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.”