FOMC Press Conference December 13, 2017


CHAIR YELLEN. Good afternoon. Today the Federal Open
Market Committee decided to raise the target range
for the federal funds rate by 1/4 percentage point, bringing it to 1-1/4
to 1-1/2 percent. Our decision reflects
our assessment that a gradual removal of monetary policy accommodation
will sustain a strong labor market while fostering a return
of inflation to 2 percent, consistent with the
maximum employment and price stability objectives
assigned to us by law. Before saying more
about our decision, I’ll review recent economic
developments and the outlook. Following a slowdown
in the first quarter, economic growth stepped up
to a solid 3-1/4 percent pace in the second and third
quarters of the year. Household spending has been
expanding at a moderate rate, business investment
has picked up, and favorable economic
conditions abroad have supported exports. Overall, we continue to expect that the economy will
expand at a moderate pace. While changes in tax policy
will likely provide some lift to economic activity in coming
years, the magnitude and timing of the macroeconomic effects of any tax package
remain uncertain. Smoothing through
hurricane-related fluctuations, job gains averaged
170,000 per month over the three months ending in
November, well above estimates of the pace necessary to absorb
new entrants to the labor force. The unemployment rate
has declined further in recent months and, at
4.1 percent in November, was modestly below the median
of FOMC participants’ estimates of its longer-run normal level. Broader measures of labor market
utilization have also continued to strengthen. Participation in the labor force
has changed little, on net, over the past four years. Given the underlying
downward trend in participation stemming
largely from the aging of the U.S. population, a relatively steady
participation rate is a further sign of improved conditions
in the labor market. We expect that the job
market will remain strong in the years ahead. You may have noticed that we
altered the statement language about the labor market outlook. This change highlights that
the Committee expects the labor market to remain strong,
with sustained job creation, ample opportunities for
workers, and rising wages. We anticipate some
further strengthening in labor market conditions
in the months ahead; however, we expect the pace of job
gains to moderate over time as we gradually reduce
the degree of monetary policy
accommodation. Allowing the labor market to
overheat would raise the risk that monetary policy would
need to tighten abruptly at a later stage, jeopardizing
the economic expansion. Even with a firming
of economic growth and a stronger labor market,
inflation has continued to run below the FOMC’s 2
percent longer-run objective. The 12-month change
in the price index for personal consumption
expenditures was 1.6 percent in October, up a
bit from the summer but still below rates
seen earlier in the year. Core inflation– which
excludes the volatile food and energy categories– has
followed a similar pattern and was 1.4 percent in October. We continue to believe that
this year’s surprising softness in inflation primarily
reflects transitory developments that are largely unrelated to
broader economic conditions. As a result, we still expect
inflation will move up and stabilize around 2 percent
over the next couple of years. Nonetheless, as I’ve noted
previously, our understanding of the forces driving
inflation is imperfect. As emphasized in our statement,
we will carefully monitor actual and expected inflation
developments relative to our symmetric inflation goal. And, as I’ve noted
before, we are prepared to adjust monetary policy as
needed to achieve our inflation and employment objectives
over the medium term. Let me turn to the
economic projections that Committee participants
submitted for this meeting. As always, participants
conditioned their projections on their own individual views
of appropriate monetary policy, which, in turn, depend on
each participant’s assessment of the many factors
that shape the outlook. The median projection for growth of inflation-adjusted gross
domestic product, or real GDP, is 2-1/2 percent this year and
next and moderates to 2 percent by 2020, a bit above its
estimated longer-run rate. The median projection for
the unemployment rate stands at 4.1 percent in the
fourth quarter of this year and runs close to 4 percent
over the next three years, modestly below the
median estimate of its longer-run normal rate. Finally, the median inflation
projection is 1.7 percent this year, 1.9 percent next year,
and 2 percent in 2019 and 2020. Compared with the
projections made in September, real GDP growth is
a little stronger, the unemployment
rate is a bit lower, and inflation is
essentially unchanged. Participants generally
identified changes in tax policy as a factor supporting this
modestly stronger outlook, although many noted that
much uncertainty remains about the macroeconomic
effects of the specific measures that ultimately may
be implemented. Returning to monetary policy, for the past two years the FOMC
has been gradually increasing its target range for
the federal funds rate as the economy has continued to
make progress toward our goals of maximum employment
and price stability. Our decision today
continues this process. We still expect that
the ongoing strength of the economy will
warrant gradual increases in the federal funds rate. That expectation is
based on our view that this rate remains somewhat
below its neutral level– that is, the level that is
neither expansionary nor contractionary and keeps
the economy operating on an even keel. Because the neutral
rate currently appears to be quite low by
historical standards, the federal funds rate would not
have to rise much further to get to a neutral policy stance. But because we also
expect the neutral level of the federal funds rate
