Janet Yellen June 2016 Congressional Testimony Notes

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Pace of labor market improvement has slowed more recently

“However, the pace of improvement in the labor market appears to have slowed more recently, suggesting that our cautious approach to adjusting monetary policy remains appropriate.”

Two months of weak reports

“During the first quarter of this year, job gains averaged 200,000 per month, just a bit slower than last year’s pace. And while the unemployment rate held steady at 5 percent over this period, the labor force participation rate moved up noticeably. In April and May, however, the average pace of job gains slowed to only 80,000 per month or about 100,000 per month after adjustment for the effects of a strike. The unemployment rate fell to 4.7 percent in May, but that decline mainly occurred because fewer people reported that they were actively seeking work.”

Of course, it’s important not to over react to one or two reports

“Of course, it is important not to overreact to one or two reports, and several other timely indicators of labor market conditions still look favorable. One notable development is that there are some tentative signs that wage growth may finally be picking up. That said, we will be watching the job market carefully to see whether the recent slowing in employment growth is transitory, as we believe it is.”

Slow productivity may continue into the future

“although I am optimistic about the longer-run prospects for the U.S. economy, we cannot rule out the possibility expressed by some prominent economists that the slow productivity growth seen in recent years will continue into the future. Vulnerabilities in the global economy also remain. Although concerns about slowing growth in China and falling commodity prices appear to have eased from earlier this year, China continues to face considerable challenges as it rebalances its economy toward domestic demand and consumption and away from export-led growth.”

Investor sentiment can change abruptly

“More generally, in the current environment of sluggish growth, low inflation, and already very accommodative monetary policy in many advanced economies, investor perceptions of and appetite for risk can change abruptly. One development that could shift investor sentiment is the upcoming referendum in the United Kingdom. A U.K. vote to exit the European Union could have significant economic repercussions.”

Still planning to let securities run off balance sheet

(Note: caps because taken from the closed caption transcript)

” EVER SINCE QE THREE ENDED WE MADE CLEAR THAT WE WOULD REINVEST PROCEEDS AND WE BEEN DOING THAT EVER SINCE. WE DID SAY THAT AS THE ECONOMY RECOVERS AND THE FUNDS RATE RISES TO A HIGHER LEVEL THAN IT IS AT PRESENT, A DAY WOULD COME WHEN BASED ON ECONOMIC AND FINANCIAL CONDITIONS THE COMMITTEE WOULD BEGIN THE PROCESS YOU JUST DESCRIBED IS GRADUALLY ALLOWING SECURITIES TO RUN OFF OUR BALANCE SHEET SO WE REDUCE THINGS TO A MORE NORMAL LEVEL AND WE FULLY INTEND TO DO THAT BUT I CAN’T GIVE YOU A PRECISE TIMETABLE TO WIN THAT POLICY WILL BEGIN.”

Negative rates are not something we are considering

” I BELIEVE WE DO HAVE THE LEGAL BASIS TO PURSUE NEGATIVE RATES BUT I WANT TO EMPHASIZE, IT IS NOT SOMETHING THAT WE ARE CONSIDERING. THIS IS NOT THE MATTER THAT WE ARE ACTIVELY LOOKING AT, CONSIDERING WHEN WE LOOKED AT THAT IN THE PAST WE IDENTIFIED SIGNIFICANT SHORTCOMINGS WITH THAT TYPE OF APPROACH AND I DON’T THINK WE ARE GOING TO HAVE TO PROVIDE ACCOMMODATION AND IF WE DO, THAT’S NOT NOT SOMETHING THAT IS ON OUR LIST. ”

No extreme threats to financial stability at this time

” AS I SAID EARLIER I DON’T SEE SIGNS OF EXTREME THREATS TO FINANCIAL STABILITY AT THIS TIME. THIS IS SOMETHING WE MONITOR VERY CLOSELY BUT IT IS SOMETHING THAT CAN HAPPEN IN A LOW INTEREST RATE ENVIRONMENT. I DON’T THINK I SEE ANY BROAD-BASED EVIDENCE OF THOSE FINANCIAL STABILITY CONCERNS BUT IT IS SOMETHING THAT’S POSSIBLE”

