Yellen Transcript

8/12/2019 Yellen Transcript

1/14

YELLEN:Goodafternoon.I'mpleasedtojoinyouforthefirstofmypostFOMCpressconferences.Like

ChairmanBernankebeforeme,Iappreciatetheopportunitythesepressconferencesaffordtoexplain

thedecisionsoftheFOMCandrespondtoyourquestions.

TheFederalOpenMarketCommitteeconcludedatwodaymeetingearliertoday.Asyoualreadyknow

fromourstatement,thecommitteedecidedtomakeanothermodestreductioninthepaceofits

purchasesoflongertermsecurities.Thecommitteealsoupdateditsguidanceregardingthelikelyfuture

pathoftheshortterminterestrates.AsI'llexplainmorefullyinamoment,thischangeinourguidance

doesnotindicateanychangeinthecommittee'spolicyintentionsassetforthinitsrecentstatements.

YELLEN:Rather,thechangesmeanttoclarifyhowthecommitteeanticipatespolicyevolvingafterthe

unemploymentratedeclinesbelow6.5percent.letmeexplaintheeconomicoutlookthatunderlies

theseactions.Despitesomesofterrecentdata,theFOMC'soutlookforcontinuedprogresstowardour

goalsofmaximumemploymentandinflationreturningtotwopercentremainsbroadlyunchanged.

UnusuallyharshweatherinJanuaryandFebruaryhasmadeassessingtheunderlyingstrengthofthe

economyespeciallychallenging.Broadlyspeaking,however,thespendingandproductiondata,while

somewhatweakerthanwehadexpectedinJanuary,areroughlyinlinewithourexpectationsasof

December,thelasttimecommitteeparticipantssubmittedeconomicprojections.

Incontrast,labormarketconditionshavecontinuedtoimprove.Theunemploymentrate,at6.7percent,

isthreetenthslowerthanthedataavailableatthetimeoftheDecembermeeting.Further,broader

measuresofunemploymentsuchastheU6measure,whichincludesmarginallyattachedworkersand

thoseworkingparttime,butpreferringfulltimeworkhavefallenevenmorethantheheadline

unemploymentrateoverthisperiod.Andlaborforceparticipationhastickedup.

Well,thecommitteecontinuestomonitordevelopmentsinglobalfinancialmarketscarefully.Financial

conditionsremainbroadlyconsistentwiththeFOMC'sobjectives.Insome,theFOMCcontinuestosee

sufficientunderlyingstrengthintheeconomytosupportongoingimprovementinthelabormarket.

Inflationhas

continued

to

run

below

the

committee's

two

percent

objective.

Given

that

longer

term

inflationexpectationsappeartobewellanchored,andinlightoftheongoingrecoveryintheUnited

Statesandinmanyeconomiesaroundtheworld,theFOMCcontinuestoexpectinflationtomove

graduallybacktowardsitsobjective.

Thecommitteeismindfulthatinflationrunningpersistentlybelowitsobjectivecouldposerisksto

economicperformance.Thecommitteealsorecognizes,however,thatpolicyactionstendtoexert

pressureoninflationthatismanifestonlygraduallyovertime.TheFOMCwillcontinueassessing

incomingdatacarefullytoensurethatpolicyisconsistentwithattainingtheFOMC'slongerrun

objectivesofmaximumemploymentandinflationoftwopercent.

Thisoutlookisreflectedintheindividualeconomicprojectionssubmittedinconjunctionwiththis

meetingbythe16FOMCparticipants,fourboardmembers,and12reservebankpresidents.Asalways,

eachparticipant'sprojectionsareconditionedonhisorherownviewofappropriatemonetarypolicy.

YELLEN:Thecentraltendencyoftheunemploymentrateprojectionshasshifteddownbyabouttwo

tenthssinceDecember,andnowstandsatbetween6.1percentand6.3percentattheendofthisyear.

Theunemploymentrateisprojectedtoreachit'slongerrunnormallevelbytheendof2016.


2/14

ThecentraltendencyoftheprojectionsforrealGDPgrowthstandsat2.8percentto3percentfor2014,

andremainssomewhatabovethatoftheestimatesoflongerrunnormalgrowththrough2016.

Meanwhile,asInoted,FOMCparticipantscontinuetoseeinflationmovingonlygraduallybacktoward2

percentovertimeastheeconomyexpands.Thecentraltendencyoftheinflationprojectionsis1.5

percentto1.6percentin2014,risingto1.7percentand2.0percentin2016.

Letmenowreturntoourdecisiontomakeanothermeasuredreductioninthepaceofassetpurchases.

Startingnextmonth,wewillbepurchasing$55billionofsecuritiespermonth,down$10billionper

monthfromourcurrentrate.

Evenaftertoday'sactiontakeseffect,wewillcontinuetosignificantlyexpandourholdingsoflonger

termsecuritiesandwewillalsocontinuetorollovermaturingtreasurysecuritiesandreinvestprincipal

paymentsfromtheFOMC'sholdingsofagencydebtandagencymortgagebackedsecurities.

Thesesizableandstillincreasingholdingswillcontinuetoputdownwardpressureonlongerterm

interestrates,supportmortgagemarkets,andmakefinancialconditionsmoreaccommodative,helping

tosupportjobcreationandareturnofinflationtothecommittee'sobjective.

TheFOMCviewstoday'sdecisiontoreducethepaceofassetpurchasesasconsistentwiththedecision

makingframeworklaidoutlastDecemberandstillinplacetoday.Asbefore,ifincominginformation

broadlysupportsthecommittee'sexpectationofongoingimprovementinlabormarketsandinflation

movingbackovertimetowardit'slongerrunobjective,thecommitteewilllikelycontinuetoreducethe

paceofassetpurchasesinmeasuredstepsatfuturemeetings.

