FOMC Press Conference Notes

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.”

FOMC statement on monetary Policy 14th June 2017


“…the labor market has continued to strengthen and that economic activity has been rising moderately so far this year. Job gains have moderated but have been solid..the unemployment rate has declined. Household spending has picked up in recent months, and business fixed investment has continued to expand.”

On inflation

“On a 12-month basis, inflation has declined recently and, like the measure excluding food and energy prices, is running somewhat below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.”

Rates forecasted to remain low

“The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”

Balance sheet normalization to start this year

“The Committee currently expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated. This program…would gradually reduce the Federal Reserve’s securities holdings by decreasing reinvestment of principal payments from those securities”

FOMC December 2016 Press Conference Notes

Quarter point raise

“Today, the Federal Open Market Committee decided to raise the target range for the federal funds rate by 1/4 percentage point, bringing it to 1/2 to 3/4 percent. In doing so, my colleagues and I are recognizing the considerable progress the economy has made toward our dual objectives of maximum employment and price stability”

Growth has picked up

“Economic growth has picked up since the middle of the year. Household spending continues to rise at a moderate pace, supported by income gains and by relatively high levels of consumer sentiment and wealth. Business investment, however, remains soft, despite some stabilization in the energy sector. Overall, we expect the economy will expand at a moderate pace over the next few years.”

Market based measures of inflation have moved up but are still low

“Our inflation outlook rests importantly on our judgment that longer-run inflation expectations remain reasonably well anchored. Market-based measures of inflation compensation have moved up considerably but are still low. Survey-based measures of longerrun inflation expectations are, on balance, little changed”

Changes in fiscal policy could affect the outlook but too early to know

” As many observers have noted, changes in fiscal policy or other economic policies could potentially affect the economic outlook. Of course, it is far too early to know how these policies will unfold. Moreover, changes in fiscal policy are only one of the many factors that can influence the outlook and the appropriate course of monetary policy. ”

This is a modest adjustment in path

” Well, I would like to emphasize that this is a very modest adjustment in the path of the federal funds rate, and involves changes by only, you know, some of, you know, some of the participants. So, in thinking about the paths and the revisions, there are a number of factors that were taken into account by participants”

I really can’t tell what our response would be to policy changes

“I really can’t tell you what the Fed’s response would be to any policy changes that are put into effect. I wouldn’t want to speculate until I– we’re more certain of the details and how they would affect the likely course of the economy.”

Different policy could affect the neutral rate

“we’ve been saying we estimate that the value of the neutral federal fund’s rate is quite low has– And one of the reasons for that is slow productivity growth. And so it’s very hard to generalize about it because it could affect that neutral rate.”

This is a vote of confidence in the economy

” let me say that our decision to raise rates is– should certainly be understood as a reflection of the confidence we have in the progress the economy has made and our judgment that that progress will continue and the economy is proven to be remarkably resilient. So it is a vote of confidence in the economy.”

We still consider this to be an accommodative policy

“And this we said in our statement, policy remains accommodative. The degree of accommodation I would characterize as moderate. As I’ve emphasized and said in the statement, we currently judge the neutral level of the federal fund’s rate to be pretty low. So there is some accommodation. ”

We do not believe that we are behind the curve on inflation

” We’re not seeing evidence in labor markets of very substantial upward pressures on labor that could signify extreme shortages of labor that could propel inflation higher in a very rapid way, and inflation is still operating below our objective. So, I do not judge that we are behind the curve. I’ve– My judgment is that we’re in a good path to reaching our objectives. But of course the outlook is uncertain. ”

I’m not sure that fiscal stimulus is needed

“I believe my predecessor and I called for fiscal stimulus when the unemployment rate was substantially higher than it is now. So, with a 4.6 percent unemployment and a solid labor market, there may be some additional slack in labor markets. But I would judge that the degree of slack has diminished. So, I would say at this point that fiscal policy is not obviously needed to provide stimulus to help us get back to full employment. But nevertheless, let me be careful that I’m not trying to provide advice to the new administration or to Congress as to what is the appropriate stance of policy. ”

It’s also important for congress to take debt to gdp ratios into account

“it’s also important for Congress to take account of the fact that as our population ages that the debt to GDP ratio is projected to rise and that needs to continue to be taken into account. And so, there are many factors that I think should enter into such decisions”

I never said that I was in favor of running a high pressure economy

” So I want to be clear that what I said in that speech in Boston is that an important research question is whether or not in an economy with a very strong labor market, there might be changes that took place that permanently raised the labor force participation training and other things of the labor force that would be positives for the productive potential of our economy on a long lasting basis. I never said that I favor running a high pressure economy. ”

I’m not going to offer the incoming president any advice

“Well, I’m not going to offer the incoming president advice about how to conduct himself in policy. I’m a strong believer in the independence of the Fed. We have been given the independence by Congress to make decisions about monetary policy in pursuit of our dual mandate objectives of maximum employment and inflation and that is what I intend to stay focused on and that’s what the committee is focused on. ”

We did discuss the incoming administration but we are currently under a cloud of uncertainty

“we did discuss these topics in our meeting today. I would simply summarize by saying that all the FOMC participants recognize that there is considerable uncertainty about how economic policies may change and what effect they will have on the economy. And in so far is that will affect monetary policy, of course we will have to factor those policies along with many other things, including the global environment and oil prices and other matters. We will have to factor that into our outlook and figure out what is an appropriate response. But we’re operating under a cloud of uncertainty at the moment and we have time to wait to see what changes occur and to factor those into our decision-making as we gain greater clarity.”

Gobbledygook about stock prices

“You mentioned the market moves. So I see the market moves as implicit forecasts about what impact these policies are likely to have on the economy. The changes, the financial market changes that you described, particularly the increase in stock prices, the increase in longer term rates and the strengthening of the dollar suggests that many market participants anticipate expansionary fiscal policies that would raise interest rate somewhat in the United States relative to abroad and would cause strengthening in the dollar. But market participants were uncertain
too, and I would expect changes in our understanding of what is going to happen to also affect market prices in financial markets as we move forward. ”

I don’t want to comment on the level of stock prices

“So, you know, I really don’t want to comment on the level of stock prices. They may have been boosted by expectations about tax policy, possible cuts in corporate tax rates that have been much discussed, or by expectations about growth, possible reductions and downside risk to the economy. But, you know, these are things that market participants are trying to view along with the likely path of– paths of interest rates, and I think all of that factors into movements and stock valuations. But I don’t– I don’t want to offer a view as to whether
they’re appropriate”

They’re within the normal range relative to interest rates being low

” Well, I think rates of return in the stock market relative to– Remember that the level of interest rates is low and taking that into account, I believe it’s fair to say that they remain within normal ranges. ”

