the terminal. Im a mess this up. Here is the december meeting. Look at the rain red and green line. It is nice and tight, and then we have this major separation here in march. What is the longer run, professor clarida . Richard they say five or six years, and it is the destination of the policy rate under the view of the economy. By comparison, in the last rate hike cycle, the fund we got to 5. 25. They are announcing in the long run the rate will get to 3. 3. I do not believe we will see that in this cycle. I think we will end up somewhere in the 2s. Four years ago, they said the rate would be 4. 25. Tom under 3 . Clearly, that is market consensus and most would be surprised if the fed hikes more than 2. 5 . Only hike 50 basis points, 75 this year, it would take a very long time. Michael in the long run, we are all dead. Lets go into the bloomberg to p function which tells you basically what investors are thinking more or less. At june, 46. 9. Coming down from over 50 . The first rate increase possible in july. Have they taken april and june off the table, as far as the markets are concerned . Ira april is off the table, i think june is still on. Still some time to suggest digest the data. September hike would get them to where they say they want to go, and that is not an unrealistic expectation. Andael if they do june then wait until december because they dont want to get involved in the president ial campaign . I dont think the president ial campaign will factor in. As we know, august is not the kind month for global markets. The only tricky thing about september is that the last few august have been so tricky. April is off the table, june is on the table. It looks like two hikes this year, whether september or december that is to be determined. Talking about the dollar a lot here. One of the things we have been looking for all year is, this is probably the year where you see a turn in the dollar. The dollar has been enable market for basically four years. We think we are nearing the end of that. You begin easier abandonment was expected could be the impetus for that. We have increased one of our allocations in a fund to foreign exchanges from zero to 40 now. Scarlet alan blinder, thank you for standing by. Give us some unit perspective. Two decades since you are on the fed as the vice chair. Back were no dot plots then. There is a ton of live data now and Market Information available to each official as well as those in the market. Does that make it harder or easier for the officials to make an accurate assessment of the economy . Dont think it makes a difference on that score. The big change is it makes it easier for the market people to make a more accurate assessment of the Federal Reserve. You can see studies, since the fed started opening up and saying more, the market fomcipations of the next moves have become more accurate. It is also a fact that in terms of behavior, the fed no longer thinks it is a good idea to wrong foot markets. It occasionally does that, but when it does, and use that as a mistake. If you went back 20, 30 years, you would find a prevalent view in many central banks, including the fed, that wrongfooted the markets, pulling them, was a pretty good thing to do. You just dont hear that anymore. I think it is blinder and clarida suggesting the fed will adjust. Ira jersey is down here in the market. His is the march data what you said, professor clarida , and professor blinder alluded to, december the fed is heading, 2 . Between 2 and 3 nominal him yes. , theytice in the dot plot do not get to the longer run until after 2018, which by my calculation will be your 10 of the economic expansion, it still in place. It is not your mother or grandmother the british like shortterm, mediumterm, longerterm. You are teaching and economic course, what is longterm . Alan to me, it means after cyclical aspects of the current Economic Situation have worked themselves out and we are back to equilibrium. For the fed, as they use those terms, i think richard said this it sort of means two to three years down the road. Those two are often the same but not always. For example, they were not the same at the bottom in 2009. More often than not, very close. Clarify,hould longerterm for ira jersey is the end of year when they look at his portfolio. Michael you have to do that index rebalancing. Radio, stephen roach, the former chief economist of Morgan Stanley told us that the fed is not doing a good job, that janet yellen was handed a bad and by her predecessors, that by getting out of this will be very tough. Is this more evidence that that cannot move, even though the data may suggest it, because they are afraid of the markets . Alan i think it is a little bit afraid of the markets but it is mainly afraid of weakness. As they said, importing some of that weakness from abroad. We did not know this was happening, we knew it was happening for a long time. The dollar has been on an upward drive for a year now and it takes a toll on that exports. You add onto that the weakness of growth in much of our trading i would say most of our trading partners, and that starts sniffing tents here and there. To the fed deterrent raising Interest Rates, not so much Market Reactions, unless they get very extreme. Let me add one more thought which does not seem to be on anyones table anymore. I guess we do not have any hawks around the table. , theught it was notable last couple of inflation ticks were noticeable. For a long time, it did not seem like the fed could make the inflation rate bulge upwards, try as it made. Now it does seem to be going upward. To disappoint to take a point to disagree with Richard Clarida, it is in the long run. If you believe in a 2. 