WASHINGTON, March 18 (Reuters) - The following are highlights of Federal Reserve Chair Janet Yellen’s remarks at a press conference following the conclusion of the U.S. central bank’s two-day policy meeting on Wednesday.
Yellen on removal of ‘patient’ not signaling impatience:
“With continued improvement in economic conditions ... we do not want to rule out the possibility that an increase in the target range could be warranted at subsequent meetings (to the April FOMC meeting). Let me emphasize ... that the timing of the initial increase in the target range will depend on the committee’s assessment of incoming information.”
“Today’s modification of our guidance should not be interpreted to mean that we have decided on the timing of that increase. In other words, just because we removed the word ‘patient’ from the statement doesn’t mean we’re going to be impatient.”
Yellen on the market:
The pace of employment growth has remained strong... As we noted in our statement, slack in the labor market continues to diminish. Meanwhile, the labor force participation rate, the percentage of working age Americans either working or seeking work, is lower than most estimates of its trend and wage growth remains sluggish, suggesting that some cyclical weakness persists.
So considerable progress clearly has been achieved. But room for further improvement in the labor market continues.
Yellen on strong dollar and Fed forecasts:
There has been a slight downgrading of estimates of growth for this year. You mentioned the dollar. We noted that export growth has weakened, probably the strong dollar is one reason for that. On the other hand the strength of the dollar also in part reflects the strength of the U.S. economy.
The strength of the dollar is also one factor that is ... holding down import prices, and at least on a transitory basis at this point pushing inflation down. We are taking account of international developments...
It is important to recognize that this is not a weak forecast.
Yellen on inflation:
Other things I will be looking at, of course, the inflation data. But as we said, we expect inflation to remain quite low because of the depressing influence of energy price declines and the dollar.
We will be looking at wage growth. We have not seen wage growth pick up. We may not see wage growth pick up. I wouldn’t say either that that is a precondition to raising rates. But if we did see wage growth pick up, that would be at least a symptom that inflation would likely move up over time. We’ll be watching inflation expectations. Survey measures have been stable. I expect that to continue.
Yellen on downward revisions in fed fund rate path view:
We do see meaningful downward adjustments in the inflation forecasts...
Downward revisions to the longer-run normal employment rate, in a way, suggests that participants are seeing more slack in the economy now than they previously did.
I think both of those things would point to downward revision in the funds rate path.
Yellen on headwinds receding:
So we are seeing an economy that’s growing above trend. The labor market is improving. I think some of the headwinds that have long been holding the economy back are beginning to recede which is a reason that the Committee wants to be able to evaluate incoming data and consider when it may be appropriate to finally raise rates.
Yellen on inflation and energy:
Inflation has declined further below our longer-run objective, largely reflecting the lower energy prices I just mentioned. Declining import prices have also restrained inflation, and in light of the recent appreciation of the dollar, will likely continue to do so in the months ahead. My colleagues and I continue to expect that as the effects of these temporary factors dissipate, and as the labor market improves further, inflation will move gradually back toward our 2-percent objective over the medium term.
Yellen on June rate hike probability: Let me emphasize again, that today’s modification of the forward guidance should not be read as indicating that the committee has decided on the timing of the initial increase in the target range for the federal funds rate. In particular, this change does not mean that an increase will necessarily occur in June. Although we can’t rule that out.
Yellen on economic drag from the dollar:
With respect to the impact of the dollar on the U.S. economy, I don’t have quantitative estimate to offer you, but I certainly expect net exports to serve as a notable drag this year on the outlook. But, remember, we have to put that in context. There are a lot of things that affect the U.S. outlook. And while that is serving as a drag on economic growth, overall the committee continues to see sufficient strength, particularly in private spending, that we are expecting above trend growth even so.
Yellen on bubbles:
In some corporate debt markets, we do see evidence of unusually low spreads...
More broadly, we do try to assess potential threats to financial stability. And in addition to looking at asset valuations, we also look at measures of credit growth, of the extent of leverage being used in the economy and in the financial sector, and the extent of maturity transformation.
And taking into account a broad range of metrics that bear on financial stability, our overall assessment at this point is that threats are moderate.
Yellen on not providing certainty to markets:
We can’t provide certainty and shouldn’t provide certainty because economic developments that will unfold are uncertain. What market participants should be doing is looking at incoming data just as we are, and forming their expectations for where policy will be going and should be going, just exactly as we will be doing by attempting to understand economic developments as they unfold.
Yellen on raising rates when risks balanced:
Certainly we could raise rates in a situation where the risks are balanced.
We want to see further improvement in the labor market. And we want to feel reasonably confident that the economy is on a trajectory where we will achieve our 2 percent inflation objective.
Yellen on Fed could raise rates at any meeting:
Every meeting that the Federal Open Market Committee has is a live meeting at which we could have a decision. Clearly if we decided for the first time to raise the federal funds rate it is something I think that would be appropriate to answer questions and explain in more detail. We have long had the capacity to call a press conference after a meeting that we would hold by teleconference, by conference call. And that’s a capacity that was used on a number of occasions by my predecessor during the financial crisis. It is something that remains a capacity we have, and would expect to use if it were necessary.
Yellen on pace of portfolio run-off:
We have not made any decision at this point about how long it will be once we begin to raise rates before we reduce or cease reinvestment. We will see how things go and the Committee will revisit that and make a decision at a later time.
We have a substantial quantity of Treasuries that will roll off our balance sheet over the next several years... Over the next two years almost $800 billion will mature ... and that’s a way in which we anticipate diminishing the size of our portfolio.
Yellen on low productivity:
I would expect it to pick up. And as you can see from the longer-run growth projections, most FOMC participants believe it will pick up above current levels.
But it means it’s something that would if it persists retard living standards and would likely retard real wage growth and improvement in living standards for ordinary households.
Yellen on FOMC leak from September 2012:
It has been reported that our Inspector General is engaged in a review at this time of this matter. And in light of that ongoing review, I’m not going to get into details. But let me just say that we welcome that review and are looking forward to its conclusions. With respect to Congress, Congressional inquiries, we have arranged to brief members of Congress who have asked about this and we’ll certainly cooperate and try to provide them the information that they seek.
Yellen on transparency and governance:
We are a transparent central bank. With respect to Congressional changes that are under consideration that would politicize monetary policy by bringing Congress in to make policy judgments about, in real-time, on our monetary policy decisions: Congress itself decided in 1978 that that was a bad thing to do. That it would lead to poor economic performance... The global experience shows that giving central banks independence to make monetary policy decisions that they think are in the best interest of the country and consistent with their mandates leads to lower inflation and more stable macroeconomic outcomes.
So I feel very strongly about that....
With respect to monetary policy rules, they can be useful and I find them useful and long have as a kind of benchmark for thinking about what might be the appropriate stance of policy. But to chain a central bank to follow a simple mathematical rule that fails to take account of many things that are very important in making monetary policy, ... that would be a very foolish thing to do. And I oppose it.
With respect to proposals having to do with voting and the structure of the Fed that you mentioned, a lot of ideas have been mentioned. I would say for my part, I think the Federal Reserve works well. The system we have was put into place by Congress decades ago. I don’t think it’s a system that’s broken. So I don’t see a need for changes. But of course, it’s up to Congress to review that. (Compiled by Lucia Mutikani, Ann Saphir, Jonathan Spicer and Elvina Nawaguna; Editing by Andrea Ricci)
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