I’m not going to weigh in on trade policies

“So, I don’t want to weigh in. I don’t intend to weigh in. I haven’t weighed in on either fiscal policy specifics of evaluating policies. I’m not going to weigh in either on the details of particular trade policies. ”

We still intend to let our balance sheet decline

“So, we’ve indicated in our normalization principles that we expect to diminish the size of our portfolio over time largely by ceasing reinvestments of principal rather than by selling securities. We’ve indicated that once the process of normalization of the federal funds rate is well under way, we would probably begin to allow our portfolio to run off. We’ve not yet made any precise decisions about when that will occur. We want to feel that if the economy were to suffer an adverse shock, that we have some scope through traditional means of interest rate cuts to be able to respond to that. Now there’s no mechanical rule about what level of the federal funds rate we might deem appropriate to begin that process. It’s not something that only depends on the level of the federal funds rate, it also depends on our judgment of the amount of momentum in the economy and the possible concerns about downside risks of the economy. So, we’ve not yet made this decision, but it is something that we have long planned to begin to allow our balance sheet to run off. And then it would take several years. And we would end up if all goes well with the substantially smaller balance sheet than we have at present.”

FOMC September 2016 Press Conference Notes

Waiting for the time being

“We judged that the case for an increase has strengthened, but decided for the time being to wait for further evidence of continued progress toward our objectives”

Household spending driving growth

“Economic growth, which was subdued during the first half of the year, appears to have picked up. Household spending continues to be the key source of that growth. This spending has been supported by solid increases in household income as well as by relatively high levels of consumer sentiment and wealth. Business investment, however, remains soft, both in the energy sector and more broadly. ”

More people have been looking for work

“The fact that unemployment measures have been holding steady while the number of jobs has grown solidly shows that more people, presumably in response to better employment opportunities and higher wages, have started actively seeking and finding jobs. This is a very welcome development, both for the individuals involved and the nation as a whole. ”

Why didn’t we wait? Because we can deal with inflation more easily than weakness

“Returning to monetary policy, the recent pickup in economic growth and continued progress in the labor market have strengthened the case for an increase in the federal funds rate. Moreover, the Committee judges the risks to the outlook to be roughly balanced. So why didn’t we raise the federal funds rate at today’s meeting? Our decision does not reflect a lack of confidence in the economy. Conditions in the labor market are strengthening, and we expect that to continue. And while inflation remains low, we expect it to rise to our 2 percent objective over time. But with labor market slack being taken up at a somewhat slower pace than in previous years, scope for some further improvement in the labor market remaining, and inflation continuing to run below our 2 percent target, we chose to wait for further evidence of continued progress toward our objectives. This cautious approach to paring back monetary policy support is all the more appropriate given that short-term interest rates are still near zero, which means that we can more effectively respond to surprisingly strong inflation pressures in the future by raising rates than to a weakening labor market and falling inflation by cutting rates.”

Neutral rate is very low currently

“We continue to expect that the evolution of the economy will warrant only gradual increases in the federal funds rate over time to achieve and maintain our objectives. That’s based on our view that the neutral nominal federal funds rate–that is, the interest rate that is neither expansionary nor contractionary and keeps the economy operating on an even keel–is currently quite low by historical standard”

So we don’t have to raise rates much to get to it

“since monetary policy is only modestly accommodative, there appears little risk of falling behind the curve in the near future, and gradual increases in the federal funds rate will likely be sufficient to get to a neutral policy stance over the next few years”

This economy has a little more room to run that previously thought

“my assessment would be based on this evidence that the economy has a little more room to run than might have been previously thought, that’s good news. Remember that inflation continues below 2 percent, although we expect it to move up overtime. So, the Committee agrees that risks to the outlook have become roughly balanced. We expect labor market conditions to continue strengthening. And we are generally agreed that gradual increases in the federal funds rate to remove what is a modest degree of accommodation will be appropriate. But, we don’t see the economy is overheating now.”

The economy has a bit more running room

“I would characterize it as we found the economy has a bit more running room, nevertheless, we don’t want the economy to overheat. And if things continue on the current course, I think that some gradual increases will be appropriate. And mainly, what we discussed today were issues affecting the timing of such increases. ”

We’re struggling with a set of issues about what is the new normal in this economy

” we’re struggling with difficult set of issues about what is the new normal in this economy and in the global economy more generally which explains why we keep revising down the rate path. And, you know, it’s very important that in a body like ours that a whole range of views are expressed that we have independent-minded people who gather together and discuss these issues”

We don’t suffer from group think

“I think it’s a very good thing that the FOMC is not a body that suffers from group think. And you see that, you see that’s one of the, you know, real worries in an organization that everybody thinks identically”

We are an independent agency, and we don’t take politics into account

” I think Congress very wisely established the Federal Reserve is an independent agency in order to insulate monetary policy from short term political pressures. And I can say, emphatically, that partisan politics plays no role in our decisions about the appropriate stance of monetary policy. We are trying to decide what the best policy is to foster price stability and maximum employment and to manage the variety of risks that we see is affecting the outlook. We do not discuss politics at our meetings and we do not take politics into account in our decisions”

We are not seeing evidence that the economy is overheating

“we’re not seeing evidence that the economy is overheating.”

Every meeting is a live meeting

” And November, you asked about as well. Well, every meeting is live and we will again assess as we always do incoming evidence in November and decide whether or not a move is warranted.”

Factors that could contribute to evaluating a change in the neutral funds rate

” I think if you saw us revising up our growth forecast revising down, our estimates well, with an unchanged path for policy, you know. If you saw this, you would see revisions in the funds rate path. But, if unemployment were moving down faster than we had anticipated if we saw a faster growth or upward pressure on inflation that would be suggestive of the appropriateness of reevaluating whether or not the neutral funds rate had increased”

In general we do no see asset valuations as out of line with historical norms although we are a little concerned about commercial real estate

“interest rates both here and in advanced countries around the globe appeared to be very low. And that is an environment that, if we do have to live with that for a long time, we have to be aware that it does give rise to a reach for yield as individuals and investors seek to, perhaps, take on risk or lengthen maturities to seek higher yields. And I think we should be concerned about that to the extent it creates financial stability risks. And we are very aware that those are possible. We engage in regular assessments of financial stability factors that bear on financial stability. Overall, I would say that the threats to financial stability I would characterize, at this point, as moderate. Not– I mean– so, I would characterize it as moderate. In general, I would not say that asset valuations are out of line with historical norms, but there are areas my colleague President Rosengren is focused on commercial real estate where price to rent ratios are very higher, or cap rates are very low. And that’s something that has caught our attention.”