However,purchasesarenotonapresetcourseandthecommittee'sdecisionsaboutthepaceof

purchasesremaincontingentonitsoutlookforjobsandinflation,aswellasitsassessmentofthelikely

efficacyandcostsofsuchpurchases.

Today,

(inaudible)

short

term

interest

rates.

As

emphasized

in

the

statement,

the

new

guidance

does

notindicateanychangeinthepolicyintentionsoftheFOMC,butinsteadreflectschangesinthe

conditionsweface.Letmeexplainthismorefully.

InDecember2012,thecommitteefirststateditsguidanceintermsofeconomicthresholds,stipulating

thatthecurrentlowrangeofthefederalfundsratetargetwouldbeappropriateatleastaslongasthe

unemploymentrateremainsabove6.5percent.Inflationisprojectedtobenomorethanahalf

percentagepointaboveourlonger rungoal,andlongerterminflationexpectationsremainwell

anchored.

YELLEN:Sincethattime,progressinthelabormarkethasbeenmorerapidthanwehadanticipated,

whileinflationhasbeenlowerthanthecommitteehadexpected.Althoughthethresholdsservedwellas

auseful

guide

to

policy

over

the

past

year,

last

December

the

FOMC

judged

it

appropriate

to

update

thatguidance,notingthatthecurrenttargetrangeforthefederalfundsratewouldlikelybemaintained

wellpastthetimetheunemploymentratedeclinesbelow6.5percent,especiallyifprojectedinflation

continuestorunbelowthecommittee's2percentlongerrungoal.

Today,thecommitteehasfurtherreviseditsforwardguidancetobetterreflectconditionsastheynow

standandarelikelytoevolveovercomingquarters.Therevisedformulationstartswithageneral


3/14

descriptionofthefactorsthatdriveFOMCdecisionmaking,andthenprovidestheFOMC'scurrent

assessmentofwhatthosefactorswilllikelyimplyforthefuturepathofshortterminterestrates.

Inparticular,thecommitteestatesthatindetermininghowlongtomaintainthecurrentzeroto0.25

percentfederalfundrate,itwillassessprogress bothrealizedandexpected towardsitsobjectivesof

maximumemploymentand2percentinflation.Inshort,thelargertheshortfallofemployment,or

inflation,fromtherespectiveobjectivesetbytheFOMCandthelongeranysuchshortfallisexpectedto

persist,thelongerthetargetfederalfundsrateislikelytoremaininthepresentzeroto0.25percent

range.

TheFOMCwillbaseitsongoingsettlementonawiderangeofinformationincluding:Measuresoflabor

marketconditions,indicatorsofinflationpressures,andinflationexpectationsandreadingsonfinancial

developments.

AsI'venotedtheFOMC'sassessmentofthosefactors,atpresent,isconsistentwiththecharacterization

providedinpreviousforwardguidance.Thecommitteecontinuestoanticipatetheconditionswilllikely

warrantmaintainingthecurrentrangetothefederalfundsrateforaconsiderabletimeaftertheacid

purchaseprogram

ends,

especially

if

projected

inflation

continues

to

run

below

the

committee's

2

percentlongerrungoalandprovidedthatlongerterminflationexpectationsremainwellanchored.

TheFOMCalsosupplementeditsguidancepertainingtotheperiodaftertheassetpurchaseprogram

endsandtheinitialincreaseinthefederalfundsratetargethasoccurred.Thestatementcontinuesto

notethat,indecidingonthepaceforremovingaccommodations,thecommitteewilltakeabalanced

approachtoattainingitsobjectives.

Thestatementnowadds,thecommittee'scurrentanticipationthat,evenafteremploymentand

inflationarenearmandateconsistentlevels,economicconditionsmayforsometime,warrantkeeping

shortterminterestratesbelowlevelsthecommitteeviewsasnormalinthelongerrun.

Thisguidance

is

consistent

with

the

paths

for

appropriate

policy

as

reported

in

the

participant's

projections,whichshowedthefederalfundsrateformostparticipantsremainingwellbelowlongerrun

normalvaluesattheendof2016.

AlthoughFOMCparticipantsprovideanumberofexplanationsforthefederalfundsratetarget,

remainingbelowitslongerrunnormallevel,manycitetheresidualimpactsofthefinancialcrisisand

somenotethatthepotentialgrowthrateoftheeconomymaybeloweratleastforatime.

Insummary,thecommittee'sactionstodayreflecteditsassessment,thatprogressinthelabormarketis

continuing,butmuchremainstobedoneonboththejobsandinflationfronts.Unemploymentisstill

elevated.Underemployment,andlongtermunemployment,remainsignificantconcernsandinflationis

running

significantly

below

the

FOMC's

objective.

These

conditions

warrant

the

continuation

of

highly

accommodativepolicyreflectedintoday'spolicystatement.

TheFederalReserve'sinterestrateguidance,anditssubstantialstillincreasingholdingsoflongerterm

securitieswillensurethatmonetarypolicyremainshighlyaccommodativepromotingtheFOMC's

objectivesofmaximumemploymentandprice.

Thankyou.I'llbegladtotakeyourquestions.


4/14

QUESTION:MadamChair.MartyKretzinger(ph)withtheAssociatedPress.Couldyougiveusalittle

insightinhowthedecisionwasmadeondroppingthe6.5percentnumericaltargetintheforward

guidance?Wasthereanyconcernexpressedthatthere'sbeencriticismonforwardguidance,thatit's

confusingmarkets,nothelpingtheminsomeways?Wasthereconcernexpressedthatperhapsit

wouldhavebeenbettertogotojustalowertarget,say,sixpercent,andcouldyoualsoaddressthe

concernsraisedinthedissentthatbydroppingthis,itlowersthecommitmentonfightinglowinflation?

Thankyou.

