Wednesday, December 16, 2015

Taking extraordinary move to raise rates

Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic conditions, the committee decided to raise the target range for the federal funds rate to ¼ to ½ percent. The stance of monetary policy remains accommodative after this increase, thereby supporting further improvements in labor market conditions and a return to 2 percent inflation.

Monday, October 26, 2015

Raise rates or hold

Janet Yellen, chair of the US Federal Reserve, and other members of the FOMC (Federal Open Market Committee) decided against raising U.S. interest rates last month in September 2015. The FOMC will meet again this week to reconsider. What should we expect? Should Janet Yellen try and raise rates or hold steady ?

Thursday, October 8, 2015

Fed has NOT made income inquality worse says Yellen

It is true that interest rates effect asset prices but they have complex effect through balance sheets through liabilities and assets. To me the main thing that an accommodative monetary policy does is put people back to work. Since income inequality is surely exacerbated by having a high unemployment and a weak job market that has the most profound negative effects on the most vulnerable individual, to me putting people back to work and seeing a strengthening of the labor market that has a disproportionately favorable effect on vulnerable portions of our population, that's not something that increases income inequality.

There have been a number of studies that have been done recently that have tried to take account of many different ways in which monetary policy, acting through different parts of the transmission mechanism affect inequality and there's a lot of guesswork involved and different analyses can come up with different things. But a pretty recent paper that's quite comprehensive concludes that the -- that Fed policy has not exacerbated income inequality.

Tuesday, October 6, 2015

We try our best to make the best economic decision with available data

I think the main drivers of the turbulence have been concerns about the global outlook. That's how I read it. But I know that of course there is uncertainty about Fed policy. As I mentioned, we're well aware that there's been a huge focus on the decision today. And you know I would ask you to appreciate that there are a lot of cross currents in economic and financial developments that we need to take into account in deciding on what the appropriate course of policy is. And we don't make continuous decisions every single day about our policy. We meet periodically. 

We do our darnest to pull together the best analysis we can. And to exchange views. And to arrive at committee decisions. I do understand that during this inter-meeting period, that every word that an FOMC member has said has been parsed for its potential implications for what our decision will be. I think that's an unfortunate state of affairs.

But I understand I think it's natural when you're at a point when the conditions may be falling in place for there to be a shift in policy. It's natural that that should happen. And it does to some extent contribute to uncertainty in financial markets.

Sunday, October 4, 2015

Expecting housing market to improve more

We are envisioning further improvements in the housing market. It remains very depressed. Housing starts below levels that seem consistent with underlying demographics especially in an economy that's creating jobs and we have lots of people who are still doubled up and demand for housing should be there and should materialize as the job market improves and income growth improves. 

So are we counting on it? Housing is now a very small sector of the economy it's not the driver of -- it is not the key driver in my own forecast of ongoing improvements in the U.S. economy. It plays a supporting role. But consumer spending is the main driver bolstered by decent outlook for investment spending but I would continue to expect housing to improve and remember we're envisioning if things go the way we anticipate a pretty gradual path of increases in short-term interest rates over time to some extent that's already embodied in longer term rates. 

On the other hand as time passes and we move beyond the window in which short rates are zero it will be natural for long rates to rise some and of course we recognize that the housing market is sensitive to mortgage rates it is an important factor but that's something that of course we're taking into account in thinking about what's the appropriate path of policy.

Thursday, October 1, 2015

Janet Yellen on negative interest rates

Let me be clear that negative interest rates was not something that we considered very seriously at all today. It was not one of our main policy options. But one participate in the committee would like to see additional accommodation is concerned by the inflation outlook and thinks that we need additional stimulus, additional accommodation, to provide that and propose doing so by moving interest rates negative. That's something we have seen in several European countries. It's not something we talked about today. 

Look, I don't expect that we're going to be in a path of providing additional accommodation. But if the outlook were to change in a way that most of my colleagues and I do not expect, and we found ourselves with a weak economy that needed additional stimulus, we would look at all of our available tools. And that would be something that we would evaluate in that kind of context.

Wednesday, September 30, 2015

Stop-go policy possibility in future

If we maintain a highly accommodative monetary policy for a very long time from here and the economy performs as we expect, namely, it's strong and the risks that are out there don't materialize, my concern will be that we will have much more tightening in labor markets than you see in these projections. And the lags will be probably slow. But eventually we will find ourselves with a substantial overshoot of our inflation objective. And then we'll be forced into a kind of stop-go policy. We will have pushed the economy so far it will have become overheated. And we will then have to tighten policy more abruptly than we like. And instead of having slow, steady growth, improvement in the labor market. 

