tv Public Affairs Events CSPAN October 21, 2017 6:00am-7:01am EDT
but i think that process i have watched over the 20 years of india investing abroad helps india understand the conditions necessary to be successful back home. because when you have to encounter it as a foreign direct investor, suddenly you understand what's important to success, you take that back home. and that helps you with your reforms back home. we encourage india to continue the pathway towards reforms. there's much needs to be done to really enhance the full economic value of what india has to offer. mr. hamre: i have about four or five questions that are all kind of clustered around the same issue, and that's about the complex power geometry in this region. india historically had close ties with russia. china had close ties with pakistan. we tried to keep ties with both india and pakistan. it's a lot more complicated environment now. could you just give your thoughts about india and this power geometry?
sec. tillerson: well, our -- my view, and i think it is the collective view within the u.s. government as well, is, as china has risen over the last 20-plus years now to take its rightful place as an economic power in the world, moving hundreds of millions of their people out of poverty into middleclass status, india, too, has been rising. and i commented on this again in the remarks. and as we watch how these two very large nations are taking their rightful place in the global economy, they've gone about it in different ways. and i touched on that. and i think that's why the u.s. now sees this as an important point in thinking about the next century of our relationships. we're going to have important relationships with china. we'll never have the same relationship with china, a non-democratic society, that we can have with a major democracy.
so i think what has evolved, and i would have to let the indian government speak for themselves, but i think as india has gone through process of rise, it, too, has taken account of the circumstances around it and its own history of relationships. and how have those relationships served their advancement and how have they not served their advancement? and i think, as a as the world's largest one of the world's largest democracies, the world's largest democracy, it has said i want to be a partner with another democracy; i don't want to partner with these other countries that do not operate with the same values. i think at the end of it, this relationship is built on shared values. that's what has brought us together. two very large, important democracies want to share the same future, and we have a shared vision for the future. and i think that's what's changed over the last couple of three decades. there's been a real accounting, as i as i have observed it. a real accounting has been taken by the indian government of its past experiences, and it's decided this is the this is where we
want to go. mr. hamre: secretary, it's i know it's not precisely the reason for your trip, but i think we have several questions i have to ask you about myanmar. you know, there's been an incredible humanitarian crisis with the rohingya. could you just share us your perspective on this? sec. tillerson: well, we're extraordinarily concerned by what's happening with the rohingya in burma. i've been in contact with aung san suu kyi, the leader of the civilian side of the government. as you know, this is a power-sharing government that has that has emerged in burma. we really hold the military leadership accountable for what's happening with the rakhine area. what's most important to us is that the world can't just stand idly by and be witness to the atrocities that are being reported in the area. what we've encouraged the military to do is, first, we
understand you have serious rebel terrorist elements within that part of your country, as well, that you have to deal with, but you must be disciplined about how you deal with those and you must be restrained in how you deal with those. and you must allow access in this region, again, so that we can get a full accounting of the circumstances. i think any of us that read this recent story in the new york times, it just had to tear your heart out instead of break your heart to read this. and so we have been asking for access to the region. we've been able to get a couple of our people from our embassy into the region so we can begin to get our own firsthand account of what is occurring. we're encouraging access for the aid agencies the red cross, the red crescent u.n. agencies to so we can at least address some of the most pressing humanitarian needs, but more importantly so we can get a full understanding of what is going
on. someone - if these reports are true, someone is going to be held to account for that. and it's up to the military leadership of burma to decide what direction do they want to play in the future of burma, because we see burma as an important emerging democracy, but this is a real test. it's a real test of this power-sharing government as to how they're going to deal with this very serious issue. so we are deeply engaged. we're engaged with others. and we're going to be engaged at the u.n., ultimately, with the direction this takes. mr. hamre: again, several questions were dealing with afghanistan, and afghanistan has complex geography, complex geopolitics i should say as well. you know, the indians have had a strong interest in what happens in afghanistan, as has pakistan part of the backdrop here. afghanistan, what are you going to be doing there?
