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tv   Bloomberg Markets Asia  Bloomberg  January 19, 2017 8:00pm-9:01pm EST

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♪ rishaad: it is 9:00 a.m. in singapore. thursday evening in new york city. i am coming from hell hong kong. -- i'm reporting from hong kong. this is "bloomberg markets: asia". ♪ a message of unity, donald trump pledging to be a president for all americans. in the next hour, we get the latest growth numbers from china, expecting another -- performance. and a review from davos, we talk with the british prime minister and the trend and of -- chairman
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of toyota. and janet yellen expected to speak any moment at the stanford institute for research, we will take a preview -- get a look of a preview. . janet yellen giving her second speech in two days. she is speaking at stanford. her topic, economic outlooks and the conduct of monetary policy. when she spoke yesterday, she caught the market's ear when she aid she sees a few rate hikes year through 2019. the same day that consumer prices came out there we talked about this 24 hours ago. they came out on the strong side. kathleen: she talked about reaching goals on employment and inflation moving towards its goal, around 2%. but not there yet, talking about how there are signs of the labor
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market, things not moving quickly. we will see what she says today. she could review yesterday's remarks, and will questions and answers from the audience, if there is a section like that, will they throw in more? and donald trump, a regime change or status of many things that -- changer -- so many things that could be showing where they are. ellen: we are here today to see how we can promote a healthy economy. researchthan 30 years, from the stanford institute for economic policy research has informed economic policy. and events such as this one have helped to foster -- among scholars, policymakers, and members of the public come on critical economic issues facing our nation. i appreciate the opportunity to
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participate. in my remarks today, i will review the considerable progress the economy has made towards the attainment of the two objectives that the congress has assigned to the federal reserve. maximum employment and price stability. the upshot is, labor utilization levelse to its estimated and we're closing in on the 2% objective. i will then discuss the prospects for adjusting monetary policy in the manner needed to sustain this strong job market, while maintaining low and stable inflation. determining how best to digest achievet overtime to these objectives will not be easy. for that reason, in the balance of my remarks, i will discuss my considerations that will help
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inform our decisions, including the guidance provided by simple policy rules. i will conclude by touching on some key uncertainties effecting the outlook. my assessment of progress to date will begin with the labor market. aboutthe great recession, 15.5 million jobs have been added to the u.s. economy. averagedjob gains around 180,000 per month, well above the pace of 75,000-125,000 per month that is probably consistent with keeping the unemployment rate stable over the longer run. the unemployment rate is now close to estimate of the longer run normal levels and other measures of the labor utilization have improved. as shown in figure one, a broader measure of labor under
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the utilization, which includes not only the unemployed but also people working part-time who would like to work full-time. and those that want a job, but are not actively looking, has retraced nearly all of the -- that occurred as a result of the recession. other indicators also support the view that the labor market has largely recovered from the occurred in the wake of the financial crisis. dashedstrated by the red line in figure two, this indicator of the confidence of workers to leave a job & new opportunities is that to a prerecession level. and some indicators, such as sessmentsinesses' as
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of the difficulty of hiring, shown by the black line, and the time it takes to fill vacancies and job openings rates, suggest that the labor market is tighter than before the financial crisis. forcerse, both the labor participation rate and in the employment of population ratio are still much lower than they were a decade ago. but the cyclical element in these declines look to have largely disappeared and what is left seems to mostly reflect the aging of the population and other secular trends. judge labors, i utilization to be reasonably close to its normal longer run levels, while also recognizing that estimates of the sustainable levels of the implement rate and the employment of population ratio
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are inherently precise. in the coming months, i expect further strengthening in the labor market if the economy continues to expand at a moderate pace. a view that is shared by most of my colleagues on the federal open market committee. growth, overall economic has been driven by consumer spending, which has been bolstered by substantial gains in household income and wealth. business investment has been soft, in contrast my but recent readings on business sentiment is consistent with the view that capital spending will likely strengthen modestly this year. another positive factor is that oil drilling, which plummeted after oil prices fell sharply back in 2014, has recently begun to pick up. as we look to broader trends,
