Fed Chair June 2017 Press Conference

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Janet Yellen

Reduce reserve balances, but larger than crisis

“we anticipate reducing reserve balances and our overall balance sheet to levels appreciably below those seen in recent years but larger than before the financial crisis”

Policy not on a set course

“let me just say as I emphasized in my statement and always say monitory policy is not on a preset course. We indicated in our statement today that we’re closely monitoring inflation developments and certainly have taken note of the fact there have been several weak readings particular on core inflation. Our statement indicates that we expect inflation to remain low in the near term. But on the other hand, we continue to feel that with a strong labor market and labor market that’s continuing to strengthen, the conditions are in place for inflation to move up. Now, obviously we need to monitor that very carefully. ”

Nobody’s really changed their plans, just a wait and see attitude

” I would say that business and household sentiment remains quite strong, although many forecasters have pushed back somewhat the timing of the expected policy changes such as changes to tax policy or fiscal policy more generally. I would say that based on my observation of actual spending behavior and my discussions with our wide range of contacts that I haven’t seen very much evidence that thus far expectations of policy changes have driven substantial changes in either consumer spending or investment spending. So, I really wouldn’t expect any significant pullback, many of our business contacts I think their confidence remains high. They’ve not really changed their plans yet and they have a wait and see attitude. ”

We’re not targeting financial conditions

“We have certainly noticed the stock market is up considerably over the last year. That usually shows up in financial conditions indexes and is an important reason why some of them show easier financial conditions. There has been a modest decrease recently in the value of the dollar although it’s up substantially since mid-2014. So, we take those factors into account in deriving our forecasts and deciding the appropriate stance of policy. We have done that and– but other things also affect the stance of policy. So there really can’t be any simple relationship. We’re not targeting financial conditions. We’re trying to set a path of the federal funds rate, the taking into account of those factors and others that don’t show up in the financial conditions index. We’re trying to generate paths for employment and inflation that meet our mandated objectives.”

WE could start shrinking balance sheet fairly soon

” if the economy evolves in line with our expectations which, you know, we will be watching, always are, we could put this into effect relatively soon. You asked about whether or not we would do that and raise rates at the same meeting, and I would say, we’ve made no decision about that, and it really hinges on the outlook and our assessment of conditions. ”

I’m certainly open to looking at ways to reduce the burden of the Volcker Rule

” a number of my colleagues have spoken about the Volcker Rule. Implementation of it is frankly complex and I’m certainly open to looking at ways to reduce regulatory burden in that area. ”

Our use of QE isn’t as high as it’s been in some other countries

” I would say the use of QE in the United States relative to the size of our economy is not as high as it’s been in some other countries that have employed it. But that’s something we haven’t seriously even discussed.”