Issued supervisory guidance that is leading to tightening of lending standards in CRE

” We have a variety of tools other than monetary policy to address such risks. We’ve recently issued new supervisory guidance pertaining to commercial real estate. I would say in the area of commercial real estate while valuations are high, we are seeing some tightening of lending standards and less debt growth associated with that rise in commercial real estate prices. ”

Consumer sentiment certainly seems to be solid

” Consumer sentiment is perfectly solid. We’re seeing a lot of strength in consumer spending, and consumer sentiment certainly seems to be solid. ”

Dodging Brexit/POTUS election question

“we are very focused on evaluating, given the way economy is operating, what is the right policy to foster our goals, and I’m not going to get into politics. I’m just– those are factors that we don’t consider and I don’t–I’m not going to get involved in commenting on the election. ”

I agree that there are risks to waiting too long

“I certainly agree and I’ve said myself that there are risks in waiting too long to remove accommodation, and we need to take forward-looking approach. I’ve always advocated making policy based on forecasts of where the economy is heading and taking account of risks. And there are two particular risks that we need to think about in balance. ”

There are risks to inflation running below our 2 percent objective

“On the other hand, inflation is running below our 2 percent objective, and it’s also important that we make sure we get back to 2 percent, and I have routinely indicated a number measures of inflation expectations that are running at the low ends of their historical range, and we’re watching that as well. And there would also be risks from not seeing inflation move back to our 2 percent objective. And exactly how to balance these two risks, which is more serious– which is a more serious risk, can affect one’s judgment about the appropriate timing, and we’re all struggling to understand the magnitude and nature of those two risks. ”

The Federal Reserve is not politically compromised

” The Federal Reserve is not politically compromised. We do not discuss politics in our meetings. I can’t recall any meeting that I have ever attended where politics has been a matter of discussion. I think the public, if they had been watching our meeting on TV today, would have felt that we had a rich, deep, serious, intellectual debate about the risks and the forecast for the economy, and we struggled mightily with trying understand one another’s points of view and to come out at a balance place and to act responsibly”

You will not find any signs of political motivation when transcripts are released in five years

” I have no concern that the Fed is politically motivated, and I will assure that you will not find any signs of political motivation when the transcripts are released in five years. We– I–It is important that we maintain the confidence of the public, and I do believe that we deserve it.”

Of course we’re worried about bubbles, but no one can tell what a bubble valuation is except in hindsight

“Yes. Of course, we are worried that bubbles could form in the economy, and we routinely monitor asset evaluations. While nobody can know for sure what type of valuation represents a bubble–that’s only something one can tell in hindsight–we are monitoring these measures of valuation, and commercial real estate valuations are high. Rents have moved up over time, but still valuations are high relative to rents. And so, it is something we’ve discussed. ”

We have further written down our estimate of longer run normal growth

“We have further written down or estimate of the longer run normal growth rate. And with that reflects is in assessment that productivity growth is likely to remain low for an extended time although, it doesn’t bother and expectation that it will pick up from the miserable half percent pace per year that we have seen over the last five years. ”

Tightness in the labor market is what ultimately drives inflation and pressure on resource utilization

” I think what ultimately drives inflation, both wage and price growth is that tightness in the labor market and pressure on resource utilization. And, the sad fact is that we are getting that healthy pace of job market growth with very slow growth in output.”

I’m not in favor of a whites of their eyes sort of approach because monetary policy operates with lags

” I think the notion that monetary policy operates with long and variable lags, that statement is due to Milton Friedman and it is one of the essential things to understand about monetary policy and it is not fundamentally changed at all. And that is why I believe we have to be forward looking and I’m not in favor of the whites of their eyes rights sort of approach. We need to operate based on forecasts. ”

History doesn’t always replay itself. Inflation not acting like it did in the 70s

” But the global economy and the US economy have changed a lot. History doesn’t always exactly replay itself. Many of the– those of us sitting around the table, we learned the lesson that if policy is not forward looking, that inflation can pick up to highly undesirable levels that inflation expectations can be dislodged upward and the consequence of that can be that endemically higher inflation takes place which it is very costly to reduce. And absolutely, none of us want to relive an episode like that. And so I believe and my colleagues that it is important to be forward looking. We’re going to make that mistake again. But the structure of the economy changes, things do change. The nature of the inflation process is changed I think significantly since the bad days of the ’70s when the Fed had to face this chronic high inflation problem. We’ve seen inflation respond less to the economy, to movements in the unemployment rate that sometimes said the Phillips curve has become flatter. ”

FOMC Press Conference June 2016

Expect continued gradual increases in the Fed funds rate

“Based on the economic outlook, the Committee continues to anticipate that gradual increases in the federal funds rate over time are likely to be consistent with achieving and maintaining our objectives. However, recent economic indicators have been mixed, suggesting that our cautious approach to adjusting monetary policy remains appropriate.”

Economic growth was relatively weak late last year and early this year

“Economic growth was relatively weak late last year and early this year. Some of the factors weighing on growth were expected. For example, exports have been soft, reflecting subdued foreign demand and the earlier appreciation of the dollar. Also, activity in the energy sector has obviously been hard hit by the steep drop in oil prices since mid-2014. But the slowdown in other parts of the economy was not expected. I”

We can’t take the stability of longer run inflation expectations for granted

“Our inflation outlook also rests importantly on our judgment that longer-run inflation expectations remain reasonably well anchored. However, we can’t take the stability of longer-run inflation expectations for granted. While most survey measures of longer-run inflation expectations show little change, on balance, in recent months, financial market-based measures of inflation compensation have declined.”

Vulnerabilities in the global economy remain

“Although the financial market stresses that emanated from abroad at the start of this year have eased, vulnerabilities in the global economy remain. In the current environment of sluggish global growth, low inflation, and already very accommodative monetary policy in many advanced economies, investor perceptions of, and appetite for, risk can change abruptly”

The Brexit is something that we discussed

” Brexit, the upcoming U.K. decision on whether or not to leave the European Union is something we discussed. And I think it’s fair to say that it was one of the factors that factored into today’s decisions, clearly this is very important decision for the United Kingdom and for Europe. It is a decision that could have consequences for economic and financial conditions in global financial markets.”