to rise somewhat over time, additional gradual rate hikes
are likely to be appropriate over the next few years to
sustain a strong labor market and stabilize inflation around our 2 percent
longer-run objective. Even so, the Committee
continues to anticipate that the longer-run
neutral level of the federal funds rate is
likely to remain below levels that prevailed in
previous decades. This view is consistent with
participants’ projections of appropriate monetary policy. The median projection for
the federal funds rate is 2.1 percent at the end of next year,
2.7 percent at the end of 2019, and 3.1 percent in 2020. Compared with the
projections made in September, the median path for the
federal funds rate is unchanged through 2019 and a
touch higher in 2020. I should note that the economic
outlook is highly uncertain, and participants will
adjust their assessments of the appropriate path
for the federal funds rate as their economic outlooks
and views of the risks to the outlook change. Policy is not on
a preset course. Additionally, the Committee’s
balance sheet normalization program, initiated in
October, is proceeding. As we’ve noted previously,
changing the target range for the federal funds
rate is our primary means of adjusting the stance
of monetary policy, and we do not foresee a need to alter our balance sheet
normalization program. Hence, our statement no
longer mentions this program. Of course, we would be
prepared to resume reinvestments if a material deterioration
in the economic outlook were to warrant a sizable reduction
in the federal funds rate. Finally, I’d like to note that, although I have one more
FOMC meeting to attend in the New Year, this will be my
last scheduled news conference. Over the next month and a
half, I will do my utmost to ensure a smooth transition to my designated
successor, Jay Powell. I am confident that he is as
deeply committed as I have been to the Federal Reserve’s
vital public mission. Thank you for being such an
attentive audience these past four years. And, as always, I’ll be
happy to take your questions. MARTIN CRUTSINGER. I’m Marty Crutsinger,
Associated Press. Madam 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? CHAIR 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’s being contemplated by
Congress into their projections. Now, I should emphasize that some 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, for example,
projected consumer spending and would have affected wealth– that’s 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 range 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 always, to evaluating incoming data and altering the
outlook as appropriate. HARRIET TORRY. Harriet Torry with
Dow Jones Newswires. You and others at
the Fed have said that soft inflation
should be transitory. Are you confident that that
will still be the case, particularly regarding
wage gains? They’ve been pretty
moderate in recent months, yet the economy is growing
and confidence is high. Is there something going on in the economy that’s
making it difficult for businesses to raise wages? CHAIR YELLEN. So it is true that incoming wage
data suggests only modest upward pressure on wages. That leaves me– that’s one
factor, along with the fact that inflation remains low– with feeling that even though we
have a 4.1 percent unemployment rate, that the labor market is
not overheated at this point. Remember, the modest pace of wage gains also
probably reflects slow productivity growth. But when you ask me about the
outlook for inflation, you know, I’ve talked in detail about
this in the past and recognize that there is uncertainty about
what’s holding inflation down. But my colleagues and I continue
to believe that the factors that are responsible this
year for holding inflation down are likely to
prove transitory. That said, we all agree that
our inflation objective is extremely important. We recognize that there’s
been a prolonged shortfall. This is a symmetric 2
percent inflation objective, and we continue to indicate that we’ll be monitoring
inflation developments closely. And so this is on the horizon
and recognized to be one of the risks facing policy. NICK TIMIRAOS. Thank you. Nick Timiraos, the
Wall Street Journal. Chair Yellen, I wanted to follow up on the question
about tax changes. When you addressed it earlier
today, and when you spoke to Congress last month,
you often describe that you would welcome
higher growth in the context of the employment and
inflation mandate. And I guess I wonder how you
judge the major provisions of the House and Senate tax
plans: the corporate rate cut, immediate expensing of
big-ticket purchases, new rates for pass-throughs, temporary rate cuts
for individuals. Do you see those, on balance,
boosting the productive capacity of the U.S. economy as opposed to simply increasing
aggregate demand? And, related to that, how
would you view the benefit of such tax changes now, when the economy is
nearing full employment, versus at earlier periods when there was greater
resource slack? CHAIR YELLEN. So I think my colleagues and I mainly see the
likely tax package as boosting aggregate demand,
but also having some potential to boost aggregate supply. So changes on the
corporate tax side– the reduction in the
corporate tax rate, expensing– will lower the cost of capital. And while there are a range
of estimates and uncertainty about how much stimulus that
will provide to investment, in general I would see some
stimulus to investment. In terms of aggregate supply
effects, a stronger pace of investment could
boost capital formation and thereby raise productivity
growth and potential GDP or output to some extent. Exactly how large those effects
might be remain uncertain, but that is a channel. And I suppose it’s
also possible– I’m uncertain how
significant this would be– that lower marginal effective
tax rates for those groups that will see them could
boost labor supply. And, again, there are a range