3 inflation rate, a 3 fund rate looks pretty real to me. Ira jersey, this discussion we have been having, people questioning the fed, whether it has lost credibility, seems like an all thing when unemployment is up 4. 9, core inflation is a 2 . They are meeting their statutory goals. That that did help get us out of the worst financial crisis we have had its 1930s. You cannot say the fed did a bad job. Anyone who says that is losing credibility themselves. Whether or not the Federal Reserve can get out of the emergence of stimulus that has been created, i think that is easy enough. You need strong growth to be able to do that. I agree with what the professor said. Inflation is starting to pick up. We noted that before the statement, that there are parts of inflation picking up. If you want them Getting Energy prices that go up think about Energy Prices right now. Oil goes from 30 to 39 a barrel. That is a huge increase in the component of cpi. The next thing you are running 5 cpi, and then everyone is saying the fed is behind the curve. That is why we focus on core inflation. You have a chart up earlier, that has been going up nicely over the last couple of months. The fact is, some of that is sustainable. I think that is the reason why you have to be cautious, but with all the stimulus going on worldwide, it will be hard for the fed to completely go away from that. Tom Richard Clarida, what happened to the inflation with Great Respect to Charles Plosser from philadelphia apparently somebody whispered in my ear there was a dissent today. So there is at least one who wanted to raise rates. Me to say that if you were that told me 10 years ago that the feds Monetary Base would be up by a factor of eight, and we would be at a 4. 9 unemployment, i would not have guessed a core inflation of 1. 7. The fact is, we had a rule of thought about money and inflation which, over a longer project of time, seem to be a decent way to look at the world, but the world is not look at that now. I have no big criticism for the inflation needs, because that is the model that we thought would be in play and was purposely sensible to think that if you increase the feds balance sheet, you would get more inflation. You advised senator kerry on his president ial run, i dont know if you have spoken to mrs. Clinton. Where is the wage growth . There is so much tension out there. This discussion of macro unit economics, as ira jersey said, is this building in, will this week to wage growth . Ira i certainly think so but one aspect of what richard was talking about a moment ago was these old phillips curve rules of thumb. You wouldve thought, among other things, that the job growth and the state of tightness in the labor market measured by a variety of things, not just the headline on implement rate, would be pushing wage growth for little bit. It does seem to be pushing it up a little bit. We are finally registering real wage gains, which we have not seen in this country for a long time. That is the good news. The bad news is it is coming from very low headline inflation, rather than from very high wage settlements. I can see some glimmers of hope there. The wage numbers, the increments seem to be getting bigger. I am very happy to see the fed projecting the Unemployment Rate, tracking lower and lower, because the more of that you get, the better it is for the average working person. To really get wage increments, we need businesses scrambling for labor the way they were in the late 1990s. We are not there yet but we are moving in that direction. Scarlet final question, what is the question that you want to ask janet yellen, then you think she will not be able to answer right now . Alan i want to know why she put in that stuff about global weakness, which really calls attention to things outside of the u. S. And makes it look as if those things are more important than at least i believe they are. Scarlet thank you so much, alan blinder of princeton university. Michael anything that you need to hear from janet yellen, richard . It will be interesting to see, given the Market Reaction to the two dot decision, whether she tried to turn that into more of a twoway story. Right now it seems like a more dovish read on the statement. She has one hour to cast a different spin on it. Told volumem being is huge in the bond market. I would like to hear if there was discussion about the dollar and how much that way into the vision to bring the dots down. Tom the distinction for me is clarity with a more temperate view, compared to professor blinder. Where is Technological Progress fitting into this, doing get back to in a higher inflation, or are you just cautious on productivity . Richard unfortunately, economists are not very good at predicting shifts in the economy. As a result, that is one of the factors that will hold down the destination for the fund rate. Previously. Predicting that the neutral rate is lower. That is where i am, i hope im wrong. Monitorwe continue to Economic Growth. However, Global Economic and financial developments continue to post risks. Against this backdrop, the committee judged it prudent to maintain the current policy stance at todays meeting. I will come back to our polity policy decision momentarily. The labor market continues to strengthen. The most recent three months, chart gains averaged nearly 30,000 per month. Similar to the pace experienced over the past year. The Unemployment Rate was 4. 