The neutral rate of interest rates is low by historical standards

” what we can see and what many econometric and other studies show is that the so called neutral rate namely the level of the federal funds rate that is consistent with the economy growing roughly at trend in operating near full employment, that rate is quite depressed by historical standards. ”

We’ve expected the effects of the financial crisis to fade but there are also more persistent factors like low productivity growth and aging societies that are depressing the neutral rate

“And I’ve often in my statements and remarks talked about headwinds that reflect lingering effects of the financial crisis. To the extent that there are headwinds, I think many of us expect that these headwinds would gradually diminish overtime and that’s a reason why you see the upward path for rates. But there are also more long lasting or persistent factors that may be at work that are holding down the longer-run level of neutral rates. For example, slow productivity growth, which is not just a U.S. phenomenon, but a global phenomenon. You know, obviously, there is a lot of uncertainty about what will happen to productivity growth, but, productivity growth could stay long for a prolonged time and we have an aging, aging societies in many parts of the world that could depress this neutral rate.”

The lower neutral rate may be part of the new normal

” The sense that maybe more of what’s causing this neutral rate to be low are factors that are not going to be rapidly disappearing but will be part of the new normal. ”

The labor market appears to have slowed down

“the labor market appears to have slowed down and we need to assure ourselves that the underlying momentum in the economy has not diminished. So, as I said, we will be carefully assessing data on the labor market to make sure that job gains are going to continue at a pace sufficient to result in further improvement in the labor market”

Don’t believe that their rate increase is responsible for any slowing

“I really don’t think that a single rate increase of 25 basis points in December has had much significance for the outlook. ”

We’re quite uncertain about where rates are heading

“Well, so I want to say again, we’re quite uncertain about where rates are heading in the longer term.”

No meeting is off the table

“Every meeting is live. There is no meeting that is off the table, that no meeting is out in terms of a possible rate increase. But, we really need to look at the data. And I can’t prespecify a timetable. So, I’m, you know, not comfortable to say it’s in the next meeting or two, but it could be, it could be, it’s not impossible. It’s not impossible that by July, for example, we would see data that led us to believe that we’re in a perfectly fine course, and that data was an aberration and other concerns would have passed. ”

We’re trying to make policy without taking politics into account

“we are very focused on assessing the economic outlook and making changes that are appropriate without taking politics into account. ”

Minutes are not changed after the fact in order to correct possible misconceptions

“the minutes are always–have to be an accurate discussion of what happened at the meeting. So, they’re not changed after the fact in order to correct possible misconceptions.”

There may be a case for helicopter money in extreme circumstances

“Now, whether or not in such extreme circumstances, there might be a case for, let’s say, coordination–close coordination with the central bank playing a role in financing fiscal policy. This is something that academics are debating, and it is something that one might legitimately consider. I would see this as a very abnormal extreme situation where one needs an all-out attempt and even then it’s a matter that academics are debating, but only in an unusual situation.”

When oil prices stabilize their effect on inflation dissipates

” Well, oil prices have had many different effects on the economy, and so, we’ve been watching oil prices closely. As you said, falling oil prices pull down inflation. You know, it takes falling oil prices to lower inflation on a sustained basis. Once they stabilize at whatever level, their impact on inflation dissipates over time. So, we’re beginning to see that happening. Not only have they stabilized, they have moved up some, and their inflation is–their impact on inflation is winning over time. But oil prices have also had a very substantial negative effect on drilling and mining activity that’s led to weakness in investment spending and job loss in manufacturing and, obviously, in the energy sector. “

Janet Yellen June 2016 Speech

Further increases in fed funds are likely to be appropriate if conditions continue to strengthen

” If incoming data are consistent with labor market conditions strengthening and inflation making progress toward our 2 percent objective, as I expect, further gradual increases in the federal funds rate are likely to be appropriate and most conducive to meeting and maintaining those objectives. However, I will emphasize that monetary policy is not on a preset course and significant shifts in the outlook for the economy would necessitate corresponding shifts in the appropriate path of policy.”

Last Friday’s labor report was disappointing

” the overall labor market situation has been quite positive. In that context, this past Friday’s labor market report was disappointing.”

Shouldn’t attach too much significance to any single labor report

“Although this recent labor market report was, on balance, concerning, let me emphasize that one should never attach too much significance to any single monthly report. Other timely indicators from the labor market have been more positive. For example, the number of people filing new claims for unemployment insurance–which can be a good early indicator of changes in labor market conditions–remains quite low, and the public’s perceptions of the health of the labor market, as reported in various consumer surveys, remain positive. That said, the monthly labor market report is an important economic indicator, and so we will need to watch labor market developments carefully.”

Cautiously optimistic that factors restraining growth have faded

” in keeping with that tradition, I’ll now turn to the less-positive. Economic developments abroad have significantly restrained growth in the United States over the past year, although I am cautiously optimistic that these headwinds are now fading. Concerns about slowing growth in China and falling commodity prices, which afflicted global financial markets early this year and thus likely weighed on demand, appear to have eased somewhat. ”

There is some evidence that deep recession had a long lasting effect in depressing investment

“There is some evidence that the deep recession had a long-lasting effect in depressing investment, research and development spending, and the start-up of new firms, and that these factors have, in turn, lowered productivity growth. With time, I expect this effect to ease in a stronger economy.11 I also see no obvious slowdown in the pace or the potential benefits of innovation in America, which likewise may bear fruit more readily in a stronger economy. In the meantime, it would be helpful to adopt public policies designed to boost productivity”

Current stance of policy is appropriate but fed funds should rise gradually

“My overall assessment is that the current stance of monetary policy is generally appropriate, in that it is providing support to the economy by encouraging further labor market improvement that will help return inflation to 2 percent. At the same time, I continue to think that the federal funds rate will probably need to rise gradually over time to ensure price stability and maximum sustainable employment in the longer run.”

The current monetary policy is stimulative because the real fed funds rate is negative

” the current stance of monetary policy is stimulative, although perhaps not as stimulative as might appear at first glance. One useful measure of the stance of policy is the deviation of the federal funds rate from a “neutral” value, defined as the level of the federal funds rate that would be neither expansionary nor contractionary if the economy was operating near potential. This neutral rate changes over time, and, at any given date, it depends on a constellation of underlying forces affecting the economy. At present, many estimates show the neutral rate to be quite low by historical standards–indeed, close to zero when measured in real, or inflation-adjusted, terms.13 The current actual value of the federal funds rate, also measured in real terms, is even lower, somewhere around minus 1 percent. With the actual real federal funds rate modestly below the relatively low neutral real rate, the stance of monetary policy at present should be viewed as modestly accommodative”

Modestly accommodative stance of policy is appropriate. Overshooting wouldn’t be bad

“Although the economy is now fairly close to the FOMC’s goal of maximum employment, I view our modestly accommodative stance of policy as appropriate for several reasons. First, with inflation continuing to run below our objective, a mild undershooting of the unemployment rate considered to be normal in the longer run could help move inflation back up to 2 percent more quickly. Second, a stronger job market could also support labor market improvement along other dimensions, including greater labor force participation”

Monetary policy affects the economy with a lag so removal of accommodation should begin before goals are fully reached

“These motivations notwithstanding, I continue to believe that it will be appropriate to gradually reduce the degree of monetary policy accommodation, provided that labor market conditions strengthen further and inflation continues to make progress toward our 2 percent objective. Because monetary policy affects the economy with a lag, steps to withdraw this monetary accommodation ought to be initiated before the FOMC’s goals are fully reached. And if the headwinds that have lingered since the crisis slowly abate as I anticipate, this would mean that the neutral rate of interest itself will move up, providing further impetus to gradually increase the federal funds rate.”

