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Yellen "Do-Over" Speech - Live Feed
Highlights
- YELLEN:STILL SLACK BUT LABOR MARKET MADE CONSIDERABLE PROGRESS
- YELLEN:RISK INFL EXPCTS GET UNMOORED TO DWNSIDE, WARRANTS EASE
- YELLEN: BELOW 2% INFL LIKELY DUE TO TRANSITORY FACTORS
- YELLEN SAYS MOST ON FOMC `INCLUDING MYSELF' EXPECT 2015 LIFTOFF
- YELLEN SAYS FOMC VIEWS MAY CHANGE IF ECONOMY `SURPRISES US'
- YELLEN SAYS ECONOMY ‘NOT FAR AWAY FROM FULL EMPLOYMENT’
Preview
When risk sold off last week in the wake of the Fed’s so-called “clean relent,” it signalled at best a policy mistake and at worst the loss of any and all credibility. To be sure, the FOMC was facing a number of Catch-22s. That is, there probably was no “right” answer per se, but because the Fed put itself in that position by not hiking when it had the chance, the fact that they were up against a lose-lose scenario got them no sympathy.

Tonight, Yellen will get what some are billing as a kind of “do over” opportunity when she delivers a speech (written by Jan Hatzius?) in Amherst, Massachusetts, on “Inflation Dynamics and Monetary Policy. A note to the Fed: the only thing you need to know about “inflation dynamics” is that trillions in global QE hasn’t worked to boost inflation expectations.
The market will of course hang on every word in an effort to discern how likely liftoff is to occur before the end of the year.
*YELLEN: SEES INITIAL INCREASE IN FED FUNDS RATE LATER THIS YR
And Market says "no"!
As it appears The Market is indeed 'macro-data-dependent' even if The Fed isn't...
* * *
Full Text
In my remarks today, I will discuss inflation and its role in the Federal Reserve's conduct of monetary policy. I will begin by reviewing the history of inflation in the United States since the 1960s, highlighting two key points: that inflation is now much more stable than it used to be, and that it is currently running at a very low level. I will then consider the costs associated with inflation, and why these costs suggest that the Federal Reserve should try to keep inflation close to 2 percent. After briefly reviewing our policy actions since the financial crisis, I will discuss the dynamics of inflation and their implications for the outlook and monetary policy.
Historical Review of Inflation
A crucial responsibility of any central bank is to control inflation, the average rate of increase in the prices of a broad group of goods and services. Keeping inflation stable at a moderately low level is important because, for reasons I will discuss, inflation that is high, excessively low, or unstable imposes significant costs on households and businesses. As a result, inflation control is one half of the dual mandate that Congress has laid down for the Federal Reserve, which is to pursue maximum employment and stable prices.
The Federal Reserve has not always been successful in fulfilling the price stability element of its mandate. The dashed red line in figure 1 plots the four-quarter percent change in the price index for personal consumption expenditures (PCE)--the measure of inflation that the Fed's policymaking body, the Federal Open Market Committee, or FOMC, uses to define its longer-run inflation goal.1 Starting in the mid-1960s, inflation began to move higher. Large jumps in food and energy prices played a role in this upward move, but they were not the whole story, for, as illustrated here, inflation was already moving up before the food and energy shocks hit in the 1970s and the early 1980s.2 And if we look at core inflation, the solid black line, which excludes food and energy prices, we see that it too starts to move higher in the mid-1960s and rises to very elevated levels during the 1970s, which strongly suggests that something more than the energy and food price shocks must have been at work.
A second important feature of inflation over this period can be seen if we examine an estimate of its long-term trend, which is plotted as the dotted black line in figure 1. At each point in time, this trend is defined as the prediction from a statistical model of the level to which inflation is projected to return in the long run once the effects of any shocks to the economy have fully played out.3 As can be seen from the figure, this estimated trend drifts higher over the 1960s and 1970s, implying that during this period there was no stable "anchor" to which inflation could be expected to eventually return--a conclusion generally supported by other procedures for estimating trend inflation.
Today many economists believe that these features of inflation in the late 1960s and 1970s--its high level and lack of a stable anchor--reflected a combination of factors, including chronically overheated labor and product markets, the effects of the energy and food price shocks, and the emergence of an "inflationary psychology" whereby a rise in actual inflation led people to revise up their expectations for future inflation. Together, these various factors caused inflation--actual and expected--to ratchet higher over time. Ultimately, however, monetary policy bears responsibility for the broad contour of what happened to actual and expected inflation during this period because the Federal Reserve was insufficiently focused on returning inflation to a predictable, low level following the shocks to food and energy prices and other disturbances.
In late 1979, the Federal Reserve began significantly tightening monetary policy to reduce inflation. In response to this tightening, which precipitated a severe economic downturn in the early 1980s, overall inflation moved persistently lower, averaging less than 4 percent from 1983 to 1990. Inflation came down further following the 1990-91 recession and subsequent slow recovery and then averaged about 2 percent for many years. Since the recession ended in 2009, however, the United States has experienced inflation running appreciably below the FOMC's 2 percent objective, in part reflecting the gradual pace of the subsequent economic recovery.
