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Recent FedSpeak Highlights

  • William C. Dudley [Our early estimates would suggest] a normalized balance sheet size of, perhaps, $2.4 trillion to $3.5 trillion in the early 2020s.

    [ September 17, 2017 ]

    This leads us to the next question:  Assuming that a floor system is retained, what amount of reserves will be needed in the banking system so that day-to-day open market operations are not necessary to keep the federal funds rate within its target range?

    As a rough starting point, we have suggested that the necessary amount of excess reserves could be in a range of $400 billion to $1 trillion.   Coupled with uncertainty about the likely growth in other factors, such as currency outstanding, this implies a normalized balance sheet size of, perhaps, $2.4 trillion to $3.5 trillion in the early 2020s.  

  • Loretta J. Mester There hasn’t been enough evidence that inflation is on a different trajectory now. This gradual path balances the risks on both sides, and I would stick with it longer.

    [ September 7, 2017 ]

    “The conditions remain in place for inflation to gradually return over the next year or so to our symmetric goal of 2 percent on a sustained basis,” Mester, one of the more hawkish officials at the U.S. central bank, said in a speech Thursday in Pittsburgh.

    “There hasn’t been enough evidence that inflation is on a different trajectory now,” she said. “This gradual path balances the risks on both sides, and I would stick with it longer.”

  • Neel Kashkari These premature rate hikes that we are embarking on, they’re not free, and I think we need to remind ourselves of that.

    [ September 5, 2017 ]

    “It’s very possible that our rate hikes over the past 18 months are leading to slower job growth, leaving more people on the sidelines, leading to lower wage growth, and leading to lower inflation and inflation expectations,” Kashkari said Tuesday during a talk at the University of Minnesota in Minneapolis. “These premature rate hikes that we are embarking on, they’re not free, and I think we need to remind ourselves of that.”

  • Lael Brainard I consider normalization of the federal funds rate to be well under way, the criterion for commencing balance sheet normalization. The approaching change to our reinvestment policy has been clearly communicated and is well anticipated.

    [ September 5, 2017 ]

    I consider normalization of the federal funds rate to be well under way, the criterion for commencing balance sheet normalization. The approaching change to our reinvestment policy has been clearly communicated and is well anticipated.

  • Lael Brainard I am concerned that the recent low readings for inflation may be driven by depressed underlying inflation, which would imply a more persistent shortfall in inflation from our objective. In that case, it would be prudent to raise the federal funds rate more gradually. We should have substantially more data in hand in the coming months that will help us make that assessment.

    [ September 5, 2017 ]

    Once balance sheet normalization is under way, I will be looking closely at the evolution of inflation before making a determination about further adjustments to the federal funds rate. We have been falling short of our inflation objective not just in the past year, but over a longer period as well. My own view is that we should be cautious about tightening policy further until we are confident inflation is on track to achieve our target.

    To the extent that the neutral rate remains low relative to its historical value, there is a high premium on guiding inflation back up to target so as to retain space to buffer adverse shocks with conventional policy. In this regard, I believe it is important to be clear that we would be comfortable with inflation moving modestly above our target for a time.

    ...

    To conclude, much depends on the evolution of inflation. If, as many forecasters assume, the current shortfall of inflation from our 2 percent objective indeed proves transitory, further gradual increases in the federal funds rate would be warranted, perhaps along the lines of the median projection from the most recent SEP. But, as I noted earlier, I am concerned that the recent low readings for inflation may be driven by depressed underlying inflation, which would imply a more persistent shortfall in inflation from our objective. In that case, it would be prudent to raise the federal funds rate more gradually. We should have substantially more data in hand in the coming months that will help us make that assessment.

  • Loretta J. Mester I am not there yet. I still think we need to start bringing back some of the accommodation... [Risks to the Fed's current median forecast of one more rate hike this year and three next year] are balanced.

    [ August 16, 2017 ]

    "I am not there yet. I still think we need to start bringing back some of the accommodation," by raising rates and pressing forward with plans to reduce the size of the Fed's asset holdings, Mester, who is toward the central bank's hawkish wing, told Reuters.

    Risks to the Fed's current median forecast of one more rate hike this year and three next year "are balanced," she added.

