Skip to main content

tv   Federal Reserve Chair Makes Statement on the Economy  CSPAN  September 24, 2017 9:53pm-11:01pm EDT

9:53 pm
>> federal reserve chair janet there will d that be no change to the policy. this is just over an hour. >> good afternoon. at our meeting that concluded earlier today, my colleagues and i on the federal open market committee decided to maintain
9:54 pm
the target range for the federal funds rate at one to one and a quarter percent. this accommodative policy should support some further strengthening in the job market and return to 2% inflation consistent with our statutory objectives. we decided that in october we will begin the balance sheet normization program that we outlined in june this program will reduce our securities holdings in a gradual and predictable manner. i'll have more to say about these decisions shortly. but first i'll review recent economic developments and the outlook. as we expected and smoothing through some variation from quarter to quarter, economic activity has been rising moderately so far this year. household spending has been supported by ongoing strength in the job market. business investment has picked up and exports are showing
9:55 pm
greater strength this year in part reflecting improved economic conditions abroad. overall, we expect that the economy will continue to expand at a moderate pace over the next few years in. the third quarter, however, economic growth will be held down by the severe disruptions used by hurricanes harvey, irma and maria. growth likely will bounce back. past on past experience these effects are unlikely materially affect the course of the economy beyond the next cup o quarters. of course, for the families and communities that have been devastated by the storms, recovery will take time and on behalf of the federal reserve, let me express our sympathy for all those who have suffered losses. in the labor market gains
9:56 pm
averaged $185,000 per month over the three months ending in august. a solid rate of growth that remained well above estimates of the pace necessary to absorb new entrance to the labor force. we know from some timely indicators such as initial claims for unemployment insurance that the hurricanes severely disrupted the labor market in the affected areas and payroll employment may be substantially affected in september. however, such effect should unwind relatively quickly. meanwhile, the unemployment rate has stayed low in recent months and at 4.4% in august was destly below the median of fomc participants of its normal run level. participation in the labor force has changed little.
9:57 pm
given the downward trend in participation stemming largely from the aging of the u.s. population, a relatively steady participation rate is a further sign of improving demns the abor market. turning to inflation the 12-month change for personal consumption, expenditures was 1.4% in july down noticeably from earlier in the year. core inflation which excludes the volatile food and energy categories has moved lower. for quite some time inflation has been running below the committee's 2% longer run objective. however, we fleeve this year's short fall in inflation primarily reflects developments that are largely unrelated to broader economic conditions. for example, one off reductions
9:58 pm
earlier this year, certain categories of prices such as wireless telephone services are currently holding down inflation. but these effects should be transitory. such developments are not uncommon. and as long as inflation expectations remain reasonably well anchored are not of great concern from a policy perspective because the effects stayed away. similarly the recent hurricane related increases in gasoline prices will likely boost inflation but only temporarily. more broadly, with employment near assessments of its maximum sustainable level and the labor market continuing to strengthen, the committee continues to expect inflation to move up and stabilize around 2% over the next couple of years in line with our longer run objective. nonetheless, our understanding of the forces driving inflation
9:59 pm
isn't perfect. and in light of the unexpected lower inflation readings this year, the committee is monitoring inflation developments closely. as always, the committee is prepared to adjust monetarily policy as needed to achieve its inflation and employment objectives over the median term. let me turn to the economic ions that committee participants submitted to this meeting which extend to 2020. as always, participants conditions their pro-jebses on their own individual views of property -- pro-jecks on their own individual views of which in turn depends on the assessments of the many factors that shape the outlook. the meeting projection for owth of inflation adjusted growth american product or real g.d.p. is 2% this year and about
10:00 pm
2% in 2018 and 2019. y 2020 the median growth pro-jects 1.8% -- projects. the median projection for the media production for the unemployment rate stands at 4.3% in the fourth quarter of this , modestly below the median estimate of its longer run normal rate. finally, the median inflation projection is 1.6% this year, 1.9% next year, and 2% in 2019 and 2020. compared with the projections made in june, real gdp growth is stronger this year, and particularly core inflation, is slightly softer this year. otherwise, the projections are
10:01 pm
little changed from june. returning to monetary policy, although the committee decided at this meeting to maintain its target at the federal funds rate, we continue to expect that the ongoing strength of the economy will warrant gradual increases in that rate to sustain a healthy labor market aroundbilize inflation our to present objective. that expectation -- our to 2%sent objective -- our objective. 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 derived much further to get to a neutral policy stance.