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gross domestic product, gdp growth has been restrained in recent years by a variety of forces depressing both supply and demand, including slow labor force and productivity growth, weak growth above -- abroad and headwinds from the financial crisis. although i am optimistic that some of these forces will update -- abate over time, i do think that they will constrain growth term,the median turn -- e likely holding down interest rates. inflation, we are now much closer to the 2% objective man we were just one year ago. -- than we were just one year ago. rose nearly 1.5% in the 12 months ending in
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november. as compared with only .5% during 2015. installation, pc a better indicator of the underlying trends, picked up a quarter percent to a little over 1.5%. anticipated and largely represents the effects of earlier declines in energy prices and the prices of non-energy imports. slack in labor and product markets is no longer putting pressure on inflation. this is in contrast to the situation a few years ago when the unemployment rate was quite elevated. anting futurerr swings in the dollar, inflation is likely to move toward 2% over the next couple of years, aided
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by a strong labor market. in light of the progress that has been achieved toward employment and inflation objectives, and the committee's assessment of the outlook, they have raised the target range for the federal fund rate and the december meeting by 25 basis points, to between 50-75 basis points. the committee judges that monetary policy remains modestly accommodative, and it's a policy should support further strengthening of labor market conditions, and thus the return of inflation toward the 2% goal. with the unemployment rate near a longer run normal level and likely to move a bit lower this year, the natural question is whether monetary policy has fallen behind the curve. the short answer i believe is no. it is true that many employers
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report difficulty in finding qualified workers for selective occupations and that more workers are comfortable quitting jobs to take a look at better positions, but this is to be expected in a healthy labor market and not evidence that the economy is experiencing a serious worker shortage, as a whole. the recent behavior of wages provides additional evidence pertaining to the degree of labor market slack. as shown in figure three, increases in average hourly earnings, the employment cost index and compensation for our remainsubdued -- hour, subdued, picking up of late. again, these do not inconsistent with an overheated labor market. moreover, signs of overheating in the broader economy are also scarce. for example, capacity utilization in the manufacturing
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sector is well below historical average. most important, although core inflation is rising gradually from a lower level, this increase mainly reflects the waning of the effects of earlier movement in the dollar, not upward pressure from resource utilization. of course, even if the labor market is not overheated currently, mont -- one might worry that overheating could emerge as conditions strengthen further, causing inflation to search. -- surge.i consider it unlikely for several reasons. first, the pace of improvement has slowed in the past couple of years. for example, average payroll gains moderated from 250,000 per month in 2014, 2 180,000 -- to
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180,000 last year. 2014 and 2015 -- compared to only one quarter percent last year. second, economic growth more broadly seems unlikely to pick up in the near-term, given the ongoing restraint from weak foreign demand and other factors mentioned, particularly in an environment where montero -- monetary policy is likely to become less accommodative. finally, figure 4 illustrates the relationship over the past several decades between labor market pressures and core inflation. note that during periods when unemployment rates fell, below the congressional budget office estimates of its normal long run levels, shown by the yellow shaded regions, core inflation,
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the solid red line, rose little if at all. markedty is especially since inflation expectations became anchored during the mid to late 1990's. that said, i think that allowing the economy to run persistently unwise.d be risky and waiting too long to remove accommodation could cause inflation expectations to begin ratcheting up, driving actual inflation higher and making it harder to control. the combination of persistently low interest rates and strong labor market conditions could lead to undesirable increases in leverage and other financial imbalances, although such risks would likely take time to emerge. finally, waiting too long to
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tighten policy could require the fomc to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession. for these reasons, i consider it prudent to add just the stance of monetary policy gradually over time. this strategy should improve the prospects that the economy will achieve sustainable growth with the labor market operating and inflation running around 2%. achieving these goals could prove challenging, however, even if the economy manages to avoid being hit with adverse shocks over the next few years. to sustain a strong job market with inflation around 2%, policy must gradually shift toward a neutral stance. where neutral is defined as the