of estimates in the literatures. I indicated I think participants
have reviewed a number of pieces of analysis, including the Joint
Committee on Taxation estimates, and the many outside analysts
who have weighed in on this and been influenced by
that kind of analysis– but there is a good
deal of uncertainty about what the impacts would be. And, to the extent that
there are larger impacts than those analyses
assume on aggregate supply or potential GDP, in the
context of an economy that has had disturbingly
low productivity growth, that would be welcome and could
support faster GDP growth, at least for some
period, without– you know, without
creating a need to tighten monetary
policy to offset that. So there are potentially both
demand and supply effects here. So, importantly, you really
don’t, at the end of the day, see very much change in the
federal funds rate path. Participants do recognize that
the unemployment rate is lower than their estimates of its
long-run sustainable rate, so I think we are in the
vicinity of full employment. HEATHER LONG. Heather Long from
the Washington Post. You have mentioned that the
Committee thinks there will be wage increases next year. I’m wondering if you could
clarify if that is coming in part or mostly from the
changes to the tax plan. Is that what the expectation is,
would drive the wage increases? And I was also wondering, I’ve heard from so many
female economists in academia and at the Fed about what an
inspiration you’ve been to them and how melancholy they
will be to see you go. I was wondering if you just had
any final words to young females and minorities who may be
looking to enter economics or a banking profession
and rise to your level. CHAIR YELLEN. I’m sorry, remind me of the
first part of your question. [Laughter] HEATHER LONG. Wages. CHAIR YELLEN. Wages, yes. HEATHER LONG. Is the tax policy driving
wage increase expectations? CHAIR YELLEN. Well, I think, generally,
in a strong labor market where many firms are having
difficulty finding qualified workers, we would expect,
just through normal demand and supply channels, to
see some upward pressure on wage growth over time. And as the labor
market is tightened, we’ve seen some very gradual
drift upward in wage gains. They remain– it remains at a
low level, but I would expect, in the context of an
ongoing strong labor market, to see some upward pressure. And I believe that’s
the main thing that my colleagues
are factoring in. On your question on advice
to women and minorities, in the Federal Reserve,
my colleagues and I are very focused
on wanting to see and do what we can to foster
greater participation of women and minorities in economics. We would love to, if we could,
increase our hiring ourselves of women and minorities,
and we see that both women and minorities are studying
economics in disproportionately and disturbingly low numbers. Although the women in STEM
fields generally are about even with men– represent
about 50 percent– in economics, women
majors constitute something like 30 percent of
undergraduate majors, and there is disproportionate
low enrollment of minorities. I will just say, from
my own experience, I think economics
is a terrific field. I’ve thoroughly enjoyed
my career in economics and think there are
many different paths that people can follow that
lead to satisfying careers, and that there are
very interesting and important questions
that economics addresses. And it is a great field, and I would like to encourage
greater involvement and think that people will
find that satisfying. And, just in terms of the
kinds of research that’s done in the field, I think also a
greater diversity, more women and minorities, may change
the focus to some extent of the questions that
people choose to look at and the analysis that they
bring and a range of thinking that bears on research. And all of that would be
a healthy development. STEVE LIESMAN. Steve Liesman, CNBC. Every day, it seems, we
look at the stock market, it goes up triple
digits in the Dow Jones. To what extent are there
concerns at the Federal Reserve about current market valuations,
and do they now or should they, do you think, if we keep
going on this trajectory– should that animate
monetary policy? Finally, maybe as a sign
of what’s been going on with valuations, this cryptocurrency
called bitcoin keeps going up every day. What is the policy
of the central bank of the United States of
the introduction, use, and incredible rise in
popularity of bitcoin? CHAIR YELLEN. Okay. So let me start, Steve,
with the stock market generally. I mean, of course the
stock market has gone up a great deal this year, and we have in recent months
characterized the general level of asset valuations
as “elevated.” What that reflects is
simply the assessment that, looking at price/earnings
ratios and comparable metrics for other assets other than
equities, we see ratios that are at the high end of
historical ranges– and so that’s worth
pointing out. But economists are not great at knowing what appropriate
valuations are. We don’t have a terrific
record, and the fact that those valuations
are high doesn’t mean that they are necessarily
overvalued. We are in a– I’ve mentioned
this in my opening statement, and we’ve talked about
this repeatedly– likely a low interest
rate environment, lower than we’ve
had in past decades. And if that turns out to be
the case, that’s a factor that supports higher valuations. We’re enjoying solid economic
growth with low inflation, and the risks in the global
economy look more balanced than they have in many years. So I think what we need to and
are trying to think through is, if there were an adjustment
in asset valuations or the stock market, what impact
would that have on the economy, and would it provoke
financial stability concerns? And I think when we
look at other indicators of financial stability risks, there’s nothing flashing red
there or possibly even orange. We have a much more resilient,