And continued improvement and good performance in the labor market, I don't think it's good policy to then have to slam on the brakes and risk a downturn in the economy.

Monday, September 28, 2015

Global economy considerations

So with respect to global developments we reviewed developments in all important areas of the world but we have focused particularly on China and emerge markets. Now we have long expected and most analysts have to see some slowing in Chinese growth over time as they rebalance their economy. And they have planned that. And I think there are no surprises there.

The question is whether or not there might be a risk of a more abrupt slowdown than most analysts expect. And I think developments that we saw in financial markets in August in part reflected concerns that there was downside risk to Chinese economic performance and perhaps concerns about the -- the gaps where policymakers were addressing those concerns in addition we saw a very substantial downward pressure on oil prices in commodity markets. And those developments have had a significant impact on many emerging market economies that are important producers of commodities as well as more advanced countries including Canada which is an important trading partner of ours that's been negatively affected by declining commodity prices, declining energy prices. Now there are a lot of countries that are net importers of energy that are positively affected by those developments. But emerging markets important emerging markets have been negatively affected by those developments. And we have seen in significant outflows of capital from those countries, pressures on their exchange rates and concerns about their performance going forward so a lot of our focus has been on risks around China. But not just China, emerging markets more generally and how they may spill over to the United States. In terms of thinking about financial developments and our reaction to them, I think a lot of the financial developments were really -- so we don't want to really respond to market turbulence. The Fed should not be responding to the ups and downs of the markets and it is certainly not our policy to do so. But when there are significant financial developments, it's incumbent on us to ask ourselves what is causing them. And of course while we can't know for sure, it seemed to us as though concerns about the global economic outlook were drivers of those financial developments.

And so they have concerned us in part because they take us to the global outlook and how that will affect us.

And to some extent, look, we have seen a tightening of financial conditions during, as I mentioned, during the intermeeting period.

So the stock market adjustment combined with a somewhat stronger dollar and higher risk spreads does represent some tightening of financial conditions.

Now, in and of itself, it's not the end of story in terms of our policy. Because we have to put a lot of different pieces together.

We are looking at as I emphasized a U.S. economy that has been performing well. And impressing us by the pace at which it's creating jobs. And the strength of domestic demand.

So we have that. We have some concerns about negative impacts from global developments and some tightening of financial conditions. We're trying to put all of that together in a picture.

I think importantly, we say in our statement that inspite of all of this, we continue to view the risks to economic activity and labor markets as balanced. So it's a lot of different pieces, different cross currents. Some strengthening the outlook. Some creating concerns. But overall, no significant change in the economic outlook.

Thursday, September 24, 2015

Targeting inflation of over 2 percent

We're not trying to push the inflation rate above 2. It's always our objective to get back to 2. But 2% is not a ceiling. And if it were a ceiling, you would have to be conducting a policy that on average would hold the inflation rate below 2%. That is not our policy. We want to see the inflation rate get back to 2% as rapidly as we can.

But there are lags in the impact of money on the policy of our economy. And if we waited until inflation is back to two and that would probably mean that unemployment had declined well below our estimates of the natural rate and only then did we start to begin to -- you know the word tighten monetary policy I don't think is really right because we have an immensely accommodative monetary policy in place. 

So let me say just to begin to diminish the extraordinary degree of accommodation for monetary policy, we would be over-- we would likely overshoot substantially our 2% objective. And we might be faced within having to tighten policy in a way that could be disruptive to the real economy. And I don't think that's a desirable way to conduct policy.

Wednesday, September 23, 2015

Could see rate hike in October 2015 according to Janet Yellen

So as I've said before, every meeting is a live meeting where the committee can make a decision to move to change our target for the Federal funds rate. That certainly includes October. As you know and I've stressed previously, were we to decide to do that, we would call a press briefing and you've participated in an exercise to make sure that you would know how to participate in that press briefing, should it happen.

So yes, October remains a possibility.

And we will be looking at incoming developments, both financial and economic to try to make sure we feel really that the U.S. economy is doing well.

You know, I want to emphasize, domestic developments have been strong. We see domestic demand growing at a solid pace. The labor market continuing to improve. Of course, we will watch incoming data to confirm our expectation that that will continue. And we of course will watch global financial and economic developments.

I can't give you a recipe for exactly what we're looking to see. But as we say, we want to see continued improvement in the labor market and we would like to bolster our confidence that inflation will move back to 2%. And of course a further improvement in the labor market does serve that purpose. There could be other things we would see that could bolster that confidence. But further improvement in the labor market will serve to do that.