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level of the federal funds rate that is neither expansion or contractionary when the economy is operating near potential. but what level of the federal funds rate is mutual at the present time? how quickly should the funds rate target move up to this future level? and how will the mutual rate itself evolved over time? to help answer such questions, the fomc considers information with many factors, including financial markets and credit availability, labor market conditions and overall economic activity, wages and prices, and foreign economic development. they will also evaluate forecasts from a range of economic models, assessments of andrisks to the outlook,
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detailed analyses of how different monetary policy strategies would effect projected outcomes and risks. among the strategies routinely considered by the committee, are the recommendations of a variety of simple monetary policy rules. in addition, fomc participants pair individual projections on a quarterly basis of the most likely pass -- paths of key economic variables under their own assessments of appropriate monetary policy, together with estimates of the normal, longer run values of the federal funds rate, the unemployment rate and gdp growth. armed with a wealth of information, the committee as a whole then decide on the most appropriate policy action to adopt at each of their meetings. such a comprehensive
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forward-looking approach to policymaking is similar to that employed at other central banks. ofure five shows a plot participants' most recent assessments of the appropriate paths of the federal funds rate through 2019. the black solid lines show the median values of the federal funds rate at the end of each year. to understand the considerations that likely underlay these judgments, i will contrast s withipants' assessment recommendations of simple policy rules commonly used to help gauge the appropriate stance of policy. as i noted, the committee routinely reviews policy recommendations from a variety of benchmark rules, and i believe that their prescriptions can be helpful in providing broad guidance about how the
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federal funds rate should be adjusted over time in response to movement and real activity and inflation. emphasize thatll the use and interpretation of such prescriptions require careful judgments about both the measurement of the inquest of these rules and the implications of the many considerations the rules do not take into account. consider first the well-known taylor rule, which embodies key principles of monetary policy. the role calls for systematic adjustments in the federal funds rate relative to the expected longer run neutral level in response to movements in inflation and the output gap, finding the percentage difference between actual output and the economy's productive potential. to implement the rule, one must
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decide on the appropriate definition and measurement of the input. should inflation be defined using the latest quarterly reading on headline pce inflation? or a measure intended through the price movements? what technique should be used to approximate the output gap, given the different approaches often yielding different estimates? and what assumption should be made about the neutral value of the federal funds rate in the longer run? the taylor rule is often implemented by assuming that the real or inflation-adjusted value of the longer run neutral interest-rate, which i will call r-star for convenience, is equal to 2%. roughly the historical value of the federal funds rate prior to the financial crisis. for inflation, we can use the 12
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month change in core pce prices, the measure of the current underlying rate of inflation, and the output gap can be reasonably approximated as twice the difference between the estimated longer run normal rate of unemployment and the actual unemployment rate. shows theed line resulting recommendations for policy over the median term -- based on the medians of unemployment and inflation projections committed by participants in december. assuming in contrast to the median of participants' assessm ents, that equals 2%. as this figure shows, this version of the taylor rule prescribes a much higher path to the federal funds rate than the median of the assessment of the
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appropriate policy. one important factor explaining fomc'svergence is the growing recognition that the longer run neutral level of the federal funds rate is likely declining below 2%. contrary to what is often assumed and implementation of the taylor rule. left-handated by the panel of figure six, since 2000 month of -- 2000, both participants and those who have -- the blue-chip survey, have -- the real term interest rates expected to prevail in the longer run. presumably, these revisions were made in response to accumulating evidence that lower real interest rates than those seen on average in the past, would be
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needed permanently to keep the economy operating on an even keel. in addition, the right-hand panel shows considerable changes over time in estimates of the normal, longer-term rate of unemployment, with corresponding implications for estimates of the economy's productive potential and the output gap. such revisions would imply shifts in the taylor rule restrictions by as much as 1.25 percentage points, holding other factors constant. clearly, sensible implementation policy rules requires adjustments to take such changes into account as a failure to do so would result in poor monetary policy decisions and poor economic outcomes. figure seven illustrates the policy implications of alternative revised assessments