sec. tillerson: well, you heard - the president has announced his new policy toward and it's the south asia strategy. afghanistan is what people tend to focus on, but one of the differences in how we approach the challenge there and it's why it took a little longer for us to fully develop the policy is we do see it as a regional issue. it's not solely an afghanistan issue. you solve afghanistan by addressing the regional challenges. and pakistan is an important element of that, india is an important element of how we achieve the ultimate objective, which is a stable afghanistan which no longer serves as a platform for terrorist organizations. you know, our policy, quite simply, on terrorism is that we will deny terrorists the opportunity, the means, the location, the wherewithal, the financing, the ability to organize and carry out attacks against americans at home and abroad anywhere in the world.
well, clearly the threat to that policy finds its locus in many ways in afghanistan. and so, to the extent we can remove that as an opportunity for terrorism in afghanistan, the greatest beneficiaries are going to be pakistan and afghanistan. and india's important role is in providing development assistance to afghanistan as they move forward to create better economic conditions that provide for the needs of a very diverse ethnic group of people in afghanistan. so it is about a commitment, a message to the taliban and other elements that we're not going anywhere. and so, you know, we'll be here as long as it takes for you to change your mind and decide you want to engage with the afghan government in a reconciliation process and develop a form of government that does suit the needs of the culture of afghanistan. and to the afghan government, they have to be committed to being open to addressing the full needs of the very
ethnically diverse culture that exists in the country, and its own history as well. and we think that is achievable and we can have a stable, peaceful afghanistan. and when that happens, a big threat is removed from pakistan's future stability as well, which then creates a better condition for india-pakistan relationships. so we see it as not just one issue, but a means of stabilizing the entire region. and we intend to work closely with india and with pakistan to, we hope, ease tensions along their border as well. you know, pakistan has two very troubled borders two very troubled borders and we'd like to help them take the tension down on both of those and secure a future stable pakistan government, which we think improves relations in the region as well. mr. hamre: secretary, i know i'm running close up to the deadline i was given by your horse holders, but let me ask
several questions were dealing with development. and i guess the question i'd like to pose to you is, we've got a very capable new administrator for usaid. i know you personally have been quite involved in aid and development-related issues over the years. what do you see as the relationship between the state department and usaid going forward? how are you thinking about it? sec. tillerson: well, i think it's no different than has traditionally been the roles of the two organizations. state department develops foreign policy, it develops the strategies and tactics. and important element of our execution of foreign policy is development aid and assistance, whether it be in direct humanitarian assistance, food programs to address dire needs, disaster response, or whether it's in developing democratic capacity and institutional capacity. so usaid is an is an important enablement tool of the foreign policy. they don't make
policy, but they are critical to our execution of foreign policy. and that's really where we want that expertise to reside. and i view them, as in many using lingo of my prior life, they are a center of expertise when it comes to aid and development programs. nobody does it better than they do not just directly, but they have tremendous organizational and convening capacity to work through other multilateral organizations. whether it's u.n. organizations, ngos, direct in-country capability, they are really the experts in the world for doing that. they have the relationships. they have the contacts. they have the process. they have the procedures. and they're vital to our execution of foreign policy. and therefore, they become integral to how we develop foreign policy, how we test its viability, and then how we lay out the plans, the strategy, and the tactics for executing against that policy. so that's the relationship. and,
you know, one of the things we want to be sure is that everyone understands their roles and everyone understands what's not their role. on the state department side, our expertise is the analysis, the assessment, the development of foreign policy, the carrying out of the diplomatic integration of all of that. usaid, though, they are really the experts in the state department doesn't have that expertise. it really resides over there. mr. hamre: one last i got a sign that said last question. let me ask this last question. and, you know, in recent years, most secretaries of state have been policy people. they've spent their life in the policy world. but frankly, through the history of the department, we've had a great number of businesspeople have been in. what is the how do you think about the way that you can work with the private sector in advancing american diplomacy and american values around the world? sec. tillerson: well, i think one of the things that's important for us is to make sure that we are we have great clarity around what our policies are,