10:02 pm
but because we also expect a neutral level of federal funds rate to rise somewhat, additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion. even so, the committee continues to anticipate that the longer run neutral level of the federal 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 1.4% at the end of this year, 2.1% at the end of next year, 2.7% at the end of 2019, and 2.9% in 2020. compared with the projections made in june, the median federal funds rate is essentially
10:03 pm
unchanged, although the longer role in best longer run normal value inched down. economic outlook is highly uncertain and participants will adjust their assessments of the appropriate path to the federal funds rate in response to changes to their economic outlooks and views of the risks. policy is not on the preset course. as i noted, the committee announced today it will begin its balance sheet normalization program and october -- in october. described inwas the june i did them to our policy normalization principles and plans. it will gradually decrease our reinvestment of proceeds from maturing treasury securities and principal payments from agency securities. as a result, our balance sheet will decline gradually and
10:04 pm
predictably. for october through december, the decline in our securities holdings will be capped at six billion dollars per month -- $6 billion per month for treasuries and $4 billion per month for agencies. this will increase to maximums of $30 billion per month for treasuries and $20 billion per month for agency securities, and will remain in place through the process of normalizing the size of our balance sheet by limiting the volume of securities that private investors will have to absorb as we reduce our holdings. againstshould guard outside moves in interest rates and other potential market strains. finally, as we have noted previously, changing the target range for the federal funds rate is our primary means of projecting the stance of monetary policy.
10:05 pm
our balance sheet is not intended to be an active tool for monitoring -- for monetary policy in normal times. we therefore do not plan on making adjustments to our balance sheet normalization as wem, but of course stated in june, the committee would be prepared to resume reinvestment's is a material deterioration in the economic outlook would warrant a sizable reduction in the federal funds rate. thank you. i would be happy to take your questions. >> bloomberg news. has beenlen, there extremely progress during your term as chair in the lowering several measures of unemployment and underemployment, and all while inflation has remained subdued. some people are asking, why stop
10:06 pm
there? the chief economist at the afl-cio criticized the fed last to maintainking unemployment above 4%, which he notes necessarily means keeping the unemployment rate among black americans above 8%. he described this as "a deliberate policy to sacrifice many hundreds of thousands of potential workers and their families out of fear of future inflation, when in fact the fed's preferred measure of inflation has not exceeded 3% in more than 25 years." i am wondering how you would respond to his frustration over the fed's desire to continue raising rates when core inflation shows no sign of heading above the fed's symmetric goals for inflation? thank you. chair yellen: let me first say that employment is a very important part of our mandate.
10:07 pm
we are charged by congress with trying to pursue maximum employment, and we have taken that very seriously. heartenedpleased and by the improvement we have seen in the labor market and at 4.4% unemployment rate that has really fallen to quite a low level. as that has happened, the unemployment rates for less advantaged groups in the labor market, particularly african-americans and hispanics, has fallen more dramatically as athat for the nation whole, reversing the outsized increases that those groups experienced when the financial crisis and great recession hit. these are really very positive developments. we certainly seek a strong labor market, but we have a dual mandate, which is inflation and
10:08 pm
unemployment. ofalso have to be mindful our obligation to achieve 2% inflation objective over the median term. is i recognize that it important that inflation has been running under our 2% objective for a number of years, and that is a concern particularly if it would you translate into -- if it were to translate into lower expectations. for a number of years they were very understandable reasons for that shortfall, and they included quite a lot of slack in the labor market, which my judgment would be it has largely disappeared. very large reductions in energy prices and a large appreciation of the dollar that lowered import prices starting in
10:09 pm
mid-2014. this year the shortfall of inflation from 2% when none of those factors is operative is more of a mystery. i will not say that the understandsearly what the causes are of that. we do in our regular projection show charts indicating the typical size of forecast areas, all of the variables, gdp, unemployment rate, and inflation forecast by ourselves and private forecasters with errors. there is variation in these economic variables from year-to-year. i would say our judgment, as i said in the statement, is that this shortfall is not largely related to cyclical considerations. you can see from the projections that the committee participants
10:10 pm
submitted that we anticipate that core and headline inflation will move close up towards our 2% objective next year. mainly that the shortfall this year is due to transitory factors that are likely to disappear over the course of the coming year. but i want to emphasize that we do have a commitment to raising inflation to 2%. as we watch incoming data, the thatsments you see participants write down about the path of the federal funds rate, they are not set in stone. they are not definite plans. we will look at incoming data on inflation and other economic variables, including the labor market, in deciding what we should actually do going forward. is it proves contrary to our
10:11 pm
expectations that this shortfall is persistent, it will be necessary to adjust monetary policy to address that. but i want to point out that while there are risks that inflation could continue below 2%, which we need to take account of in monetary policy, monetary policy also operates with a lag. experience suggests that tightness in the labor market gradually and with a lag can push inflation, and that is also a risk we want to be careful not to allow the economy to overheat in a way that would force us later on somewhere down the road to have to tighten monetary policy rapidly, which could cause a recession and threaten the very desirable labor market conditions that we have now. >> thanks for your much.