stronger banking system, and we’re not seeing some
worrisome buildup in leverage or credit growth at successive
levels.1 So, you know, this is something that the
FOMC pays attention to, but if you ask me, is this
a significant factor shaping monetary policy now, well,
it’s on the list of risks, it’s not a major– it’s
not a major factor. And then you asked
about bitcoin, and there I would
simply say that bitcoin at this time plays a very small
role in the payment system. It is not a stable source of– store of value, and it doesn’t
constitute legal tender. It is a highly speculative
asset, and the Fed doesn’t
really play any role– any regulatory role with respect
to bitcoin other than assuring that banking organizations that
we do supervise are attentive, that they’re appropriately
managing any interactions they have with participants
in that market and appropriately monitoring
anti-money-laundering Bank Secrecy Act, you know,
responsibilities that they have. STEVE LIESMAN. Has there been a directive,
or, more importantly, has there been a directive
about bitcoin to the banks and their dealings with bitcoin
from the Federal Reserve? CHAIR YELLEN. I don’t believe there’s been
anything specific about that, just, generally, banks
have Bank Secrecy Act anti-money-laundering
responsibilities, and this applies to bitcoin as
it does in every other realm. DONNA BORAK. Hi, Chair Yellen,
Donna Borak with CNN. To return back to the
prospective tax bill questions, in your view at all, is the Republican tax bill
an ill-timed fiscal stimulus, and are you concerned
at all it will wind up squandering the tools both
the Congress and the Fed have when it comes time to
dealing with a recession? CHAIR YELLEN. So, look, I will just say that
it is up to the Administration and Congress to decide on
appropriate fiscal policy, and our job is to
maintain our focus on employment and inflation. We continue to think, as you
can see from the projections, that a gradual path of rate
increases remains appropriate even with almost all
participants now factoring in their assessment
of the impact of the tax– the tax policy. You know, it is projected that
the tax cut package will lead to additions to the
national debt and boost, by the end of the horizon,
the debt-to-GDP ratio. And I will say– and
this is nothing new, this is something I’ve been
saying for a long time– I am personally concerned
about the U.S. debt situation. It’s not that the
debt-to-GDP ratio at the moment is extraordinarily
or worrisomely high, but it’s also not very low. And it’s projected, as the
population continues to age and the baby boomers retire,
that that ratio will continue to rise in an unsustainable
fashion. So the addition to the debt, taking what is already
a significant problem and making it worse, is–
it is of concern to me, and I think it does suggest that
in some future downturn, which, well, could occur just
for whatever reason, the amount of fiscal space that
would exist for fiscal policy to play an active role,
it will be limited– may well be limited. SAM FLEMING. Sam Fleming from
the Financial Times. A couple of longer-term
questions. First of all, midway through the
year you talked about the issue of whether inflation targets
might need to be raised. There’s obviously been a lot
more debate in the Fed’s system since then about this. It may not be an imminent
issue, but do you expect it to be something the Fed
should be discussing over the coming years
as some sort of change to the inflation target? Second of all, the
amount of stimulus tools that the Fed may
have at its disposal when the next downturn
strikes are fairly limited. One of the incoming
governors, Marvin Goodfriend, has talked about the merits
of negative interest rates. I just wondered whether you
see that as a potential– or at least in theory,
for the Fed to consider should it
run out of other options. Thanks. CHAIR YELLEN. So right now the FOMC
is not discussing or considering its
inflation target. We do see inflation as
likely moving up to target over the next couple of
years, and I would say– you said our stimulus
tools are limited. I would want to emphasize that
if there were a negative shock to the economy, we do have some
scope to cut the fed funds rate, and there are other
tools available, ones that we have
used previously: forward guidance
and asset purchases. So I think we’re not– I wouldn’t say that
we’re out of ammunition, but certainly it’s
been recognized– and I’ve emphasized myself that,
in the longer run, we may be– and we’ll have to see how
this works out, but we may be in low interest rate
environments where it could prove useful
to have additional scope to conduct monetary policy. And, in that context, I
think additional research– the academic economists and
others are thinking hard about what more could be done,
and I think these are matters that are certainly
worthy of further study. SAM FLEMING. So you do believe that
negative interest rates, at least in theory, are possible
in the U.S. at some point if it should be necessary–
at least in theory. CHAIR YELLEN. So, I mean, on that
I would say we have– that’s not something that we
have studied inside the Fed to any considerable extent
and haven’t seriously thought about using ourselves during
this last downturn and recovery. We have watched what’s
happened in other countries. I think that’s worthwhile. And I would say it’s an area
that academics may have interest in in the future and is
worthy of some study, but it hasn’t been part
of the Fed’s agenda. VICTORIA GUIDA. Hi, Chair Yellen. Victoria Guida with Politico. I just wanted to ask you
quickly, on the regulatory side, in your testimony to Congress
recently you spoke positively about the Senate bank regulatory
reform bill, and I was wondering if there are– beyond
that bill– if there are tweaks
to Dodd-Frank that you think might
still be beneficial. And then, somewhat related,
Governor Powell recently said that there are currently no U.S.