Monday, September 21, 2015

Expected rate hike target ranges more important than timing of rate hike says Janet Yellen

The recovery from the Great Recession has advanced sufficiently far. And domestic spending appears sufficiently robust. That an argument can be made for a rise in interest rates at this time.

We discussed this possibility at our meeting. However, in light of the heightened uncertainties abroad and the slightly softer expected path for inflation, the committee judged it appropriate to wait for more evidence, including some further improvement in the labor market, to bolster its confidence that inflation will rise to 2% in the medium term.

Now, I do not want to overplay the implications of these recent developments. Which have not fundamentally altered our outlook.

The economy has been performing well. And we expect it to continue to do so.

As I noted earlier, it remains the case that the timing of the initial increase in the Federal funds rate will depend on the committee's assessment of the implications of incoming information for the economic outlook. To be clear, our decision will not hinge on any particular data release. Or on day-to-day movements in financial markets. Instead, the decision will depend on a wide range of economic and financial indicators. And our assessment of their cumulative implications for actual and expected progress towards our objectives.

Let me again emphasize that the specific timing of the initial increase in the target range for the Federal funds rate is far less important for the economy than the entire expected path of interest rates. And once we begin to remove policy accommodation, we continue to expect that economic conditions will evolve in a manner that will warrant only gradual increases in the target Federal funds rate.

Sunday, September 20, 2015

Concerns of overseas markets | Janet Yellen

The outlook abroad appears to have become more uncertain of late. And height end concerns about growth in -- heightened concerns about growth in China and other emerging market economies have led to volatility in financial markets. 

Development since our July meeting including the drop in equity prices, the further appreciation of the dollar, and a widening in risk spreads have tightened overall financial conditions to some extent. 

These developments may restrain U.S. economic activities somewhat and are likely to put further downward pressure on inflation in the near term. Given the significant economic and financial interconnections between the United States and the rest of the world, the situation abroad bears close watching.

Friday, September 18, 2015

Reaffirming Fed Funds target rate range 0 to 25%

Good afternoon, as you know from our policy statement released a short time ago the Federal Open Market Committee reaffirmed the current 0 to .25% target range for the Federal funds rate. Since the committee met in July, the pace of job gains has been solid. The unemployment rate has declined. And overall labor market conditions have continued to improve. Inflation, however, has continued to run below our longer-run objective. Partly reflecting declines in energy and import prices.

Where we still expect that the downward pressure on inflation from these factors will fade over time, recent global economic and financial developments are likely to put further downward pressure on inflation in the near term. These developments may also restrain U.S. activities somewhat. But have not led at this point to a significant change in the committee's outlook for the U.S. economy.

The committee continues to anticipate that the first increase in the Federal funds rate will be appropriate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term.

It remains the case that the committee will determine the timing of the initial increase based on its assessment of the implications of incoming information for the economic outlook.

I will note that the importance of the initial increase should not be overstated. The stance of monetary policy will likely remain highly accommodative for quite some time after the initial increase in the Federal funds rate in order to support continued progress toward our objectives with maximum employment and 2% inflation.

I will come back to today's policy decision in a few moments. But first I would like to review recent economic developments and the outlook.

Smoothing through the quarterly volatility, U.S. real gross domestic product is estimated to have expanded at a 2.25% pace in the first half of the year. A notably stronger outcome than expected in June when committee participants had submitted economic projections.

Continued job gains and increases in real disposable income have supported household spending.

Growth in business fixed investment was moderate. Held down in part by a significant contraction in oil drilling activity as a result of the large drop in oil prices over the past year.

Moreover, net exports were a substantial drag on GDP growth during the first half of the year. Reflecting the earlier appreciation of the dollar and weaker foreign demand.

The committee continues to expect a moderate pace of overall GDP growth, even though the restraint from net exports is likely to persist for a time.

The labor market has shown further progress so far this year toward our objective of maximum employment. Over the past three months, job gains average 220,000 per month. The unemployment rate at 5.1% in August was down four-tenths of a percent from the latest reading available at the time of our June meeting. Although that decline was accompanied by some reduction in the labor force participation rate over the same period.

A 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 full time has continued to improve.

That said, some cyclical weakness likely remains. While the unemployment rate is close to most FOMC participants estimates of the longer run normal level, the participation rate is still below estimates of its underlying trend. And voluntary part-time employment remains elevated and wage growth remains subdued.

Inflation has continued to run below our 2% objective. Partly reflecting declines in energy and import prices.

Thursday, September 17, 2015

Low inflation is a problem for the Fed

Very low inflation may not sound like a real problem to many people. However, persistently low price inflation, which can tend to slow the pace of wage increases over time, can weaken the economy by, for example, making it more difficult for households and firms to pay off their debts. 