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    Reuters Interview
  • Stanley Fischer It took almost 80 years after 1930 to have another financial crisis that could have been of that magnitude. And now after 10 years everybody wants to go back to a status quo before the great financial crisis. And I find that really extremely dangerous and extremely short-sighted

    [ August 16, 2017 ]

    It took almost 80 years after 1930 to have another financial crisis that could have been of that magnitude. And now after 10 years everybody wants to go back to a status quo before the great financial crisis. And I find that really extremely dangerous and extremely short-sighted. One can understand the political dynamics of this thing, but one cannot understand why grown intelligent people reach the conclusion that [you should] get rid of all the things you have put in place in the last 10 years.

  • William C. Dudley If [the economy] evolves in line with my expectations, I would be in favor of doing another rate hike later this year.

    [ August 14, 2017 ]

    If [the economy] evolves in line with my expectations, I would be in favor of doing another rate hike later this year.

  • William C. Dudley I don't think the expectations of market participants [for a September start for the balance sheet reduction process] are unreasonable.

    [ August 14, 2017 ]

    I don't think the expectations of market participants [for a September start for the balance sheet reduction process] are unreasonable.

  • Neel Kashkari People are worried that, if wages start to climb, if businesses have to compete with each other, you may not get gradual wage growth, you might all of a sudden get an acceleration in wages… I call this -- and I mean this with no disrespect -- I call this a ghost story.

    [ August 11, 2017 ]

    “People are worried that, if wages start to climb, if businesses have to compete with each other, you may not get gradual wage growth,” he said Friday during a talk in Bloomington, Minnesota. “You might all of a sudden get an acceleration in wages.”

    “I call this -- and I mean this with no disrespect -- I call this a ghost story, meaning, I cannot prove to you that there’s not a ghost underneath this table,” he said. “I cannot prove it definitively. There may be. But there is no evidence that there is a ghost under this table. There is no evidence in any of the data that wages have this acceleration factor and are all of a sudden going to take off.”

  • Charles L. Evans I personally think that it would be quite reasonable to [begin trimming the Fed's balance sheet] in September

    [ August 9, 2017 ]

    A move to begin shrinking the balance sheet makes sense because it probably won’t have a big impact on financial markets or the economy, and “I personally think that it would be quite reasonable to do that in September, on the basis of the data I’ve seen so far,” he said.

  • John Williams My own view is that it will be appropriate to start [the balance sheet reduction] process this fall.

    [ August 2, 2017 ]
  • Janet L. Yellen As I noted earlier, the economic outlook is always subject to considerable uncertainty, and monetary policy is not on a preset course... In this regard, as we noted in the FOMC statement last month, inflation continues to run below our 2 percent objective and has declined recently; the Committee will be monitoring inflation developments closely in the months ahead.

    [ July 12, 2017 ]

    As I noted earlier, the economic outlook is always subject to considerable uncertainty, and monetary policy is not on a preset course. FOMC participants will adjust their assessments of the appropriate path for the federal funds rate in response to changes to their economic outlooks and to their judgments of the associated risks as informed by incoming data. In this regard, as we noted in the FOMC statement last month, inflation continues to run below our 2 percent objective and has declined recently; the Committee will be monitoring inflation developments closely in the months ahead.

  • Janet L. Yellen I try not to opine on the level of asset prices, although our report notes that valuations, generally, are toward the top of their historical ranges. What I try to think about is, if there are adjustments in asset prices, what consequences would they have on our financial system, in our economy.  And, in that context, look for evidence that searching asset prices might be leading to imprudent borrowing, a build up in leverage in the economy that would be dangerous if the prices were to unwind. And we're not seeing that so ...  financial stability risks, at this point, [appear] moderate.

    [ July 12, 2017 ]

    In looking at asset prices and valuations, we try not to opine on whether they are correct or they're not correct. But as you asked what the potential spillovers or impacts on financial stability could be of asset price revaluations, my assessment of that is that, as asset prices have moved up, we have not seen a substantial increase in borrowing based on those asset price movements. We have a financial system, a banking system that's well-capitalized and strong, and I believe it's resilient. 

    [And later...]

