Earlier we noted [11]what we think was the most important thing Yellen discussed today, namely the potential for the Fed to usher in negative rates and as much as she Yellen felt clearly uncomfortable discussing NIRP at a time when the Fed was supposed to take a victory lap with its first rate hike in 9 years, she admitted that the Fed "would look at all of our available tools. And that would be something that we would evaluate in that kind of context."
What else did she say? Below are the key comments on various economic issues as summarized courtesy of Bloomberg.
On the Rate Outlook
"The recovery from the Great Recession has advanced sufficiently far and domestic spending appears sufficiently robust that an argument can be made for a rise in interest rates at this time. We discussed this possibility at our meeting. However, in light of the heightened uncertainties abroad and the slightly softer expected path for inflation, the committee judged it appropriate to wait for more evidence, including some further improvement in the labor market, to bolster its confidence that inflation will rise to 2% in the medium term"
"Every meeting is a live meeting where the committee can make a decision to move to change our target for the Federal funds rate. That certainly includes October”
On Unemployment
"Although we are close to many participants’ and the median estimate of the longer-run normal rate of unemployment, at least my own judgement, and this has been true for a long time, is that there are additional margins of slack, particularly relating to very high levels of part-time, involuntary employment. And labor force participation that suggests that at least to some extent the standard on employment rate understates the degree of slack in the labor market. But we are getting closer. The labor market has improved. And as I’ve said in the past we don’t want to wait until we have fully met both of our objectives to begin the process of tightening policy given the lags in the operation of monetary policy”
On Below Target Inflation
“An important reason for that is that declines in import prices, reflecting the appreciation of the dollar and declines in energy prices, are holding down inflation well below our target and well below core inflation. We expect those effects to be transitory and with well-anchored inflation expectations we expect inflation to move back to 2%”
On International Developments
“We reviewed developments in all important areas of the world but we have focused particularly on China and emerge markets. Now we have long expected and most analysts have to see some slowing in Chinese growth over time as they rebalance their economy. And they have planned that. And I think there are no surprises there, The question is whether or not there might be a risk of a more abrupt slowdown than most analysts expect. And I think developments that we saw in financial markets in August in part reflected concerns that there was downside risk to Chinese economic performance and perhaps concerns about the gaps where policymakers were addressing those concerns; in addition we saw a very substantial downward pressure on oil prices in commodity markets”
On Fed-Induced Uncertainty
“I know that of course there is uncertainty about Fed policy. As I mentioned, we’re well aware that there’s been a huge focus on the decision today. And you know, I would ask you to appreciate that there are a lot of cross currents in economic and financial developments that we need to take into account in deciding on what the appropriate course of policy is. And we don’t make continuous decisions every single day about our policy. We meet periodically. We do our darnedest to pull together the best analysis we can”
On Housing
“we are envisioning further improvements in the housing market. It remains very depressed. Housing starts below levels that seem consistent with underlying demographics especially in an economy that’s creating jobs and we have lots of people who are still doubled up and demand for housing should be there and should materialize as the job market improves and income growth improves. So are we counting on it? Housing is now a very small sector of the economy it’s not the driver of -- it is not the key driver in my own forecast of ongoing improvements in the U.S. economy”
On Budget Standoff
“It played absolutely not at all in our decision I believe it’s the responsibility of Congress to pass a budget to fund the Government to deal with the debt ceiling so that America pays its bills. We have a good recovery in place that’s really making progress and to see Congress take actions that would endanger that progress, I think that would be more than unfortunate”
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Last but not least, here is here response to allegations the Fed creating the biggest wealth divide in US history: "Do you think the Fed has widened the wealth gap with its low interest rate policy? These people say low interest rates mainly benefit the wealthy.
"Well, I guess I really don't see it that way. It is true that interest rates affect asset prices, but they have complex effect through balance sheets, through liabilities and assets. To me, the main thing that an accommodative monetary policy does is put people back to work. To me, putting people back to work and seeing a strengthening of the labor market that has a disproportionately favorable effect on vulnerable portions of our population, that's not something that increases income inequality. There have been a number of studies that have been done recently that have tried to take account of many different ways in which monetary policy acting through different parts of the transmission mechanism affect inequality, and there's a lot of guesswork involved, and different analyses can come up with different things. But a pretty recent paper that's quite comprehensive concludes that the -- that Fed policy has not exacerbated income inequality.
Well, if a paper written by an economist said so, then it must be true.
Source: Bloomberg