banks that are too big to fail. And I was wondering, do you
agree with that assessment? CHAIR YELLEN. Well, I mean, you know,
I think I’m not familiar with every detail of the bill, but I think the bill
does address a wide range of issues that, you know,
we’ve highlighted in the past as being ones where perhaps
additional flexibility to tailor our supervisory
requirements would be worthwhile. So I don’t have additional
things on the congressional list. Sorry, and what– the other
thing– VICTORIA GUIDA. Too big to fail. CHAIR YELLEN. Oh, too big to fail. VICTORIA GUIDA. Are there any banks that are
too big to fail right now? CHAIR YELLEN. So, you know, we continue to
work seriously on resolution and the resolution plans, the
living wills, and the structure of systemic firms to ensure
that it would be possible to resolve a firm– under the
bankruptcy code would be the top choice of methods,
or, alternatively, under the Orderly
Liquidation Authority. And I think it’s fair
to say that, over time, we have learned more ourselves and more clearly detailed our
expectations for the firms that file living wills. And the firms themselves have
made considerable progress in, you know, changing what they do, whether it’s adopting
financial contracts that would facilitate
a resolution rather than a disorderly
unwinding of contracts, making sure that they’re
appropriately dealing with shared services so that
key services would be able to continue, governance
arrangements, legal entity structures– the
firms have all made progress in adapting to our expectations of what would enable a
successful resolution. So I think it’s an
ongoing process, and I believe we have
made substantial progress. BINYAMIN APPELBAUM. Binya Appelbaum,
the New York Times. I’m struggling to reconcile the
pieces of the economic outlook that you’ve described today. You’ve said that we are
basically at full employment. You’ve said that you’re
expecting a tax package to deliver a significant
stimulus, and that it will be
on the demand side. You expect growth to be faster. You expect unemployment
to be lower, and yet somehow inflation is
going to remain at 2 percent for the foreseeable future. Could you describe
what has changed about your economic assessment so that everything has
changed except inflation? CHAIR YELLEN. Well, you know, the projections
that we’re showing you today, many factors went into that,
fiscal policy being one of a number of different
factors. And, you know, you’re
looking at 16 participants who have made adjustments
to their economic outlook for a whole variety of reasons,
including, in some cases, rethinking some of the
fundamentals that went into their original forecast. So there have been modifications
in different directions by different participants. So I would caution you about the
dangers of looking at the median and acting like that
is one individual who has made a change
to their forecast. That’s a leap that
isn’t quite justified. But, look, generally, you
see modestly faster growth over the next couple of years,
which is consistent and, I said, I think for most participants,
reflects partly an impact from taxes stimulating consumer
and investment spending. But it’s not a gigantic
increase in growth that since– relative to September. You do see a lower path for
unemployment, but remember that inflation has
also been running low on a persistent basis, and the
Committee does have a concern about inflation and wants
to see it moving up. And, on balance, you see only
modest changes, slight revisions to the path for the
fed funds rate. You might think, well,
shouldn’t I see more? Well, okay, growth
is a little stronger, the unemployment rate
runs a little bit lower– that would perhaps
push in the direction of slightly tighter
monetary policy. But, again, counterbalancing
that is that inflation has run lower
than we expect, and, you know, it could take a longer period
of a very strong labor market in order to achieve the
inflation objective. JUSTINE UNDERHILL. Justine Underhill,
Yahoo Finance. So William Dudley of the
New York Fed recently said that the Fed is exploring
the idea of potentially having
its own cryptocurrency or digital currency. What use do you see a
cryptocurrency could have for the Fed, and do you see the
potential of a cryptocurrency that might be considered
legal tender? CHAIR YELLEN. So I want to distinguish
carefully between digital currency
and cryptocurrency. This is– there is a discussion
going on among central bankers about the potential
merits of adopting– a central bank itself
adopting a digital currency. And there might even be
a central banker or two around the globe that
might go in that direction. But I really want to caution that this is not something the
Federal Reserve is seriously considering at this
stage while we’re looking at research on this topic. There are, I think, to
my mind, limited benefits from introducing it,
a limited need for it, and some substantial concerns. And so I would really doubt that the Federal Reserve would
soon go in that direction. But it is something that central
banks are looking at to see if there could be
benefits from doing it. CRAIG TORRES. Chair Yellen, before
I ask this question, thanks for your stewardship
of the economy, the benefits of which I’ve seen in some
of the harder-hit parts of my own family,
so– CHAIR YELLEN. Thank you. CRAIG TORRES. Your tenure. We’ve seen six Federal
Reserve presidents appointed. One was a woman and five are