    I try not to opine on the level of asset prices, although our report notes that valuations, generally, are toward the top of their historical ranges. What I try to think about is, if there are adjustments in asset prices, what consequences would they have on our financial system, in our economy.  And, in that context, look for evidence that searching asset prices might be leading to imprudent borrowing, a build up in leverage in the economy that would be dangerous if the prices were to unwind. And we're not seeing that so ... [we judge that] financial stability risks, at this point, are moderate.

  • Lael Brainard I consider normalization of the federal funds rate to be well under way. If the data continue to confirm a strong labor market and firming economic activity, I believe it would be appropriate soon to commence the gradual and predictable process of allowing the balance sheet to run off.

    [ July 11, 2017 ]

    In light of recent policy moves, I consider normalization of the federal funds rate to be well under way. If the data continue to confirm a strong labor market and firming economic activity, I believe it would be appropriate soon to commence the gradual and predictable process of allowing the balance sheet to run off.

    Once that process begins, I will want to assess the inflation process closely before making a determination on further adjustments to the federal funds rate in light of the recent softness in core PCE (personal consumption expenditures) inflation. In my view, the neutral level of the federal funds rate is likely to remain close to zero in real terms over the medium term. If that is the case, we would not have much more additional work to do on moving to a neutral stance. I will want to monitor inflation developments carefully, and to move cautiously on further increases in the federal funds rate, so as to help guide inflation back up around our symmetric target.

  • Patrick Harker Let’s start the process of ceasing reinvestment. Let’s see how the market reacts to that, and then consider the third rate increase this year—whether that occurs or not.

    [ July 11, 2017 ]

    “Let’s start the process of ceasing reinvestment,” he said. “Let’s see how the market reacts to that, and then consider the third rate increase this year—whether that occurs or not.”

    Mr. Harker also said the exact timing of the central bank’s balance-sheet wind-down hasn’t been decided, but he “fully expects” it to start this year.

  • Loretta J. Mester I don’t think there’s anything, like, fundamental that says you couldn’t do both [asset sales and rate hikes] at the same time.

    [ July 6, 2017 ]

    I don’t think there’s anything, like, fundamental that says you couldn’t do both [asset sales and rate hikes] at the same time, alright? So really what we do with our funds rate path depends on what the economy is doing and how we see the outlook, etc. The balance sheet, again, because the change in the reinvestment policy is such a gradual one (other than the signaling effect that it might have — which we’re hoping that the communication is handling) there isn’t any reason not to start that early, just because it’s a very slow reduction in the size of the balance sheet. And to get the balance sheet down significantly it’s going to take several years. I mean, it’s not like something that’ll change overnight.

    So again, that’s sort of in the background, right? It’s not really an active, what I would say, policy tool at this point. The idea was set it and forget it—you know, like that old Ronco ad. You know, right? You just sort of do it, set it, let it go in the background. And then our main policy tool, of course, is going to be the short-term interest rate. And that’s the way I view it. And so could we do both at the same time? Sure. It depends on what the economy is doing.

  • James Bullard I think it’s more prudent to announce a balance-sheet adjustment at a press conference meeting. So September is more likely [than July].

    [ June 29, 2017 ]

    I think it’s more prudent to announce a balance-sheet adjustment at a press conference meeting. So September is more likely [than July].

  • Janet L. Yellen Would I say there will never, ever be another financial crisis?  You know, probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be,

    [ June 27, 2017 ]

    “Would I say there will never, ever be another financial crisis?” Yellen said at a question-and-answer event in London.

    “You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be,” she said.

    Yellen said it would “not be a good thing” if reforms of the financial services industry since the crisis were unwound, and urged those who had helped manage the fallout at the time to be vocal in preventing such a dilution.

  • Stanley Fischer The increase in prices of risky assets in most asset markets over the past six months points to a notable uptick in risk appetites

    [ June 27, 2017 ]

    The increase in prices of risky assets in most asset markets over the past six months points to a notable uptick in risk appetites, although this shift has not yet led to a pickup in the pace of borrowing or a sizable rise in leverage at financial institutions.

    The general rise in valuation pressures may be partly explained by a generally brighter economic outlook, but there are signs that risk appetite increased as well. For example, estimates of equity and bond risk premiums are at the lower end of their historical distributions, and, relative to some non-price-based measures of uncertainty, the implied volatility index VIX is particularly subdued. So far, the evidently high risk appetite has not lead to increased leverage across the financial system, but close monitoring is warranted.