WASHINGTON, March 19 The following are
highlights of Federal Reserve Chair Janet Yellen's press
conference on Wednesday following the end of the U.S. central
bank's March 18-19 monetary policy meeting.
LABOR MARKET MEASURES
"The share of long-term unemployment has been immensely
high, and can be very stubborn in bringing down. That is
something that I watch closely. Again, that remains
But it has come down from something like 45 percent to high
30s. But that's certainly in my dashboard ... I do think most
research suggests that due to demographic factors, labor force
participation will be coming down and there has been a downward
trend now for a number of years.
I think there is also a cyclical component in the fact that
labor force participation is depressed, and so it may be that as
the economy begins to strengthen, we could see labor force
participation flatten out for a time, as discouraged workers
start moving back into the labor market.
So that is something I'm watching closely. The committee
will have to watch. There are different views on this, within
the committee, and it's hard to know definitively what part of
labor force participation is structural versus cyclical. It is
something to watch closely.
I've also mentioned in the past measures of labor market
turnover. You mentioned 'quits.' Remarkably large share of
workers quit their jobs every month, usually going directly into
another job. I take the quit rate in many ways as a sign of the
health of the economy, when workers are scared they won't be
able to get other jobs, they show a reduced willingness to quit
their jobs. Quit rates now are below normal pre-recession
The hires rate, however, remains extremely depressed. And I
take that as a sign of a weaker labor market.
But most of these measures, although they don't paint the
identical extent of improvement, if you ask about my dashboard,
the dial on virtually all of those things is moving in a
direction of improvement."
NUMERICAL FORWARD GUIDANCE
"The reason the committee felt that the time had come to
revise the forward guidance is not because we think it has not
been effective. I believe the committee does think it's been
I think it's had a very useful impact in helping markets
understand our expectations and shaping their own. But as the
unemployment rate gets closer and closer to 6 and a half
percent, that seems like the one that is likely to be breached.
The question is, markets want to know, the public wants to
understand beyond that threshold, how will we decide what to do.
So the purpose of this change is simply to provide more
information than we have in the past, even though it is
qualitative information, about what we will be looking at as the
unemployment rate declines below 6 and a half percent in
deciding how long to hold the federal funds rate at this 0 to a
quarter percent range."
"There are a lot of kids who are shacking up with their
families, and probably would like to be going out and acquiring
places of their own, whether it's an apartment or a home ...
There is a lot of demographic potential there for new household
formation that would ultimately generate new construction,
either single or multi-family, and the level of rates I think
does matter. And the fact that they are low now, I think, is
something that should serve as a stimulus to people coming back
into the housing market. And we have not yet seen a pickup after
the lull, after interest rates went up last summer.
I do expect housing activity to begin to expand more rapidly
"Wage growth has really been very low. I know there is
perhaps one isolated measure of wage growth that suggests some
uptick. But most measures of wage increase are running at very
low levels. In fact, with productivity growth we have and 2
percent inflation, one would probably expect to see on an
ongoing basis something between perhaps 3 and 4 percent wage
inflation would be normal."
"Wage inflation has been running at 2 percent. So not only
is it depressed, signaling weakness in the labor market, but it
is certainly not flashing. An increase in it might signal some
tightening or meaningful pressures on inflation, at least over
time, and I would say we are not seeing that."
"In terms of the situation in Ukraine and Russia, it's
something we are monitoring very closely. We discussed in our
meeting, the direct trade linkages or exposures of the U.S.
banking system to the Ukraine and Russia are not large ... We
are not seeing meaningful impacts now. But obviously, there are
geopolitical risks here, that it's very important for us to be
attentive to and to keep our eye on."
"And we are not seeing broader global financial
repercussions. But if this were to escalate, that would
certainly be something that would be on our radar screen. But we
are not seeing that now and we're monitoring closely."
"With respect to the issue of short-term unemployment, and
it being more relevant for inflation and a better measure of the
labor market, I've seen research along those lines. I think it
would be tremendously premature to adopt any notion that says
that that is an accurate read, on either how inflation is
determined or what constitutes slack in the labor market."
WEATHER'S IMPACT ON ECONOMY
"Certainly weather has played an important role in weakening
economic activity in Q1. It's not the only factor that is at
work, and most projections for growth in the first quarter are
reasonably weak. It's an important factor. It's not the only
But, I would say it's likely in the view of most of the
committee to begin to wash out in the second quarter, and we can
even see some rebound.