A persistent, very low inflation environment also tends to result in chronically low short-term interest rates. This type of situation would leave less scope for the FOMC to respond with its conventional monetary policy tool--namely, a cut in the federal funds rate--to counteract a weakening in the economy.

Wednesday, September 16, 2015

Will Janet Yellen raise rates ?

Will she or won’t she? Market commentators and the media will be all a-tizzy this week in anticipation of the September meeting of the Federal Open Market Committee (FOMC) and comments from U.S. Federal Reserve chairwoman Janet Yellen on Thursday. The question on their minds, and many investors’ minds too, is whether the Fed will, at long last, raise the target interest rate from zilch, where it has been sitting since 2009.
Fears grow that a U.S. Fed rate hike this week could unleash a global debt crisis

The world has now racked up more debt than before the 2008 crisis, making the global financial system dangerously vulnerable to tightening by the Fed, the top banking watchdog warns.

If Yellen does make her move, it will be both something of a surprise to the markets and something of a watershed in global monetary policy. 

Monday, September 14, 2015

Consumer inflation numbers are at lowest levels in 3 years

Consumer expectations for inflation three years ahead fell last month to the lowest level in records going back to June 2013, according to a Federal Reserve Bank of New York survey released Monday.

The median respondent to the New York Fed’s August Survey of Consumer Expectations predicted annual consumer price inflation three years hence would be 2.9 percent, down from 3 percent the month before. Median expected inflation a year ahead fell to 2.8 percent from 3 percent, marking the second-lowest response in the history of the survey.

The results come ahead of Sept. 16-17 meeting of Fed policy makers in Washington at which Fed Chair Janet Yellen and her colleagues will debate whether to raise interest rates for the first time in nearly a decade.

Officials said in a statement following their last meeting in July that they needed to see “some further improvement” in the job market and be “reasonably confident” in the inflation outlook. Their preferred measure of prices, the personal consumption expenditures price index, was up 0.3 percent in July from a year earlier and has run below the central bank’s 2 percent target for over three years.

Tuesday, September 8, 2015

Rate hikes to be gradual and modest if we see it

Fed Chair Janet Yellen has indicated she’d like to begin the rate increases sometime in 2015, though she says that weak economic data could cause the Fed to delay. The Fed has held short-term rates near zero since late 2008 in an effort to end the Great Recession and to strengthen the recovery.

Perhaps more important than when the Fed raises rates is how large the subsequent increases are and how quickly they come. Yellen has said she expects increases to be gradual and modest.

Monday, August 31, 2015

Fed ally admits models broken

On Saturday a Yellen ally and former adviser at the Fed delivered a provocative retort: the economic models underpinning those simple rules don’t work that well, and the best policy decisions come when central bankers look beyond those models to the unexpected forces shaping the economy.

Former Fed Chair Alan Greenspan famously did it in the 1990's when he argued against a rate hike at a time when rising productivity was holding down inflation, and arguably failed to do it when he ignored the impact of the tech and housing bubbles, Johns Hopkins University economics professor Jon Faust said in a paper presented at an annual Fed conference here.

In each case the point is the same: it was the extraordinary events outside of the basic inflation and output models used by central bankers that ultimately mattered most, argued Faust, who served as a special adviser to the Fed’s board of governors until September 2014.

Tuesday, August 18, 2015

Janet Yellen to skip Jackson Hole symposium this month

Janet Yellen and other Fed members are questioning with how to approach the September 2015 FOMC decision as the Fed Chairwoman won't be at the Jackson Hole symposium.

Dr Yellen revealed in late May that she was planning to skip the event. It's historically the place where central bankers set the agenda for the final four months of the year. But Yellen also skipped out last year and Bernanke snubbed it the year before. Most famously, it was at the conference where he laid the groundwork for QE2. 

So far, we have little indication of who will be attending Jackson Hole. The program isn't released until August 27, the day the conference begins.

The theme this year is "Inflation Dynamics and Monetary Policy," which is well chosen because the lack of inflation is the critical question facing the Fed and almost every other central bank.

At the moment, the Fed calendar is very thin. There are speeches from Williams and Kocherlakota this week but nothing else on the schedule. Expect a few high profile names to leak onto the informal schedule next week.

Monday, July 27, 2015

More regulation of Fed could be bad for everyone

Janet L. Yellen, the Federal Reserve chairwoman, told lawmakers on Wednesday that proposals to increase congressional oversight of the central bank could cause collateral damage to the broader economy.

