June 17, 2015 / 6:45 PM / 5 years ago

HIGHLIGHTS-Fed chief Yellen's news conference after FOMC meeting

WASHINGTON, June 17 (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 GRADUALLY RAISING RATES:

“Once we begin to remove policy accommodation we continue to expect that, as we say in our statement, even after employment and inflation are near mandate consistent levels, economic conditions may for some time warrant keeping the target federal funds rate below levels the committee views as normal in the longer run. In other words, although policy will be data-dependent, economic conditions are currently anticipated to evolve in a manner that will warrant only gradual increases in the target federal funds rate...”

“I want to emphasize, sometimes too much attention is placed on the timing of the first increase in the federal funds rate. And what should matter to market participants is the entire trajectory, the entire expected trajectory of policy. And again, while our actual policy decisions will have to evolve in light of what really does happen in the economy, the committee, as you can see by the SEP projections, currently anticipates that conditions will evolve in the economy in a manner that will make it appropriate to raise the federal funds rate gradually over time.”

YELLEN ON POLICY BEING DATA DEPENDENT:

“For all of us, the appropriate policy decision is going to be data dependent and all of us will be looking at the incoming data and our opinions about the appropriate timing of normalization are likely to shift as we look at how the data evolves.”

YELLEN ON THE DOLLAR:

“It is a factor affecting the outlook. That said, we obviously have no target for the dollar. We take movements in the dollar and its economic impact as one of many factors affecting the outlook, and in spite of the appreciation of the dollar the committee obviously thinks that the economy is likely to do well enough to call, likely call, for some tightening later this year.”

YELLEN ON INFLATION:

“Overall inflation is likely to run at a low level for a substantial period of time. The big declines in energy prices came towards the end of last year and the beginning of this year. And they are not going to wash out of the inflation data until later in this year. But the fact that energy prices have stabilized means that the pressure from that source is diminishing

“As the labor market continues to improve and as our confidence in that forecast rises, at least for me my confidence will also rise that inflation will move back up towards 2 percent. I expect that to over time put upward pressure on core inflation.”

YELLEN ON CONSUMER SPENDING AND LOWER GASOLINE PRICES:

“The decline in oil prices translates into an improvement in household income on average of something like $700 per household. And I’m not convinced yet by the data that we have seen the kind of response to that I would ultimately expect. And I think it is hard to know at this point whether or not that reflects a very cautious consumer that is eager to add to savings and to work down borrowing or in part some survey evidence suggests the consumers are not yet confident that the improvement they have seen- the decline in their need to spend for energy for gasoline- that that’s going to be something that will be permanent. They may think it is a transitory change and not yet be responding. So I think the jury is out there. But think we have seen some pick-up in household spending.”

YELLEN ON GREECE:

“This is a very difficult situation. In the event that there is not agreement, I do see the potential for disruptions that could effect the European economic outlook and global financial markets. I would say that the United States has very limited direct exposure to Greece, either through trade and financial, or financial channels, but to the extent that there are impacts on the euro area economy or on global financial markets there would undoubtedly be spillovers to the United States that would affect our outlook as well.”

YELLEN ON FULL EMPLOYMENT:

“Wage increases are still running at a low level, but there have been some tentative signs that wage growth is picking up. We have seen an increase in the growth rate of the employment cost index and a mild uptick in the growth of average hourly earnings. I would call these tentative signs of stronger wage growth. I think it’s not yet definitive but that is a hopeful sign. Still, however, inflation not only headline, but stripping out food and energy, underlying inflation, core inflation is still running below the committee’s objective. So I think we need to see additional strength in the labor market and the economy moving somewhat closer to capacity, the output gap shrinking, in order to have confidence that inflation will move back up to 2 percent. But we have made some progress.”

YELLEN ON AIG JUDGMENT:

“The Federal Reserve strongly believes that its actions with respect to AIG in 2008 were legal, proper and effective, and it believes that they were necessary given the threat that a disorderly failure of that company would have likely had implications for the economy, for the flow of credit to households and businesses in the economy. And it believes that the ... terms of that intervention were tough and appropriately so in order to protect taxpayers from the risks that those rescue loans presented at the time they were made.”

“At this point, I believe we are working with the Department of Justice to decide on next steps.”

YELLEN ON PRODUCTIVITY GROWTH:

“Productivity growth has been extremely slow for the last couple of years and I think in part, the pace of improvement in the labor market that we are projecting reflects the notion that there is likely to be some pick-up in the pace of productivity growth. Obviously that’s something that’s quite uncertain and it is conceivable that if productivity growth disappoints - something I hope that we won’t see because that has very negative implications for living standards - we could conceivably see faster improvement in the labor market. But in addition, there are other margins of slack that don’t show up in the unemployment rate. The labor force participation rate at least appears to be depressed to come extent because of cyclical weakness.”