Examining the behavior of inflation's estimated long-term trend reveals another important change in inflation dynamics. With the caveat that these results are based on a specific implementation of a particular statistical model, they imply that since the mid-1990s there have been no persistent movements in this predicted long-run inflation rate, which has remained very close to 2 percent. Remarkably, this stability is estimated to have continued during and after the recent severe recession, which saw the unemployment rate rise to levels comparable to those seen during the 1981-82 downturn, when the trend did shift down markedly.4 As I will discuss, the stability of this trend appears linked to a change in the behavior of long-run inflation expectations--measures of which appear to be much better anchored today than in the past, likely reflecting an improvement in the conduct of monetary policy. In any event, this empirical analysis implies that, over the past 20 years, inflation has been much more predictable over the longer term than it was back in the 1970s because the trend rate to which inflation was predicted to return no longer moved around appreciably. That said, inflation still varied considerably from year to year in response to various shocks.
As figure 2 highlights, the United States has experienced very low inflation on average since the financial crisis, in part reflecting persistent economic weakness that has proven difficult to fully counter with monetary policy. Overall inflation (shown as the dashed red line) has averaged only about 1-1/2 percent per year since 2008 and is currently close to zero. This result is not merely a product of falling energy prices, as core inflation (the solid black line) has also been low on average over this period.
Inflation Costs
In 2012 the FOMC adopted, for the first time, an explicit longer-run inflation objective of 2 percent as measured by the PCE price index.5 (Other central banks, including the European Central Bank and the Bank of England, also have a 2 percent inflation target.) This decision reflected the FOMC's judgment that inflation that persistently deviates--up or down--from a fixed low level can be costly in a number of ways. Persistent high inflation induces households and firms to spend time and effort trying to minimize their cash holdings and forces businesses to adjust prices more frequently than would otherwise be necessary. More importantly, high inflation also tends to raise the after-tax cost of capital, thereby discouraging business investment. These adverse effects occur because capital depreciation allowances and other aspects of our tax system are only partially indexed for inflation.6
Persistently high inflation, if unanticipated, can be especially costly for households that rely on pensions, annuities, and long-term bonds to provide a significant portion of their retirement income. Because the income provided by these assets is typically fixed in nominal terms, its real purchasing power may decline surprisingly quickly if inflation turns out to be consistently higher than originally anticipated, with potentially serious consequences for retirees' standard of living as they age.7
An unexpected rise in inflation also tends to reduce the real purchasing power of labor income for a time because nominal wages and salaries are generally slow to adjust to movements in the overall level of prices. Survey data suggest that this effect is probably the number one reason why people dislike inflation so much.8 In the longer run, however, real wages--that is, wages adjusted for inflation--appear to be largely independent of the average rate of inflation and instead are primarily determined by productivity, global competition, and other nonmonetary factors. In support of this view, figure 3 shows that nominal wage growth tends to broadly track price inflation over long periods of time.
Inflation that is persistently very low can also be costly, and it is such costs that have been particularly relevant to monetary policymakers in recent years. The most important cost is that very low inflation constrains a central bank's ability to combat recessions. Normally, the FOMC fights economic downturns by reducing the nominal federal funds rate, the rate charged by banks to lend to each other overnight. These reductions, current and expected, stimulate spending and hiring by lowering longer-term real interest rates--that is, nominal rates adjusted for inflation--and improving financial conditions more broadly. But the federal funds rate and other nominal interest rates cannot go much below zero, since holding cash is always an alternative to investing in securities.9 Thus, the lowest the FOMC can feasibly push the real federal funds rate is essentially the negative value of the inflation rate. As a result, the Federal Reserve has less room to ease monetary policy when inflation is very low. This limitation is a potentially serious problem because severe downturns such as the Great Recession may require pushing real interest rates far below zero for an extended period to restore full employment at a satisfactory pace.10 For this reason, pursuing too low an inflation objective or otherwise tolerating persistently very low inflation would be inconsistent with the other leg of the FOMC's mandate, to promote maximum employment.11
An unexpected decline in inflation that is sizable and persistent can also be costly because it increases the debt burdens of borrowers. Consider homeowners who take out a conventional fixed-rate mortgage, with the expectation that inflation will remain close to 2 percent and their nominal incomes will rise about 4 percent per year. If the economy were instead to experience chronic mild deflation accompanied by flat or declining nominal incomes, then after a few years the homeowners might find it noticeably more difficult to cover their monthly mortgage payments than they had originally anticipated. Moreover, if house prices fall in line with consumer prices rather than rising as expected, then the equity in their home will be lower than they had anticipated. This situation, which is sometimes referred to as "debt deflation," would also confront all households with outstanding student loans, auto loans, or credit card debt, as well as businesses that had taken out bank loans or issued bonds.12 Of course, in this situation, lenders would be receiving more real income. But the net effect on the economy is likely to be negative, in large part because borrowers typically have only a limited ability to absorb losses. And if the increased debt-service burdens and declines in collateral values are severe enough to force borrowers into bankruptcy, then the resultant hardship imposed on families, small business owners, and laid-off workers may be very severe.13
Monetary Policy Actions since the Financial Crisis
As I noted earlier, after weighing the costs associated with various rates of inflation, the FOMC decided that 2 percent inflation is an appropriate operational definition of its longer-run price objective.14 In the wake of the 2008 financial crisis, however, achieving both this objective and full employment (the other leg of the Federal Reserve's dual mandate) has been difficult, as shown in figure 4. Initially, the unemployment rate (the solid black line) soared and inflation (the dashed red line) fell sharply. Moreover, after the recession officially ended in 2009, the subsequent recovery was significantly slowed by a variety of persistent headwinds, including households with underwater mortgages and high debt burdens, reduced access to credit for many potential borrowers, constrained spending by state and local governments, and weakened foreign growth prospects. In an effort to return employment and inflation to levels consistent with the Federal Reserve's dual mandate, the FOMC took a variety of unprecedented actions to help lower longer-term interest rates, including reducing the federal funds rate (the dotted black line) to near zero, communicating to the public that short-term interest rates would likely stay exceptionally low for some time, and buying large quantities of longer-term Treasury debt and agency-issued mortgage-backed securities.15
These actions contributed to highly accommodative financial conditions, thereby helping to bring about a considerable improvement in labor market conditions over time. The unemployment rate, which peaked at 10 percent in 2009, is now 5.1 percent, slightly above the median of FOMC participants' current estimates of its longer-run normal level. Although other indicators suggest that the unemployment rate currently understates how much slack remains in the labor market, on balance the economy is no longer far away from full employment. In contrast, inflation has continued to run below the Committee's objective over the past several years, and over the past 12 months it has been essentially zero. Nevertheless, the Committee expects that inflation will gradually return to 2 percent over the next two or three years. I will now turn to the determinants of inflation and the factors that underlie this expectation.