9 in the first two months of the year. About in line with the median of fomc participant estimates of the longer than normal level. The broader measure of unemployment that includes individuals who want and are available to work, but have not actively searched recently, and people who are working part time but would rather work fulltime has continued to improve. Note, the Labor Force Participation rate has turned up recently with more people actively looking for work as the aspects the prospects of finding a job have improved. Wage growth has yet to show a sustained pickup. The improvement in Employment Conditions so far this year has occurred as Economic Growth appears to have picked up from the modest pace seen in the Fourth Quarter of last year. Is expandingnding at a moderate rate, supported by continued job gains and increases in inflationadjusted incomes. In contrast, Business Investment has been weak, in part reflecting further reductions in oil drilling as a result of low oil prices. Net exports also remain soft. Duped ence of said of subdued for growth and the appreciation of the dollar. Looking ahead, the committee expects Economic Activity will continue to expand at a moderate pace and labor market indicators will continue to strengthen. Anding Economic Growth additional strengthening in labor Market Conditions are important factors underpinning the inflation outlook. Inflationnsumer price as measured by the price index for personal consumption expenditures, stepped up to 1. 25 over the 12 months ending in january as the sharp decline in Energy Prices around the end of 2014 dropped out of the yearoveryear figures. Core inflation, which he excludes energy and food prices, also pick up. But also picked up. Earlier decline in Energy Prices and appreciation of the dollar could continue to weigh on overall consumer prices. Once these influences fade and strengthenrkets further, the committee expects inflation to rise to 2 over the next two to three years. The committees inflation judgmentased on its that longer run expectations remain well anchored. However, they stability of longer run expectations cannot the taken for granted. Surveybased measures of longer run Inflation Expectations are little looks little changed in recent months. Although some remain in historically low levels. Like itbased measures of inflation compensation also remain low. Movements in these indicators reflect many factors and therefore may not provide inaccurate reading on changes in the Inflation Expectations that are most relevant for wage and price setting. Nonetheless, our statement we wills to emphasize continually monitor and expected progress toward our inflation goal. This general assessment of the outlook is it is reflected in the individual economic rejection submitted for this meeting by fomc participants. Participantsh projections are conditioned upon his or her own view of a probe that Monetary Policy, of appropriate Monetary Policy. Participants projections for growth of inflationadjusted gross domestic product, or gdp, are just a touch lower than a projections made in conjunction with the December Fomc meeting. The median growth edges down from 2. 2 this year to 2 in 2018, in line with the estimated longer run rate. The median projection for the Unemployment Rate falls from 4. 7 at the end of this year to 4. 5 at the end of 2018. Somewhat below the median assessment of the longer run normal Unemployment Rate. The median path of the Unemployment Rate is a little lower than in december. In part reflecting a slightly lower median estimate before longer run normal Unemployment Rate. With the transitory factors holding down inflation, expected holding down inflation expected to abate, the median inflation projection rises from 1. 2 this year to 1. 9 next year and 2 in 2018. The median inflation projection for this year is a little lower than in december, but thereafter, the median projections are unchanged. Since the turn of the year, concerns about Global Economic prospects have led to increased Financial Market volatility and somewhat tighter financial conditions in the United States. Although financial conditions have improved notably more recently. In addition, Economic Growth abroad appears to be running at a somewhat softer pace than previously expected. These unanticipated developments have not resulted in material changes to the committees waistline outlook. One reason for this is that Market Expectations for the path of policy Interest Rates have moved down and the accompanying decline in longerterm interest anys should help cushion possible adverse effects on domestic Economic Activity. Indeed, while stock prices have fallen slightly since the ofember meeting and spreads Investment Grade Corporate Bond yields over those on comparable maturity treasury securities have risen, Mortgage Rates and corporate borrowing costs have moved lower. Committee will continue to monitor these developments closely and will adjust the stance of Monetary Policy is needed to foster our goals of maximum employment and 2 inflation. Returning to Monetary Policy, as i noted earlier, the committee decided to maintain its target range for the federal funds rate. Reflectssion partly the implications for the u. S. Economy of the Global Economic and financial developments i just mentioned. In addition, preceding cautiously in removing policy willmodation at this time allow us to verify that the labor market is continuing to strengthen, despite the risks from abroad. Such caution is appropriate given the shortterm Interest Rates are still near zero, which means that Monetary Policy has toater spoke to respond upside than to downside changes in the outlook. As we indicated in our statement, the committee expects the Economic Conditions will evolve in a manner that will warrant only gradually increases in the federal funds rate. Federal funds rate is likely to remain for sometime below levels that are expected to prevail in the longer run. This expectation is consistent with the view that the neutral rate would bel neither expansionary nor contractionary if the economy was operating near potential. This currently low by historical standards is likely to rise gradually over time. The low level of the neutral federal funds rate may be partly attributable to a range of persistent economic headwinds that way on aggregate demand, including developments abroad, the subdued pace of household formation, and meager productivity growth. There is considerable uncertainty regarding the evolution of the neutral funds. Ate over time however, if these headwinds abate, as we expect, the neutral federal funds rate should gradually move higher as well. This view is implicitly reflective in participants projections of appropriate Monetary Policy. The median projection for the federal funds rate rises only gradually to 19 and said the percent late this year and 1. 