men, so I’d like to know how that comports with your
commitment to gender diversity. And, second, I wonder if
you think this process of appointing Reserve
Bank presidents needs to be more transparent
and accountable. Recently, the Richmond Fed board
took 11 months, and they came up with a candidate who was
another Fed board member. And so I’m wondering what you
would say to critics who say that looks like cronyism,
and if you think, you know, this could be simply
a more open process. These are votes on national
monetary policy, after all. CHAIR YELLEN. So I would agree with you that these are important
appointments. Under the Federal Reserve
Act, the nonbanking directors of the Reserve Banks
have responsibility for conducting a search, and
the Board of Governors has to sign off on the candidates. We’ve made very clear and we monitor ongoing searches
very carefully to make sure that absolutely every effort
is made to create a pool that is diverse, and that
there be a national search, and that every attempt should be
made to create a diverse pool. At the end of the day, we cannot
guarantee that the outcomes of these searches will result
in an increase in diversity. I mean, I’ve been
very pleased to see that there’s been some
success in that regard, but we have signed off on the
individuals who were appointed and have held the view
that these are individuals who were qualified to
serve in these positions. So I would hope– I would
hope to see greater diversity. It has been a challenge
to achieve that. CRAIG TORRES. Should the process
be more open somehow? CHAIR YELLEN. Well, I think the process
has become more open, and in a number of the recent
searches there has been outreach– public outreach,
information on websites, acceptance of potential
names and nominees, and those have gotten
careful consideration. There has been– there have
been meetings in some cases with community groups to
try to enlarge the pool and get suggestions, and I
think that’s appropriate, and I think it has moved in the
direction you’re suggesting. NANCY MARSHALL-GENZER. Nancy Marshall-Genzer
with Marketplace. I’m wondering if
you have any advice for incoming Chair Powell? CHAIR YELLEN. Well, my colleague– I’ve
had the pleasure of working with him now for many
years, and he is somebody who understands the
Federal Reserve very well and shares its values. And as I mentioned in my opening
statement, he is committed to the mission of the
Fed; to its independence; and to its acting in a
nonpartisan, nonpolitical way. He is somebody who
has participated in the FOMC now for many years. To the best of my knowledge, he
has been part of the consensus. I don’t believe he’s
ever dissented. I think there is strong
consensus in the Committee for the gradual approach
that we have been pursuing, and Governor Powell has
been part of that consensus, so I feel he’s very
well positioned and very knowledgeable
of all the ins and outs of everything that the Fed does. In supervision, in
the payment system– he’s played an active role
there– and in monetary policy, and I have confidence
that he is very capable of steering the Federal
Reserve in the years ahead. JOHN HELTMAN. Do you mean me, or– as long
as everyone gets a turn. This is John Heltman
with the American Banker. Sort of a related question
to what Nancy was asking– there have been some
reservations among some Democratic senators recently
during Governor Powell’s confirmation hearing
and during the markup of the reg relief bill about
the approach towards regulation that the new leadership
appears to be adopting. Do you have any similar
reservations about the new leadership’s
ability to deregulate in an evenhanded way that keeps
an eye towards the stability of the financial
system and the– sort of, the advances
that have come from post-crisis regulation? CHAIR YELLEN. So I would say that
all of my colleagues on the Board have expressed
a strong commitment to keep in place the core reforms that have produced a
stronger financial system. And I’m considering there
stronger capital, particularly for the most systemic
institutions– higher-quality capital,
stronger liquidity requirements, a rigorous stress-testing
program, and resolution planning that will make it more
possible to resolve a firm that encounters significant
distress. So I have heard broad-based
commitment to those things, and I think they are the core of the reforms we
have put in place. I think all of us agree
that it is appropriate to tailor regulatory
requirements in all of those areas and others to
the systemic footprint of firms. We have done a lot to do that,
and I think there is more that could be done, and in
some areas it would require legislation in order to do that. But I believe all of
my colleagues and I are in agreement on that, and we’re
also focused on community banks and want to find ways
to relieve burdens. So in those important
ways, I do think that all of my colleagues are
in the same place with respect to their
priorities. JOHN HELTMAN. Are there any important
differences between your colleagues and your
vision on regulatory reform? CHAIR YELLEN. So I have not seen anything
emerge at this point that I would describe as
a significant difference. HOWARD SCHNEIDER. Hi, Howard Schneider
with Reuters. So you mentioned in
response to Steve’s question that asset valuations, you
didn’t think, were on the sort of high-priority
risk list right now. So I’m wondering, what do you
think is on that risk list? And, more broadly, what
