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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.
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?
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
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: firstname.lastname@example.org