9 next year. Compared with the projections made in december, the medium path is about 1. 5 is about. 5 lower this year to the next. Words, most Committee Participants now expect the achieving economic outcomes similar to those anticipated in december will likely require a somewhat lower path for policy Interest Rates than foreseen at that time. I would like to underscore, however, that the participant projections to the federal funds ,ate, including the median path are not a plan for future policy. Policy is not on a preset course. Representcasts individual assessments of water per your policy would be given each persons own current projections of the most likely outcomes for Economic Growth, employment, inflation, and other factors. However, considerable uncertainty attaches to each of part each participant forecast. Hence, there assessment for appropriate policy are also uncertain and will change in response to a judgments to the economic app two adjustments to the Economic Outlook as was the case between december and now. Also, it is important to note that the Committee Makes its decisions on a meetingby meeting basis and does not and need not decide on a likely future path for the future funds rate. Indeed, the future path of policy is necessarily uncertain because the economy will surely evolve in unexpected ways. As we note is no treatment, the actual path of the federal funds rate will depend on the economic output. Finally, the committee will continue its policy of reinvesting proceeds from maturing treasury securities and principal payments from agency debt and Mortgage Backed securities. As highlighted in our policy statement, continuing this policy until normalization of the federal funds rate is well underway. Maintaining our sizable holdings of longerterm securities should help maintain accommodative financial conditions and should reduce the risk that we might have to lower the federal funds rate to zero in the event of a large adverse shock. Thank you. I would be happy to take your questions. Cnbc. Madam chair, as you know, inflation has gone up the last two months. And we had another strong jobs report. The trucking forecast for gp has returned to 2 . And yet the fed stands pat in itd it calls a test in what calls a process of normalization. It says it will do one thing in normal conditions and doesnt end up doing it here and frankly, if the Current Conditions are not sufficient for the fed to raise rates, what with those conditions look like . Secretary yellen let me start with the fed credibility. Promisesd the word in connection with that. I tried to emphasize in my Opening Statement the paths that the participants project for the federal funds rate and how it all isong it will is not a preset plan our commitment or promise. The median should not be interpreted as a Committee Endorsement committeeendorsed forecast. There is a lot of uncertainty around each participant projection. They will evolve those assessments of appropriate policy are completely contingent on each participant forecast of the economy and have economic events will unfold. Course, are, of uncertain and you should fully expect that the forecast of the appropriate half of policy on the part of all participants will evolve over time as shocks, positive or negative, hit the economy that alter those forecasts. So you have seen a shift this time in most participant assessment. Explain, that reflects a much slower rejected that for Global Growth, growth of the Global Economy outside the United States. In for some tightening critic conditions in the form of widening spreads. Those changes in financial conditions and the path of the Global Economy have induced changes in the assessment of individual participants and what path is appropriate to achieve our objectives. So thats what you see now. I guess you asked me also what would we need to see to continue raising rates. I think it is worth pointing out that the committee most participants continue to envision, if economic developments unfold as they increases inurther the federal funds rate will prove appropriate over time, most participants anticipate that. And that the pace will be gradual. As i emphasized, most empirical assess whating to the polar room of the fed funds rate is a level that would be neither expansionary nor contractionary. Those assessments are quite low at this time. We do expect overtime that neutral rate to move up. Positive the rate of change will be overtime. Given that the economy is now maximum where our recent readings on inflation have moved up. I want to warn that there may be some transitory factors that are influencing that. But certainly our projections are for gradual increase in inflation and the committee that, if we expect follow along this course, some federal adjustments in the rate will be appropriate but gradual. I would like to follow up on this inflation point. We are close to full employment. That we areisk heading for an overshooting inflation . A greater