FOMC September 2015 Press Conference Notes

Inflation has continued to run below our longer run objective

“Inflation, however, has continued to run below our longer-run objective, partly reflecting declines in energy and import prices. While we still expect that the downward pressure on inflation from these factors will fade over time, recent global economic and financial developments are likely to put further downward pressure on inflation in the near term. ”

There is still weakness in employment markets

“some cyclical weakness likely remains: While the unemployment rate is close to most FOMC participants’ estimates of the longer-run normal level, the participation rate is still below estimates of its underlying trend, involuntary part-time employment remains elevated, and wage growth remains subdued.”

Financial conditions have tightened

“The outlook abroad appears to have become more uncertain of late, and heightened concerns about growth in China and other emerging market economies have led to notable volatility in financial markets. Developments since our July meeting, including the drop in equity prices, the further appreciation of the dollar, and a widening in risk spreads, have tightened overall financial conditions to some extent. These developments may restrain U.S. economic activity somewhat and are likely to put further downward pressure on inflation in the near term. Given the significant economic and financial interconnections between the United States and the rest of the world, the situation abroad bears close watching. ”

We obviously discussed raising rates, but we want to see more evidence

“we recognize that there has been a great deal of focus on today’s policy decision. The recovery from the Great Recession has advanced sufficiently far, and domestic spending appears sufficiently robust, that an argument can be made for a rise in interest rates at this time. We discussed this possibility at our meeting. However, in light of the heightened uncertainties abroad and a slightly softer expected path for inflation, the Committee judged it appropriate to wait for more evidence, including some further improvement in the labor market, to bolster its confidence that inflation will rise to 2 percent in the medium term. ”

These developments have not fundamentally altered our outlook

“Now, I do not want to overplay the implications of these recent developments, which have not fundamentally altered our outlook. The economy has been performing well, and we expect it to continue to do so. ”

Alrighty then

“To be clear, our decision will not hinge on any particular data release or on day-to-day movements in financial markets. Instead, the decision will depend on a wide range of economic and financial indicators and our assessment of their cumulative implications for actual and expected progress toward our objectives. ”

Normal fed funds by 2018

“most participants expect the federal funds rate to move to its longer-run normal level by the end of 2018. ”

Most participants still expect to raise this year

“I think you can see from the SEP projections that most participants continue to think that economic conditions will call for or make appropriate an increase in the Federal funds rate by the end of this year.”

There will always be uncertainty

“of course there will always be uncertainty. We can’t expect that uncertainty to be fully resolved.”

Further improvements in labor market would bolster our confidence

“further improvements in the labor market that would bolster our confidence that inflation will move back to 2% over the medium term.”

Tighter labor market has historically generated upward pressure on inflation

“A labor market moving toward full employment is one that historically has generated upward pressure on inflation. So that bolsters my confidence in inflation. On the other hand we’ve had a long period in which inflation has been running below our objective.”

Our credibility hinges on defending our inflation target

“I think our credibility hinges on defending our inflation target not only from threats that it rises above but also that we not have over the medium term that we want to see inflation get back to 2%”

2% is our inflation objective. We want to get to 2%

“So let be clear. 2% is our objective. We want to see inflation go back to 2%. 2% is not a ceiling on inflation. So we’re not trying to push the inflation rate above 2. It’s always our objective to get back to 2. But 2% is not a ceiling. And if it were a ceiling, you would have to be conducting a policy that on average would hold the inflation rate below 2%. That is not our policy. We want to see the inflation rate get back to 2% as rapidly as we can”

There are risks to being late to tighten because monetary policy lags

“But there are lags in the impact of money on the policy of our economy. And if we waited until inflation is back to two and that would probably mean that unemployment had declined well below our estimates of the natural rate and only then did we start to begin to — you know the word tighten monetary policy I don’t think is really right because we have an immensely accommodative monetary policy in place. So let me say just to begin to diminish the extraordinary degree of accommodation for monetary policy, we would be over– we would likely overshoot substantially our 2% objective. And we might be faced within having to tighten policy in a way that could be disruptive to the real economy. And I don’t think that’s a desirable way to conduct policy.”

We have focused particularly on China. I think we all expect it to slow. The risk is that it slows more than that.

“with respect to global developments we reviewed developments in all important areas of the world but we have focused particularly on China and emerge markets. Now we have long expected and most analysts have to see some slowing in Chinese growth over time as they rebalance their economy. And they have planned that. And I think there are no surprises there. The question is whether or not there might be a risk of a more abrupt slowdown than most analysts expect. And I think developments that we saw in financial markets in August in part reflected concerns that there was downside risk to Chinese economic performance”

We do not expect to be stuck at the zero lower bound

“Can I completely rule it out? I can’t completely rule it out. But really, that’s an extreme downside risk that in no way is near the center of my outlook.”

I’m concerned about having to slam the brakes on the economy

“if we maintain a highly accommodative monetary policy for a very long time from here and the economy performs as we expect, namely, it’s strong and the risks that are out there don’t materialize, my concern will be that we will have much more tightening in labor markets than you see in these projections. And the lags will be probably slow. But eventually we will find ourselves with a substantial overshoot of our inflation objective. And then we’ll be forced into a kind of stop-go policy. We will have pushed the economy so far it will have become overheated. And we will then have to tighten policy more abruptly than we like. And instead of having slow, steady growth, improvement in the labor market. And continued improvement and good performance in the labor market, I don’t think it’s good policy to then have to slam on the brakes and risk a downturn in the economy.”

Look, I don’t expect additional acommodation

“Look, if — I don’t expect that we’re going to be in a path of providing additional accommodation. But if the outlook were to change in a way that most of my colleagues and I do not expect, and we found ourselves with a weak economy that needed additional stimulus, we would look at all of our available tools.”

It’s an unfortunate state of affairs that every word is being parsed for its meaning

“I know that of course there is uncertainty about Fed policy. As I mentioned, we’re well aware that there’s been a huge focus on the decision today. And you know I would ask you to appreciate that there are a lot of cross currents in economic and financial developments that we need to take into account in deciding on what the appropriate course of policy is. And we don’t make continuous decisions every single day about our policy. We meet periodically. We do our darnedest to pull together the best analysis we can. And to exchange views. And to arrive at committee decisions. I do understand that during this intermeeting period, that every word that an FOMC member has said has been parsed for its potential implications for what our decision will be. I think that’s an unfortunate state of affairs.”

Of course we recognize that housing is sensitive to mortgage rates

“as time passes and we move beyond the window in which short rates are zero it will be natural for long rates to rise some and of course we recognize that the housing market is sensitive to mortgage rates it is an important factor but that’s something that of course we’re taking into account in thinking about what’s the appropriate path of policy.”