have you left undone? You’ve gotten high marks for bringing the economy
back towards its goals, but are there things that are
going to nag you when you walk out of here in February
and say, “Really, I wish I’d seen this
to completion”? I mean, we’re not doing
negative interest rates. We’re not doing inflation
framework. What’s at your top of– what’s
at the top of the to-do list that you are not getting to
see to bring to ground here? CHAIR YELLEN. So you asked about
the risk list. There are always risks
that affect the outlook. We tend to focus in our own
evaluation on economic risks, and we’ve characterized
them as “balanced.” And I think they are balanced. You know, I can always give
you a list of, you know, potential troubles,
international developments that could result in
downside economic risk. But, look, at the moment the
U.S. economy is performing well. The growth that we’re seeing,
it’s not based on, for example, an unsustainable buildup of
debt as we had in the run-up to the financial crisis. The global economy
is doing well. We’re in a synchronized
expansion. This is the first time in many
years that we’ve seen this. Inflation around the
world is generally low. So I think the risks are
balanced, and there’s less to lose sleep about now than has
been true for quite some time, so I feel good about
the economic out– the economic outlook. I feel, you know, good
that the labor market is in a very much stronger place
than it was eight years ago. We have created 17 million jobs. We’ve got a good,
strong labor market and a very low unemployment
rate, and I think that’s been
tremendously important to the well-being of American
households and workers. And I feel very pleased when
I hear anecdotes from firms that tell me they’re having
a hard time finding workers, and they talk about, given
that they’re taking on people with skills that don’t
quite match what they want, but they’re training
them, and, you know, giving them the training
that they need in order to be able to fill jobs. I think that’s a development
that is a natural one that occurs in a strong
labor market that tends to build human capital
and worker skills, and that that’s a
strong positive. As I mentioned, I think
the financial system is on much sounder footing, and
that we have done a great deal to put in place greater
capital, liquidity, and so forth that make it less crisis prone, and that has been an
important objective. What’s on my “undone”
list, you ask? We have a 2 percent symmetric
inflation objective, and, for a number of years now, inflation has been
running under 2 percent. And I consider it an
important priority to make sure that inflation doesn’t
chronically undershoot our 2 percent objective, and I want
to see it move up to 2 percent. So most of my colleagues and I
do believe that it’s being held down by transitory factors,
but there’s work undone there, in the sense– we
need to see it move up in line with our objective. GREG ROBB. Thank you. Chair Yellen, 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. CHAIR YELLEN. So, you know, I think
for a number of years– so we’ve 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.2 And those three
factors held down inflation for a number of years. Now, in 2016, core inflation
came very close to 2 percent. We seemed 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– you know, inflation doesn’t
always follow exactly. There are errors
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. But, at the moment, most of my
colleagues and I believe we are on track to achieve it. JIM PUZZANGHERA. Hi, Chair Yellen. Jim Puzzanghera with
the Los Angeles Times. I’m wondering, you
mentioned this is your last news conference. What are your plans when
you step down from the Fed? Are you going to
remain in Washington? Will you go back to Berkeley? And, also, I’m curious if
you have any disappointment that you’re not going to be
continuing in this job as some of your predecessors have done. CHAIR YELLEN. So, on my plans, I don’t
have anything definite for you, I guess. I have a home in Berkeley
and expect to maintain it. But I would say, my
spouse is on the faculty– he’s a professor at Georgetown
and would like to stay in his job, and we expect to
maintain Washington as our base. But I don’t have
any definite plans. Let’s see. And you asked me if
I’m disappointed. So let me just say that I have
served in senior positions in the Federal Reserve
now for quite a long time. I became president in
San Francisco in 2004, and I’ve participated in
the FOMC since that time as president, as Vice
Chair, and as Chair, and it’s been an immensely
rewarding experience for me. I feel very positive about what
we’ve been able to accomplish and feel tremendous, you know,
loyalty to the institution. So I did make the judgment that
this is the right time for me to leave, but I feel I have
served in senior positions at the Fed for a long time,
and it’s really been an honor and a privilege for me to
have had a chance to do so. ADAM SHAPIRO. Adam Shapiro with Fox Business. Glad to hear you’re
staying on the East Coast. I’m just curious,
I wanted to follow up to the bitcoin
questions, but– because you’ve lived through
what we all experienced in 2007, 2008, and– should the Fed take
a more active role in trying to identify who some
of the counterparty and what the exposure is with
bitcoin as a potential threat to financial stability? Just– the best minds at the Fed
can sometimes miss these kinds of threats. Your predecessor, Mr.