10:12 pm
-- thanks very much. said staff spoke recently about elevated prices in the markets. how are buoyant market conditions affecting the debate at the moment about how quickly to rein in stimulus, and have they in your mind helped to cap some of the concerns you had about the inflation shortfalls we have been seeing? chair yellen: at every meeting we try to assess the economic outlook and take account of information that has been accumulated about the real economy and also developments in financial markets, and put all of that together in assessing the course of the economy. developments affecting asset prices and longer-term interest
10:13 pm
all ofthe exchange rate, those aspects of financial conditions factor into our thinking. easy to get a clear read on the implications of asset prices for the overall outlook. upward movement in asset prices can for example reflect a change in market participants, a reduction in market participants' estimates at the longer run levels of interest rates. there have been downward revisions both to the committees and to market participants' estimates on the longer run normal level of interest rates, suggests that
10:14 pm
aggregate demand globally is likely to be weekend by continuing low productivity growth and aging populations, and of course we don't know if that view is correct, but that is a factor that could be one reason why asset prices have moved as they had -- moved as they have. why are asset prices moving? that is important in determining the impact on the overall outlook, but certainly we are taking account of movements in asset prices in evaluating the appropriate stance of policy. >> madam chair, you just said in your opening remarks that reducing the balance sheet should not be a tool for monetary policy in normal times. i wonder if we could explore if there is any sensitivity to the
10:15 pm
plan you just announced. if there is a spike in interest rates, a plunge in the start market, weakness in growth, in june you indicated the only reason why you would change the balance sheet is if it required first a change in the funds rate. is that true, or is there some unexpected element in markets, or given that we don't know what the plans are on the fiscal side for the deficit in terms of tax cuts, there could be a sudden spike in the deficit? will the balance sheet be immune to all of that? given all of that and the idea that this has never been done before, why so much certainty about the plan you have just the apparent unwillingness to adjust it? chair yellen: we have two policy tools that are available for us to use, the balance sheet and adjustments in short-term
10:16 pm
interest rates, our federal fund rate target. committeeically, the has operated to adjust monetary conditions to meet our economic goals when there are shocks to the economy by adjusting the federal funds rate or short-term interest rate target. that is a technique of monetary control that we have used for a very long time, that we are familiar with. prettyeve we understand well what the effects are on the economy. market participants understand how that tool has been used and would likely be adjusted in response to shocks on the economy. our preference is when we have two different tools we could use to actively adjust the stance of policy to prefer and make a
10:17 pm
come to thehat maximum extent possible, the fund rate will be the active tool of policy. that is our go to tool. that is what we intend to use unless we think the threat to the economy is sufficiently to cuthat we might have the federal funds rate because we have moved it up to 1.25% and expected to go up further. a very significant negative shock to the economy could conceivably force us back. we have said if there were that type of material deterioration in the outlook where we could face a situation where the federal funds rate isn't a sufficient tool for us to adjust monetary policy, we might stop role lawson from our balance
10:18 pm
sheet and resume reinvestment -- stop rollofs from our balance sheet and resume reinvestment. if there are small changes in the outlook that require recalibration of monetary policy, we will change our anticipated path instead of the federal funds rate, but not change the cap's on reinvestment or stop continued reinvestment for a few months and then change it. we think that provides greater clarity to market participants about how policy will be conducted and will be less confusing and more effective in terms of conducting policy. "the new york times." you've now committed to a policy of reducing your balance sheet very gradually. you've described plans to raise
