Yellen Excerpt:Can't Easily Point To Factors For Low 2017 Infl

     WASHINGTON (MN) -  - The following is a response of Federal Reserve

Chairman Janet Yellen to a question from a reporter at her press conference

following Wednesday's Federal Open Market Committee meeting.

     Question:

     -- recently gave a speech in which she said trend inflation appeared to

lower around half a percent, and I wanted to ask, do you agree?  And what would

the Fed need to do, if anything, to boost trend inflation if it has fallen.  And

related to that, you said you expect the inflation softness this year to prove

transitory.  Compared to three months ago, how firm is your expectation that the

slow down will remain transitory and what implications would that have for

monetary policy, if it is not.

Yellen:

      So the term trend inflation usually, there are a variety of statistical

techniques that can be used to extract a trend from a series.  Exactly what that

means is, in some sense, a statistical thing, and there are methodologies that

would show some modest decline in recent years in the trend.  After all, we've

had a number of years in which inflation has been low, as I said in answer to an

earlier question, I think if you go back to, say, 2013 and consider the, until

this year, the reasons why inflation was low are not hard to understand.  It's a

combination of slack in the labor market, declines in energy prices, and a

strong dollar that pulled down import price inflation.

So, what's important in determining inflation going forward is inflation

expectations by some survey measures, professional forecasters, those have been

rock solid.  We do also look at household expectations which have come down

some.  Market-based measures of inflation compensation, as we mentioned in the

statement, they have declined, and they have been stable in recent months, but

they have declined to levels that are low by historical standards.  That might

suggest that inflation expectations have come down, but one can't get a clear

read.  There are risks premium built into inflation compensation that make it

impossible to extract directly what inflation expectations are.  So, you know,

there is a miss this year.  I can't say I can easily point to a sufficient set

of factors that explain this year why inflation has been as low.  I've mentioned

a few idiosyncratic things but frankly it's more broad based than just

idiosyncratic things.  The fact that inflation is unusually low this year does

not mean that that's going to continue.  Remember that in January and February,

core inflation was running over a 12-month basis at around 1.9 percent and we

look to be very close to two.  Now, we have several months of data that have

meaningfully pulled that down, and what we need to do is figure out whether or

not the factors that have lowered inflation are likely to prove persistent or

they're likely to prove transitory.

And that's what we're going to try to be determining on the basis of incoming

data.  And you asked me about the policy implications.  Of course, if we

determined, our view changed, and instead of thinking that the factors holding

inflation down were transitory, we came to the view that they would be

persistent, it would require an alteration in monetary policy to move inflation

back up to 2 percent, and we would be committed to making that adjustment.

--MNI Washington Bureau; +1 202-371-2121; email: holly.stokes@marketnews.com

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