YELLEN:Thanks.Well,asImentionedinmystatement,thereasonthecommitteefeltthatthetimehad

cometorevisetheforwardguidanceisnotbecausewethinkithasnotbeeneffective.Ibelievethe

committeedoesthinkit'sbeeneffective.Ithinkit'shadaveryusefulimpactinhelpingmarkets

understandourexpectationsandshapingtheirown.But,itisbecoming,astheunemploymentrates

getscloserandcloserto6.5percent,tobreachingthatthresholdthatseemsliketheonethatislikelyto

bebreached.

Thequestion

is,

markets

want

to

know,

the

public

wants

to

understand

beyond

that

threshold

how

willwedecidewhattodo?Sothepurposeofthischangeissimplytoprovidemoreinformationthan

wehaveinthepast,eventhroughitisqualitativeinformationaboutwhatwewillbelookingatasthe

unemploymentratedeclinesbelow6.5percentindecidinghowlongtoholdthefederalfundsrateat

thiszerotoaquarterpercentrange.AndasI'vesaid,we'vetriedtogiveageneralformulationofwhat

we'llbelookingat,whichishowfararewe,howlargearetheshortfallsinachievingourgoals,and

howfastcanweexpectprogresstobe?Thatwillbethemainfactorswe'llbelookingat.

Weinitiallystartedwithanunemploymentrateasathreshold.Itwaseasyenoughforthecommitteeto

say,"withanunemploymentrateabove6.5percent,weknowwe'renotclosetofullemployment,not

closetoanemploymentlevelconsistentwithourmandate,andunlessinflationwereasignificant

concern,we

wouldn't

dream

of

raising

the

federal

funds

rate

target.

Now,thecommitteehasneverfeltthattheunemploymentrateisasufficientstatisticforthelabor

market.IthinkifIhadtochooseoneindicatorofthelabormarket,theunemploymentrateisprobablya

goodaoneasIcouldfind,butinassessingtherealstateofslackinthelabormarketandultimatelyof

inflationarypressuresthatmight,ordeflationarypressuresthatcouldresultfromthat,it'sappropriate

tolookatmanymorethings,andthat'swhythecommitteenowstateswewilllookatabroadrangeof

information.Sothecloserwegetaswenarrowinoncomingclosertothetargetwewanttoachieve,we

willbecarefullyconsideringmanyindicatorsofhowclosearewetoourtarget,sothosearethemain

themainreasons.

Now,youaskedaswellaboutthedissent.PresidentKochurLakota(ph)felt,Ibelievehenotedinhis

dissent,thatheendorsesthenewguidanceaboutthelikelypathofthefederalfundsrateafterwebegin

tofinallyraiseit.

Andthatindicatesthatit'sunlikelytobebacktonormallevelsforsometime,buthequestionswhether

ornotthereformulatedforwardguidanceshowssufficientcommitmentofthecommitteetoitstwo

percentinflationobjective,andIwillsimplysayonmyownbehalfandonbehalfofthecommitteethat

wearefullycommittedtothetwopercentinflationobjective,andwedonotwanttoundershoot


5/14

inflationforaprolongedperiodoftime.

YELLEN:AsImentioned,monetarypolicyoperateswithlags,sothepolicieswehaveinplacewethink

willgradually,onlygraduallymoveinflationbacktotwopercent.Butifthecommitteehadrealconcerns

thatinflationwasgoingtoremainpersistentlybelow2percent,Ifeelconfidentthatthecommittee

wouldacttopreventthat.

QUESTION:JohnHilsenrathfromTheWallStreetJournal.

ChairYellen,intheinterestrateprojectionsmadebyFOMCparticipantsthatsupplementyour

statement,thereseemstobeaslightupwarddriftintheexpectationsforratesgoingoutto2016.For

instance,amajorityofofficialsseeratesat1percentorhigherinthisforecastround.Inthelastforecast

round,amajoritysawofficials(ph)lessthan1percent.

Iwonderifyoucouldexplainwhythereisthissmallupwarddriftinexpectedratesamongcommittee

members;whethertheseprojectionsareagoodguideforthepublicaboutwhererates aboutthe

pathofratesgoingforward;andalsohowyoureconcilethisupwarddriftwiththeassurancesthatthe

committeemakesinitsstatementthatrateswillstaybelownormallevelswellintothefuture.

YELLEN:Well,I tomymind,thereisonlyverylimitedupwarddrift.Youknow,thecommittee Ithink

thecommitteeinassessingtheeconomy,ifyoucomparedtoday'sassessmentwithDecember's,is

virtuallyidentical.Almostnothinghaschangedintheoverallcommitteeassessmentoftheoutlook.AsI

mentioned,unemploymenthascomedown.ThelabormarketmorebroadlyIthinkhasimprovedalittle

morethanwemighthaveexpected.Andthatslightlymorerapidimprovementintheunemployment

picturemightexplainIcan'tspeakforwhypeoplewritedownwhattheydo butalittlebitofthe

upwardshiftinthosedots.

Butmoregenerally,Ithinkthatoneshouldnotlooktothedot plot,sotospeak,astheprimarywayin

whichthecommitteewantstoorisspeakingaboutpoliciestothepublicatlarge.TheFOMCstatement

isthe

device

that

the

committee

as

a

policy

making

group

uses

to

express

its

its

opinions.

And

we

have

expressedanumberofopinionsaboutthelikelypathofrates.

Inparticular,thecommitteehasendorsedtheviewthatitanticipatesitwillbeaconsiderableperiod

aftertheassetpurchaseprogramendsbeforeitwillbeappropriatetobegintoraiserates.Andof

course,onourpresentpath,that'snotutterlypreset,wewouldbelookingatnext nextfall.SoIthink

that'simportantguidance.