what our strategies and what our tactics are, so that the investors, the business community, can at least make their assessment as they're trying to make decisions about their own business conduct, private enterprise, whether it's investment foreign direct investment that they want to make, or whether it's partnerships they are creating for investment here in the u.s. that goes back to my earlier comment: choose your partners wisely. one of the things, i think, that's just important for us in the state department to do is to be able to ensure we can provide clarity to the business community and to investors as to what the relationship is with a particular country, how we view the risk, the stability of that country. those were things that were important to me in making decisions when i was in the private sector. it is a risk-management decision. so how can we help
everyone understand what the risks are in this country, but also what the vectors are we think the vector's going in the right direction, or we have concerns that things are going the wrong direction. and then the business leaders can make their own decisions about what they choose to do. mr. hamre: i think you all can see why i was so lucky for 11 years to have secretary tillerson on my board. he's a wise and thoughtful man. would you please thank him with your applause? [applause] sec. tillerson: thank you. [applause] >> c-span's washington journal,
live every day with news and policy issues that impact you. morning, defense one executive editor kevin barrett on the u.s. military the deathn niger and of four american servicemembers earlier this month. then, kate talks about herpes on the role that rural electric cooperatives can play in transforming the energy sector and politics. and a discussion of the secretary of education's collegeson handling sexual assault. join the discussion. this weekend, on book tv, on c-span2, tonight at 8:00 p.m. eastern, former vice president al gore looks at the effects of
climate change around the world with his book, "an inconvenient sequel: truth to power." >> and we are learning how to withe adams and molecules the same position that they have demonstrated they can use to manage bits of information and it is changing things dramatically. emissions globally have stabilized in the last four years, starting a downward trend. we are going to win this but the remaining question is whether we will win it in time to reduce the risk to an acceptable level that we will cross some point of no return. it is a dangerous race between hope and the catastrophic consequences we are creating. onand author discussion political diversity and free
speech on college campuses with professor sam abrams of sarah lawrence college, a professor from columbia university, professor from elizabethtown -- the, and another former president of the aclu. demonizeot want to these protesters. what is positive about what they are doing? committedassionately to social justice and racial justice. i want to thank them for that but i would love to have the opportunity to persuade them that freedom of speech, what we hate, is their most essential ally. this weekendf schedule, go to book tv.org. >> now, federal reserve chair, janet yellen talks about monetary policy and the state of
the economy at a meeting of the national economist club. this event was held at the british embassy in washington, d.c. and it is 40 minutes. >> good evening everyone. it is my pleasure to introduce tonight's speaker. i would like to offer some expressions of gratitude. on behalf of the national .conomists's club i would like to think the british embassy for hosting us in this beautiful venue. we very much appreciate your hospitality. i would also like to recognize the observatory group for their generous contributions which has helped to make this evening possible. not least of which by sponsoring
a student table here tonight. how good it is indeed that joining us this evening are students from universities across washington, d.c. i am positively delighted to introduce mice -- my next speaker. needs no introduction. nonetheless, i feel providing one is almost of the auditory given her stature. here one goes. chair yellen took office as chair of the board of governors for the federal reserve system afterruary 2014 previously serving the federal reserve system as a member of the board of governors, president of the federal reserve bank for san francisco and vice chair of the board. she is also chair of the economic advisers. among other notable associations, dr. yellen is a member of the council of foreign relations and the american academy of arts and sciences. a former clay professor, she graduated summa cum laude from from and received her phd
yelp. she a great to take a handful of questions this evening following her remarks. pensan see the paper and next to your seats. please write down your questions on the paper and someone will be around to collective. with all of that said, ladies and gentlemen, please welcome the honorable janet yellen. [applause] dr. yellen: thank you, so much michael. i am delighted to address the national economists club and i am also honored to be associated .ith herb stein whose public service and scholarship, characterized by clear and analysis, clear eyed
pregnant system and sharp wit, exemplify the best in our profession. consider newg to ideas and new approaches to government policy. and that openness fits with the subject of my remarks today. discuss thell unconventional monetary policy tools used by the federal reserve since the start of the financial crisis and great recession and the roles that those tools may play in addressing future economic challenges. ago, with ours nation mired in its worst economic and financial crisis since the great depression, the federal open market committee tofronted a key challenge the pursuit of its congressionally mandated goals .f maximum employment how to support a weakening u.s.
