Yellen Excerpt: May Need To Lower Est of Long Run Unemployment

     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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