Exclusive interviews with leading policymakers that convey the true policy message that impacts markets.
Reporting on key macro data at the time of release.
Real-time insight on key fixed income and fx markets.
- Emerging MarketsEmerging Markets
Real-time insight of emerging markets in CEMEA, Asia and LatAm region
- MNI ResearchMNI Research
Actionable insight on monetary policy, balance sheet and inflation with focus on global issuance. Analysis on key political risk impacting the global markets.
- About Us
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.
You have now committed to a policy of reducing your balance sheet
gradually. You've described even more gradually than usual. You are locked in
for a long time to forecast that monetary policy will keep interest rates at a
low level and balance sheets at a high level. If something goes wrong, does the
Fed have room to respond in the conditions in the several years and could you
describe what your plans are for a response that would be warranted?
The only thing I would object to there is you said that we were locked in,
and I would say that we're not locked in. We believe that economic conditions
will evolve in a way that will warrant gradual further increases in our federal
funds rate target, but if conditions evolve differently than that, whichever
direction that might be, it might be that growth is more rapid, the labor market
tightens more quickly than with assume, and inflation appears to be picking up
more rapidly than we had expected, we have not promised, no matter what, that
the path of interest rate increases will be gradual. We believe that that will
be appropriate, but we always watching the economy and will adjust policy as
Now, as I said, the hurdle to changing our plans with respect to the balance
sheet in some sense is high. If conditions were to weaken, we would really only
consider resuming reinvestment if it were what we refer to as a material
deterioration, and I tried to explain why that is. But we will adjust monetary
policy. What you see in the dot plot is each participant's best guess based on
the information they have today about what will be appropriate in light of their
expectations about how the economy would evolve and we think it's helpful to
show the public some sense that it helps in understanding our evaluation of the
economy but we're assessing incoming data, and these plans are subject to
change. What's not subject to change is our commitment to doing everything in
our power to achieve the goals that Congress has assigned to us, which are price
stability or 2 percent inflation in unemployment.
But do you in fact have room in the next two or three years to respond?
Certainly, if growth is stronger or in inflation picks up more rapidly, we
have room. We have a certain amount of room now, and we have raised the funds
rate four times. We believe that we are on a path where there will likely be
further increases over the next couple of years, which will give us greater
room, and we think the recovery is on a strong track. So the reason for our
actions today and beginning to rundown the balance sheet is we think the economy
is performing well, and we have confidence in the outlook for the real economy.
But, of course, there are shocks and if the negative shock to the economy were
sufficient, we recognize that we might be unable to pursue objectives purely by
cutting the federal funds rate, and that is why we say explicitly that we would
be prepared in that event to resume reinvestment and other tools that we used in
the financial crisis, forward guidance, would also be available to us.
--MNI Washington Bureau; +1 202-371-2121; email: firstname.lastname@example.org