"Efforts to further increase transparency, no matter how well intentioned, must avoid unintended consequences that could undermine the Federal Reserve’s ability to make policy in the long-run best interest of American families and businesses."

Monday, June 22, 2015

Fed meeting minutes from June 2015

Information received since the Federal Open Market Committee met in April suggests that economic activity has been expanding moderately after having changed little during the first quarter. The pace of job gains picked up while the unemployment rate remained steady. On balance, a range of labor market indicators suggests that underutilization of labor resources diminished somewhat. Growth in household spending has been moderate and the housing sector has shown some improvement; however, business fixed investment and net exports stayed soft. Inflation continued to run below the Committee's longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports; energy prices appear to have stabilized. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress — both realized and expected — toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams.

Monday, June 8, 2015

53 percent change of rate hike in September 2015

Analysts expect reports this week to add to evidence the U.S. economy is strengthening, which would bolster the case for Fed Chair Janet Yellen and her board to raise borrowing costs sooner.

Economists in a Bloomberg survey predict retail sales rose 1.2 percent in May, while the producer price index gained the most since 2012. The University of Michigan’s index of sentiment rose in June, based on a separate survey.

“There’s probably a mental high-fiving between Yellen and other Fed members,” said Minh Trang, a senior foreign-exchange trader at Silicon Valley Bank in Santa Clara, California. “You can see the reaction was almost immediate with the dollar and other Group of 10 counterparts. September rate hike is almost certain at this point.”
Fed Forecasts

Fed fund futures give a 53 percent probability that the central bank will lift rates in September, up from 46 percent before Friday’s jobs report, according to data compiled by Bloomberg.

Monday, June 1, 2015

Fed rates dependent on economic data reports

A number of economic headwinds have slowed the recovery, and to some extent, they continue to influence the outlook.

Tuesday, May 26, 2015

Fed could raise rates this year although unlikely

If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target. 

In my judgment we are not there yet.

Tuesday, April 28, 2015

Fed meeting today- what would Janet Yellen do

Has the U.S. economy been slowed by a passing cold front or a deeper freeze?

That's the question Federal Reserve policymakers will be grappling with as they attempt to chart a course for raising interest rates at a two-day meeting that begins Tuesday.

There's virtually no chance the Fed will hike rates Wednesday after stating last month that an April move was unlikely. But investors will be scouring the central bank's post-meeting statement for clues as to whether a June liftoff remains a possibility.

Wednesday, April 1, 2015

Fed to raise rates if conditions are right

Janet Yellen said last week that the central bank would be “uncomfortable” raising rates if consumer prices, wage growth and other measures of underlying inflation were to weaken.

Monday, March 30, 2015

Janet Yellen worried about Stagnation

Some recent studies have raised the prospect that the economies of the United States and other countries will grow more slowly in the future as a result of both demographic factors and a slower pace of productivity gains from technological advances.

At an extreme, such developments could even amount to a type of "secular stagnation," in which monetary policy would need to keep real interest rates persistently quite low relative to historical norms to promote full employment and price stability, absent a highly expansive fiscal policy.

Monday, January 12, 2015

Expectations of rate hike in 2015

Entering 2015, most economists expected that the Federal Reserve would finally begin raising short-term interest rates. Fewer than two weeks in to the year and that thesis is already beginning to crumble.

For seven years, the Fed kept interest rates at rock-bottom levels and employed a massive money-printing program called Quantitative Easing in the hopes of boosting the money supply, expanding credit, and causing inflation to jump-start the economy (so the theory goes). Many experts have long waited for the Fed to “normalize” policy and raise rates, for reasons that include a desire to stop expanding the money supply, and wanting the Fed to have a cushion to lower them once again when another crisis occurs.

By the way, all this talk and debate about Fed policy surrounding “rates” actually only refers to one specific interest rate: the federal funds rate, that is currently at 0.25%. This is the rate at which banks and similar institutions trade their balances held at the Federal Reserve on an overnight basis and without collateral. In other words, this is the shortest term rate, and it is the only interest rate the Federal Reserve has direct policy control over.

The reason why analysts outside the small circle of institutions that actually interact with the federal funds rate care about it is so deeply is because raising or lowering it usually has a ripple effect in the same direction on all other longer term rates, like the discount rate, U.S. bond yields, and mortgage rates. Equity and debt markets, both domestic and foreign, are all affected by the raising and lowering of the federal funds rate.

Essentially, the Fed’s decision to raise rates has a real impact on every single person in the country, from the “bond kings” down to the hourly wage earners. But don’t count on that rate hike coming any time soon.