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of the longer run neutral interest. as before, the short dash red line shows the perceptions of the taylor rule using the standard 2% assumption. showslid red line however the role's prescription with it equal to 1%, the median of the longer run for the real federal funds rate made by fomc participants from last month. this adjustment appreciatively reduces the prescription. even with this downward adjustment of the longer run neutral rate however, the taylor rule's prescriptions are arguably too restrictive. the problem is that the role ignores the likelihood that it will likely take many years before the forces now restrain the economy dissipate to the
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degree envisioned in participants' estimates of the longer run normal level of the federal funds rate. because overall growth has been moderate over the past few years, despite the accommodative stance of monetary policy, some recent estimate of the current value of the neutral real federal funds rate stands close to zero. if the neutral rate were to remain quite low over the median turn -- term, as would be expected if the global economy does not strengthen, and productivity growth remains anemic, then the appropriate setting for r-star would arguably be zero. yielding a lower path for the federal funds rate, as shown by the dashed red line. this consideration illustrates
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that there is no obvious right setting for r-star, because we do not know how rapidly the forces restraining the economy will abate, and there is risk that it could be very slow. when the economy has been hit with unusually persistent shops, the taylor rule for this reason provides a problematic benchmark. simple policy rules also typically reflect information with potentially important implications with the economic outlook, because they focus on where conditions are today. ignoremple, simple rules important factors such as fiscal policy, trends affecting global growth, structural and developments influenced with supply credit and over all financial conditions. one special factor at the moment pertains to the federal reserve's balance sheet, the
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downward pressure on longer-term interest rates that the asset holdings exert is expected to diminish over time, and a development that will amount to a removal of monetary policy accommodation. other things being equal, this argues for more gradual approaches to raising short-term rates. lastly, simple rules ignore risk management considerations that have influenced the committee's decisions in recent years. the federal funds rate still near zero, the committee recognizes that should the economy unexpectedly weekend in the next -- weaken in the next year, there would be limited scope to respond by lowering short-term rates. but if the economy overheats, threatening to push inflation to an undesirable higher-level, the
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time told have ample respond to monetary policy. such risks arguably call for a more gradual path to rate increases than indicated by the perceptions of the simple policy rule. the academic literature on policy rules have studied many alternatives to the taylor rule, and to the fomc reviews a number of them. these rules have differing and valuable perspectives and there is no consensus among central bankers or academics about these relatively various roles. one alternative is the balanced approach rule, illustrated by the purple dashed line. this role differs -- rule differs from the taylor rule by being twice as responsive to movements in resource
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utilization. the prescriptions of the balanced approach rule in this figure, as with the solid red line, assume that it equals 1% my consistent with the medians of the latest projections. because participants on average anticipate a modest undershooting of the employment rate, below the estimated longer run levels, the balanced approach calls for slightly path tightening over the next few years. this figure also reports results for a change rule, shown as the line.long dashed as the name implies, this does not prescribe a particular level of the federal funds rate at a given time, but rather has the existing rate change from quarter to quarter, based on two
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gaps, the difference between inflation and the desired level, as well as the difference between the unemployment rate and the longer run normal level. in contrast to the other two rule the changes, -- rules, the change will does not take a stand on the federal funds rate, thus avoiding a potential source of error. instead, it news interest rates up and down into both gaps an approach that enables it to perform well when the true value of our -- r-star news alone. because both gaps are modest at the moment and are projected to remain so, the change rule calls for fairly gradual adjustments in the stance of monetary policy over the next few years, given the current outlook.
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the fomc for reasons i have discussed does not base its decisions on the prescriptions of any specific policy rule. nevertheless, the benchmarks i have described, the taylor rule, balanced approach rule, and change rule, have historically provided useful guidance about appropriate adjustments in the general direction of monetary policy overtime. this guidance is illustrated by this figure, which compares the path of the federal funds rates since 2000, with prescriptions of the three rules based on the actual rates of inflation and unemployment, it observes at each point in time, along with the blue-chip projections of the longer run employment rate and r-star.