tolerance for a modest overshoot, especially issuethe duration of an of undershoot that we have been exposed to . Secretary ellen we are moving back to 2 and we are not try to engineer an overshoot of inflation, not the compensation not to compensate for passed undershoot. So 2 is our objective. But it is an estimated objective. We certainly dont seek to overshoot our objective. But some undershoots and overshoots are part of how the economy operates and our tolerance for those is symmetric with respect of under and overshoots. We did take note in the statement of the fact that inflation has picked up in recent months. See some of that is having to do with unusually high inflation readings in categories that tend be quite volatile without with significance for inflation over time. So im wary and havent yet concluded yet we have seen any significant uptick that will be lasting in, for example, in core inflation. The Committee Notes come as it did in december, that we continue to monitor developing trends and developments closely. That would include both the fact that recent inflation readings have been on the high side. And as a mentioned on the other side, readings on measures of inflation conversation and some serving measures have been on the low side. Riskshat said, there are around the inflation forecast in both directions. Reuters. Did note, as you say inflation has been has picked up in recent months and you do see it going over 2 , yet policymakers have downgraded gdp growth for this year and one of the inflation measures. That to me would indicate a weakening economic environment. I wonder how, in that environment, you justify the possibility of two rate hikes this year. Yellen there has been a slight downgrading of Economic Growth this year. Nevertheless, growth is expected somewhatmewhat in excess of potential. Market is expected to continue to tighten. Inflation is expected to gradually move back to 2 over we still have weighing on inflation the influence of earlier declines in Energy Prices. And a prolonged effect from the appreciation of the dollar. But we do expect those transitory influences to fade. And with a continuing improvement in the labor market, i think we will see upward pressure on inflation. In that context, Committee Sees , if thingsate to unfold that way, to have further increases in the federal funds rate. It remains accommodative. As i indicated in december, the in decemberdicated we want inflation to go back to 2 . But we also want to be careful not to see some significant overshoots so that we would get behind the curve and potentially be faced with the need to tighten in a very rapid fashion later in a way that could undermine the sustainability of the employment gains through that employment gains weve had. But we do see tightening and Monetary Policy to be appropriate in that event. Fox business. Can you get more specific about the economic and financial developments that provide risk and slower growth. Are you concerned about china and the emerging markets and the eu . Could you expand on the risk . Madam chair yellen there has been by many forecasters a slight downgrading of forecasts of Global Growth. Coming several years, the imf has slightly downgraded their forecast and other International Agencies have as well. Proven arowth hasnt anticipatione with that it would slow overtime and it seems to be slowing as well. Growth in the Fourth Quarter was negive. That was something of a surprise. With respect to the euro, recent indicators suggest perhaps slightly weaker growth. There has been a number of emerging markets, as you know, who are suffering under the in oilpriceslines that are affecting their Economic Activity. Our neighbors, both to the north end south are feeling the impacts of Lower Oil Prices on their growth. So our projection for Global Growth for those reasons is slightly lower. Not dramatically lower. But enough lower to make some fference to our forecast. As i indicated, i think that is part ofhe reason, along with the associated increase weve in some spreads that are intercorporate borrowing rates and affect investment decisions, a slightly slower path for the federal funds rate is likely to achieve. What you see here is a virtually unchanged path of economic objections and a slightly more accommodative path that most participants are writing down. Wall street journal. You emphasize repeatedly that every meeting of the offense is a live meeting. You have a meeting next month. Is it possible you could get enough information between now and then to be comfortable with raising rates again in april . And what would you need to see . Aprilchair yellen remains a live meeting. We will be tracking incoming data. It is a slightly shorter period. We have six weeks. But we will have Additional Data on the labor market and various factors that pertain to inflation. So that is certainly a live possibility. Two questions. The Lower Oil Prices i think a lot of people all expected to lead to more consumer spending. How do you explain that hasnt worked out as well, the way a lot of people expected . If oil prices were to pop back up to 50, not that high by some standards, what impact would inflation . N duty pay more attention to the overall inflation rate or would you look to the core rate to determine what the fed policy would be . Madam chair yellen let me start with the impact of oil prices on consumer spending. Is veryo say it difficult when you look at patterns of consumer spending. There are many factors that influence it. Thato definitively say Lower Oil Prices have not boosted consumer spending, im not sure we can really arrive at that conclusion in any rigorous way. Typical, the average household in the United States with oil prices where they are