Company Notes Digest 9.22.17

Each week we read dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

This week’s post is a short one for a wonderful reason: my wife and I welcomed our first child into the world. It’s been an incredible experience; I’ve never felt more love for anyone.  We have started a new chapter that is filled with anticipation and excitement.  Life has definitely changed.

Compared to that, nothing that happened in the economy last week seems very important. Still, the Fed started a new chapter of its own and so I didn’t want to miss chronicling what is probably the biggest economic event of the year.

Next week is a light week for earnings, so I’ll probably skip it. But, in the meantime, I’d love to hear words of wisdom on parenthood from our readers. Please feel free to respond to this email with any words of advice. Depending on the response, I’ll try to put something together for next week.

The Macro Outlook:

The Fed will wind down its balance sheet

“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.” —Fed Chair Janet Yellen (Central Bank)

The pace will gradually accelerate throughout 2018

“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.” —Fed Chair Janet Yellen (Central Bank)

There is a high bar to resuming reinvestment

“you asked me what would it take for us to resume reinvestment…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 is a somewhat high bar to resume reinvestments…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.” —Fed Chair Janet Yellen (Central Bank)

The fed wants to focus on the fed funds rate

“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.” —Fed Chair Janet Yellen (Central Bank)

The fed funds rate is still accomodative

“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.” —Fed Chair Janet Yellen (Central Bank)

Further increases are warranted

“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.” —Fed Chair Janet Yellen (Central Bank)

Low inflation is likely due to transitory causes

“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.” —Fed Chair Janet Yellen (Central Bank)

Inflation has been low but that doesn’t mean it’s going to continue

“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” —Fed Chair Janet Yellen (Central Bank)

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…seems to have come down” —Fed Chair Janet Yellen (Central Bank)

Managing this will likely be up to future policymakers…

“It will be up to future policymakers to decide, in the event of a severe downturn, whether they think it’s appropriate to again resort to balance sheet, to adding, adding assets to a balance sheet” —Fed Chair Janet Yellen (Central Bank)

Yellen has only met with Trump once

“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.” —Fed Chair Janet Yellen (Central Bank)

Full transcripts can be found at