Lookingfurtherout,let'ssayifyoulookattowardtheendof2016,whenmostparticipantsare

projectingthattheemploymentsituation,thattheunemploymentratewillbeclosetotheirnotionsof

mandateconsistentorlongerrunnormallevels.Whatyousee Ithinkifyoulook,thistimeifyougaze

at

the

picture

from

December

or

September,

which

is

the

first

year

that

we

showed

those

dot

plots

for

theendof2016,isthemassivepointsthatarenotablybelowwhattheparticipantsbelievedisthe

normallongerrunlevelfornominalshorttermrates.Andthecommitteetodayforthefirsttime

endorsedthatasacommitteeview.

SoIthinkthat'ssignificant.Ithinkthat'swhatweshouldbepayingattentionto.AndIwouldsimply

warnyouthatthesedots thesedotsaregoingtomoveupanddownovertime,alittlebitthiswayor


6/14

that.ThedotsmoveddownalittlebitinDecemberrelativetoSeptember.Andtheymovedupeverso

slightly.Ireallydon'tthinkit'sappropriatetoreadverymuchintoit.

YELLEN:Moregenerally,youknow,thelendof2016isalongwayout.Monetarypolicywillbegearedto

evolvingconditionsintheeconomy.Andthepublicdoesneedtounderstandthatasthoseviewsevolve,

thecommittee'sviewsonpolicywilllikelyevolvewiththem.Andthat'sakindofuncertaintythatthe

committeewouldwanttoeliminatecompletelyfromitsguidance,becausewewantthepolicyweputin

placetobeappropriatetotheeconomicconditionsthatwillprevailyearsdowntheroad.

QUESTION: SteveLiesman(ph),CNBC.Iwishtolooknottothedots,buttothestatementasyou

suggestmadamchair.Andthatoneparticularparagraph,whichsaysthatthecommitteeanticipatesa

lowerthannormalrateevenonceyoureturntothelongrun.SojustsoIunderstandcorrectly,itmeans

onceyouhitthelongerrununemploymentrateof whichisthe(inaudible)averageofbeing5.4

percentonceyouget2percentinflationrate,themarketshouldnotthenanticipatethelongerrun4

percentFedfundsrate?

Andthatwouldbequestionone.

Questiontwois,doesn'tthatimplicitlysuggestashallowerglidepathonceyoutakeoff,oronceFed

fundsrateswouldbegin whenyoufirsthikethem wouldn'tthatsuggestashallowerglideafterthe

fundsrate?

YELLEN:Yes,Ithinkitdoessuggestshallowerglidepath.Andwhatthecommitteeisexpressinghere,I

wouldsay,isitsforecastofwhatwillbeappropriatesomeyearsfromnowbasedonits the

understandingthatwe'lldevelopaboutwhataretheeconomicforcesthathasbeendrivingeconomic

activity.

We'vehadaseriesofyearsnowinwhichgrowthhasprovendisappointing.Now,membersofthe

committeehavedifferentviewsaboutwhythisislikelytobetruethatthefundsrate,whenthelabor

marketis

normalized

and

inflation

is

back

to

our

objective,

may

be

have

slightly

different

views

on

exactlywhyit'slikelytobethecasethatinterestrateswillbelittlelowerthantheywouldinthelonger

run.

Butformanyit'samatterofheadwindsfromthecrisisthathavetakenaverylongtimetodissipateand

arelikelytocontinuebeingoperative.

SosomeexamplesIwouldsayiswehaveundermanyhouseholdsareundergoingbalancesheet

repair.Thereareunderwatermortgageholders,difficultiesthereforeingainingaccesstocredit,for

example,throughhomeequitylinesofcredit.Forsomethatmakesitdifficulttofinancesmall

businesses.Mortgagecreditisverydifficultforthosestilltogetwithoutpristinecreditscores.

That'simprove

somewhat

over

time.

But

it's

not

back

to

normal.

Forsomefiscalpolicyissomewhattighterthanwouldbeexpectedoverthenextseveralyears.Forsome

it'sheadwindsfromtheglobaleconomyplayaroleaswell.But,thegeneralassessmentisthateven

afterwe'vehadanaccommodativemonetarypolicyforlongenoughtogettheeconomybackontrack

inthesenseofmeetingourobjectives,thestanceofpolicythatwillbeappropriatetoaccomplishthat

won'tbeeasierorinvolvedsomewhatlowerthanwouldbenormalshortterminterestrates.


7/14

Now,eventuallyyearslatermostpeoplethinktheywillgobackup.But,asyousaid,thatsuggestthe

pathwillbegradual.But,Idowanttoemphasizethisisaforecast.Andthisisthecommittee'sforecast

basedonitsunderstandingoftheeconomyatthistime.Aswewatchtheeconomyoverthenextseveral

yearsthatcouldevolve.

QUESTION:Hi(inaudible)fromtheWashingtonPost.

YoumentionedinyourtestimonyonCapitolHillthattheFedwastryingtoassessthebalanceof

weathereffectsversusweaknessintheeconomyasthereasonfortheslowdowningrowthinthefirst

quarter.

Youguysmentionedspecifically,doesthatmeanthattheFedanalysishascomedownonthesideof

weather,oryoustillconcernedtherecouldbesomethingelsegoingonthatcouldbecontributingto

slowergrowth?AndyouguysalsoloweredyourforecastforGDPgrowththisyear.

YELLEN:So I'dsay,certainlytheanalysisthatwe'vedone andwedidspendalotoftimediscussing

weatherandhowit'saffectedbusinessesandhouseholdsinvariouspartsofthecountry certainly

weatherhasplayedanimportantroleinweakeningeconomicactivityinQ1.It'snottheonlyfactorthat

isatworkandmostprojectionsforgrowthinthefirstquarterarereasonablyweak.It'sanimportant

factor.

It'snottheonlyfactor.ButIwouldsayit'slikelyintheviewofmostofthecommitteetobegintowash

outinthesecondquarterandwecanevenseesomerebound.