Investment spending down because economy growing slowly

“WE HAVE LOOKED VERY CLOSELY AT INVESTMENT SPENDING AND TRY TO UNDERSTAND WHY IT HAS BEEN SO VERY DEPRESSED IN THE AFTERMATH OF THE CRISIS. I THINK ONE REASON FOR IT IS SIMPLY THAT THE ECONOMY HAS BEEN GROWING SLOWLY. SALES GROWTH HAS BEEN SLOW AND MANY FIRMS HAVE FOUND THEY ACTUALLY DO NOT NEED TO INVEST VERY MUCH IN ORDER TO SATISFY THE DEMAND GROWTH THAT THEY ARE SEEN.”

Brexit could have significant economic consequences

“I SAID IT COULD COME I DO NOT KNOW IF IT WOULD, BUT I I THINK IT COULD HAVE SIGNIFICANT ECONOMIC CONSEQUENCES BY LAUNCHING A PERIOD OF UNCERTAINTY BOTH FOR THE UNITED KINGDOM AND POSSIBLY ON THE FUTURE OF EUROPEAN ECONOMIC INTEGRATION, MOST ANALYSIS SUGGEST HE WOULD BE CONSEQUENCES FOR THE U.K. AND SPILLOVERS TO EUROPE MORE BROADLY SPEAKING. I THINK THE FINANCIAL MARKET REACTION TO THE UNCERTAINTIES WOULD BE UNLEASHED BY THAT DECISION COULD RESULT IN A KIND OF RISK SENTIMENT THAT WE WOULD SEE IMPACTS ON FINANCIAL MARKETS THAT WE MIGHT SEE FLIGHT TO SAFETY FLOWS THAT COULD PUSH UP THE DOLLAR OR OTHER SO-CALLED SAFE HAVEN CURRENCIES.”

We do not expect a recession

” I THINK IT IS QUITE LOW. I THINK THE U.S. ECONOMY IS DOING WELL AND OTHERWISE INDICATED THAT WE ARE WATCHING THIS RECENT SLOWDOWN IN THE JOB MARKET CAREFULLY, MY EXPECTATION IS THAT THE U.S. ECONOMY WILL CONTINUE TO GROW AND WE HAVE SEEN IT PICK UP OF A SUPERSTRONG PICKUP IN CONSUMER SPENDING AND GROWTH IN THE ECONOMY. IF THE WEAKNESS IN THE LABOR MARKET THE LAST COUPLE OF MONTHS WAS A REACTION TO EARLIER SLOWDOWN IN GROWTH, THAT LOOKS TO BE REVERSING. I REMAIN QUITE OPTIMISTIC IN THE KINDS OF CONDITIONS THAT HAVE BEEN ASSOCIATED IN THE PAST WITH U.S. RECESSIONS, OFTEN THAT OCCURS WHEN INFLATION IS THE ECONOMY IS OVERHEATED AND INFLATION HAS BEEN QUITE HIGH THE FED HAS HAD TO TIGHTEN MONETARY POLICY. WE DO NOT HAVE ANY SUCH CONDITIONS UNTIL NOW.”

Trade creates net benefits but there are also gainers and losers

“I GUESS I WOULD JUST SAY THAT IN THE VIEW OF MOST ECONOMISTS, MORE OPEN TRADE CREATES NET BENEFITS, BUT THAT THAT DOES NOT MEAN BENEFITS FOR EVERYONE. THERE ARE GAINERS, BUT THERE ARE ALSO LOSERS AND THAT IS CERTAINLY…I THINK IT’S IMPORTANT TO HAVE POLICIES THAT ADDRESS THE LOSSES.”