Inflation Dynamics
Models used to describe and predict inflation commonly distinguish between changes in food and energy prices--which enter into total inflation--and movements in the prices of other goods and services--that is, core inflation. This decomposition is useful because food and energy prices can be extremely volatile, with fluctuations that often depend on factors that are beyond the influence of monetary policy, such as technological or political developments (in the case of energy prices) or weather or disease (in the case of food prices). As a result, core inflation usually provides a better indicator than total inflation of where total inflation is headed in the medium term.16 Of course, food and energy account for a significant portion of household budgets, so the Federal Reserve's inflation objective is defined in terms of the overall change in consumer prices.
What, then, determines core inflation? Recalling figure 1, core inflation tends to fluctuate around a longer-term trend that now is essentially stable. Let me first focus on these fluctuations before turning to the trend. Economic theory suggests, and empirical analysis confirms, that such deviations of inflation from trend depend partly on the intensity of resource utilization in the economy--as approximated, for example, by the gap between the actual unemployment rate and its so-called natural rate, or by the shortfall of actual gross domestic product (GDP) from potential output. This relationship--which likely reflects, among other things, a tendency for firms' costs to rise as utilization rates increase--represents an important channel through which monetary policy influences inflation over the medium term, although in practice the influence is modest and gradual. Movements in certain types of input costs, particularly changes in the price of imported goods, also can cause core inflation to deviate noticeably from its trend, sometimes by a marked amount from year to year.17 Finally, a nontrivial fraction of the quarter-to-quarter, and even the year-to-year, variability of inflation is attributable to idiosyncratic and often unpredictable shocks.18
What about the determinants of inflation's longer-term trend? Here, it is instructive to compare the purely statistical estimate of the trend rate of future inflation shown earlier in figure 1 with survey measures of people's actual expectations of long-run inflation, as is done in figure 5. Theory suggests that inflation expectations--which presumably are linked to the central bank's inflation goal--should play an important role in actual price setting.19 Indeed, the contours of these series are strikingly similar, which suggests that the estimated trend in inflation is in fact related to households' and firms' long-run inflation expectations.20
To summarize, this analysis suggests that economic slack, changes in imported goods prices, and idiosyncratic shocks all cause core inflation to deviate from a longer-term trend that is ultimately determined by long-run inflation expectations. As some will recognize, this model of core inflation is a variant of a theoretical model that is commonly referred to as an expectations-augmented Phillips curve.21 Total inflation in turn reflects movements in core inflation, combined with changes in the prices of food and energy.
An important feature of this model of inflation dynamics is that the overall effect that variations in resource utilization, import prices, and other factors will have on inflation depends crucially on whether these influences also affect long-run inflation expectations. Figure 6 illustrates this point with a stylized example of the inflation consequences of a gradual increase in the level of import prices--perhaps occurring in response to stronger real activity abroad or a fall in the exchange value of the dollar--that causes the rate of change of import prices to be elevated for a time.22 First, consider the situation shown in panel A, in which households' and firms' expectations of inflation are not solidly anchored, but instead adjust in response to the rates of inflation that are actually observed.23 Such conditions--which arguably prevailed in the United States from the 1970s to the mid-1990s--could plausibly arise if the central bank has, in the past, allowed significant and persistent movements in inflation to occur. In this case, the temporary rise in the rate of change of import prices results in a permanent increase in inflation. This shift occurs because the initial increase in inflation generated by a period of rising import prices leads households and firms to revise up their expectations of future inflation. A permanent rise in inflation would also result from a sustained rise in the level of oil prices or a temporary increase in resource utilization.
By contrast, suppose that inflation expectations are instead well anchored, perhaps because the central bank has been successful over time in keeping inflation near some specified target and has made it clear to the public that it intends to continue to do so. Then the response of inflation to a temporary increase in the rate of change of import prices or any other transitory shock will resemble the pattern shown in panel B. In this case, inflation will deviate from its longer-term level only as long as import prices are rising. But once they level out, inflation will fall back to its previous trend in the absence of other disturbances.24
A key implication of these two examples is that the presence of well-anchored inflation expectations greatly enhances a central bank's ability to pursue both of its objectives--namely, price stability and full employment. Because temporary shifts in the rate of change of import prices or other transitory shocks have no permanent influence on expectations, they have only a transitory effect on inflation. As a result, the central bank can "look through" such short-run inflationary disturbances in setting monetary policy, allowing it to focus on returning the economy to full employment without placing price stability at risk. Indeed, the Federal Reserve has done just that in setting monetary policy over the past decade or more. Moreover, as I will discuss shortly, these inflation dynamics are a key reason why the FOMC expects inflation to return to 2 percent over the next few years.
