WASHINGTON (Reuters) - The following are highlights from Federal Reserve Chair Janet Yellen’s press conference on Wednesday following the end of a two-day meeting of the U.S. central bank’s policy-setting committee.
YELLEN ON FED NOT CONSIDERING OR DISCUSSING NEGATIVE RATES
“This not actively a subject that we are considering or discussing. The committee continues to feel that we are on a course where the economy is improving and inflation is moving back up. And, as I indicated, if events continue to unfold in that way we are likely to gradually raise rates over time. Again, that’s not fixed in stone, we’ll watch how the economy behaves, we are prepared to respond if things transpire differently. But we are not spending time actively debating and considering things we could do for additional accommodation, and certainly not actively considering negative rates.”
YELLEN ON ON EVERY MEETING BEING LIVE
‘So I will say again that every meeting is a live meeting. April remains a live meeting. And we will be tracking incoming data. It’s a slightly shorter period. We have six weeks, but there will be additional data on the labor market and on various factors that pertain to inflation.”
YELLEN ON WAGES
“I must say I do see broad-based improvement in the labor market and I’m somewhat surprised that we are not seeing more of a pickup in wage growth. ... I have to say in anecdotal reports, we do hear quite a number of reports of firms facing wage pressures and even broad-based, slightly faster increases in wages, wage increases that they are granting. ... The fact that we’ve not seen any broad-based pickup is one of the factors that suggest to me that there is continued slack in the labor market. But I would expect wage growth to move up some.”
YELLEN ON BALANCE OF RISKS TO OUTLOOK
“The committee certainly thinks that risks to the outlook have diminished. Nevertheless we continue to see risks which we highlighted.
“I would point out that we decided not to describe the balance of risks as weighted to the downside. The committee did not reach that judgment. There is no collective judgment in this statement on whether the risks are balanced or not. We declined to make a collective assessment. My guess is that some participants see them as balanced, and some see them as weighted somewhat to the downside...
The U.S. economy has been very resilient in recent months in the face of shocks… Second I would say that while global developments do pose some downside risks, the risks are not all one-sided.”
YELLEN ON OIL PRICES’ IMPACT ON CONSUMER SPENDING
“To definitively say that lower oil prices have not boosted consumer spending, I’m not sure we can really arrive at that conclusion in any rigorous way. The typical, the average household in the United States with oil prices where they are now is probably benefiting around $1,000 a year. And some very detailed micro data that I’ve seen on household spending patterns suggests that there may be a link, as you would expect, from reduced amounts that people pay at the pump to other spending like eating out for restaurant meals and other things.
“But the aggregate data is not as strong ... and spending is not as strong as it could be, given the decline. And of course on the other side, maybe it will take a while and it’s something that will slowly strengthen over time if oil prices stay low. On the other side, of course, we have seen a marked decline in drilling activity which is depressed investment spending and of course very substantial layoffs in the energy sector.”
YELLEN ON OIL PRICES AND INFLATION
“If oil prices were to increase to 50 (dollars), I mean that would probably slightly move up our expected path for core inflation, maybe speed how rapidly we would move back to 2 percent. But I wouldn’t think that that would be something alone that would have great policy significance.”
YELLEN ON INFLATION OVERSHOOTING
“So I want to make clear that our inflation objective is 2 percent and we are projecting a move back to 2 percent and we are not trying to engineer an overshoot of inflation, not to compensate for past undershoots. Two percent is our objective but it is a symmetric objective, and we certainly don’t seek to overshoot our objective. But some undershoots and overshoots are part of how the economy operates, and our tolerance for those is symmetric with respect to under and overshoots.
“We did take note in the statement of the fact that inflation has picked up in recent months. I see some of that as having to do with unusually high inflation readings in categories that tend to be quite volatile without very much significance for inflation over time. So I’m wary and haven’t yet concluded that we have seen any significant uptick that will be lasting in, for example, in core inflation.
“But we note, the Committee notes as it did in December that we continued to monitor development trends and developments closely and that would include both the fact that recent inflation readings have been on the high side. And as I mentioned on the other side, that readings on measures of inflation compensation and some survey measures have been on the low side. So in that sense there are risks around the inflation forecast in both directions.”
YELLEN ON FALLING BEHIND THE CURVE
“The committee indicated in December we want inflation to go back to 2 percent but we also want to be careful not to see some significant overshoot so that we would get behind the curve and potentially be faced with a need to tighten in a very rapid fashion later, in a way that could undermine the sustainability of the employment gains we’ve had. But we do see some continued tightening in monetary policy to be appropriate in that event.”
YELLEN ON GLOBAL ECONOMY AND FINANCIAL CONDITIONS
“Since the turn of the year, concerns about global economic prospects have led to increased financial market volatility and somewhat tighter financial conditions in the United States, although financial conditions have improved notably more recently. In addition, economic growth abroad appears to be running at a somewhat softer pace than previously expected. These unanticipated developments, however, have not resulted in material changes to the Committee’s baseline outlook.”
YELLEN ON PROJECTIONS
“Most Committee participants now expect that achieving economic outcomes similar to those anticipated in December will likely require a somewhat lower path for policy interest rates than foreseen at that time. I would like to underscore, however, that the participants’ projections for the federal funds rate - including the median path - are not a plan for future policy. Policy is not on a preset course.”
YELLEN ON FOMC DECISION
“Proceeding cautiously in removing policy accommodation at this time will allow us to verify that the labor market is continuing to strengthen despite the risks from abroad. Such caution is appropriate given that short-term interest rates are still near zero, which means that monetary policy has greater scope to respond to upside than to downside changes in the outlook.
“As we indicated in our statement, the Committee expects that economic conditions will evolve in a manner that will warrant only 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. This expectation is consistent with the view that the neutral nominal federal funds rate, defined as the value of the federal funds rate that would be neither expansionary nor contractionary if the economy was operating near potential, is currently low by historical standards and is likely to rise only gradually over time.”
YELLEN ON INFLATION
“Overall consumer price inflation, as measured by the price index for personal consumption expenditures, stepped up to 1.25 percent over the 12 months ending in January as the sharp decline in energy prices around the end of 2014 dropped out of the year-over-year figures. Core inflation, which excludes energy and food prices, has also picked up, although it remains to be seen if this firming will be sustained, in particular if the earlier declines in energy prices and appreciation of the dollar could well continue to weigh on overall consumer prices. But once these transitory influences fade and as the labor market strengthens further, the Committee expects inflation to rise to 2 percent over the next two to three years.”
YELLEN ON FED INDEPENDENCE
“We are a nonpartisan, independent institution devoted to pursuing our congressionally mandated objectives. And I have never seen political views in any way influence the policy judgments that are made inside the Federal Reserve. I want to say that emphatically.”
Reporting by Lucia Mutikani, Ann Saphir and Megan Cassella; Editing by Andrea Ricci
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