10:19 pm
interest rates even more gradually than previously. you are locked in for a long period of time to forecast of monetary policy will essentially keep interest rates at a low level and the balance sheet at a high level. if something goes wrong, does the fed have room to respond under these conditions in the next several years? can you tell us what plans are for a response if it should be warranted? chair yellen: the only thing i object to is that you say we are locked in. i would say we are not locked in. we believe that economic conditions will evolve in a way that will warrant gradual further increases in our federal funds rate target, but if conditions evolve differently than that, whichever direction that might be -- it might be that growth is more rapid, labor market tightens more quickly than we assume, inflation appears to be picking up more rapidly than we had expected --
10:20 pm
we have not promised, no matter what, that the path of interest rate increases will be gradual. we believe that that will be appropriate, but we are always watching the economy, and will adjust policy as appropriate. toi said, the hurdle changing our plans with respect to the balance sheet in some sense is high. , weonditions were to weaken would really only consider resuming reinvestment if it were what we referred to as a material deterioration. i tried to explain why that is. but we will adjust monetary policy, what you see in the. plot it -- monetary policy. plot is see in the dot the best information we have howy about expectations on
10:21 pm
the economy would evolve, and we think it is helpful to show the public some sense that it helps in understanding our it is valuation of the -- our evaluation of the economy. these plans are subject to change. what is not is our commitment to doing everything in our power to achieve the goals that congress 2% assigned to us, which are inflation and maximum employment. stronger if growth is or if inflation picks up more rapidly, we have room. we have a certain amount of room now, and we have raised the fund rate four times. we believe we are on the path
10:22 pm
where they were likely be further increases over the next couple of years, which will give us greater room. we think the recovery is on the strong track, so the reason for beginnings today in to run down the balance sheet is we think the economy is performing well, and we have confidence in the outlook for the real economy. but of course there are shocks, and if a negative shock to the economy were sufficient, we recognize that we might be unable to pursue objectives purely by cutting the federal funds rate, and that is why we be explicitly that we would prepared in that event to resume and other tools that we used in the financial crisis that would also be available to us. "the wall street journal."
10:23 pm
a speech recently said that trend inflation had moved to around .5%. do you agree? need to do iffed anything to boost trend inflation if it has fallen? you have said you expects the inflation softness this year to prove transitory. compared to three months ago, how firm is your current expectation of the slowdown will remain transitory, and what implications with that have for monetary policy is it does not cost mark -- does not? chair yellen: the term trend about severals different techniques on how to extract a trend. that is a statistical thing.
10:24 pm
there are methodologies that would show a modest decline in recent years in the trend. after all, we have had a number of years in which inflation has been low. as i said in an answer to an earlier question, i think if you 2013 and consider until this year, the reasons why inflation was low are not hard to understand. it is a combination of slack in the labor market, declines in energy prices, and a strong dollar that pulled down import price inflation. so what is important in determining inflation going is inflation expectations. professional forecasters have been rocksolid.
10:25 pm
we can also look at household expectations, which have come down some. market-based measures of inflation compensation, as we mentioned, have declined and have been stable in recent , but they have declined to levels that are low by historical standards, which might suggest that inflation has come down. but it is impossible to extract directly what inflation expectations are. there is a miss this year. i can't say i can easily point to a significant set of factors that explain this year why inflation. has been this low i have mentioned a few idiosyncratic things, -- inflation has been a slow.