Now, I would say, I know what we have said about weather is
a little bit complicated and confusing. So let me just say
between December and January, the committee saw data that led it
to be quite a bit more optimistic about the economic outlook."
WHEN TO RAISE INTEREST RATES AFTER QE ENDS
"So the language that we use in the statement is
'considerable period.' ... This is the kind of term it's hard to
define, but ... probably means something on the order of around
six months, or that type of thing."
What the statement is saying is it depends what conditions
are like. We'd need to see where the labor market is, how close
are we to our full employment goal; that will be a complicated
assessment, not just based on a single statistic. And how
rapidly are we moving toward it? Are we really close and moving
fast? Or are we getting closer but moving very slowly?
And then what the statement emphasizes - and this is the
same language we used in December and January - we used the
language, especially if inflation is running below our 2 percent
objective. Inflation matters here too, and our general principle
tries to capture that notion.
If we have a substantial shortfall in inflation, if
inflation is persistently running below our 2 percent objective,
that is a very good reason to hold the funds rate at its present
range for longer."
PATH OF INTEREST RATES
"And we have expressed a number of opinions about the likely
path of rates. In particular, the committee has endorsed the
view that it anticipates it will be a considerable period after
the asset purchase program ends before it will be appropriate to
begin to raise rates.
And of course, on our present path, that is not utterly
pre-said, we would be looking at next fall. So I think that is
important guidance ... I think it suggests a shallower glide
path. What the committee is expressing here, I would say, is its
forecast of what will be appropriate some years from now, based
on the understanding that we have developed about what are the
economic forces that have been driving economic activity. We
have had a series of years now in which growth has proven
"The new guidance does not indicate any change in the policy
intentions of the FOMC, but instead, reflects changes in the
conditions we face ... progress in the labor market has been
more rapid than we had anticipated. While inflation has been
lower than the committee had expected, although the threshold
served well as a useful guide to policy over the past year, last
December the FOMC judged it appropriate to update that guidance,
noting that the current target range for the federal funds rate
would likely be maintained well past the time the unemployment
rate declines below 6 and a half percent, especially if
projected inflation continues to run below the committee's 2
percent longer-run goal."
UPWARD DRIFT IN INTEREST RATE PROJECTIONS
"To my mind there is only very limited upward drift ... The
committee in assessing the economy, if you compare today's
assessment with December's, is virtually identical.
As I mentioned, unemployment has come down. The labor market
more broadly I think has improved a little more than we might
have expected. And that slightly more rapid improvement in the
unemployment picture might explain ... a little bit of the
upward shift in those dots.
But more generally, I think that one should not look to the
'dot plot' so to speak as the primary way in which the committee
wants to, or is, speaking about policy to the public at large."
"Inflation has continued to run below the committee's 2
percent objective. Given that longer-term inflation expectations
appear to be well anchored, and in light of the ongoing recovery
in the United States and in many economies around the world, the
FOMC continues to expect inflation to move gradually back
towards its objective. The committee is mindful that inflation
running persistently below its objective could pose risks to
LOWER INTEREST RATES
"The statement continues to note that in deciding on the
pace for removing accommodation, the committee will take a
balanced approach to attaining its objectives."
The statement now adds the committee's current anticipation:
that even after employment and inflation are near
mandate-consistent levels, economic conditions may, for some
time, warrant keeping short-term interest rates below levels the
committee views as normal in the longer run.
This guidance is consistent with the paths for appropriate
policy as reported in the participants' projections, which show
the federal funds rate for most participants remaining well
below longer-run normal values at the end of 2016."
IMPACT OF FINANCIAL CRISIS
"Although FOMC participants provide a number of explanations
for the federal funds rate target remaining below its longer-run
normal level, many cite the residual impacts of the financial
crisis, and some note that the potential growth rate of the
economy may be lower at least for a time."
"Labor market conditions have continued to improve. The
unemployment rate at 6.7 percent is three-tenths lower than the
data available at the time of the December meeting.
Further, broader measures of unemployment such as the U6
measure, which includes marginally attached workers and those
working part time but preferring full-time work, have fallen
even more than the headline unemployment rate over this period.
And labor force participation has ticked up."
(Compiled by Lucia Mutikani, Margaret Chadbourn, Anna
Yukhananov, Elvina Nawaguna and Lisa Lambert; Editing by Paul