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     WASHINGTON (MNI)  - 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:
     What do you think will be the drivers of inflation over the next couple of
years? And how long will the committee go with low unemployment, low inflation,
before you rethink monetary policy? This gradual rate hikes. Thank you. 
     
Yellen:
     So, I think for a number of years, we have had an undershoot of inflation
for a number of years. We absolutely recognize that. I think until this year,
undershoot was understandable. First we had a good deal of slack in the labor
market. Then we had plummeting oil prices, and beginning in mid 2014, there was
a marked depreciation in the dollar. Those three factors held down inflation for
a number of years. 
     In 2016, core inflation came very close to 2 percent. We seem to be on a
path of inflation moving up. And this year, beginning in March, there seemed to
be a sequence of negative surprises. Some reflect one-time factors that were
easily identifiable, like a marked decline in quality adjusted cell phone plans.
There may be other factors that are not so easy to name, but we would judge,
inflation doesn't always follow exactly. There are areas and many factors that
affect it beyond the key influences of labor market slack, exchange rates and
import prices and oil prices. Those are three big ones, but there are other
factors that affect inflation too. And our judgment at this point is that
transitory factors that are unrelated to the broader macroeconomic outlook are
holding inflation down. 
     But, I have tried to be straightforward in saying that this could end up
being something that is more ingrained and turns out to be permanent. It's very
important to watch it. And if necessary, rethink what's determining inflation. A
possibility is that the longer run sustainable rate of unemployment is, it's
been coming down. Estimates in the committee have come down. It's conceivable
that they need to come down even more. 
     It's not my judgment that inflation expectations have slipped, but that
also remains a possibility that needs to be monitored. So there are, you know,
there could be a rethink of inflation. 
     I think it's important to watch inflation outcomes carefully. And if we
don't see inflation moving in the manner that the committee anticipates to alter
policy so that we do achieve our 2 percent objective.
--MNI Washington Bureau; +1 202-371-2121; email: holly.stokes@marketnews.com
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