Financial conditions have recovered but my colleagues and I have so many questions!

“Over the past few months, financial conditions have recovered significantly and many of the risks from abroad have diminished, although some risks remain. In addition, consumer spending appears to have rebounded, providing some reassurance that overall growth has indeed picked up as expected. Unfortunately, as I noted earlier, new questions about the economic outlook have been raised by the recent labor market data. Is the markedly reduced pace of hiring in April and May a harbinger of a persistent slowdown in the broader economy? Or will monthly payroll gains move up toward the solid pace they maintained earlier this year and in 2015? Does the latest reading on the unemployment rate indicate that we are essentially back to full employment, or does relatively subdued wage growth signal that more slack remains? My colleagues and I will be wrestling with these and other related questions going forward.”

The only thing we know for sure is that monetary policy is not on a preset course

“What is certain is that monetary policy is not on a preset course, and that the Committee will respond to new data and reassess risks so as to best achieve our goals.”

FOMC April 2016 Meeting Minutes Notes

FOMC Minutes Notes

Participants generally agreed that risks to the economic outlook had receded however many indicataed they continued to see downside risks

“Participants generally agreed that the risks to the economic outlook posed by global economic and financial developments had receded over the intermeeting period. The public appeared to have interpreted Federal Reserve communications following the March FOMC meeting as indicating that achieving the Committee’s economic objectives would likely require a somewhat more gradual pace of increases in the federal funds rate than anticipated earlier. The shift in policy expectations, along with incoming data showing that economic growth abroad picked up during the first quarter of the year, seemed to contribute to the improved tone in global financial markets. Several FOMC participants judged that the risks to the economic outlook were now roughly balanced. However, many others indicated that they continued to see downside risks to the outlook either because of concerns that the recent slowdown in domestic spending might persist or because of remaining concerns about the global economic and financial outlook.”

Ongoing downward pressure on core inflation of declining oil prices and strong dollar should subside

” In addition to the ongoing tightening of resource utilization, the recent depreciation of the dollar and the firming in oil prices suggested that the downward pressures on both core and headline inflation from declining prices of non-oil imports and energy should begin to subside.”

Financial conditions improved significantly thanks to Fed communications after the FOMC meeting

“U.S. and global financial conditions improved significantly over the intermeeting period, marked by a rise in equity indexes, more positive risk sentiment, and a decline in financial market volatility. During their discussion of these developments, participants cited several factors that likely contributed to the easing in financial conditions. In the view of many FOMC participants, Federal Reserve communications after the March FOMC meeting led financial market participants to shift down their expectations concerning the likely path of the Committee’s target for the federal funds rate. In addition, the recent depreciation of the dollar and indications of a rebound of economic growth in China appeared to reduce pressures on the renminbi”

Most participants continued to expect that the medium term outlook hasn’t changed, but still think it’s appropriate to be cautious

” most participants continued to expect that, with labor markets continuing to strengthen, the dollar no longer appreciating, and energy prices apparently having bottomed out, inflation would move up to the Committee’s 2 percent objective in the medium run. Still, with 12-month PCE inflation continuing to run below the Committee’s 2 percent objective, a number of participants judged that it would be appropriate to proceed cautiously in removing policy accommodation. Some participants pointed to the risk that the recent weak data on domestic spending could reflect a loss of momentum in the economy that might hinder further gains in the labor market and raise the likelihood that inflation could fail to increase as expected. Accordingly, these participants believed that it would be important to evaluate whether incoming information was consistent with their expectation that economic growth would pick up and thus support continued improvement in the labor market”

Open to the possibility of an increase in fed funds rate at June FOMC meeting

” participants generally saw maintaining the target range for the federal funds rate at 1/4 to 1/2 percent at this meeting and continuing to assess developments carefully as consistent with setting policy in a data-dependent manner and as leaving open the possibility of an increase in the federal funds rate at the June FOMC meeting.”

Some saw risks of continuing to wait to raise rates

“Some participants saw limited costs to maintaining a patient posture at this meeting but noted the risks–including potential risks to financial stability–of waiting too long to resume the process of removing policy accommodation, especially given the lags with which monetary policy affects the economy. A couple of participants were concerned that further postponement of action to raise the federal funds rate might confuse the public about the economic considerations that influence the Committee’s policy decisions and potentially erode the Committee’s credibility.””

Overly accommodative policy could induce imprudent risk taking in financial markets

“. Two participants noted that several standard policy benchmarks, such as a number of interest rate rules and some measures of the equilibrium real interest rate, continued to imply values for the federal funds rate well above the current target range. Such large and persistent deviations of the federal funds rate from these benchmarks, in their view, posed a risk that the removal of policy accommodation was proceeding too slowly and that the Committee might, in the future, find it necessary to raise the federal funds rate quickly to combat inflation pressures, potentially unduly disrupting economic or financial activity. Overly accommodative policy could also induce imprudent risk-taking in financial markets, posing additional risks to achieving the Committee’s goals in the future.”

Most participants judged that if incoming data were consistent with economic growth then it would be appropriate to increase the target range for fed funds

“Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee’s 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June”

Market participants may not have properly assessed the likelihood of an increase in June

“Some participants were concerned that market participants may not have properly assessed the likelihood of an increase in the target range at the June meeting, and they emphasized the importance of communicating clearly over the intermeeting period how the Committee intends to respond to economic and financial developments.”

Janet Yellen Congressional Testimony February 2015 Notes

Yellen’s first statement is positive about the economy

“Since my appearance before this Committee last July, the economy has made further progress toward the Federal Reserve’s objective of maximum employment. And while inflation is expected to remain low in the near term, in part because of the further declines in energy prices, the Federal Open Market Committee (FOMC) expects that inflation will rise to its 2 percent objective over the medium term.”

The second two paragraphs are positive assessments

“The strong gains in the job market last year were accompanied by a continued moderate expansion in economic activity.”