Now,Iwouldsay,Iknowwhatwe'vesaidaboutweatherisalittlebitcomplicatedandconfusing,so,you

know,letmejustsaybetweenDecemberandJanuary,thecommitteesawdatathatledittobequitea

bitmoreoptimisticabouttheeconomicoutlook.So,Iwouldsayincomingdatasince sinceJanuary,

whenourstatementsoundedquiteanoptimistictone,partydownduetoweather,andpartlydown

becauseweprobablyoverdidtheoptimisminJanuary.So,insomesense,ourviewshavemovedaround

herea

little

bit,

but

if

we

take

December

to

March,

committee's

views

are

largely

unchanged.

QUESTION:HiMadamChair,I'mJimPuzengera(ph)withtheL.A.Times.You'vebeenon you'veserved

inthefedpreviously.I'mwonderingnow,inthepastfewweeks,as aschairwoman,what'sbeen

differentaboutbeingonthefedandyourresponsibilitiesaschairascomparedtojustbeingaboardof

governormember?

YELLEN:Well,thanks,IfeelI'mveryluckythatI'vehadalotoffedexperiencetodrawonasIapproach

thisrole,becauseit'scomplicatedandnow,inmanyways,Ifeelthebuckstopswithmeintermsof

managementoftheFOMCandresponsibilitytoassurethattheFederalReservemakesprogressonits

goalsofgettingtheeconomybackontrackandmakingprogressonourfinancialstabilityandregulation

objectives,

so

I

feel

that

weight

of

responsibility

keenly

in

the

new

new

role

I

have,

and

I'm

very

committedtomakingsurethatIprovidetheleadershipthat'snecessaryfortheFederalReservesystem

tomoveforwardonthesegoals,butit's youknow,intermsoftheconductofbusiness,it'spretty

muchthesameasusual.I'mnotenvisioning,norhavetherebeensofar,anyradicalchangesinhowthe

FederalReservedoesits doesitsbusiness,andthatincludesoperatingtheFOMC.

QUESTION:RobinHarding(ph)fromtheFinancialTimes.MadamChair,giventhatthenewqualitative

guidancedoesn'tgiveanyinformationabouthowyouwilltradeoffyourunemploymentandinflation


8/14

objectives,doesn'tactuallygiveusanyinformation,howwillyoutradeofftheriskofhigherinflation

versusfasterprogressonunemploymentasyougetclosertofullemployment?Thankyou.

YELLEN:So,I'dsaysofar,wehaven'thadthattradeofftomakebecauseinflationisrunningwellbelow

ourobjective,andbyanymeasurethereremainssubstantialslackinthelabormarket,sotrade offsand

worryingaboutdoingmoreorlessbecausewehaveconflictingobjectives,thisreallyhasnotbeenan

elementinourdiscussionsabouthowtobeconductingpolicynow.Aswegetclosertomeetingour

goals,itcouldbecome itcouldbecomeanelement,andIwouldsaywegave we'vegivenguidance

inthestatement,andwegaveperhapsmoreguidanceinoursocalledconsensusstatementora

statementoflongerrungoalsandmonetarypolicystrategiesthatwe'venowreaffirmedforthreeyears

inarowthatthecommitteewouldtakeabalancedapproachinsituationswhereourobjectivesconflict

andwe'refacedwithtradeoffsbetweeninflationandunemployment.

YELLEN:Whenwefirstputourthresholdsintoeffect,weenvisionedthepossiblesituationwheresucha

tradeoffcouldarise,wherewemightfaceasituationwhereunemploymentwasquitehigh,namely,

over6.5percent,andinflationmightbedriftingcloseto2percentorevenalittlebitabove2percent.

YELLEN:And

our

threshold

base

guidance

gave

some

more

concrete

indication

that

we

would

tolerate

inflationrunningalittlebitover2percent,withunemploymentsufficientlyhighbeforemovingthe

federalfundsrateoffzero.

Andtotheextentthatthatconcreteguidanceisuseful,the Idon'tbelievethat'sasituationthatwe're

likely ifIthoughtthatthatwasasituationwewerelikelytoencounterinthenextseveralyears,we

probablywouldhaverevisedourforwardguidanceinadifferentway.

Wereviseditaswedid,eliminatingthatlanguage,becauseitdoesn'tseemlikeasituationthat'satall

likely.ButIwouldpointyoutothestatement thefinalstatementinthisstatementthatsaysthatthe

FOMCdoesnotseethisguidanceasindicatinganychangeinourpolicyintentions.AndIwouldinclude

Iwouldincludehowwewouldmaketradeoffsbetweenourinflationandemploymentobjectivesifwe

weretofacethatsituation.

QUESTION:AnnSittar(ph)withReuters.

First,Ijustwantedaquickclarification.Yousaidthatsomethingwouldhappenbynextfall,andthe on

aclearpath onapathuntilnextfall.Iwasunclearifthat ifyouwerespeakingofratehikesorifyou

werespeaking...

(CROSSTALK)

YELLEN:I Isimplymeanttosaythatifwecontinuedtoreducethepaceofourassetpurchasesinthe

mannerthatwehave,inmeasuredsteps,thattheprogramwouldbewindingdownnextfall.

QUESTION:Inthiscomingfall,youmean,notthefallofnextyear.Wasthat...

(CROSSTALK)

YELLEN:Yes,thiscomingfall.

QUESTION:...justtobeclear.Ijustwantedtobeclearaboutthat.


9/14

Thenonceyoudowinddownthebondbuyingprogram,couldyoutellushowlongagapwemight

expectbeforetheratehikesdobegin?

YELLEN:So,thelanguagethatweuseinthisstatementisconsiderable,period.So,I I,youknow,this

isthekindoftermit'shardtodefine,but,youknow,itprobablymeanssomethingontheorderof

aroundsixmonthsorthattypeofthing.But,youknow,itdepends whatthestatementissayingisit

dependswhatconditionsarelike.