10:26 pm
i have mentioned a few idiosyncratic things. the fact is inflation is unusually low this year does not mean that is going to continue. remember that in february and january, core inflation was at 4.9%, and we look to be very close to 2%. very meaningful data has pulled that down. what we need to do is figure out whether the factors that have lowered inflation are likely to prove persistent or transitory. that is what we are going to try to be determining on the basis of incoming data. me about the policy implications. if we determined our view thated instead of thinking
10:27 pm
we are holding inflation down, we came to the view that they would be persistent, it would require an alteration in monetary policy to move inflation back up to 2%, and we would be committed to making that adjustment. >> reuters. i wanted to ask you, markets seem to be pricing in a shallower path of rate hikes then the fed does. i wonder, what do you think that markets might be missing here, and what is your conviction view being the correct one on the gradual pace kumble which seems to be a little faster than what markets are pricing? chair yellen: i am not really going to try to explain what market participants are thinking. market all of us, both
10:28 pm
pathsmc participants' have come down over the last several years. there has been a growing so-calledn of the neutral interest rate consistent with the economy operating at maximum employment. that rate seems to have come down, and most of the economic papers and research bearing on this topic suggests that it is quite low. the fomc participants, you can see by their estimates of the longer run normal rate of downest, this time it came from 3% to 2.75%. shows that even in the long
10:29 pm
run, fomc participants in light of incoming data are adjusting their views. i would say they still believe that in real terms, that neutral rate will be rising somewhat over the next few years. rate, thatnflation long run estimate in real terms goes to 75 basis points, higher than the zero or slightly positive rates right now. that is one factor that explains the path in the sep. market participants may have lower estimates and believe that a low neutral rate may be more persistent. let me emphasize as i said before that there is nothing set in stone about the policy have -- policy paths that you see in the summary of projections.
10:30 pm
there is a great deal of uncertainty around meant. not only is their disagreement, there is also uncertainty. revisingnts have been their views over time, and they will continue to do so. i also want to point out a couple of technical reasons why it is difficult to compare what you see in the sep and market implied paths. fomc participants are writing down what you think is the most likely or modal outcome. there are downside risks. and that rate, you take account of waiting all possible outcomes. they are writing down what is the most likely or modal outcome for rates. there are downside risks, and the mean rate, if they are asked to write that down, would take account of weighing all possible outcomes and likely would be lower than what participants are
10:31 pm
writing down as their most likely outcome. in addition, in markets, many economists have suggested that there are term premia that can affect moving from the so-called market implied path to the overview for what the future federal funds rate path is, and if the term premia are negative, as many economists think they likely are, there is less of a difference between what you see in the fomc plot and the market implied plot. reporter: your term expires as chair in february. have you had a chance to meet with or discuss your situation with president trump yet? if so, what were your impressions of him and what he is looking for from the federal reserve? chair yellen: i have said that
10:32 pm
i intend to serve out my term as chair, and that i am really not going to comment on my intentions beyond that. i will say i have not had a further meeting with president trump. i met with him early in my term and i have not had a further meeting with him. reporter: a month ago, you
10:33 pm
delivered a speech in wyoming in which you said the balance of research suggests the reforms have boosted resilience without limiting credit availability or economic growth. first, what message do you want congress and president trump to hear from that statement? then, regarding economic growth, the accommodative process the fed has followed for the last 10 years has helped bring us to full employment. economists point out, there have been people who happened benefited. 52% of americans haven't participated in the gains in the stock market. the median house price is at a record high. 39 million americans, according to a harvard study, spend more than 30% for housing. what would you say to those people about fed policies and the impact they have had on their lives? chair yellen: you asked me what was the main, first, the main message of my speech. i would say that it is, we have put in place, since the financial crisis, a set of court reforms that have strengthened the financial system. in my personal view, it is important they remain in place. those court reforms are more capital, higher-quality capital, more liquidity, especially in systemically important banking institutions, stress testing and resolution plans. those four prongs of improvements in banking supervision have really strengthened the financial system and made it more resilient. i believe they should stay in place.