economy was our main conventional policy told, the federal funds rate had been lowered to essentially zero. addressing that problem eventually led to a second challenge. we couldsure that scale back monetary policy and competition in an orderly fashion once it was no longer needed. challenge meet either would have significantly compromised our ability to foster maximum employment and lead to serious consequences for the livelihoods of millions of americans. i will argue today that we have met the first challenge and have made good progress to date in meeting the second. thanks in part to the monetary policy accommodations provided in the aftermath of the crisis, especially through enhanced forward rate guidance and large-scale asset purchases, the
u.s. economy has made great strides. indeed, with the economy now operating near maximum employment, and inflation expected to rise to the fmoc's to present objective in the next hasle of years, the fmoc been scaling back the accommodation provided in response to the great recession. theo small part because authority to pay interest on the process of, removing policy accommodation is working well. after discussing a few issues related to our recent decision to start reducing the size of the federal reserve's balance sheet, i will address key questions. what is the appropriate future role of the unconventional policy tools that we deployed to address the great recession? that influencing
short-term interest rates should continue to be our primary in normal times, our unconventional policy tools will likely be needed again should some future economic downturn drive short-term interest rates back to their effective lower bound. indeed, empirical analysis suggests this neutral federal funds rate defined as the level of the federal funds rate that is neither expansionary or contractionary when the economy is operating near its potential is much lower than in previous decades. probability, the that short-term interest rates may need to be reduced to their effective lower bound at some point is uncomfortably high even in the absence of major financial and economic crises. a return to the question about
the future of our various policy tools but first, i would like to review our experience this decade which i view as instructive in addressing those questions. a substantial body of evidence suggests that if the u.s. economy is much stronger today than it would have been without the unconventional monetary policy tools deployed ivy federal reserve in response to the great recession. keep tools were large-scale asset purchases and forward guidance about our intentions to the future path of short-term interest rates. the rationale for these tools was straightforward. given our inability to meaningfully lower short-term interest rates after they reached near zero in late 2008, the fmoc used increasingly
explicit forward rate guidance and asset purchases to apply downward pressure on longer-term interest rates which was still well above zero. longer-term interest rates reflect in part financial expectations of the future path of short-term interest rates. communicationsoc that affect those expectations such as the enhanced forward postguidance, provided in meeting statements in the aftermath of the great session, can affect longer-term interest rates. in addition, longer-term interest rates include a term premium which is the compensation demanded by thestors for bearing interest rate risk associated with longer-term securities. buysthe federal reserve longer-term securities in the open market, the remaining stock
of securities available for purchase by the public, to client. which pushes the prices of those securities up and thus depresses their yields by lowering the term premiums embedded in those yields. thatal studies have found our forward rate guidance and asset purchases did appreciably reduce longer-term interest rates. goal in lowering longer-term interest rates was to help the u.s. economy recover from the recession and stem the this inflationary forces that emerged from it. ionary forceslat that emerged from it. however, once you recognize that the recovery could have been much slower in the absence of our unconventional tools, indeed the evidence strongly suggests
the forward rate guidance and securities purchases by substantially lowering borrowing costs for millions of american families and businesses and making overall financial conditions more accommodating of did help spur consumption -- omodative did help spur consumption. other unconventional policy thes in the years following crisis. evidence collected during their experience also supports the notion that these tools have helped stimulate economic activity in their countries after their short-term interest rates were lowered to near zero and in some cases, below zero. by 2014, the u.s. economy was making notable progress towards the fmoc's goals.