Weneedtoseewherethelabormarketis,howclosearewetoourfullemploymentgoal.Thatwillbea

complicatedassessment,notjustbasedonasinglestatistic.Andhowrapidlyarewemovingtowardit?

Arewereallycloseandmovingfast?Orarewegettingcloser,butmovingveryslowly?

Andthenwhatthisstatementemphasizes,andthisisthesamelanguageweusedinDecemberand

January,weusethelanguageespeciallyifinflationisrunningbelowour2percentobjective.Inflation

mattershere,too.Andourgeneralprincipletriestocapturethatnotion.

Ifwehaveasubstantialshortfallininflation,ifinflationispersistentlyrunningbelowour2percent

objective,thatisaverygoodreasontoholdthefundsrateatitspresentrangeforlonger.

QUESTION:Thecommittee'sViceChairmanBillDudleysaidrecently,"Iftheeconomydecideditwas

goingtogrow5percentortheeconomydecideditwasn'tgoingtogrowatall,thosewouldbethekinds

ofchangesintheoutlookthatIthinkwouldwarrantchangingthepaceoftapering."

Isthatanaccuratedescriptionofwhatyoumeanwhenyousaythatyou'renotonapresetcourse?

Anythingbetweenzerotofive?

Andsecondly,ifImay,there'salotofresearchshowingthatshorttermunemploymentseemstobe

responsibleforthelevelofinflation,andthatlongtermunemploymentseemsrelativelyuncorrelated.Is

thattheFed'sviewatthispoint?Isthatonereasonyouexpectinflationtoreboundinthenextcoupleof

years?

YELLEN:So,Ithinkthenumbersyoucitedwouldbeextremesintermsofthedefiningwhatwewould

needtosee.Iwouldn'tgotosuchextremes.

Iguesstheway thewayIwouldputitisthis.Therearetwoconditionsforthecommitteetodecideto

continuetaperingthepaceofthepurchases.Thefirstisthatweneedtoassessthelabormarket

continuestobeonthemend,andthatwefeelreasonablysatisfiedthattheoutlookisforfurther

improvementinthelabormarketthatwillgetusbacktoourmaximumemploymentobjective.

Secondofall,weneedtosee nowcomingbacktotheinflationagain,inflationislow.Andit'sbeen

runningwellbelowourobjective,andweneedtoseeevidencethat(inaudible)feelingsatisfiedthat

inflationwill

move

up

over

time,

that

we

we

believe

the

evidence

is

consistent

with

it's

moving

up

overtime.

IfI ifthecommitteenolongercomfortablemakingtheassessments.So,ifthereisenoughchangein

inthedatawe'reseeingabouttheeconomy,thenitnolongerseemreasonableorconvincingtomake

thosetwoseparateassessmentsthenacasehasbeenmadetochangethepaceofassetpurchasesand

todeviatefromthecurrentplan.


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So5percentand1percent,thoseareveryextremenumbers,butIwouldwanttofeelconfidentin

makingthosetwostatementsaboutthelabormarketandinflation.Withrespecttotheissueofshort

termunemployment,I anditsmorerelevantforinflationandabettermeasureofthelabormarket,

I'veseenresearchalongthoselines,Ithinkitwouldbetremendouslyprematuretoadoptanynotion

thatsaysthat,thatisanaccuratereadoneitherhowinflationisdeterminedorwhatconstitutesslackin

thelabor

market.

SoIthinkthisissomethingourcommitteewillbelookingat,especiallyasunemploymentgoesdown

andotherlabormarketindicatorshopefullysimultaneouslyimprove.We'llbelookingatabroadrange

ofindicators.We'relookingtoseeprogressonmanydifferentmentionswhereweseeslackinthe

economy,butIwon'tendorse Icertainlydon'tthinkourcommitteewouldendorsethejudgmentof

theresearchthatyoucited.

QUESTION:(OFFMIKE)JeffKerns(ph)fromBloombergNews,youhavespokeninthepastabout think

aboutbacktoMarchlastyear ofhowyousupplementyourviewaboutthelabormarketbeyond

unemployment,withothergaugeslikequitratesandlayoffsandthingslikethat.Howhasyour

dashboardinvolvedinthepastfewmonthsintermsbothof the whichindicatorsyouliketowatch

most,andalsointermsofthequalityofdatathatyouthink whetherit'spositiveornegative that

you'regettingfromtheseindicators,thankyou.

YELLEN:SoIhavetalkedinthepastaboutindicatorsIwouldliketowatchorIthinkthatarerelevantin

assessingthelabormarket,inadditiontothestandardunemploymentrate.Certainlylookatborder

measuresofunemployment.ImentionedU6(ph)inmystatement.

With5percentofthelaborforceworkingparttimeonaninvoluntarybasis,thatisanexceptionally

highnumberrelativetothemeasuredunemploymentrate.Andit sotomymind,itisaformofslack

thatis addstowhatweseeinthenormalunemploymentrateandisunusuallylarge.

However,itiscomingdownaswellasU3(ph),it'smovingintherightdirection,andhasmovedeven

morerecentlythanU3(ph).Ofcourse,Iwatcheddiscouragedandmarginallydetachedworkers.The

shareoflongtermunemploymenthasbeenimmenselyhighandcanbeverystubborninbringingdown.

ThatissomethingIwatchclosely.Again,thatremainsexceptionallyhigh.But,ithascomedownfrom

somethinglike45percent high30's butthat'scertainlyinmydashboard.

Laborforceparticipation,I Idothinkmostresearchsuggestsduetodemographicfactors,laborforce

participationwillbecomingdownandtherehasbeenadownwardtrendnowforanumberofyears.

But,Ithinkthereisacyclicalcomponentinthefactlaborforceparticipationisdepressed.Andsoitmay

bethatastheeconomybeginstostrengthen,wecouldseelaborforceparticipationflattenoutfora

timeasdiscouragedworkersstartmovingbackintothelabormarket,andsothat'ssomethingI'm

watchingclosely,andthecommitteewillhavetowatch.