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rules figure shows, the signal a major reduction in the federal funds rate was appropriate in 2008, given the deterioration of economic conditions. in addition, all three goals -- rules signaled that monetary policy needed to provide more stimulus during the recession and the subsequent recovery, which could be provided by keeping short-term interest rates near zero. for this reason, the committee turned to asset purchases to help make up for the shortfalls by putting additional downward pressure on longer-term interest rates. the fomc also sought to compensate for the inability to push the federal funds rate below zero, by indicating that the funds rate would need to stay unusually low for longer than otherwise expected and
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simple policy rules would prescribe. under this makeup strategy, and taking into account the reasons for deviating from the taylor rule i discussed, the committee kept the federal funds rate near zero for longer than two of the rules would have prescribed. but as labor market conditions continue to improve over time, the rising trajectories for the federal funds rate prescribed by all three signal that the time was growing near to begin gradually reducing monetary accommodation. consistent with this advice, the fomc suspended the asset purchase program in mid-2014 and began raising the federal funds rate in late 2015. so, to sum up, simple policy rules can serve as useful benchmarks to help assess how
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monetary policy should be adjusted over time, however their prescriptions must be interpreted carefully, but because the estimates of some of their key inputs being very they arently -- inputs a significant lead, and they do not take into account important considerations and information pertaining to the outlook. for these reasons, the rules should not be followed mechanically since doing so could have adverse consequences for the economy. well, my remarks have focused on the policy trajectories that the committee considers likely to be appropriate to sustain the economic expansion while keeping inflation close to the 2% goal. in concluding, it is important to emphasize the considerable uncertainty that attaches to such assessments and the need to constantly update them. in particular, the path of the
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neutral federal funds rate, which plays an important role in determining the important policy path, is highly uncertain. for example, productivity growth is a key determinant of the neutral rate. and when most forecasters expect productivity growth to pick up from the unusually slow pace, the timing of such a pickup is highly uncertain. indeed, there is little consensus among researchers about the causes of the recent slowdown in productivity growth that has occurred both at home and abroad. growthength of global will also have an important bearing on the neutral rate through both trade and financial thenels, and here too, scope for surprises is considerable. finally, i would mention the potential for changes in fiscal policy to affect the economic
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outlook and appropriate policy path. at this point however, the size of the timing, and composition of such changes remain uncertain. as this if this -- discussion highlight some the course of monetary policy over the next few years will depend on many different factors, of which fiscal policy is just one. thank you very much. [applause] rishaad: that was janet yellen at stanford university, giving her view on what is going on with the u.s. economy, talking about a gradual scope of increases. and saying that they were not behind the go. everything she is talking about is saying, perhaps there are positive signs for the u.s. economy, no real mention here.
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there were no real mentions about the dangers of the economy falling the other way into a recession. it was all about a growing too fast at the end of the day. and overheating. >> what she did say, that is an important point, what she does is she is not worried about the economy slowing down, except that rates are still so low, they need to normalize. kathleen: she does not see an economy overheating right now because the labor market, while growing, labor march -- wages are not growing quickly. she did say though that she does not agree it would be appropriate to let the economy run hot. we should listen while she is answering the first questions from her audience. yellen: we are involved in working on various projects but i do to the data,
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need to say, while we are excited and we see a lot of promise, the impact on monetary policy decision-making at this stage is limited and let me try to explain, if i could, the reasons for that. the data that we use in modeling microeconomics, the u.s. economy, we rely very heavily on statistical series that are u.s.ced by our main statistical agencies, the bureau of labor statistics, bureau of economic analysis, and there are good reasons for that. first of all, these agencies were organized and set up to focus on data to meet these needs of the fed and other users, that is their goal, that is there so focus, the data --
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sole focus, the data they produce they make available in a timely way. they try to ensure consistency and standardization over longer estimated time and time series relationships, it is often important to have data produced on a mythological -- methodological consistent basis. and the economic statistical agencies have used theory heavily to decide how to go about measuring. and i believe strongly that good measurement requires underlying ,heory, for example, the work pricesce is produced --
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produce, the cost of living, they have been driven by theory. the national incoming data that simon -- won a nobel prize for developing the framework that underlines it and these agencies are focused on representative samples of information adequately covered the u.s. economy. and, you know, for these reasons the data, the statistical agencies provide, has been very helpful in what we primarily rely on. now, compare that with what is available in terms of big data, which i said we are excited about and want to find ways to use, but often the firms that produce that data, their primary
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focus is business focus and it is elsewhere and the data becomes available is a byproduct of work they are doing. often these firms have a champion within it that sees potential for data to be usable by the fed or other outsiders, often the core, focus of those firms is on --ething no spirit and something else and not the data. often it is not representative and users of big data try to bench mark it to the representative of samples, but often the data is not produced taking theory into account, into the design, to meet the needs of users who are trying to really