10:34 pm
but i also try to emphasize, and i believe they have contributed to growth and the availability of credit. i have also tried to emphasize that all regulators should be attentive to undo regulatory burden -- undue regulatory burden and look for ways to scale that back. this is especially true after years in which we have implemented a large number of complex regulations. we have been committed to doing that. i would point out, particularly community banks that are laboring under significant regulatory burden. we have been looking for ways to scale back burdens. we will listen to concerns among
10:35 pm
community banks, and we are looking for ways to simplify capital standards and reduce burdens. that is very important. more generally, we want to tailor, we would like to see congress, we can do things to appropriately taylor regulations to the risk posed by different kinds of banking organizations. there are some things congress could also do to help that process, and we have made some concrete suggestions. some of the regulations that we have put in place with other regulators since the crisis, like the volker rule, are quite complex. we are working, we believe we should and we are working with other regulators to try to find ways, while carrying out what
10:36 pm
dodd frank intended. that banking organizations not be involved in proprietary trading. the implementation can be less complex. that was my main message. your second question asked about what impact the fed has had on income distribution, because of the fact that stocks and homes tend to be disproportionately, i would say, look. we were faced with a huge recession that took in a norma's -- an enormous toll in terms of depriving disproportionately low income people who were less advantaged in the labor market. they found themselves without work. we had a 10% unemployment rate and our congressional mandate is maximum employment and price stability.
10:37 pm
we set monetary policy not with the view towards affecting the distribution of income, but towards pursuing those congressionally mandated goals, and i am pleased to see the unemployment rate and every other measure i know of pertaining to the labor market show dramatic improvement over these years, and that is hugely important to the economic well-being, not the top end of the wealth and income distribution, but to the bottom end of the distribution, but to the bottom end of the income distribution. we have seen gains throughout income distribution. reporter: the next month, with
10:38 pm
the departure of the vice chair, the fed will lose its quorum. is that going to present operational challenges for you? do you have contingency plans, and has the senate assured you that mr. quarles, his confirmation will be approved? in your discussions with the administration, have they given you any assurances that the pace of a nomination is going to pick up soon? chair yellen: first, let me say that i will greatly miss vice chair fisher. he has made in enormous contributions, and i have really enjoyed working with him and appreciated his wise counsel and friendship. it is conceivable that we will be down to three governors. i have full confidence that even if that happens, we will be able to carry out our complement of responsibilities.
10:39 pm
there is every action that we are allowed to take under the federal reserve can be taken, even if we are a board of three. although we will have to abide, as we always do, by the restrictions that are part of the government. i would welcome a full complement of colleagues. we have a lot of work to do, and it would be nice to distribute it over more people, but perhaps more important than that, i think it is very important to have a broad range of views around the table as we deliberate on policy actions. i have had very good interactions with randy quarrels i hope he will be confirmed. i look forward to working with him, and i hope the administration will make other nominations to fill our slots.
10:40 pm
reporter: as you know, congress is considering a major tax reform package. do you or any committee members have concerns, if the package doesn't end up being deficit neutral and adding to the debt, would that be problematic for the economy? chair yellen: that is something that is a matter for congress and the white house to decide. you know, i have put forward a few principles about fiscal policy that i would reiterate, that one of the problems the american economy suffers from, along with many other economies around the globe, is full -- is slow productivity growth. i think it would be very
10:41 pm
desirable if a fiscal package had the potential to create incentives that would raise productivity growth. we do face, in terms of longer-term deficits, as the population ages, and unsustainable debt path that will require, i believe, some adjustments to fiscal policy, and i hope congress will keep that in mind, but beyond a few core principles, it is really, i don't want to weigh in on details. reporter: when you testified before congress last july, you said you might be prepared to take enforcement actions against wells fargo. if it proved to be appropriate. do you think it is appropriate, and what actions could you take? chair yellen: let me say that i consider the behavior of wells fargo towards its customers to
10:42 pm
have been egregious and unacceptable. we take our supervision responsibility with the company very seriously, and we are attempting to understand what the root causes of those problems are and to address them. i am not able to discuss confidential information and not able to tell you what actions we may take, but i do want to say that we are committed to taking the actions we regard as necessary and appropriate to make sure that the right set of controls are in place in that organization. reporter: can you give me a timeline? chair yellen: we are working very hard on it. reporter: thank you.
10:43 pm
i would like to follow-up on the balance sheet question, if i may. what specifically would it take for you to reverse the decision to wind down the balance sheet, and under what conditions would you consider adding to the balance sheet? again, separately, a follow-up to that, looking more broadly, how do you think history will judge the effectiveness of your asset purchases and the conditions under which debt policy should be used? chair yellen: starting with the last part of the question, my own judgment, based on my experience and the economic research that has tried to estimate the effectiveness of our balance sheet actions starting in 2008, has also looked at the similar balance sheet actions in other parts of the world, including the euro area.