On balance, the evidence suggests that inflation expectations are in fact well anchored at present. Figure 7 plots the two survey measures of longer-term expected inflation I presented earlier, along with a measure of longer-term inflation compensation derived as the difference between yields on nominal Treasury securities and inflation-indexed ones, called TIPS. Since the late 1990s, survey measures of longer-term inflation expectations have been quite stable; this stability has persisted in recent years despite a deep recession and concerns expressed by some observers regarding the potential inflationary effects of unconventional monetary policy. The fact that these survey measures appear to have remained anchored at about the same levels that prevailed prior to the recession suggests that, once the economy has returned to full employment (and absent any other shocks), core inflation should return to its pre-recession average level of about 2 percent.
This conclusion is tempered somewhat by recent movements in longer-run inflation compensation, which in principle could reflect changes in investors' expectations for long-run inflation. This measure is now noticeably lower than in the years just prior to the financial crisis.25 However, movements in inflation compensation are difficult to interpret because they can be driven by factors that are unique to financial markets--such as movements in liquidity or risk premiums--as well as by changes in expected inflation.26 Indeed, empirical work that attempts to control for these factors suggests that the long-run inflation expectations embedded in asset prices have in fact moved down relatively little over the past decade.27 Nevertheless, the decline in inflation compensation over the past year may indicate that financial market participants now see an increased risk of very low inflation persisting.
Although the evidence, on balance, suggests that inflation expectations are well anchored at present, policymakers would be unwise to take this situation for granted. Anchored inflation expectations were not won easily or quickly: Experience suggests that it takes many years of carefully conducted monetary policy to alter what households and firms perceive to be inflation's "normal" behavior, and, furthermore, that a persistent failure to keep inflation under control--by letting it drift either too high or too low for too long--could cause expectations to once again become unmoored.28 Given that inflation has been running below the FOMC's objective for several years now, such concerns reinforce the appropriateness of the Federal Reserve's current monetary policy, which remains highly accommodative by historical standards and is directed toward helping return inflation to 2 percent over the medium term.29
Before turning to the implications of this inflation model for the current outlook and monetary policy, a cautionary note is in order. The Phillips-curve approach to forecasting inflation has a long history in economics, and it has usefully informed monetary policy decisionmaking around the globe. But the theoretical underpinnings of the model are still a subject of controversy among economists. Moreover, inflation sometimes moves in ways that empirical versions of the model, which necessarily are a simplified version of a complicated reality, cannot adequately explain. For this reason, significant uncertainty attaches to Phillips curve predictions, and the validity of forecasts from this model must be continuously evaluated in response to incoming data.
Policy Implications
Assuming that my reading of the data is correct and long-run inflation expectations are in fact anchored near their pre-recession levels, what implications does the preceding description of inflation dynamics have for the inflation outlook and for monetary policy?
This framework suggests, first, that much of the recent shortfall of inflation from our 2 percent objective is attributable to special factors whose effects are likely to prove transitory. As the solid black line in figure 8 indicates, PCE inflation has run noticeably below our 2 percent objective on average since 2008, with the shortfall approaching about 1 percentage point in both 2013 and 2014 and more than 1-1/2 percentage points this year. The stacked bars in the figure give the contributions of various factors to these deviations from 2 percent, computed using an estimated version of the simple inflation model I just discussed.30 As the solid blue portion of the bars shows, falling consumer energy prices explain about half of this year's shortfall and a sizable portion of the 2013 and 2014 shortfalls as well. Another important source of downward pressure this year has been a decline in import prices, the portion with orange checkerboard pattern, which is largely attributable to the 15 percent appreciation in the dollar's exchange value over the past year. In contrast, the restraint imposed by economic slack, the green dotted portion, has diminished steadily over time as the economy has recovered and is now estimated to be relatively modest.31 Finally, a similarly small portion of the current shortfall of inflation from 2 percent is explained by other factors (which include changes in food prices); importantly, the effects of these other factors are transitory and often switch sign from year to year.
Although an accounting exercise like this one is always imprecise and will depend on the specific model that is used, I think its basic message--that the current near-zero rate of inflation can mostly be attributed to the temporary effects of falling prices for energy and non-energy imports--is quite plausible. If so, the 12-month change in total PCE prices is likely to rebound to 1-1/2 percent or higher in 2016, barring a further substantial drop in crude oil prices and provided that the dollar does not appreciate noticeably further.
To be reasonably confident that inflation will return to 2 percent over the next few years, we need, in turn, to be reasonably confident that we will see continued solid economic growth and further gains in resource utilization, with longer-term inflation expectations remaining near their pre-recession level. Fortunately, prospects for the U.S. economy generally appear solid. Monthly payroll gains have averaged close to 210,000 since the start of the year and the overall economy has been expanding modestly faster than its productive potential. My colleagues and I, based on our most recent forecasts, anticipate that this pattern will continue and that labor market conditions will improve further as we head into 2016.
The labor market has achieved considerable progress over the past several years. Even so, further improvement in labor market conditions would be welcome because we are probably not yet all the way back to full employment. Although the unemployment rate may now be close to its longer-run normal level--which most FOMC participants now estimate is around 4.9 percent--this traditional metric of resource utilization almost certainly understates the actual amount of slack that currently exists: On a cyclically adjusted basis, the labor force participation rate remains low relative to its underlying trend, and an unusually large number of people are working part time but would prefer full-time employment.32 Consistent with this assessment is the slow pace at which hourly wages and compensation have been rising, which suggests that most firms still find it relatively easy to hire and retain employees.