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understand the u.s. economy. and the time to samples are often quite short -- timed samples are often quite short, and for us we need to know how a particular series would behave during a deep recession and having a few years of data does not allow us to do that type of modeling. so i think the reasons -- there are reasons that we continue to rely on traditional data and big data has not transformed what we do. let me say, there is a lot of promise there, because the statistical agencies themselves recognize that there are gaps in the production of statistics and they are looking at big data to try to improve that. that is an important initiative and we are looking -- working closely with those agencies to support their efforts there. second, i would say that there
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have been some very interesting things done that shed light on an important macro phenomena, that leverage the advantages that big data has, often a huge amount of detail. and in situations where fineaphic detail at a level where it is useful and it is important to have a lot of detail about spending, for example, to know or be able to distinguish between spending at a grocery store and spending at a restaurant, big data has been useful. i could give you a couple of examples. researchers were trying to understand the impact of the recent hurricane matthew on spending and they relied on credit card data using that kind of cross-sectional details to
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look at that. and there has been a pretty recent working paper in which a group of academic researchers relied on a huge dataset to try to estimate -- to consume out of lower gasoline prices and a leveraged features of the data to essentially be able to connect that. so it has been useful and i hope it will be useful in the future, but there are problems with it. >> my second and only other question for you, but there are many, but there are others here, this have to do with demographics. you talk about labor force participation rate having fallen and if we look forward, the projections indicate that we will see about a 70% increase in
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the number of people 65 and up and less than a 10% increase in nonelderly adults and i am curious to hear your thoughts on the impact it will have on the economy and whether there are things or policies that could be done to cushion the effects? yellen: i think you have identified one of the most important trends that will be affecting the u.s., and at the same is true in many advanced and developing countries as well, and it is already having clear impacts on the u.s. economy. to name a few, it is driving down the labor force participation rate, the labor force participation rate in the u.s. peaked around 77% around the turn of the millennium. now it is declining to the range of 62%-60 3% and it will keep declining over time.
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that is anrtainly, important factor shaping the economic outlook. it is driving down the growth of the labor force and it is pushing down the pace of sustainable growth in the economy. estimate their estimate of the longer run normal growth rate of the economy at this point is slightly under 2%. that is an important factor that is governing that. itt can be done, i think pushes you in the direction of thinking about policies that would enhance productivity growth and build the economy -- enable the economy to grow more rapidly. in terms of growth in different sectors of the economy, it is enabling important in one to predict that health care will be a sector of the economy
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that will continue to expand. of course, from a physical standpoint, it has very important implications and just looking at cbo for example and longer run projections, the fiscal deficit, we have known for a very long time that this unchanged tax spending policies we are heading toward unsustainable deficits and growth in the debt to gdp ratio because there will be large increases in the share of gdp devoted to medicare and medicaid and social security. >> great. with the that i will open it up to questions that i do not know .xactly how it will go questions from the audience. right here. >> thank you. thank you very much for your service and for your leadership
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over the last two years. you started your speech talking about me to mandates -- two mandates that the fed has and there was a third mandate added recently. and some of the people in government are now talking about that the fed should only have one mandate, price stability, and i wanted to get your thoughts on that. yellen: for many years, there has been discussion, and many countries, their central banks have price stability mandates. i support two mandates because i think the american people care very much about both inflation and unemployment, for the state of the labor market. i would say that most of the time, and this has certainly been true in recent times, there
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has been no conflict between pursuing our inflation and employment objectives for the last five years inflation running under 2%, and unemployment has been well above normal longer run levels, and so the policies that we would pursue for the sake of one objective are identical to those that we would pursue for the other objectives, so normally we do not face conflicts. when there are conflicts, then those conflicts have to be managed. i would say that the formulation like the taylor rule formulation a statementproduced
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of the longer run objectives, we indicated when the two objectives do come into conflict, that we would follow a so-called balanced approach in attempting to manage the trade-offs, mainly we would look at deviations in our ability to obtain both objectives and try to balance, focusing on both. and a simple formulation of the taylor rule also incorporates that type of logic that essentially policy should depend on the give ye nations -- the deviations of both an opponent output fromn and the longer run goals. and i would say that most central banks, even when they are given a primary goal of price stability, do you pay attention to the state of the real economy. and really take that into