10:44 pm
these actions were successful in making financial conditions more accommodative, and i believe in stimulating a faster recovery than we otherwise would have had. a recent fed working paper estimated that the full set of balance sheet actions that we took during the crisis may have lowered long-term interest rates by about 100 basis points. there is obviously, there are different estimates around of what difference it made, but i would say that it is affected. is effective. it would be up to future policymakers to decide, in the event of a severe downturn, whether they think it is appropriate to again resort to balance sheet, to adding assets to a balance sheet.
10:45 pm
i would say that, if economists are correct, we are living in a world where neutral interest rates not only in the united states, but around the world, is likely to be low in the future due to slow productivity growth in demographics. we don't know that that will bear out to be correct, but it is a view that many people adhere to, and there is evidence of it. then, future policymakers will be faced with the question of, in the event of a severe downturn, where they are not able to provide as much stimulus as they would like by cutting overnight interest rates, what other actions are available to them?
10:46 pm
during the crisis, we bought longer-term assets and used forward guidance. for my own part, i would want to keep those things in the toolkit as being available. it will be up to future policymakers to decide how to rank those, whether or not there might be other options, other available to them. i don't think this issue will go away, although perhaps this could well be a decision that future policymakers will have to face in the event of a significant economic shock. you ask me what would it take for us to resume reinvestment and i can't really say much more than we said in the guidance we provided, which is that if there is a material
10:47 pm
deterioration in the economic outlook, and we thought we might be faced with a situation where we would need to substantially cut the federal funds rate and could be limited by the so-called zero lower band, it is that type of determination that our committee is saying would, might lead us to resume reinvestment. so that is, our committee has been unanimous in affirming this statement of intentions. so i think that is where our committee stands. that is a somewhat high bar to resume reinvestments, and that is why in answering previous questions, i would say if there is some small negative shock, our first tool, our most
10:48 pm
important and reliable tool would be the federal funds rate, but if there is a significant shock, if there is material deterioration in the outlook, we would consider resuming reinvestments. reporter: you have been on the financial stability oversight council for a few years now. i was wondering if you had any thoughts on whether the designation process for systemically important financial institutions should be changed or improved in any way. somewhat separate but related, the situation with equifax. i was wondering if there was anything related to that that might raise systemic issues that you would need to discuss. chair yellen: you asked first about the designation process.
10:49 pm
during the time that i have been on the f sock -- several firms were designated before i participated. metlife was designated during the time i was there, and i have seeing how the designation process works. i do think designation is important. we saw during the financial crisis that systemically important non-banking organizations, like aig, their distress produces broad systemic consequences that were adverse for the u.s. economy, and having the ability to designate firms, the determination that distress or failure would have systemic repercussions, i believe that is
10:50 pm
an important policy tool to have available. now, it is not meant to be a one-way street in the sense that a firm that is designated would be, procedures require annual reviews. firms may change their business models, or adjust how they conduct their business. we will welcome this if the business model is changed in a way that leads us to believe that their failure would no longer be systemically important and those are decisions we make every year. i am satisfied with the process so far. capital dramatically changed its business model. i believe it is a process that
10:51 pm
works. i know the treasury is looking at this and may make recommendations. i am glad to consider them as part of the process, but i think it has been important and basically working. you asked about equifax, that is a serious data breach. we would urge consumers now to be very careful in monitoring their credit reports and financial situation, and through our supervision, we are working with the banks that we supervise to make sure that they take appropriate actions with respect to their business processes in light of the fact that there could be breaches or fraudulent transactions where information that they received that they might use, for example, in credit determination could be contaminated by bad data.