Financial conditions have recently become less supportive, but the committee expects that economic activity will continue to expand at a moderate pace

“Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar. These developments, if they prove persistent, could weigh on the outlook for economic activity and the labor market, although declines in longer-term interest rates and oil prices provide some offset. Still, ongoing employment gains and faster wage growth should support the growth of real incomes and therefore consumer spending, and global economic growth should pick up over time, supported by highly accommodative monetary policies abroad. Against this backdrop, the Committee expects that with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in coming years and that labor market indicators will continue to strengthen.”

Low commodity prices could trigger stresses, but economic growth could also exceed our projections

“low commodity prices could trigger financial stresses in commodity-exporting economies, particularly in vulnerable emerging market economies, and for commodity-producing firms in many countries. Should any of these downside risks materialize, foreign activity and demand for U.S. exports could weaken and financial market conditions could tighten further. Of course, economic growth could also exceed our projections for a number of reasons, including the possibility that low oil prices will boost U.S. economic growth more than we expect. At present, the Committee is closely monitoring global economic and financial developments, as well as assessing their implications for the labor market and inflation and the balance of risks to the outlook.”

The FOMC anticipates gradual increases in the Fed funds rate

“The FOMC anticipates that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate. In addition, the Committee expects that the federal funds rate is likely to remain, for some time, below the levels that are expected to prevail in the longer run.”

If the economy were to disappoint a lower path would be appropriate

” if the economy were to disappoint, a lower path of the federal funds rate would be appropriate. We are committed to our dual objectives, and we will adjust policy as appropriate to foster financial conditions consistent with the attainment of our objectives over time.'”


I do not expect that the FOMC will have to cut rates

“I do not expect that the FOMC will soon be in a position where it becomes necessary to cut rates…while there is always some risk of recession…I think we want to be careful not to jump to a premature conclusion about what is in store for the US economy.”

Yellen’s thoughts on the credit environment:

“I think the answer is maybe [there’s cause for concern] but the jury is out. We’ve continued to see progress in the labor markets…GDP growth clearly slowed a lot…my expectation is that it will pick up this quarter…but on the other hand financial conditions have tightened considerably and that can have implications for the outlook…We are evaluating and assessing the impact of these developments…that’s what we’re doing at this point.”

“Well not really [do we see credit tightening] at this stage, but what we do see is that spreads especially on lower graded bonds have widened, bank rates have widened…and it’s not just energy…in our recent survey of banks we’ve seen a tightening of lending standards…that is something that bears watching.”

“What we’re trying to do is forecast spending in the economy…and credit availability factors in to our forecast…they’re not the only factors that matter, but they are a factor that’s important…there’s a number of weeks before we meet in March, there’s more data that we’ll want to look at.”

Senate Testimony 2/11

We have considered negative rates previously

“The answer is that we had previously considered negative rates and they would not work well to foster accommodation back in 2010…We’re taking a look again so that we would be prepared in the event that we need to add additional accommodation”

We are watching financial developments, but a cut is not likely

“global economic and financial developments impinge on the outlook. We are in the process of evaluating how those developments should affect our outlook. We will meet in March and provide a new set of projections that will update markets on our thinking on the outlook and the risks. But I’ve not thought that a downturn sufficient to cause the next move to be a cut is a likely possibility. And we’ve not yet seen a shift in the economic outlook that is sufficient to make that highly likely.”

I don’t think the market’s movement was due to our policy

“The immediate market response for a number of weeks to the Fed decision was quite tranquil it was a decision that was well communicated and was expected and there was very little market reaction. Around the turn of the year we began to see more volatility in financial markets. Some of the precipitating factors seemed to be the movement in Chinese currency and the downward move in oil prices. I think those things have been the drivers and have been associated with a broader fears that have developed in the market about the for the potential for weaker global growth with spillovers to inflation, so I don’t think it’s mainly our policy”

FOMC December 2015 Press Conference Notes

This marks the end of an extraordinary period

“This action marks the end of an extraordinary seven-year period during which the federal funds rate was held near zero to support the recovery of the economy from the worst financial crisis and recession since the Great Depression. It also recognizes the considerable progress that has been made toward restoring jobs, raising incomes, and easing the economic hardship of millions of Americans. And it reflects the Committee’s confidence that the economy will continue to strengthen. ”

The process of normalizing is likely to proceed gradually

“As I will explain, the process of normalizing interest rates is likely to proceed gradually, although future policy actions will obviously depend on how the economy evolves relative to our objectives of maximum employment and 2 percent inflation. ”

Why is the Fed raising rates with low inflation? Transitory factors and time lag of decisions

“With inflation currently still low, why is the Committee raising the federal funds rate target? As I have already noted, much of the recent softness in inflation is due to transitory factors that we expect to abate over time, and diminishing slack in labor and product markets should put upward pressure on inflation as well. In addition, we recognize that it takes time for monetary policy actions to affect future economic outcomes. Were the FOMC to delay the start of policy normalization for too long, we would likely end up having to tighten policy relatively abruptly at some point to keep the economy from overheating and inflation from significantly overshooting our objective. Such an abrupt tightening could increase the risk of pushing the economy into recession.”

Policy remains accommodative even after today’s increase

“As I have often noted, the importance of our initial increase in the target range for the federal funds rate should not be overstated: Even after today’s increase, the stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation”

How we’re implementing the policy:

“in conjunction with our policy statement, we also released an implementation note that provides details on the tools that we are using to raise the federal funds rate into the new target range. Specifically, the Board of Governors raised the interest rate paid on required and excess reserves to 1/2 percent, and the FOMC authorized overnight reverse repurchase operations at an offering rate of 1/4 percent. Both of these changes will be effective tomorrow. To ensure sufficient monetary control at the onset of the normalization process, we have for the time being suspended the aggregate cap on overnight reverse repurchase transactions that has been in place during the testing phase of this facility. Recall that the Committee intends to phase out this facility when it is no longer needed to help control the federal funds rate. ”

Global risks persist but the US economy has shown considerable strength

We decided to move at this time because we feel the conditions that we set out for a move, namely further improvement in the labor market and reasonable confidence that inflation would move back to 2 percent over the medium term, we felt that these conditions had been satisfied. We have been concerned, as you know, about the risks from the global economy. And those risks persist, but the U.S. economy has shown considerable strength. Domestic spending that accounts for 85 percent of aggregate spending in the U.S. economy has continued to hold up. It’s grown at a solid pace. ”

We also recognize that monetary policy operates with lags

“And we recognize that monetary policy operates with lags. We would like to be able to move in a prudent, and as we’ve emphasized, gradual manner. It’s been a long time since the Federal Reserve has raised interest rates, and I think it’s prudent to be able to watch what the impact is on financial conditions and spending in the economy and moving in a timely fashion enables us to do this. ”