the unemployment rate had dropped to 6% by midyear, well below its great recession peak of 10% and other measures of market conditions were also showing market improvement. in addition, inflation, as measured by the change in the price index for personal consumption expenditures, had reached about 1.75 percent by mid-2014 after hovering around 1% in the fall of 2013. reflecting that progress, the focus wasserve's shifting from providing additional monetary policy accommodation to scaling it back. a key question for the fmoc then was how to reduce the degree of accommodation in the context of a vastly expanded federal
reserve balance sheet. one possible approach was, start by reducing the federal reserve security holdings while short-term interest rates remained at the lower bound. we could allow securities to roll off the federal reserve's tablet and even sell securities lending upward pressure on long-term rates while calibrating the pace and configurations of the reduction in our holdings as warranted by our maximum employment and price objectives. eventually, once our security holdings had honked spits -- enough, we could start to nudge up the target. one problem of this last in, first out approach, was that the fmoc does not have any experience in calibrating the
pace and composition of asset redemptions and sales to actual and prospective economic conditions. it is the so-called tapered illustrated and even talk of changes in our securities holdings can elicit unexpected and abrupt changes in financial conditions. given the lack of experience with reducing our asset holdings to scale back monetary policy accommodation, and the need to carefully calibrate the removal optedommodation, the fmoc to allow changes in the federal reserve's securities holdings to play a secondary role in the committee's normalization strategy. rather than balance sheet decided thate fmoc its primary tool for scaling back monetary pool -- monetary
policy accommodation would be influencing short-term interest rates. as we explained in our normalization principles issued in september 2014, the fmoc decided to maintain the overall size of the federal reserve security holdings at an elevated level until sometime after the fmoc had begun to raise short-term interest rates. normalization of the level of the federal funds rate was well underway, and the committee judged that the economic expansion was strong enough, the further increases in short-term interest rates were likely to be warranted, the fmoc would gradually and predictably reduce the size of the balance sheet by allowing the federal reserve security holdings to run off. that is, we would allow our balance sheet to shrink passively by not reinvesting all of the principal payments from our securities.
fmoc'santage of the chosen approach to scaling back thatmodations is, it -- is both the fmoc and the public have decades of experience. nonetheless, the post crisis a new test presented to the fmoc's ability to influence short-term interest rates. the fmoce crisis, could raise the federal fund by removing a small amount of reserves from the banking system. higheruld translate into federal funds rate because reserves were relatively scarce to begin with. the intuition was simple. that it would signal
was going to tighten conditions in the reserve market and the cost of obtaining reserves in the market, the federal funds rate would rise. other market interest rates would then increase accordingly. crisis, however, reserves were plentiful. because the federal reserve funded its large-scale asset purchases through adding reserves to the system. crediting the bank accounts of those who were selling assets to the fed. the fmoc'sn light of decision not to sell the longer-term securities it required, reserves were likely for then plentiful foreseeable future. consequently, when the time came to remove a accommodation, a key question for the committee was -- how to raise the federal funds rate in an environment of a abundant reserves?
and important part of the answer to that question came in the federal reserve's of authority on excesserest reserves. the congress granted the federal reserve that of authority in on excess reserves. 2006 to become effective in 2011 . however, in the fall of 2008, the congress moved up the effective date to october 2008. having authority to pay interest on excess reserves means the federal reserve can influence the federal funds rate and other short-term interest rates regardless of the amount of excess reserves in the banking system. the mechanics of the new framework are straightforward. banks will generally only provide short-term funding at an interest rate around or above what they could earn at the fed. as a result, if the federal reserve raised the rate it paid,
other short-term lending rates would likely rise as well. new approach for raising short-term interest rates is working well. since december 2015, we have raised the interest rate paid on excess reserves and the target range of the federal funds rate the00 basis points in affective federal funds rate has risen accordingly. light of our recent decision to start reducing our securities holdings this month, i would like to discuss a few aspects of our balance sheet strategy. it'smoc anticipated that decision to maintain the size of the federal reserve's security holdings at an elevated level until sometime after the beginning of rate hikes. what keeps the downward pressure on longer-term interest rates assetfter the end of its
purchase program. although estimates of the affective security holdings on longer-term interest rates are subject to uncertainty, a recent study reported that the federal reserve security holdings were reducing the term premium on the 10 year treasury yield by roughly one percentage point at the end of 2016. the guidance that the fmoc would eventually start a gradual and predictable reduction of the federal reserve security holdings implied that the downward pressure on longer-term yields would likely diminish over time as financial market participants came to expect that the start of balance sheet normalization was nearing. that process now underway, it is likely that our security holdings are now depressing the term premium on the 10 year yield by somewhat less than the one percentage point estimate reported for late
last year. that theactors suggest downward pressure on term premiums exerted by our securities holdings is likely to as ourh only gradually holdings shrink. for instance, as i have already noted, our intention to reduce our balance sheet by reducing reinvestment of repayments of principal on our holdings, haser than selling assets, been well communicated for several years now. as a result, we do not anticipate a jump in term premiums as our balance sheet reduction plan gets underway. addition, the maturity distribution of our securities holdings is such that it will normalize ours to holdings via runoff.