10:52 pm
more generally, it points to the importance of strong cyber security controls and attention to cyber security risks, which we do see as one of the most significant risks to the financial sector, and we are very focused in our banking supervision in making sure that banks have appropriate controls in place. the equifax breach highlights the importance of that. reporter: we have talked today about what you are going to do and what you may do, but not necessarily about why. with four rate increases behind you, financial conditions are looser than before you began, and i am wondering if that bothers you, if you are concerned about overstimulating the economy or if you feel inflation could break out much more quickly than
10:53 pm
we have seen, or if you feel there is a financial stability question because stocks, bonds, and real estate are all so expensive now. how would you explain what the fed is doing, why the fed is doing it to the american people? chair yellen: first of all, let me say that the decisions we have made this year about rates, and today about our balance sheet, are ones we have taken because we feel the u.s. economy is performing well. we are working down the balance sheet because we feel that a stimulus in some sense is no longer needed. so the basic message here is, u.s. economic performance has been good. the labor market has strengthened substantially. every measure of the labor market, whether it is the narrow unemployment rate, the broader unemployment rate, the number of
10:54 pm
people working in part-time jobs who want full-time work, the level of job openings, the quit rate, the difficulty firms are facing in hiring workers, the level of confidence we see in surveys about the labor market, all of that is pointing to vast and continuing improvement in the labor market. we see sufficient strength in the economy in terms of spending that growth with its ups and , downs, is nevertheless strong enough in the medium-term to support ongoing improvement in the labor market, and all of that is good, and i think that the american people should feel the steps we are taking to
10:55 pm
normalize monetary policy are ones we feel are well justified given the very substantial progress we have seen in the economy. now, inflation is running below where we want it to be, and we have talked about that a lot during the last hour. this past year, it was not clear what the reasons are. it has not been mysterious in the past, but one way or another, we have had four or five years in which inflation is running below our 2% objective. we are committed to achieving that. the monetary policy path that we follow, and the paths that my colleagues are writing down and our projections, we think will be appropriate given economic conditions. they are ones that we think are necessary to move inflation back up to 2% and maintain a strong labor market on a sustainable basis.
10:56 pm
in making these judgments about the path of policy, we have to balance various risks. one risk is that if we tighten policy too quickly, we may find out that although we don't think this now, the inflation shortfall is something that will be persistent. if we tighten too quickly, we could undermine inflation performance, leave it at t0 o -- leave it at too low a level. inflation expectations could fall, and that could become dangerous. that is a reason to because this about -- to be cautious about raising interest rates when inflation is as low as it is. on the other hand, we have a strong labor market and a lowered unemployment rate, and also, it's not quite as strong
10:57 pm
this year as, for example, it was in 2016, we are still averaging 175,000 jobs per month this year, which is quite a bit off the pace of 120,000. it would be consistent with stable unemployment rate if labor force participation moves down in the manner we expect. if we don't do anything to remove policy accommodation, and the labor market tightens and continues to tighten, as you mentioned, arguably, financial conditions overall have been -- haven't heightened that much. the economy could overheat. inflation could rise more quickly. that is something that would occur with the lag, and that would force us later on to tighten policy more rapidly than would be ideal, and we could
10:58 pm
risk a recession if we did that. there are risks on both sides of our objectives, and most of my collins and i have concluded a gradual path of rate increases while constantly watching incoming data being open to revising our views on the outlook, and revising our expectations is the best way to manage that set of risks. reporter: thank you. [captions copyright national cable satellite corp. 2017] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit] ? >> c-span's washington journal, live every day with news and policy issues that impact you. coming up monday morning, we will look at the weekend had in washington with reporter chelsea schnell and andy kearny. funding the children's health insurance program with paul howard.
10:59 pm
watch washington journal live at 7:00 eastern thursday morning. join in the discussion. >> tomorrow, the senate finance committee holds a hearing on the latest republican health care plan to repeal be affordable care act. sponsors,lead senators lindsey graham and bill cassidy, are set to testify. coverage begins at 2:00 p.m. eastern on c-span two. with a political cartoonist. elections from cyber threats. after that, a discussion on the political ideology of president trump. >> during tuesday's washington journal, live in an analyst, maryland. will be buoyed
11:00 pm
rutherford at acorn 30 a.m. eastern. taunus tuesday for the entire washington journal program beginning at 7:00 a.m. eastern on c-span. ♪ announcer: this week on "q&a," washington post pulitzer prize-winning cartoonist ann telnaes. she talks about her work and how it has changed since the rise of social media sites. like twitter and facebook. brian: ann telnaes, how do you describe the work you do? ann: how do i described the work i do? i hope it is challenging. i hope it makes people think. you know, it is an editorial rt


info Stream Only

Uploaded by TV Archive on