Reducing slack along these other dimensions may involve a temporary decline in the unemployment rate somewhat below the level that is estimated to be consistent, in the longer run, with inflation stabilizing at 2 percent. For example, attracting discouraged workers back into the labor force may require a period of especially plentiful employment opportunities and strong hiring. Similarly, firms may be unwilling to restructure their operations to use more full-time workers until they encounter greater difficulty filling part-time positions. Beyond these considerations, a modest decline in the unemployment rate below its long-run level for a time would, by increasing resource utilization, also have the benefit of speeding the return to 2 percent inflation. Finally, albeit more speculatively, such an environment might help reverse some of the significant supply-side damage that appears to have occurred in recent years, thereby improving Americans' standard of living. 33
Consistent with the inflation framework I have outlined, the medians of the projections provided by FOMC participants at our recent meeting show inflation gradually moving back to 2 percent, accompanied by a temporary decline in unemployment slightly below the median estimate of the rate expected to prevail in the longer run. These projections embody two key judgments regarding the projected relationship between real activity and interest rates. First, the real federal funds rate is currently somewhat below the level that would be consistent with real GDP expanding in line with potential, which implies that the unemployment rate is likely to continue to fall in the absence of some tightening. Second, participants implicitly expect that the various headwinds to economic growth that I mentioned earlier will continue to fade, thereby boosting the economy's underlying strength. Combined, these two judgments imply that the real interest rate consistent with achieving and then maintaining full employment in the medium run should rise gradually over time. This expectation, coupled with inherent lags in the response of real activity and inflation to changes in monetary policy, are the key reasons that most of my colleagues and I anticipate that it will likely be appropriate to raise the target range for the federal funds rate sometime later this year and to continue boosting short-term rates at a gradual pace thereafter as the labor market improves further and inflation moves back to our 2 percent objective.
By itself, the precise timing of the first increase in our target for the federal funds rate should have only minor implications for financial conditions and the general economy. What matters for overall financial conditions is the entire trajectory of short-term interest rates that is anticipated by markets and the public. As I noted, most of my colleagues and I anticipate that economic conditions are likely to warrant raising short-term interest rates at a quite gradual pace over the next few years. It's important to emphasize, however, that both the timing of the first rate increase and any subsequent adjustments to our federal funds rate target will depend on how developments in the economy influence the Committee's outlook for progress toward maximum employment and 2 percent inflation.
The economic outlook, of course, is highly uncertain and it is conceivable, for example, that inflation could remain appreciably below our 2 percent target despite the apparent anchoring of inflation expectations. Here, Japan's recent history may be instructive: As shown in figure 9, survey measures of longer-term expected inflation in that country remained positive and stable even as that country experienced many years of persistent, mild deflation.34 The explanation for the persistent divergence between actual and expected inflation in Japan is not clear, but I believe that it illustrates a problem faced by all central banks: Economists' understanding of the dynamics of inflation is far from perfect. Reflecting that limited understanding, the predictions of our models often err, sometimes significantly so. Accordingly, inflation may rise more slowly or rapidly than the Committee currently anticipates; should such a development occur, we would need to adjust the stance of policy in response.
Considerable uncertainties also surround the outlook for economic activity. For example, we cannot be certain about the pace at which the headwinds still restraining the domestic economy will continue to fade. Moreover, net exports have served as a significant drag on growth over the past year and recent global economic and financial developments highlight the risk that a slowdown in foreign growth might restrain U.S. economic activity somewhat further. The Committee is monitoring developments abroad, but we do not currently anticipate that the effects of these recent developments on the U.S. economy will prove to be large enough to have a significant effect on the path for policy. That said, in response to surprises affecting the outlook for economic activity, as with those affecting inflation, the FOMC would need to adjust the stance of policy so that our actions remain consistent with inflation returning to our 2 percent objective over the medium term in the context of maximum employment.
Given the highly uncertain nature of the outlook, one might ask: Why not hold off raising the federal funds rate until the economy has reached full employment and inflation is actually back at 2 percent? The difficulty with this strategy is that monetary policy affects real activity and inflation with a substantial lag. If the FOMC were to delay the start of the policy normalization process for too long, we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals. Such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession. In addition, continuing to hold short-term interest rates near zero well after real activity has returned to normal and headwinds have faded could encourage excessive leverage and other forms of inappropriate risk-taking that might undermine financial stability. For these reasons, the more prudent strategy is to begin tightening in a timely fashion and at a gradual pace, adjusting policy as needed in light of incoming data.
Conclusion
To conclude, let me emphasize that, following the dual mandate established by the Congress, the Federal Reserve is committed to the achievement of maximum employment and price stability. To this end, we have maintained a highly accommodative monetary policy since the financial crisis; that policy has fostered a marked improvement in labor market conditions and helped check undesirable disinflationary pressures. However, we have not yet fully attained our objectives under the dual mandate: Some slack remains in labor markets, and the effects of this slack and the influence of lower energy prices and past dollar appreciation have been significant factors keeping inflation below our goal. But I expect that inflation will return to 2 percent over the next few years as the temporary factors that are currently weighing on inflation wane, provided that economic growth continues to be strong enough to complete the return to maximum employment and long-run inflation expectations remain well anchored. Most FOMC participants, including myself, currently anticipate that achieving these conditions will likely entail an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter. But if the economy surprises us, our judgments about appropriate monetary policy will change.