Therearedifferentviewsonthiswithinthecommittee.Andit'shardtonotedefinitivelywhatpartof

laborforceparticipationisstructuralversuscyclical,soit'ssomethingtowatchclosely.

I'vealsomentionedinthepastmeasuresoflabormarketturnover.Youmentionedquits.Remarkably,a

largeshareofworkersquittheirjobseverymonth,usuallygoingdirectlyintoanotherjob,andItakethe

quitrateinmanywaysasasignofthehealthoftheeconomy.Whenworkersarescaredtheywon'tbe

abletogetotherjobs,theyshowareducedwillingnesstoquittheirjobs.Quitratesnowarebelow


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normalprerecessionlevels,butontheotherhand,theyhavecomeupovertime,andsowe'veseen

improvement.Thejobopeningratehasalsocomeup.Thehiresrate,however,remainsextremely

depressed,andItakethatasasignofaweakerlabormarket.Butmostofthesemeasures,although

theydon'ttainttheidenticalextentofimprovement,ifyouaskaboutmydashboard,thedialonvirtually

allofthosethingsismovingin inadirectionofimprovement.

ThefinalthingI'dmentioniswages.Andwagegrowthhasreallybeenverylow.Iknowthereisperhaps

oneisolatedmeasureofwagegrowththatsuggestssomeuptick,butmostmeasuresofwageincrease

arerunningatverylowlevels.Infact,withproductivitygrowth,wehave,andtwopercentinflation,one

wouldprobablyexpecttoseeonanongoingbasissomethingbetweenperhapsthreeandfourpercent

wageinflationwouldbenormal.Wageinflationhasbeenrunningattwopercent,sonotonlyisit

depressed,signallingweaknessinthelabormarket,butitiscertainlynotflashing.Anincreaseinitmight

signalsometighteningormeaningfulpressuresoninflation,atleastovertime,andIwouldsaywe're

notseeingthat.

QUESTION:MadamChair,WyattAndrewsfromtheCBS.FortensofmillionsofAmericans,therecovery

isanawfullongtimecoming.Mayweknowyourthoughtsonwhytherecoveryissoslow,andwhythe

economyisnotcreatingmorejobs?

YELLEN:Well,Ithinktheshortansweristhatwe'velivedthroughadevastatingfinancialcrisisthathas

takenanexceptionaltollontheeconomyinmanydifferentways,fromhousingtoleavingahuge

numberofhomeownerswithmortgageslivinginhomeswithmortgagesthatareunderwater,hashada

highlynegativeaffectontheircreditratingsandtheirabilitytoaccesscredit,hasleftbusinesseswith

verycautiousattitudesthatweseeinbusinessinvestmentspendingthatisveryrestrained.

YELLEN:Ontopofthat,we'vehadweaknessintheglobaleconomy,andwe'vehadaverytightfiscal

policyathome.Afterstimulusattheonsetoftherecession,we'vehadagooddealoffiscal

consolidationintheUnitedStates.Andatatimewhenfiscalpolicynormally,in inthepastwould've

beenserving

to

create

jobs,

fiscal

policy

from

that

standpoint

has

served

as

a

head

wind

to

the

recovery.

Andatthefederal especiallyatthefederallevel,butalsowithstateandlocallevelsaswell,andsowe

havehadadisappointingrecovery.Andmonetarypolicyhastriedtodowhatwecantooffsetthat.But,

youknow,thelinkagesaren'tasstrongandaren'tasquickaswemightideallylikethemtobe.

QUESTION:Thankyou.I'dliketotakeyoubacktolastsummerwhentherewerehints,theFedmade

hints,thattheyweregoingtotaperandlongterminterestratesspiked.Mortgageratesrose.

Whatlessons,lookingbackatthat atthatperiod,whatlessonshaveyou haveyoulearnedfromit?

Andareyouconfidentthatyouwon'trepeatthat thosemistakesagain?

YELLEN:Well,Ithinktherewerequiteanumberofthingshappeningatthattime.Ithinkit'sprobably

truethat

monetary

policy

may

have

played

a

role

in

touching

off

that

market

reaction,

but

Ithink

the

marketreactionwasexacerbatedbythefactthatwehadaverysignificantunwindingofcarrytrades

andotherleveragedpositionsthatinvestorshadtaken,perhapsthinkingthatthelevelofvolatilitywas

exceptionallylowandperhapslowerthanwassafeforthemtohaveassumed.

Butwecertainlysaw now,insomeways,thefactthetermpremiaandinterestrateshavecomeup

somewhat,althoughithashadanegativeeffectontherecovery,andthat'sevidentinhousing,inthe


12/14

slowdowninhousing,perhapsit'sdiminishedsomefinancialinstabilityriskthatmayhavebeen

associatedwiththesecarried(ph)traitsandspeculativeactivitiesthatwereunwindingduringthattime.

Alessonisthatwewilltry,andweweretryingthen,butwewillcontinuetotrytocommunicateas

clearlyaswepossiblycanabouthowwewillconductmonetarypolicyandtobeassteadyand

determinedandastransparentaswecantoprovideasmuchclarityasisreasonablycertain,giventhat

theeconomicdevelopmentsintheeconomyarethemselvesuncertain.

Butwewilltryashardaswecannottobeasourceofinstabilityhere.

QUESTION:MadamChair,RebeccaJarvis(ph),ABCNews.

Oneofthedriverslastspringandsummerofhomepricesandhomesaleswasthatsensethatinterest

ratesweregoingup,thattheywerespiking.Andnow,ayearlater,we'relookingessentiallyataflat

interestratepictureasfarashomebuyersareconcerned.

So,isthereanysenseonyourcommitteethatstayingatthislevellosesitspunchthelongerweremain

here?