It’s important not to overblow the significance of this first move

“Again, I think it’s important not to overblow the significance of this first move. It’s only 25 basis points. It–monetary policy remains accommodative. ”

Neutral is not a policy goal, it’s an assessment

“Neutral is not a policy goal. It is an assessment. It’s a benchmark that I think is useful for assessing the stance of policy. Neutral is essentially a stance of policy, a level of short-term rates, which if the economy were operating near its potential–and we’re reasonably, not quite at that, but reasonably close to it–it would be a level that would maintain or sustain those conditions. So if this point, policy, we judge to be accommodative. ”

We would like to avoid a situation where we are forced to tighten abruptly

“we recognize that policy is accommodative, and if we do not begin to slightly reduce the amount of accommodation, the odds are good that the economy would end up overshooting both our employment and inflation objectives. What we would like to avoid is a situation where we have waited so long that we’re forced to tighten policy abruptly, which risks aborting what I would like to see as a very long-running and sustainable expansion. ”

We recognize that inflation is well below our 2% goal

“we recognize that inflation is well below our 2 percent goal. The entire Committee is committed to achieving our 2 percent inflation objective over the medium term. Just as we want to make sure that inflation doesn’t persist at levels above our 2 percent objective, the Committee is equally committed–this is a symmetric goal–and the Committee is equally committed to not allowing inflation to persist below our 2 percent objective’

I’m not going to give you a simple formula for what we need to see to raise rates again

“I’m not going to give you a simple formula for what we need to see on the inflation front in order to raise rates again. We’ll also be looking at the path of employment as well as the path for inflation. But if incoming data were, led us to call into question the inflation forecast that we have set out–and that could be a variety of different kinds of evidence–that would certainly give the Committee pause”

All oil prices need to do is stabilize to stop being a headwind to inflation

“First, let me say with respect to oil prices, I have been surprised by the further downward movement in oil prices, but we do not need to see oil prices rebound to higher levels in order for the impact on inflation to wash out. So all they need to do is stabilize. I believe there is some limit below which oil prices are unlikely to rise. ”

If the economy were disappointing, we would pursue a more accommodative policy

Well, you know, if the economy were disappointing, we– you know, our actions wouldn’t purely be based on inflation, we would also take employment into account. So I can’t give you a simple answer but we would pursue a more accommodative policy because we do certainly are committed to achieving 2 percent over the medium term”

We will watch financial developments, but we’ll need to see persistent changes in conditions, not short term volatility

“we will watch financial developments, but what we’re looking at here is the longer term economic outlook, are we seeing persistent changes in financial market conditions that would have a bearing, a significant bearing, on the outlook that we would need to take account in formulating appropriate policy. Yes we would, but it’s not short-term volatility in markets. ”

We will take into account if financial markets move in a way that is significantly out of line with our expectations

“we obviously will track carefully the behavior of both short and longer term interest rates, the dollar, and asset prices, and if they move in persistent and significant ways that are out of line with the expectations that we have, then of course we will take those in to account”

I feel confident about the fundamentals driving the US economy

“let me start by saying that I feel confident about the fundamentals driving the U.S. economy, the health of U.S. households and domestic spending. There are pressures on some sectors of the economy particularly manufacturing and the energy sector reflecting global developments and developments in commodity markets and energy markets, but the underlying health of the U.S. economy, I considered to be quite sound.”

*I think it’s a myth that expansions die of old age*

“I think it’s a myth that expansions die of old age. I do not think that they die of old age. So the fact that this has been quite a long expansion doesn’t lead me to believe that it’s one that has, that its days are numbered.”

The economy gets hit by shocks. There’s about a 10% chance one could happen in any given year

“But the economy does get hit by shocks, and they were both positive shocks and negative shocks. And so there is a significant odd, you know, probability in any year that the economy will suffer some shock that we don’t know about that will put it into recession. And so, I’m not sure exactly how high that probability is in any year but maybe at least on the order of 10 percent. So yes, there is some probability that that could happen and of course we’d appropriately respond, but it isn’t something that is fated to happen because we’ve had a long expansion”

We do eventually want to operate with a much smaller balance sheet

“in our normalization principles which are in effect, the Committee stated that we eventually want to operate with a much smaller balance sheet than we have at present. We would reduce the size of the balance sheet to essentially whatever size we needed to manage monetary policy effective– in an effective and efficient way. ‘

We don’t exactly know what size the balance sheet will be eventually

“I can’t tell you exactly what size of balance sheet we will determine is the best to operate in an efficient and effective manner. It might be somewhat larger than the very tiny quantity of reserves that we had in pre-crisis. We’ve not determined that. We’ve also said that we will– we expect to reduce the size of our balance sheet over time by ceased diminishing or ceasing entirely reinvestments”

We would like to be able to lower Fed funds in an adverse shock

“one factor that we’ve talked about is the desirability of having some scope to respond to an adverse shock to the economy by lowering the federal funds rate. And so, it would be nice to have a buffer in terms of having raised the federal funds rate to a certain extent to give us some meaningful scope to respond. ”

We don’t expect to cease reinvestment quickly

“it means that this is not something that we expect to be turning to, to cease reinvestment very quickly”

We think Third Avenue was an unusual case

“Third Avenue Focused Credit Fund was a rather unusual open-end mutual fund. It had very concentrated positions in especially risky and liquid bonds, and it had been facing very significant redemption pressures. My understanding is that the SEC is in touch with Third Avenue. And as you probably know, the SEC has proposed some reforms to address what’s a structural problem of liquidity mismatch in open-end mutual funds. ”

We are watching very carefully, but I think financial markets are much more resilient now

“So we continue to believe that financial conditions are supportive of economic growth. We will be–we have been and will continue to track developments in financial markets very carefully. I would say that I think we have a far more resilient financial system now than we had prior to the financial crisis and highly capital banks that are well situated to support corporate lending. ‘

Central banks kill expansions because they tighten too late. That’s exactly why we’re tightening early

“when you say that central banks often kill them, I think the usual reason that that has been true when that has been true is that central banks have begun too late to tighten policy, and they’ve allowed inflation to get out of control. And at that point, they have had to tighten policy very abruptly and very substantially, and it’s caused a downturn, and the downturn has served to lower inflation. So, if you don’t mind my flipping the question on you, I would point out that it is because we don’t want to cause a recession through that type of dynamic at some future date that it is prudent to begin early and gradually. ”

This move reflects our confidence in the economy

“the first thing that Americans should realize is that the Fed’s decision today reflects our confidence in the U.S. economy, that we believe we have seen substantial improvement in labor market conditions, and while things may be uneven across regions of the country and different industrial sectors, we see an economy that is on a path of sustainable improvement. ”

There are some upside risks in the economy too

“There are upside risks to the economy and I think, you know, we tend to focus on the downside risk, it’s right to do so. We want to be careful of that downside risks. But consumers are in much healthier financial condition. Their income prospects have improved. We see them buying a lot of cars. Housing has been recovering very slowly. But the demographics would point to considerable upside for residential investment. My mainline forecast is for gradual recovery but there is upside risk there.