Bernanke, actually said in ’07 that the contagion from subprime
would not affect the housing market or the economy. So are we underestimating the
potential threat from bitcoin as it runs up in value? CHAIR YELLEN. Well, I certainly agree that
it’s important for the Fed to attempt to understand
emerging risks to financial stability
and to be looking not just in the banking system but
outside it for developments that could pose financial
risks, and we are doing that. And, I would say, one of the
changes during my tenure is, we devoted– decided in
the aftermath of the crisis that we needed to devote
considerable resources to financial stability to
monitor for emerging threats, and now we have at the
Board a full-blown division of financial stability that’s
involved in doing that. Now, when you ask about bitcoin, I still see the financial
stability risks from it as limited. Often, risks threatening
financial stability arise when there’s exposure
of the banking system to fluctuating asset valuations, and I really don’t see
any significant exposure of our core financial
institutions to threats from bitcoin if its
value were to fluctuate. I don’t see a threat to our
core financial institutions. So, undoubtedly, there are
individuals who could lose a lot of money if bitcoin were to fall
in price, but I really don’t see that as creating a full-blown
financial stability risk. MICHAEL MCKEE. Michael McKee from Bloomberg
Television and Radio. I suppose I should be asking
you a valedictory question since it’s the last question, but I don’t think you can
top what you’ve already said, so let me just do a couple
of cleanup questions here. President Trump, while
you were speaking, just said that he thinks
his tax plan will produce 4 percent growth. Do you think that is possible? Second, do you think that there
is any Fed blame or complicity in the flattening of the yield
curve, and are you worried that there might be some sort of
policy mistake built into that that could slow the economy? And the last question, which
is a bit of a valedictory, is one that everybody on
Wall Street has wanted to ask you for four years. Since this is your
last press conference, can you tell us which
dot is yours? [Laughter] CHAIR YELLEN. Well, I can answer the
last question first. The answer is “no.” I’ve never been willing to
reveal which dot is mine, and I’m not going
to change that now. So, you know, my assessment, and I think most participants’
assessments, as I said, of the impact of the tax policy
on growth has been informed by work by the Joint Committee
on Taxation and other analysts. And everyone recognizes
that there’s uncertainty about what the economic
effects would be, and I wouldn’t want
to rule anything out. It is challenging,
however, to achieve growth of the levels that
you mentioned. Look, if the package
were to stimulate growth of that magnitude,
let me just say again, the Federal Reserve
would welcome that. If it’s a supply-side– favorable supply-side
developments that would be compatible with
the attainment of our employment and inflation objectives,
that’s something that would be very,
very welcome. But it would be challenging
to achieve numbers like that. Let’s see, I think you also then
asked me about the yield curve, and– I mean, there
is much discussion about yield curve
inversions and whether or not a flattening yield
curve could signal a recession. Is that the brunt
of your question? MICHAEL MCKEE. And whether the Fed has made– if there’s a policy
mistake embedded in that. CHAIR YELLEN. So this is something that we
discussed and have looked at. The yield curve has
flattened some as we have raised short rates. It mainly– the flattening yield
curve mainly reflects higher short-term rates. The yield curve is not currently
inverted, and I would say that the current slope is well
within its historical range. Now, there is a strong
correlation historically between yield curve
inversions and recessions, but let me emphasize that
correlation is not causation, and I think that there
are good reasons to think that the relationship between
the slope of the yield curve and the business cycle
may have changed. And one reason for that is that long-term interest rates
generally embody two factors. One is the expected average
value of short rates over, say, 10 years, and the second piece of it is a so-called
term premium that often reflects things like
inflation– inflation risk. Typically, the term premium
historically has been positive. So when the yield curve
has inverted historically, it meant that short-term
rates were well above average expected short
rates over the longer run. So with the positive term
premium, that’s what it means. And typically that means that
monetary policy is restrictive, sometimes quite restrictive, and some of those
recessions were situations in which the Fed was consciously
tightening monetary policy because inflation was high and
trying to slow the economy. Well, right now the term premium
is estimated to be quite low, close to zero, and that
means that, structurally– and this can be true
going forward– that the yield curve
is likely to be flatter than it’s been in the past. And so it could more
easily invert. If the Fed were to even move to a slightly restrictive
policy stance, you could see an inversion
with a zero term premium. So I think the fact the
term premium is so low and the yield curve is generally
flatter is an important factor to consider. Now, I think it’s also
important to realize that market participants are not
expressing heightened concern about the decline of
the term premium, and, when asked directly about
the odds of recession, they see it as low, and I would
concur with that judgment. Thanks very much.

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