AndifI'mabuyerandI'mthinkingaboutgoingoutandbuyingahome,whyshouldIdothattodayas

opposedtowaitingafewmoreyearsorevenmonthsbeforeinterestratesthendogoup?

YELLEN:Well,Ithinkthelevelofinterestratesremainslowbyhistoriclevels.Andthelevelofhousehold

formationisverydepressed,hasbeenverydepressedforsometime.Andtherearealotofkidswho

wereshackingupwiththeirfamiliesandprobablywouldliketobegoingoutandacquiringplacesof

theirown,whetherit'sanapartmentorahome.

There'salotofdemographicpotentialtherefornewhouseholdformationthatwouldultimately

generatenewconstruction,eithersingleormultifamily.AndthelevelofratesIthinkdoesmatter.

Andthe

fact

that

they're

low

now

Ithink

is

something

that

should

serve

as

a

stimulus

to

people

coming

backintothehousingmarket.Andwhile(ph)we'venotyetseenthepickupafterthe afterthelull,

afterinterestrateswentuplastsummer,Idoexpecthousingactivitytobegintoexpandmorerapidly

lateron.

Idon'tthinkit'sonlytheexpectationthatIhavetomovenoworthingswillbemoreexpensivelater,

thatspurs spursthosedecisions.So.

QUESTION:Hi.KateDavidson(ph)fromPolitico.

Muchhasbeenmadeaboutthefactthatyouandyourpredecessoragreedonmanypolicies,shareda

lotofthesamepolicyviews.

CanyoutellusonewayinwhichyourchairmanshipwillbedifferentthanBenBernanke's?

YELLEN:Well,Ithinkweare wearecommittedtoexactlythesamesetofgoals.And,youknow,asI

indicated,Imygoal,andIwillthrowmyselfintothisaswholeheartedlyasIcan,istomakeasrapid

progress,asrapidprogressaswepossiblycaningettingtherecoverybackontrackinputtingAmericans

backtoworkandbackinjobs.Andinmovinguptolevelsofthecommittee'stargetof2percent.


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Mypredecessorwasalsodevotedtothat.

Strengtheningthefinancialsystemisaworkinprogress,andhemadelargeinroadsinstrengtheningthe

financialsystem.I'djustsay,thereismoreworktobedone.Ihavealongtodolist.Iwouldabsolutely

itishighprioritytoseefurtherworkdoneinaddressingtoobigtofail.Wehaveatodolistofthingswe

wanttoaccomplish,andinassessingthreatstofinancialstability,becauseneitheroneofus noone

wantstolivethroughafinancialcrisislikethelastone.Andwewanttobeextremelycognizantof

emergingthreatstothefinancialsystem.

SoIhaven'tansweredyouractionbysayingIwillbedifferent,butIthinkhehadagoodagenda,anditis

oneIshared.ItiswhyIcametoWashingtontobevicechair,andit'stheagendaIcontinuetodo.

QUESTION:MadamChair,PeterBarnes(ph)of(inaudible).

IwantedtotalkaboutinternationaldevelopmentsandthecrisisintheUkraine. Isthecrisisa

headwindfortheU.S.economy?

AndarethereriskstotheU.S.economyandtheU.S.bankingsystemdirectlyandindirectly?

AnddidtheRussiansmove$100billioninU.S.treasurysecuritiesoutoftheUnitedStatesinthelast

coupleofweekstoavoidU.S.sanctions?Thoseare thoseforeignsecuritiesareheldbytheFed.

Thankyou.

YELLEN:Letmestartwiththelastpieceofyourquestionfirst.

I'msorry,ImovementsincustodialaccountsattheNewYorkFed,theyaresomethingIamnotina

positiontobeabletocommentabout.But,intermsofthesituationintheUkraineandRussia,itis

somethingwearemonitoringverycloseclosely.

Wediscussed,inourmeeting,thelinkagesorexposuresoftheU.S.bankingsystemtotheUkraineand

Russiaare

not

large,

that's

we

are

not

seen

meaningful

impacts

now,

but

obviously

there

are

geopoliticalrisksherethatitisveryimportantforustobeattentivetoandtokeepoureyeon.Andwe

arenotseeingabroaderglobalfinancialrepercussions.But,ifthisweretoescalate,thatwouldbe

somethingonourradarscreen.But,wearenotseenthatnowandwe'remonitoringclosely.

QUESTION:Victoria(inaudible)from(inaudible)Newswire.

Youhavespokenabouthowunemploymentismorethanjuststatisticstoyou.AndIwantedtoask,

whenyoumakethatstatement,whodoyouhaveinmind,or andwhatdoyoudotokeepintouch

withthatsortofhumanside,oftheimpactoftheeconomiccrisisandslowrecoverywehavehad?

YELLEN:Well,Iwouldthesurprisedifanyoneinthisroomdoesn'tknowsomeonewhohasbeen

touchedbyunemployment,bydifficultiesgettingjobsandthatistrueofmeandmyfamilyandfriends,I

think,asitprobablyisformanyofyou.

Italkedtoabroadrangeofbusinesscontactsandtriedtostayintouchwithwhatishappeningwithreal

peopleintheeconomy.Wehave doalotofworkanddevelopmentintheFedandhavegroupscome

totalktousandexplainedtoushowtheircommunitieshavebeenaffectedbytheeconomicsituation

andbythehousingcrisis.WhenIwasinSanFrancisco,wewere youknow,wehadprogramsthere.

Weworkedveryclosely,particularlyinlowincomecommunitiesthathavebeenverybadlyaffected,to


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designprogramsthatcouldpotentiallybehelpful.Wetriedtostudywhatkindsofprogramscanbe

mosteffectiveandtotrytounderstandwhatkindsofadvicewecouldgivetothoseinthecommunity

developmentlendingfieldtohelp.

So,Idotrytolistentopeoplethatrepresentcommunitiesthatareexperiencingtheworstofthecrisis,

andstayintouchwithitthatway.

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