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account. so, i think this is something that has worked well, i do not see a reason to change it. but our objectives are dictated by congress and if congress wanted to change it, of course they could. it is not something i would recommend. host: next question. professor taylor? [laughter] i really appreciate you being here. liked howarticularly strategyced the fed's and actions with some of these rules. that seems like it could be something that could be expanded, even to meeting some of the requests recently that have this kind of hesitation -- is that something that could be feasible? second -- this shows something
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besides the theory of reason, it wass where the funds rate too low for too long, by about three percentage points, at least compared to the red dash line. [laughter] argued and others have argued that this was a problem were partlyses leading to the problems we had in the great recession. what do you think about that? [laughter] >> to some extent, this kind of presentation if it was done way back then, would it have helped policy be better? chair yellen: let me start with the first part of your question, offeringtained to explanations of the type that i
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did today. today, i tried to provide some whyght as to why the fomc, we do offer systematic range of projections to the public and i have tried to explain reasons for deviations. and as i said, we have for a very long time looked at the recommendations over a range of policy rules and they have been one important influence on policy, although we have not followed any of them specifically. i do think it is reasonable for members of congress to ask, what is the logic behind your policy, what strategy are you following? if there are deviations, can you explain the nature of the deviations and how you are thinking about it and of course, i focused on considerations,
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particularly having to do with the neutral funds rate and other special features. you your original paper back, the paper from 1993, and i felt it was the type of approach you recommended, it was very useful in monetary policy and it always informs my thinking and i believe in the systematic monetary policy. and i think that we ought to be able to explain what we are doing, and we have tried to do that and i think we have made strides in offering these projections and the systematic statement of our policy objectives in advancing a systematic approach. now, congress, the house of representatives has actually passed legislation that goes substantially further than what
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i just discussed or you asked for. and i am very opposed and on the record saying that i am very opposed to what is known as the form act, which goes further than anything you just adjusted. -- suggested. and i believe interferes in the independence of monetary policy, but insisting that the fomc adopt a rule and after every failed tong, if we set policy in a cord with it that reference -- accord with that referenced rule, they will come in and review our most recent additions. i believe strongly in the independence of monetary policy where we are and should be accountable to congress and congress should be asking us about the logic of policy, these are reasonable questions.
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anowed the public explanation for why we are setting policy as we are, but when we are talking about goa policy audits after every meeting, i think that that is essentially bringing short-term political influence into the determination of policy and if you read the act, it goes very far in constraining of what we would be able to do. so, i am opposed to that type of -- i am opposed to that type of approach. but i am sympathetic to the recommendations of rules. therems of departures, was a departure from the taylor rule recommendation. i mean, when you look at the picture you can see that. is that responsible for the financial crisis? i know that you have argued that you feel like that was in
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important influence -- an important influence. i do not think there is a straightforward relationship between deviations and interest le wouldrom what the ru call for. and the conditions that gave rise to the financial crisis. there was a buildup in leverage and there were many special factors having to do with the housing market. the housing market has been really on fire before the times of the deviations developed. there were many unsafe aspects about the behavior of the credit rating agencies and the special factors that we know contributed to the problems in housing. and probably bank supervision fell down on the job and unsafe
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conditions developed in the shadow banking sector, and i think all of that had something to do with it. rishaad: we are going to leave that there in california. janet yellen talking about big data. and helping with policy decisions in the future, her support for mandates. and we will go to new york where kathleen has been listening. caf au lait: -- kathleen: i think what was interesting was the author of the taylor rule in heruestions and prepared remarks, she made it more clear that they are on the way to more rate hikes and inflation is not a problem. the economy is not overheating. but he said - the fed does not want to get behind the curve. discussedyellen reasons why the taylor rule was
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used and she was talking about her opposition to the proposal for the fed to have not just a just put the but focus on price stability. she says she is very opposed to that. i think john taylor would be too. but they did go back and forth on the rule itself. she did underscore what she said yesterday. she is not worried about inflation, but she wants to make sure that it does not get out of hand and they do not want to be under pressure to raise rates so quickly, that companies get caught wrongfooted, she wants to make sure it is gradual. and to do that, they need to start moving now. we do not know how many hikes will come this year. on the terminal right now, the odds of the jews hike are around 74%. maybe falling to the mid-60's.
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maybe the last couple of days are having an impact. rishaad: now, retailo china prices, there we go. gp, looking atl 6.8% for fourth-quarter gdp, better than expected. retail sales, industrial production, painting a picture of that chinese economy, and tom mackenzie in beijing. number, the full-year gdp number four china is 6.7% for 2016. the fourth quarter number surprising to the upside, up 6.8%. that full-year numbers squarely in the middle of the government's growth target.


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