YELLEN ON IMF AND POLICY:

“I want to emphasize and I think the IMF would agree with this, that the importance of the timing of the first decision to raise rates is something that should not be overblown whether it is September or December or March. What matters is the entire path of rates and, as I have said, the committee anticipates economic conditions that would call for a gradual evolution of the Fed funds rate towards normalization.”

YELLEN ON POSSIBILITY OF RATE INCREASE THIS YEAR:

“And clearly most participants are anticipating that a rate increase this year will be appropriate. Now, that assumes, as you can see, that they are expecting a pick-up in growth in the second half of this year, and further improvement in labor market conditions. And we will all be - we will be making decisions, however, that depend on the actual data that we see in the months ahead. So certainly we could see data in the months ahead that will justify the expectations that you see in the so-called dot plot. But again the important point is no decision has been made by the committee about what the right timing is of an increase. It will depend on unfolding data in the months ahead. But certainly an increase this year is possible; we could certainly see data that would justify that.”

YELLEN ON INTERNATIONAL SPILLOVERS:

“With respect to international spillovers, this is something that we have been long attentive to. Obviously, we have to put in place a policy that is appropriate to evolving conditions in the U.S. economy, but we can’t promise that there will not be volatility when we make a decision to raise rates. What we can do is to do our very best to communicate clearly about our policy and our expectations to avoid any type of needless misunderstanding of our policy that could create volatility in the market and potential spillovers as well to emerging markets, and I have been trying to do that now for some time.

YELLEN ON PROPOSALS TO ‘AUDIT’ THE FED

“I suppose I would ask what exactly is the problem. We place high priority on being an accountable and transparent central bank and I think that if you compare the transparency of monetary policy decisions in the Federal Reserve with other central banks, we are one of the most transparent central banks in terms of the information that we provide to the public in a whole variety of ways. To my mind the Fed is accountable and we work well as an institution. I’m not certain what the problem is that needs to be, that needs to be addressed.”

YELLEN ON HOW FED WILL SLIM DOWN BALANCE SHEET:

“This is a matter that the committee has not yet decided and I can’t provide any further detail. It is obviously something we will be thinking about.”

YELLEN ON NO PLAN TO FOLLOW ANY MECHANICAL APPROACH:

“As I have emphasized previously, we absolutely do not expect to follow any mechanical 25 basis points a meeting, 25 basis points every other meeting - no plan to follow any type of mechanical approach to raising the federal funds rate. We will evaluate incoming conditions and move in the manner that we regard as appropriate. So that’s one lesson.

“Conceivably, I think with the benefit of hindsight it might have been better to raise rates more rapidly or more during the 2004 to 2006 cycle. You know, I’m not certain of that judgment, but I think there is a case to be made.”

YELLEN ON NEED FOR MORE DECISIVE EVIDENCE ON ECONOMY:

“While the committee views the disappointing economic performance in the first quarter as largely transitory, my colleagues and I would like to see more decisive evidence that a moderate pace of economic growth will be sustained.”

YELLEN ON GROWTH OUTLOOK:

“Looking head the committee still expects a moderate pace of GDP growth with continuing job gains and lower energy prices supporting household spending. The labor market data so far this year have shown further progress towards our objective of maximum employment, although it is slower-paced than late last year.”

YELLEN ON THE LABOR MARKET:

“It seems likely that some cyclical weakness in the labor market remains. The participation rate remains below most estimates of its underlying trend. Involuntary part-time employment remains elevated and wage growth remains relatively subdued. So although progress clearly has been achieved, room for further improvement remains.”

YELLEN SAYS ECONOMY NOT YET READY FOR RATE HIKE

“The committee continues to judge that the first increase in the federal funds rate will be appropriate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium-term. At our meeting that ended today, the committee concluded that these conditions have not yet been achieved.”

YELLEN ON POLICY STANCE REMAINING ACCOMMODATIVE

“Let me emphasize that the importance of the initial increase should not be overstated. The stance of monetary policy will likely remain highly accommodative for quite some time after the initial increase in the federal funds rate in order to support continued progress towards our objectives of maximum employment and 2 percent inflation.”

YELLEN ON HOUSING:

“The increase in house prices is restoring wealth of many households who have that as their major asset. It is an important part of the wealth of the American household, American household sector. And for all of the households that were under water, those house price increases are improving their financial condition although, of course, at the same time it’s making housing less affordable for those who look to buy. At the same time housing overall, given the low level, still-low level, of mortgage rates, remains quite affordable. I think credit availability remains quite restrained for mortgages. Anyone who doesn’t have a pristine credit rating finds it very difficult at this point to qualify for a mortgage. And I think we are seeing quite a bit of reluctance, given the job market, and given the history of what has happened to house prices, of young people to want to buy homes. .. So the demand for multifamily housing to rent is very high, and rent prices are moving up I think because of that.” (Compiled by Lucia Mutikani, Ann Saphir, Elvina Nawaguna and Megan Cassella; Editing by Andrea Ricci)

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