the judgment that the downward pressure on term premiums will decline only gradually as we reduce the size of our balance sheet stands in sharp contrast to evidence suggesting that this pressure built up rather quickly when we were expanding our balance sheet. under state -- to understand this contrast, remember, that unlike our plan to shrink our phases ofeet, area's our asset purchases had, to differing degrees, an element of surprise. with asset purchase announcements occasionally distinct imprint on the path of longer-term yields. moreover, each of our asset purchase programs resulted in a rapid increase of our securities holdings during a relatively short. . whereas the normally should process will play out gradually over many years. i focus thus far on the likely to oure of term premiums
balance sheet reduction plan. let me turn my attention briefly to the likely response of longer-term yields. reflect bothoted, the term premium component and expectations of the future path of short-term interest rates. while the available evidence points to a strong reaction of longer-term yields to our asset purchases, it is conceivable that those yields will react much more modestly to our balance sheet reduction plan. consider for instance, a hypotheticals -- a hypothetical scenario in which the fmoc has decided not to rely on ellen sheet reduction to scale back accommodation. to continue tod reinvest in definitely all principal payments from the federal reserve security
holdings. the financial market no changets perceived in the economic outlook and no intention on the part of the fmoc to alter the overall stance of monetary policy. to leaves inclination the size of the balance sheet taken as anuld be indication that the fmoc what instead rely more on increases in short-term interest rates to scale back accommodation. resulting in a faster pace of short-term interest rate hikes. on net, longer-term yields may be little affected by this hypothetical scenario. while a decreased emphasis on balance sheet reduction would depress term premiums and hold longer-term yields lower, the expected faster piece of short-term interest rate increases would push long-term
yields higher. financial crisis and great recession fades into the past and the stance of monetary policy gradually returns to normal, the natural question concerns the possible future role of the unconventional policy tools we deployed after the crisis. my colleagues on the fmoc and i believe that whenever possible, influencing short-term interest rates by targeting the federal funds rate should be our primary tool. as i have already noted, we have a long track record using these tools to pursue our statutory goals. in contrast, we have much more limited experience with using our securities holdings for that purpose. where does this assessment leave our unconventional policy tools?
