Yellen Excerpt: Tax Policy Considered in Projections

     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:

      Madame Chair, could you give us any insight into the discussion and how it

dealt with the major tax changes that congress is considering now?  There have

been thoughts that with these changes happening at a time when the economy is

already with unemployment so low, that the fed may be forced to increase its

pace on rate hikes. Did any of that discussion come up in your meeting?

Yellen: 

     So, yes, we did discuss tax policy, and let me say that most of my

colleagues factored in the prospect of fiscal stimulus along the lines of what

is being contemplated by congress into their projections.

     Now, I should emphasize that some of them have been incorporating those

expectations into their projections throughout the year, so changes to the

projections that you see since September should not be viewed as an impact, an

estimate of the impact of the tax package. And in particular, broader

expectations of changes to fiscal policy have been reflected in financial market

conditions, I think, over the past year. For example, we have seen a significant

increase in the stock market, and at least some portion of that I would judge

likely partly reflected expected tax changes, and that effect, along with other

financial market effects, which affects projected consumer spending and would

have affected wealth, that has been part of participants' forecasts now for some

time.

     I think my colleagues and I are in line with the general expectation among

most economists that the type of tax changes that are likely to be enacted would

tend to provide some modest lift to GDP growth in the coming years. And you see

that in part that's one of the reasons I think for the uptick you see in

estimated growth and decline in the unemployment rate.

     The views of participants, I believe, have been informed by a wide range of

analysis, including that of the joint committee on taxation and other outside

evaluators. And my sense is that their estimates are essentially in the same

ballpark, although they recognize, as I emphasized, that there is considerable

uncertainty about the impacts, and that will have to be monitored over time.

     More specifically, they tend to see the package as boosting both consumer

spending and capital spending to some extent.   Now, to the extent that the

changes do have positive impact on the growth of potential GDP and longer run

growth, let me just say that this is something that should it occur would be

very welcome to participants, as long as it's consistent with the attainment of

our employment and inflation objectives.

     I guess I would also urge you to remember that when you look at the

projections, that there are many factors that affect those projections and

changes in tax policy, that's only one of a number of factors, including

incoming data that has to some extent altered the outlook for growth and

inflation, all of that factors into the projections you see. 

     But I think bottom line, when you look at assessments of the funds rate

path, participants continue to see gradual increases in the target rate for the

federal funds rate as being appropriate to sustain a strong labor market and

bring inflation back to 2 percent.

     And, look, importantly, there is a lot of uncertainty about what the likely

effects will be, and my colleagues and I will be committed, as all, to

evaluating incoming data and altering the outlook as appropriate.

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

[TOPICS: MMUFE$,M$U$$$]