Here’s some (possibly) helpful context from Bloomberg:
Janet Yellen has a chance this week to do one of two things: emphasize that the Federal Reserve remains on track to raise interest rates in 2015, or validate the view of many investors that liftoff will be delayed until next year.
“The market is really second-guessing them,” said Michael Hanson, senior U.S. economist at Bank of America Corp. in New York. “There doesn’t seem to be an easy way to get from where we are today to a rate hike in 2015 without some additional volatility. The market just isn’t there.”
The communications challenge for Yellen and her colleagues is how to describe two competing forces as they weigh liftoff: downward pressure on inflation coming from slumping prices of imported goods and commodities due to a stronger dollar and slowing growth in China, versus steady U.S. consumer demand that they believe should push domestic prices higher as unemployment falls and the labor market tightens further.
The jobless rate is already low at 5.1 percent and the median forecast of Fed officials last week showed it averaging 5 percent for the final quarter of the year. On the other hand, inflation as measured by their preferred gauge has been under their 2 percent target since April 2012 and was just 0.3 percent in the 12 months through July.
The picture is further clouded by the ongoing instability in financial markets that could serve as a warning that U.S. growth prospects may not be as insulated from a global slowdown as the Fed’s forecasters expect.
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Pass...I just ate.
what fucking planet does she inhabit????? Not far away from full employment???? I got a full frontal for you, bitch.
I've seen longer speeches given by engineers about things that actually improve people's lives. This is just pages and pages of nonsense and it supposedly passes as the godlike words of an expert.
The mere fact that she needs to give a second speech shows that the Fed is Flailing.
They know they lost credibility, and are desperately trying to regain it...
Agree, and with remarks like this:
Experience suggests that it takes many years of carefully conducted monetary policy to alter what households and firms perceive to be inflation's "normal" behavior
It shows how desperate they are making new terms up.
WTF is "inflation's normal behavior"?
Painful to listen to this horseshit. Just lie after lie, piled on top of "highly accommodative policy" lies. Ya, the fckin banks got my back Yeller.
I guess I should say thanks?
.
BS - not happening. Fed just needs to STFU.
It could backfire and should. But we all know the dow will have a 200+ day tomorrow. Gotta make the headlines look good.
IF SHE ACTUALLY BELIEVES HER OWN BULLSHIT then Yellen is so far detached from reality that she can be cnsidered clinically insane...absolutely psychotic.
The data whe she is using is absolute garbage. It has no basis in reality. It is garbage in and garbage out.
If she does not believe the data then she is a CLINICAL PSYCHOPATH.
Either way she has demonstrated that she is dangerous to herself and/or others thus she needs to be placed under Court Supervision in a Lockdown Facility for the Mentally Ill.
EDIT: Seriously she is NOT HEALTHY. Did you watch the meltdown at the end?
Federal Reserve Chair Janet Yellen is receiving medical attention after she struggled to finish a speech at the University of Massachusetts on Thursday, Reuters reported, citing a university official.
Good. They were on it.
While I may not like what she does, seriously, I wish her no harm.
(Damn it. I am exposing my human side again. Ignore. I am mean and lean, Fight Club and all o' that.)
I think Yellen needs a new battery
She is not giving a concrete timeline for hiking, but maintaining flexibility of response to each and every new piece of data that comes up. She is downplaying the impact of a China slowdown, but also admitting to not understanding the reasons for the longterm Japanese deflation.
Come on dude. That's pure fuckan horseshit. She knows exactly what's going on.
There can't be more than 1 in 20 of these college kids in the audience that has a clue what the fuck she is mumbling about.
She said "TIPS"....I got a tip for ya......I am listening to this....what a bunch of slow mumbling horse shit. This speech has been made this long as to distract away from the truth that says....WE ARE FUCKED.
I enjoy listening to the gnome with the mute button on.
Hopefully it's the radio. Watching those lips move is not a pretty sight.
Such a crime that such ignorant arrogant piles of shit hold power.
Old Yeller, what will the her/his puppeteers have it to say or not to say; should NOT be interesting. Just watch the S&P minis overnight to know. Either way, the S&P ends around 1940 at tomorrows close come hell or high water as this has been the target for end of the week for the last several weeks. If the market was not intervened; the S&P would be around 900 right now.
These people are fatuous and well fatuous . All headed for HELL, just like most people on earth.
How are there "highlights" already, did Hilsenrat get an advance copy again?
.25 % is holding a gun to the head of the American economy
+1
Doesn't pass the smell test. Any debtor who becomes distressed due to a 25 basis point increase in their overall borrowing costs was already insolvent.
The use of the term "Insolvent" in relation to the fed is a severe insult to the term "Insolvent".
We must speak in terms of a financial singularity.
Doesn't anyone get it. I'ts not 0.25% -- it's 200%.
What would happen to you if your mortgage payment doubled? And you'd been paying it off with credit card cash advances for the past 7 years?
Well, what did you expect her to say? The truth?
I'd short those rate hike odds if not for counterparty risk.
Who really believes her? Can I get a showing of hands?
Enough said.
when is the last time this old cunt went food shopping?
Yellen including herself in those ready to raise this year is the turd in the punchbowl from this speech. With 2/20 payday coming up they may jam the market higher through 9/30, but we are headed back into the 1800s on that comment soon
yellenochio's nose keeps growing
Fucked up. Sorreeee.
This makes it more fun, why so sad?
This is a double dog dare
Stated as only a pure academic could. Over reliance on complex econometric models and not enough behavioral economics and real world understanding of the limitations of models. failure to acknowledge that their models have overestimated GDP for seven years running. Failure to take into account, other than in a passing way, the incredible failure of monetary policy that is Japan.