i believe their deployment should be considered again if our conventional tool reaches its limit. that is, when the federal funds rate has reached its effective lower bound in the u.s. economy still needs further monetary policy accommodation. takethis mean it will another great recession for our unconventional tools to be used again? well, not necessarily. that theudies suggest neutral level of the federal funds rate appears to be much lower than it was in previous decades. fmoc participants now rss the longer run value of the neutral federal funds rate as only two and three quarters 4.25% just ared to few years ago. with a low neutral federal funds rate, there will typically be less scope for the fmoc to
reduce short-term interest rates in response to an economic downturn. raising the possibility that we would -- that we may need to resort again to enhanced forward rate guidance and asset neededes to provide accommodation. of course, substantial uncertainty surrounds any estimates of the neutral level of short-term interest rates. in this regard, there is an important asymmetry to consider. if the neutral rate turns out to be significantly higher than we currently estimate, it is likely that we will have to deploy our unconventional tools. again. -- it is lessorry likely that we will have to deploy our unconventional tools again. in contrast, if the neutral rate is as low as we estimate or to havee will be glad
our unconventional tools in our toolkits. the bottom line is -- we must recognize that our unconventional tools might have to be used again. if we are in deep living in a world, aal rate significantly less severe economic downturn and the great recession might be sufficient to drive short-term interest rates back to their effective lower bound. me conclude with a brief summary. as a result of the great recession, the federal reserve has confronted to key challenges over the past several years. one, the fmoc had to provide additional policy accommodation after short-term interest rates reached their effective lower bound. and two, subsequently, as we made progress towards the achievement of our mandate, we back thatrt scaling accommodation in the presence of a vastly expanded federal
reserve ellen sheet. today, i highlighted two points about the fmoc's experience with those challenges. tools the monetary policy that the federal reserve deployed in the immediate ,ftermath of the crisis explicit forward rate guidance and large-scale asset purchases and the payment of interest on excess reserves have helped us overcome these challenges. light of evidence suggesting that the neutral level of short-term interest rates is significantly lower than it was in previous decades, the likelihood that future monetary policy makers will have to confront those two challenges again is uncomfortably high. for this reason, we must keep our unconventional tools ready to be deployed again should short-term interest rates return
to their effective lower bound. thanks. let me stop there and i would be glad to take some questions. [applause] >> sorry about that. wow, so many questions. where to begin? ok. first question from the audience. has to do with inflation. persistently been lower than the feds to reset goal for sometime now. and in remarks earlier this year, you expressed the view that it may still be a couple of years before inflation reaches to present. the question is, is there a concern among you and your colleagues that this departure from the target rate has or will
affect the credibility of the fed? dr. yellen: it is a concern. it is important for central banks like the federal reserve and others that have an implicit numerical target, ours is to present, to amass a good track record in achieving and obviously, there will be deviations. headingshould always be towards it. it is of great concern that we have had five or six years in which inflation has persistently undershot our objective. thatcontinue to believe inflation expectations are well anchored and consistent with our 2% inflation objective but that is something that cannot and should not be taken for granted. i must admit that there is some evidence that inflation
expectations could have slipped. comes from household surveys like the michigan survey measuresmarket-based of inflation compensation which have come down notably. market-based measures are affected by things other the pure expectations about likely path of inflation. liquidity premiums in particular. but they have come down. it is of concern. and we definitely want to achieve our 2% inflation objective. i would say that i thought earlier this year my colleagues and i believed we were well on to meeting that objective. as recently as february, on a 12 month basis, in line inflation was running just a bit above 2%.
core inflation, excluding food and energy, was running at 1.9%. we have had a series of weeks inflation, core inflation, beginning in march. and the reasons for that are not immediately clear. as i pointed out previously, clearly one off reductions in prices of things like cell phone plans, may have played a role. but i would not claim that it is all of it. ofhave had a long period under shoe. i would not want to emphasize that until this year, 2017, although we missed our inflation target to the low side, it was not a mystery why those undershoots occurred. the story was first substantial
slack, high unemployment and in later years, it became more centered on a huge reduction in oil prices and a large appreciation of the dollar beginning in mid-2014 that brought down import prices. there really was not an undershoot is a concern, regardless of whether you understand it or not, but it was pretty understandable until this year. year has been a surprise. inflation is noisy. and surprises in the sense should not be surprising but it is a surprise and it is something we are watching closely. >> checking the clock. ok. versions ofultiple this question so i do think i need to ask it. you have talked about both conventional and unconventional monetary policy tonight.
and have emphasized the need to be ready to use both, possibly, in the future. -- ones another type could call it unconventional in this country, another type of monetary policy told that a lot of people have been asking about and that is a negative -- negative interest rates as a monetary policy told. there has been a lot of discussion of this in academic circles. the question is -- what is your view on using negative interest rates in such a fashion? this toolhave found helpful in previous years as the fed try to help the economy recover from the recession? on the your perspective success of negative interest rates on the policies in other countries? dr. yellen: let me say early on, after our target for the federal funds rate had been cut to close
to zero, we were still paying 25 basis points interest on reserves, we did consider cutting it a little further. we thought we only had a small amount of room to cut it and we did have concerns about the potential negative impact that could have on money markets functioning and that was one consideration. in our decision not to cut it further. found it was not necessary as the economy was recovering and we resorted to other tools. i have watched my colleagues and i the interest and use of this twin in a number of other countries. would be the most extreme case. economists have suggested ways in which rates could go even more negative.
