FOMC Press Conference Notes

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Still view policy as accommodative

” my colleagues and I on the Federal Open Market Committee decided to maintain the target range for the federal funds rate at 1 to 1-1/4 percent. This accommodative policy should support some further strengthening in the job market”

Balance sheet normalization

“We also decided that in October we will begin the balance sheet normalization program that we outlined in June. This program will reduce our securities holdings in a gradual and predictable manner. ”

Economic growth will be impacted by hurricanes

“In the third quarter, however, economic growth will be held down by the severe disruptions caused by Hurricanes Harvey, Irma, and Maria. As activity resumes and rebuilding gets underway, growth likely will bounce back. Based on past experience, these effects are unlikely to materially alter the course of the national economy beyond the next couple of quarters. ”

Shortfall in inflation primarily reflects developments unrelated to the economy

“we believe this year’s shortfall in inflation primarily reflects developments that are
largely unrelated to broader economic conditions. For example, one-off reductions earlier this
year in certain categories of prices, such as wireless telephone services, are currently holding
down inflation, but these effects should be transitory. Such developments are not uncommon
and, as long as inflation expectations remain reasonably well anchored, are not of great concern
from a policy perspective because their effects fade away.”

Nonetheless our understanding of inflation forces is far from perfect

“Nonetheless, our understanding of the forces driving inflation is imperfect, and in light of the
unexpected lower inflation readings this year, the Committee is monitoring inflation
developments closely. As always, the Committee is prepared to adjust monetary policy as
needed to achieve its inflation and employment objectives over the medium term.”

Fed funds rate remains below its neutral level

“although the Committee decided at this meeting to maintain its target for the federal funds rate, we continue to expect that the ongoing strength of the economy will warrant gradual increases in that rate to sustain a healthy labor market and stabilize inflation around our 2 percent longer-run objective. That expectation is based on our view that the federal funds rate remains somewhat below its neutral level–that is, the level that is neither expansionary nor contractionary and keeps the economy operating on an even keel. ”

Decline in securities holdings will be capped

” For October through December, the decline in our securities holdings will be capped at $6 billion per month for Treasuries and $4 billion per month for agencies. These caps will gradually rise over the course of the following year to maximums of $30 billion per month for Treasuries and $20 billion per month for agency securities and will remain in place through the process of normalizing the size of our balance sheet. By limiting the volume of securities that private investors will have to absorb as we reduce our holdings, the caps should guard against outsized moves in interest rates and other potential market strains”

Our balance sheet is not intended to be an active tool for monetary policy

“Finally, as we’ve noted previously, changing the target range for the federal funds rate is
our primary means of adjusting the stance of monetary policy. Our balance sheet is not intended
to be an active tool for monetary policy in normal times. We therefore do not plan on making
adjustments to our balance sheet normalization program. But, of course, as we stated in June, the
Committee would be prepared to resume reinvestments if a material deterioration in the
economic outlook were to warrant a sizable reduction in the federal funds rate. ”

Not easy to get a clear read on implications of asset prices for overall outlook

” So developments affecting asset prices and longer-term interest rates, the exchange rate all of those aspects of financial conditions factor into our thinking, but it’s not easy to get a clear read on the implications of asset prices for the overall outlook”

Not going to change the path of reinvestments for small shocks

“That’s our go to tool, that is what we intend to use, unless we think that the threat to the economy is sufficiently great that we might have to cut the federal funds rate after all we’ve moved it up to 1 to 1-1/4 percent and expected to go up further. But a very significant negative shock to the economy, could conceivably force us back to the so-called zero lower bound. We have said if there were that type of material deterioration in the outlook, where we could face a situation, where the federal funds rate isn’t a sufficient tool for us to adjust monetary policy. We might stop we might stop roll offs from our balance sheet and resume reinvestment, but as long
as we believe that we can use the federal funds rate as a tool that is what we intend to do. So if there are small changes in the outlook that require a recalibration of monetary policy, we will change our anticipated path and setting of the federal funds rate, but not for example change the caps on reinvestment, or stop, continue reinvestment for a few months and then change it. We think that provides greater clarity to market participants, about how policy will be conducted and will be will be less confusing and more effective, in terms of conducting policy.”

Can’t easily explain why inflation has been this low

” there is a miss this year I can’t say I can easily point to a sufficient set of factors that explain this year why inflation has been this low. I’ve mentioned a few idiosyncratic things, but frankly, the low inflation is more broad-based than just idiosyncratic things. The fact that inflation is unusually low this year does not mean that that’s going to continue”

Inflation expectations have come down for all of us

” I think all of us, both market and FOMC participant’s path, paths have come down,
not in the last couple quarters, but over the last several years. There’s been a growing recognition that the so-called neutral interest rate, consistent with the economy operating at maximum employment, that that rate seems to have come down, and most of the economic papers that, in research are bearing on this topic, suggests that it’s quite low”

Not had a further meeting with Trump

” I have said that I intend to serve out my term as chair, and that I’m really not going to comment on my intentions beyond that. I will say that I have not had a further meeting with President Trump. I met with him early in my term, and I’ve not had a further meeting with him.”

It’s a fairly high bar to resume reinvestment

” you, you asked me what would it take for us to resume reinvestment, and I can’t really say much more than we said in the guidance that we provided, which is that if there is a material deterioration in the economic outlook, and we thought we might be faced with the situation where we would need to substantially cut the federal Funds Rate, and could be limited by the so-called zero lower bound, it, it is that type of determination that our committee is saying would, might lead us to read, to resume reinvestment. So that’s, our committee has been unanimous and affirming this statement of intentions, so, you know, I think that’s where our committee stands, that so, that is a somewhat high bar to resume reinvestments, and that’s why in answering previous questions, I would say well, you know, to some small negative shock, our first tool, our most important and reliable tool will be the federal funds rate, but if there is a significant shock that some material deterioration to the outlook, we would consider resuming reinvestment.”