I feel like I'm listening to a bad college econ lecture as she drones on. Can sense the students in the back falling asleep.
deliberately sensible, who could possibly disagree with her lol
oh just fuck off
Paging Larry Summers, Larry Summers, please pick up on the white courtesy phone...you're needed in the emergency room...
More regular Americans need to be exposed to the Fed's idea that massive inflation is good for them.
So let's see if I understand this situation...
1. The fed kept rates far too low for far too long, forcing everyone into risky assets. This along with QE effectively meant that everyone could fund their gambling interest-free. So, no limits to borrowing right?
2. This creates an investment bubble, where production is WAY overfunded, creating numerous factories, mines, oil rigs, etc that simply aren't needed.
3. This obviously results in significant deflation where the overproduction of EVERYTHING starts to kill prices.
4. Which means... we are at a period in history where everything is levered up by debt because of (1) above, and we're facing deflation.
I am staggered -- completely and utterly staggered that this market isn't 30% lower. And now Yellen wants to raise rates? And talking wall street heads want her to? Are they insane? Do you have any idea what happens if you raise rates into deflation?
This is WORSE than 1929 because the entire economy (and not only equities) are levered up on debt.
I'm more and more amazed with every passing day...
The FED controls and IS the market. That is why its not down 30%. I am with you on your comment.
Truth right here, I feel this way too about the whole sorry affair, but how else do they get global totalitarianism in unless they create a huge catastrophe?
"blah blah blah...persistent headwinds.", added the windbag.
SHUT THE FUCK UP YOU DUMB BITCH!!!!! AND GO DIE WHILE YOU AT IT!!!
poop
Good thing I went with the "smart money" and bought a few in the money weekly calls. WEEEEEE!!! Money is awesome!
Listening to her, I'm suddeny hungry for a hotdish, and some cookies.
And a little sleepy.
"... and after several minutes of indecipherable newspeak, everyone's parietal lobes had begun to liquidate and slowly ooze out their ears, just as media questions were invited from the audience. No one moved much, just the odd flinching spasm, and occasional leg shimmy, while someone slid quietly then heavily to the floor, and a mineral water bottle tipped-up and emptied itself with gentle glugging sounds. ..."
I'd still bang her. She has the GILF thing going on for sure.
"Persistenly high inflation,if unanticipated, can be especially costly for households that rely on pensions, annuities, and long-term bonds to provide a significant portion of their retirement income. Because the income provided by these assets is typically fixed in nominal terms, its real purchasing power may decline surprisingly quickly if inflation turns out to be consistently higher than originally anticipated, with potentially serious consequences for retirees' standard of living as they age.7"
I get it we should worry about inflation because savers, retireers, pensioners will not be able to keep up their standard of living. I guess the fact that they are currently earning no interest on their savings slipped past her. So we have inflation across food and rent, bonds at 2% but Yellin is worried about how inflation will hurt the pensioners.
Fuck me you cannot make this shit up.
Does not matter how you feel about the Fed, the People, the Economy or Old Yellin.
The dog gets shot in the end.
Honestly, the Fed's private medical team needs to check all the FOMC for blood clots in the brain.
The moar these wonks talk the less credibility they have.
The average family in America is going down the tubes while these Yentas preen on.
Everyone at the Fed (from the gentile doormen, security humps or suffering secretaries to the real hate-filled marrow sucking zionists) is performing the largest act of financial elder abuse ever railed upon the Human Spirit.
If you, me or anyone we know ever level the kind of needless pain and suffering perfected by their virulent form of PhD they would try us like Nuremberg and lead us to the gallows.
These crooks are crooks.
Perhaps it's the Cleveland accent, but there are just too many similarities to ignore...
https://www.youtube.com/watch?v=uiHsWiJid8E
https://www.youtube.com/watch?v=7z9WzER-woc
Janet & Toby: secret siblings
Wall Street is freaking out in panic, and she has time to write this paper in all peace?
#sexiestfedchair #shoutoutyourgilf
One is an outlaw if one uses a marker pen to make comments on Federal Reserve Notes.
One may print, for example, ‘WHITE ROSE SOCIETY.’
This is highly, highly illegal.
The Secret Service will be all over the place.
(Edit: If one is pressed for time, one can redact IGWT.)
Well,if all the gangsters running Wall Street aren't prepared by now then they must be fast asleep.I think this anticipation of an interest rate increase has been dummed down pretty well now.Isn't this her strategy to drag this out,dumb it down, so that all the crooks that believe in usary can plan for the future?
FUCKING PERFECT!!!!
Janet Yellen Delivers Gamble LectureThe UMass Amherst Department of Economics presents the nineteenth annual Philip Gamble Memorial Lecture on Thursday, September 24, 2015 at the Fine Arts Center at the University of Massachusetts Amherst.
I find it bizzare that a crony capitalist central banker would give a lecture at a Marxist economics school.
Blah blah just get on with it, you're setting the world up for totalitarianism. Stop insulting our intelligence and just crash the markets already.
LOL, that's the point. The common folks, from their perspective, have no intelligence..
I can't listen to this biatch for than 30 seconds or so. Too painful.
*YELLEN: "I SEE AN INITIAL INCREASE IN FED FUNDS RATE LATER THIS YEAR"
Translation... Yellen: "You see that slavering T-Rex booking it toward you faster than you can run? Now close your eyes and pretend it isn't there."
Yellen exits stage left
If you cannot explain something in a simple way, you do not understand it yourself.
