Premium Business Solutions!

Social Profile

TwitterFeedGoogle

feature story 1

Rate this item
(0 votes)
18-06-2014

Earlier this afternoon, the Federal Open Market Committee (FOMC) unveiled its monetary policy, choosing to taper its asset purchase program by $10 billion, to a monthly pace of $35 billion.

 

The statement was, on the whole, dovish.

Federal Reserve chair Janet Yellen then took the stage to explain the Fed decision.

 

Economic activity is rebounding in the current quarter and will continue to expand at a modest pace after.

"Unemployment remains elevated and underutilization in the labor market remains significant," said Yellen.

Inflation is running below the 2% objective, and this could pose risks to economic performance.

The committee expects inflation to move gradually back toward its objective.

Yellen said a wide range of indicators will trigger rate hikes.

When asked if the Fed is behind the curve on inflation, Yellen said, "I think recent readings on CPI index have been a bit on the high side but I think it's the data we're seeing is noisy. Broadly speaking inflation is evolving in line with the committee's expectations."

Addressing the new faces in the FOMC, Yellen said there's a very slight decline this time the committee's longer-term normal rate of interest projections. "I would caution you however that we've had turnover and 2 new participants are joining" and offering projections, she said. And that can cause small changes that are difficult to interpret. There's been some slight decline of projections pertaining to longer-term growth and typically estimates of the longer-term interest rates would move in line with growth projections.

Yellen reiterated that there is uncertainty about MP the timing and pace of rate increases will respond to unfolding economic developments. "If those were to be faster than the Committee expects, we can see a faster rise in the Fed funds rate," but the opposite holds true as well.

When asked why we are stuck with slower growth? Yellen said part of the reason we're seeing slower growth is because capital investment has been weak during the downturn and recovery. "As the economy picks up I hope to see that contribution restored."

On long-term unemployment, Yellen said, its possible there is some "permanent damage."

"We can see what the costs of the financial crisis were. I think the regulations we've put in place, most of which follow from Dodd Frank, are highly appropriate to create a more robust financial system."

When asked if she's confident on the economy she said, "Well when you say confident I suppose the answer is no, because there's uncertainty."

Yellen reiterated that she would communicate with the public when appropriate.

"There is some evidence of reach for yield behavior. This envy of low volatility is on my radar screen," Yellen said.

Yellen doesn't think current trends are a threat to stability. "I don't see a broad based rise in leverage, rapid increase in credit growth … the kinds of broad trends that would suggest to me that the level of financial stability risk has risen above a moderate level."

On wage inflation, Yellen said "as the labor market begins to tighten, to a point where real wage growth are rising more rapidly than inflation ... so households are getting a real increase in their take home pay. Within limits that's not a threat to inflation."

When asked about bond exit fees, Yellen said: "I am not aware of any discussion of that topic inside the Federal Reserve and that's under the purview of the SEC."

Read 1107 times Last modified on Thursday, 19 June 2014 03:29
Published in Featured Stories