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«Transcript of Chair Yellen’s Press Conference September 17, 2015 CHAIR YELLEN. Good afternoon. As you know from our policy statement released a ...»

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Chair Yellen’s Press Conference

September 17, 2015 FINAL

Transcript of Chair Yellen’s Press Conference

September 17, 2015

CHAIR YELLEN. Good afternoon. As you know from our policy statement released a

short time ago, the Federal Open Market Committee reaffirmed the current 0 to ¼ percent 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. While 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. activity 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 percent 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 of maximum employment and 2 percent 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 2¼ percent pace in the first half of the year, a notably stronger outcome Page 1 of 23 Chair Yellen’s Press Conference September 17, 2015 FINAL 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 averaged 220,000 per month. The unemployment rate, at 5.1 percent in August, was down 0.4 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, involuntary part-time employment remains elevated, and wage growth remains subdued.

Inflation has continued to run below our 2 percent objective, partly reflecting declines in energy and import prices. My colleagues and I continue to expect that the effects of these factors on inflation will be transitory. However, the recent additional decline in oil prices and further appreciation of the dollar mean that it will take a bit more time for these effects to fully dissipate.

–  –  –

Accordingly, the Committee anticipates that inflation will remain quite low in the coming months. As these temporary effects fade and, importantly, as the labor market improves further, we expect inflation to move gradually back toward our 2 percent objective. Survey-based measures of longer-term inflation expectations have remained stable. However, the Committee has taken note of recent declines in market-based measures of inflation compensation and will continue to monitor inflation developments carefully.

This assessment of the outlook is reflected in the individual economic projections submitted for this meeting by FOMC participants, which now extend through 2018. As announced in the minutes from our July meeting, we are also introducing a modest enhancement to the Summary of Economic Projections by publishing the median projection across FOMC participants. These medians provide a concise summary statistic of participants’ perspectives.

They should not, however, be interpreted as a collective view or a Committee forecast. As always, each participant’s projections are conditioned on his or her own view of appropriate monetary policy.





Reflecting upward revisions for the first half of the year, participants increased their projections for economic growth this year, compared with the projections made in conjunction with the June FOMC meeting. The median growth projection is 2.1 percent for this year and rises to 2.3 percent in 2016, somewhat above the median estimate of the longer-run normal growth rate. Thereafter, the median growth projection declines toward its longer-run rate. The unemployment rate projections are a bit lower than in June. At the end of this year, the median unemployment rate projection stands at 5 percent, down 0.3 percent from June and close to the median estimate of the longer-run normal unemployment rate. Committee participants generally see the unemployment rate declining a little further next year and then leveling out. Finally,

–  –  –

FOMC participants project inflation to be very low this year, largely reflecting lower energy and non-energy import prices. As the transitory factors holding down inflation abate and labor market conditions continue to firm, the median inflation projection rises from just 0.4 percent this year to 1.7 percent next year and reaches 2 percent in 2018. The path of the median inflation projections is a bit lower than in June.

The outlook abroad appears to have become more uncertain of late, and heightened concerns about growth in China and other emerging market economies have led to notable volatility in financial markets. Developments 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 activity 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.

Returning to monetary policy, we recognize that there has been a great deal of focus on today’s policy decision. 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 a 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 percent 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 toward 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.

Compared with the projections made in June, many FOMC participants lowered somewhat their paths for the federal funds rate, including estimates of the longer-run normal level. Most participants continue to expect that economic conditions will make it appropriate to raise the target range for the federal funds rate later this year, although four participants now expect that such conditions will not be seen until next year or later. The median projection for the federal funds rate rises to about 1½ percent in late 2016, 2½ percent in late 2017, and 3½ percent in 2018. In 2016 and 2017, the medians are about ¼ percentage point below those projected in June. The median projected rate in 2017 remains below the rate that most participants expect to prevail in the longer run despite the fact that the median projection has the unemployment rate slightly below its longer-run normal level and inflation close to our 2 percent objective. Participants provided a number of explanations for their low federal funds rate projections. These included, in particular, the residual effects of the financial crisis, which are

–  –  –

likely to continue to constrain spending for some time, as well as headwinds from abroad. But the restraining influence of these factors on real activity—as the restraining influence of these factors on real activity dissipates further, most participants expect the federal funds rate to move to its longer-run normal level by the end of 2018.

I’d like to underscore that the forecasts of the appropriate path of the federal funds rate, as usual, are conditional on participants’ individual projections of the most likely outcomes for economic growth, employment, inflation, and other factors. But our actual policy actions over time will depend on how economic conditions evolve, which is quite uncertain. If the expansion proves to be more vigorous than currently anticipated and inflation moves higher than expected, then the appropriate path would likely follow a steeper and higher trajectory. Conversely, if conditions were to prove weaker, then the appropriate trajectory would be lower and less steep.

Finally, the Committee will continue its policy of reinvesting proceeds from maturing Treasury securities and principal payments from agency debt and mortgage-backed securities.

The Committee’s sizable holdings of longer-term securities should help maintain accommodative financial conditions and promote further progress toward our objectives.

Thank you. Let me stop there. I’ll be happy to take your questions.

STEVE LIESMAN. Steve Liesman, CNBC. Madam Chair, this notion of uncertainty in economic and global developments—is it fair to say that it could be many months before those global developments work their way through the U.S. economic data, and that you would not have the certainty that you’re looking for to raise interest rates for many months and perhaps well into next year?

CHAIR YELLEN. Well, Steve, I think you can see from the SEP projections that most participants continued to think that economic conditions will call for or make appropriate an

–  –  –

increase in the federal funds rate by the end of this year. Four participants moved their projections into 2016 or later, but the great majority of participants continued to hold that view.

And, of course, there will always be uncertainty. We can’t expect that uncertainty to be fully resolved. But, in light of the developments that we have seen and the impacts on financial markets, we want to take a little bit more time to evaluate the likely impacts on the United States.

And, as I mentioned, the inflation outlook has softened slightly. We’ve had some further developments—namely, lower oil prices and a further appreciation of the dollar—that have put some downward pressure in the near term on inflation. Now, we fully expect those further effects, like the earlier moves in the dollar and in oil prices, to be transitory. But there is a little bit of downward pressure on inflation, and we would like to see some further developments.

And this, importantly, could include—is likely to include—further improvements in the labor market that would bolster our confidence that inflation will move back to 2 percent over the medium term.

SAM FLEMING. Sam Fleming from the Financial Times. Could I ask about the next meeting, which is in October? Do you view that as a live meeting even though there isn’t going to be a scheduled press conference at that time? And what kind of developments would you need to see to be confident in moving in the near term? Is it more important, the developments in the financial markets, or is it more to do with the upcoming data? Thanks very much.

CHAIR 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.



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