How many more go-arounds before lack-of-credibility meets no-confidence? Something outside the 'sphere' is gonna crack I reckon.
YEAH YELLEN...
LETS RAISE RATES INTO A DEFLATIONARY ENVIRONMENT!
THAT SOUNDS LIKE A REALLY, REALLY, REALLY SMART IDEA.
Lift -Off .......honey where's the Viagra ?
Sooooo...it is the inflationary 'mood' that causes the problem?....seriously...nothing to do with the overprinting of a purely symbolic fiat currency by a single entity?
....soooo. it is kind of like the weather?...hard to predict ...and mostly in god's hands?...seriously?
It has little to do with trading partners who are asked to hold paper instead of getting real things?
WOW!!...I had it all wrong...it really is mysterious isn't it.
Wasn't she the one I saw across the counter at the DMV last time I got my slave-card plates renewed?
What a joke!
It's fun to watch them tapdance around their own bullshit, isn't it?
If Yellen aka Ruth Buzzy, utters "tansitory", "well anchored", "full employment" and etc one more time I'll puke. CNBC is doing us a favor by pulling the plug.
She's totally lost it.
Did she just have a stroke?
It looked like it to me. How weird...
That is probably the newsworthy event.
I think that something went wrong.
She melted down at the end.
Who is next in line for FED Chief?
Wishful thinking..... one could hope.
I thought the same thing. The guy at the end asked if she was ok before she left the podium.
Is she sick or what ? She cannot read anymore ?
This is so pathetic
I think that the stress is taking its toll.
She might have had a stroke, or minor heart attack. She seemed pale, out of breath, and incoherent at the end.
LACK OF OXYGEN TO THE BRAIN DOES THAT.
She became ill...fast.
Who in the hell is next in line for FED Chief?
If there's a Q and A, I;d like to hear this--Maam, are you aware that the economy is collapsing as you speak? Not a chance.
Did the speech end or did she just choke to death?
what happened to this cunt?
Dropped dead live?
wtf!
She said NOTHING absolutely NOTHING. Basically everything can change depending on the economic environment.
Sell Sell Sell
Host: "There's no time for questions".
Of course. Exit, stage left.....
Theater of the absurd...
Was my internet feed stuttering or did she black-out a few times?
I have never seen a close up of Janet. OMG she's gorgeous. I can't believe youz guys have been Debby Downing on her for so long.
Who's gonna' be the next chair?
Helluva finish
Weirdest damn speech I've seen in a while.
Markets going down to 14,000, how long it will take us to get there is anyones guess... it matters how much the HFTS Member Banks and The Fed interfere.
one) energy has skewed inflation negatively two) crude oil prices fell in july 2015 to half their price by january 2016. three) in y-o-y comparisons the highest numbers are in that part of the data which will shortly no longer figure in y-o-y comparisons. by january of next year the price of crude should be nearly flat for the year. with energy at ZERO inflation change the rest of the inflation figures come into play, most of them are in positive territory four) should crude oil rise even a little those inflation numbers will explode five) crude oil lost half its value, a return to $100 is a 100% increase. six) gasoline prices have not deflated as quickly as crude and should crude go back to $100 they would probably go above $4 at the pump. in other words the fall in energy prices is never as impactful as the rise. consumers get screwed both ways. seven) the fed knows how movign averages work, and they know exactly when the inflation will show up, so they can sit on this rate hike and wait. the plan is to let inflation run ahead of rates, that is your NIRP, negative interest rate policy... rates will lag inflation, any school kid with a pencil can see what they are doing. eight) inflation might start up sooner, but they have the policy tools quote. nine) the obfuscation centers around the timing, when the real criminal activity is in the policy of runnin inflation a few points higher to keep the muppets in stocks. 10) end the fed
I was hoping she'd fart loudly. I'll take it close enough.
Enough of this "lose" credibility shit. It happened a long long time ago. Glass-Steagall, M3, Mark to Market. Like raising rates .25-1% is going to bring back credibility to the FED. Bring back all of the 3 things I just mentioned and then we can talk about credibility. Until then its all bullshit. While there at it they can bring back the lesser of two frauds GAAP and any company that reports in Non GAAP gets delisted.
Petreus should be the next chairman of the Fed.
Yellen either had a stroke on stage or heart attack or some other health issue. Seems like a stroke.
Probably just has a lie stuck in her throat.
have a suckle off yellen's hairy purple nirple
Arrest that circus freak for treason.
I guess that the theoretical inflation models might not be completely useless when used in a closed economy. Unfortunately we live in global economy with any number of financial, business and economic interconnections in every country. No one can guess how long the deflationary affects of cheap imports and energy will last, and I suspect these will persist for longer than she imagines. And, she doesnt include the corrupt banksters and politicians in her model.
It's all gonna go tits up at some point!
I liked the audible gulp before the forecasting B.S. And was that a stroke at the end?
Posted:
Old Yeller has a stroke!
https://atokenmanblog.wordpress.com/2015/09/24/old-yeller/
Dang, I missed it too.
(what is wrong with people in this day and age wanting to see people having strokes?).
That's cute. You think ol' Yellen is people.
is there a link to the entire speech or at least to the end of the speech?
Theres a link to the pdf showing the slides she used here:
http://www.federalreserve.gov/newsevents/speech/yellen20150924a.htm
W was right...Won't be fooled again!...sort of...
I want to Johnny Mneumonic the witch and have her start blurting out, "It's just a khazar ponzi...Ha Ha Ha!
Pretty fucking sad state of affairs when this little shit has so much influence on the world and she doesn't know fuck all.
What a load of manure.