While we’re not going to act mechanically, we will probably end up making evenly spaced hikes

“I do want to emphasize that while we have said gradual, gradual does not mean mechanical evenly timed, equally-sized interest rate changes. So, that is not what the Committee means by it. My guess is that the economy will progress in the manner that is not sufficiently even, that we will decide to make evenly spaced hikes.”

FOMC July 2015 Meeting Minutes Notes

Committee discussed strategies to taper reinvestments

” A staff briefing at this meeting provided background on alternative strategies the Committee could employ with respect to reinvestments. These strategies included either characterizing qualitatively or specifying numerically the economic conditions under which reinvestments would cease, or establishing a date or time interval following the initial firming of the federal funds rate for the new policy on reinvestments to begin. The briefing also noted that the Committee could phase out reinvestments gradually or end reinvestments all at once.”

Favored continuing reinvestments in early stages of rate increase

“In their discussion, most participants expressed a preference that the timing of the cessation of reinvestments be based on a qualitative assessment of economic conditions and the outlook. Participants generally favored continuing reinvestments during the early stages of normalization, initially using only increases in the target range for the federal funds rate to reduce monetary policy accommodation”

Expect GDP to stabilize after Q1

“Participants generally viewed the incoming data as confirming their earlier assessment that the weak report on real GDP in the first quarter reflected transitory factors and expected that real economic activity would continue to expand at a moderate pace over the balance of the year, leading to further improvement in labor market conditions”

Expect inflation to rise, risks to economy are nearly balanced

“Participants generally anticipated that inflation would rise gradually toward 2 percent as the labor market improved further and the transitory effects of earlier declines in energy and import prices dissipated. Although many continued to see some downside risks arising from economic and financial developments abroad, participants generally viewed the risks to the outlook for domestic economic activity and the labor market as nearly balanced.”

Summary of the economy

“Industry contacts pointed to generally solid business conditions, with firms in many parts of the country continuing to report positive assessments of current activity and optimism about future sales. Manufacturing activity had slowed somewhat over the intermeeting period, but conditions were mixed across different industries. Those firms connected to the auto, aerospace, and construction industries, for example, reported strong demand. However, businesses particularly exposed to the appreciation of the dollar or falling commodity prices–including those in the heavy equipment and steel, oil and gas extraction, and petrochemical industries–reported slower activity. The service sector reports were mostly positive. Overall, most contacts viewed the recent slowdown in manufacturing as likely to prove temporary and remained optimistic about future demand, even though the recent decreases in oil prices and the possibility of adverse spillovers from slower economic growth in China raised some concerns. Regarding the agricultural sector, a very wet spring had significantly reduced the percentage of crops in good condition, and declining commodity prices had further reduced expectations for farm income.”

Chinese slowdown could pose risks to the US outlook

“While the recent Chinese stock market decline seemed to have had limited implications to date for the growth outlook in China, several participants noted that a material slowdown in Chinese economic activity could pose risks to the U.S. economic outlook.”

Labor conditions improved further

“Participants agreed that labor market conditions had improved further, citing increases in payroll employment and job openings, the decrease in the unemployment rate, and some further reduction in broader measures of labor market underutilization.”

Participants discussed financial stability risks

“Participants discussed a range of topics associated with financial market developments and financial stability. They commented on issues related to the deterioration in bond market liquidity reported by market participants, the potential migration of leveraged loan underwriting to the nonbank sector in light of current supervisory guidance, and the assessment of valuation risks when term premiums were narrow while most other risk premiums were not.”

Conditions for firming not yet achieved but they are approaching that point

“During their discussion of economic conditions and monetary policy, participants mentioned a number of considerations associated with the timing and pace of policy normalization. Most judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point. Participants observed that the labor market had improved notably since early this year, but many saw scope for some further improvement. Many participants indicated that their outlook for sustained economic growth and further improvement in labor markets was key in supporting their expectation that inflation would move up to the Committee’s 2 percent objective, and that they would be looking for evidence that the economic outlook was evolving as they anticipated.”

Some people advised that policy shouldn’t overemphasize month to month changes in incoming data

“Some participants, however, emphasized that the economy had made significant progress over the past few years and viewed the economic conditions for beginning to increase the target range for the federal funds rate as having been met or were confident that they would be met shortly. A few of these participants judged that the stance of monetary policy, including the extraordinarily low level of the federal funds rate and the current size of the Federal Reserve balance sheet, was very accommodative. A couple of others thought that an appreciable delay in beginning the process of normalization might result in an undesirable increase in inflation or have adverse consequences for financial stability. Some participants advised that progress toward the Committee’s objectives should be viewed in light of the cumulative gains made to date without overemphasizing month-to-month changes in incoming data. It was also noted that a prompt start to normalization would likely convey the Committee’s confidence in prospects for the economy.”

Fed discussed potential long run shifts in monetary policy frameworks

“At the conclusion of the meeting, the Chair noted that the staff would soon begin an extended effort to evaluate potential long-run monetary policy implementation frameworks. In view of the likely time frames for normalization of the stance of monetary policy and the System’s balance sheet, the Committee probably would not need to reach any final decisions regarding such a framework for several years. ”

Past analyses have focused on the Fed funds rate, but policymakers agreed that they should also discuss policy frameworks in the event of a return to the lower bound

“Previous staff work on implementation frameworks was presented to the Committee in April 2008 and focused largely on alternative frameworks that could be used to target the federal funds rate. Those topics would be an important part of the current undertaking as well. However, in light of experience over recent years, policymakers agreed that a number of related issues warranted attention, including topics such as the effectiveness of alternative implementation frameworks in scenarios that could require a return to the zero lower bound, regulatory and other structural developments that could affect financial institutions and markets in ways that would affect monetary policy implementation, and the long-run structure of the Federal Reserve’s assets and liabilities that best supports the System’s macroeconomic objectives and financial stability. In discussing the range of issues contemplated for study under this project, it was noted that the Policy Normalization Principles and Plans reflect the Committee’s intention that, in the longer run, the Federal Reserve will hold no more securities than necessary to implement monetary policy efficiently and effectively and that the Federal Reserve will hold primarily Treasury securities.”