i think this is something that potentially has benefit but it may also have costs over the longer term. it can have a negative impact on the functioning of the banking system and that has been a concern in some countries where it has been used. it is something i think is well we dostudying in case encounter future episodes where we hit the zero lower bound but, it was something that the fed decided not to use in this crisis. >> thank you. are almost out of time so this will be our last question. to tax reform. allhe fiscal side, of things. how important it is tax reform
to monetary policy, in particular if it reduces incentives and the double taxation of dividends? try to stay in my lane and i am not going to get involved in comments on outstanding tax reform programs .r the details normally, when people ask me is onuestion, the focus how does that affect the outlook and what is the fed's likely response? and i would say that fiscal policy is one of many factors affecting the outlook. there are many factors that are important. on fiscal policy, depending -- we have been uncertain of and what the size, timing, composition of fiscal policy changes might be. bothl policy can affect
aggregate demand but it can also affect aggregate supply if it is designed to have incentive effects that affect capital accumulation or technological change or labor force participation. lowersonal hope, given how the potential outlook growth and how weak productivity growth in this economy has been, my personal hope is that whatever congress passes will be a package that is rich in incentive fx on the supply side. it would boost to capital formation. it would spur productivity growth which would be supply side affects. i would say the appropriate response really depends on the nature of the tax package that is put into effect. but, all in all, it is one of
many factors that affect the economic outlook. >> thank you so much. that is all the time we have for questions. last order of the business before we can all start eating. chair yellen, on behalf of the national economists club, we this smallto present token of our appreciation for your time here tonight. it is one of our highly coveted coffee mugs. highly coveted. dr. yellen: i think it is within my ethics guidelines to accept. >> we checked with michelle smith. [applause] >> we thought it might prove useful for some of the early mornings and late evenings we are pretty sure that you do enjoy on occasion. dr. yellen: i do indeed. >> thank you so much. [applause]
>> that is it for remarks. dinner is served. please, everyone enjoyed. -- everyone enjoy. your calls and comments on washington journal. and, a senate hearing on the cost of prescription drugs. after that, the justice department announces the indictment of two chinese nationals on charges of conspiracy to traffic fentanyl and other synthetic opioids. this we can come on american history tv on c-span3, a look at controversial union and confederate generals during a live discussion with authors and historians from the historical park in petersburg, virginia starting today at 9:00 a.m. and sunday. america, abceel
school examines resistance to the vietnam war and the draft. >> we are living in the middle of a b-2. lyndon johnson is a common murderer and should be are rested. i think the peace movement should have the anger of a vietnamese woman whose child was burned by napalm, dropped by american planes. it is the anger the peace movement should reflect. the peace movement has to go into the streets and it has to use the tactic of disruption. >> on sunday, on oral histories, we continue our series on dianaournalist with walker, former time magazine white house photographer. >> i felt i should accept their offers to be behind the scenes every time they offered it because, anytime you see the
president of the united states, behind the scenes, you learn something about the president. and you see something. and it is important i can be there for you. you cannot be there. and everything i see is important. american history tv, all weekend, every weekend, only on c-span3. defensemorning, executive editor kevin baron talks about the u.s. military presence in niger and the death of four american servicemembers earlier this month. and then dissent magazine contributor kate looks at the role they could play in transforming the energy sector. and later, stuart taylor, co-author of the "campus race the -- and discusses
as always, we will take your calls and you can join the conversation on facebook and twitter as well. washington journal is next. ♪ .ost: good morning saturday, the 21st, 2017. today, the headlines on the ongoing war of words between the white house and a member of congress over the way president donald trump contacts gold star family's. after the chief of staff john kelly accused frederica wilson of grandstanding about securing funds for a net the i memorial, a video of the dedication -- contradicted his account. another report suggests the white house scrambled to contact other gold star family's after president trump