Janet Yellin Discusses Policy Meeting at 1st Press Conference

The chair of the Federal Reserve says the committee will no longer tie its decision on short-term interest rates to the unemployment rate.
3:00 | 03/19/14

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Transcript for Janet Yellin Discusses Policy Meeting at 1st Press Conference
This is a special room. I'm -- up a New -- with a CBC news that special report -- -- for the new fed chair Federal Reserve chairperson Janet Yale had just concluded first two day policy meeting in Washington. And we'll shall shortly be holding her first press conference joining me now. For some context and perspective on what we're expecting us Greenberg in finance Rick there is a better script to follow today short time ago -- issued a statement. With its updated economic forecast for the -- -- -- report. Nothing changed but some technicalities that the market cares about -- change selling general the Fed is going to keep doing what it's doing it is it's been gradually reducing some of its monetary stimulus measures. But it changed the way it's going to it's going to gauge progress on one of those measures this is. Short term interest rates which are now basically at zero. The Fed had said prior to today. That it would it might consider raising short term interest rates when the unemployment rate got close to six point 5%. The unemployment rate has fallen over the last year or so faster than the Fed anticipated and it's now six point 7% which a pretty close to six point 5%. So the Fed had to clarify that it really has no intention of raising short term rates as early as this year which it could've happened which could have happened if it stuck to that six point point 5%. So basically just took that six point five number out of its forecast it's not it's not linking. That part of its policy to any level of employment -- on the future. Instead they're saying we're just gonna look at all the data. And make our judgment that when we think the time is right. Before this happened -- most people thought that that general target time was some time in -- looked when he fifteen it still seems. As if the general time at which the Fed will raise short term rates is around the middle of 2015. So they're getting there in a different way but the outcome probably won't will be quite the same. Let me -- -- -- about -- -- we're waiting for. For Jenny Johnson takes the podium there. I would ask you a little bit about her predecessor Ben Bernanke. -- far as the wheels that he started in motion for keeping that kind of policy in place. Was -- reflection and because of this FOMC meeting that was just held in the past two days. Was that a reflection of the current economic trends or was is also wouldn't -- that was has already got. Happen or was this it was is purely a response to what's been happening immediately. She took the purse personalities out of it let's say this was just a committee. That voted that you didn't even have a chairman. And it just voted based on the majority opinion we would still be exactly where we are you much of the -- current policy is attributed to. Bernanke personally as if the man himself to say the individual directed this policy. I think it's quite plausible that Bernanke pushed hard for some of these ideas these error and usual types of stimulus quantitative easing is one example. But this -- been in place now for -- really going back to 2008 it was the first time the Fed tried quantitative easing. So he may deserve credit for sort of coming with up up with this idea of putting -- in place but since that time. I mean there's never been really a close vote on whether the Fed should stick with this or not there been a few dissenters. On either side some have felt the Fed should be more aggressive some -- some have felt that should be less aggressive. But there's always been a pretty strong majority. Saying we just need to do to continue to do -- doing so. -- -- -- what has been part of that committee for a long time and we are seeing the same policies under her as we saw under Bernanke. The -- is actually doing a pretty good job of telegraphing. It's -- which is -- what what it wants he wants stability in the markets based on accurate readings of what the Fed is going to do. Not guesswork that could lead to sort of dramatic corrections in -- market we have days like today. -- given the fact that that stability is sort of the overall goal when the Fed is making these kinds of announcements are investors. -- having that in the back of their minds. I think it's in the front of their minds. I mean one of the biggest factors in financial markets for the last five years has been. Federal Reserve policies I frankly I think it's hard to think of any single factor that has affected markets more. -- what the Federal Reserve has done its most powerful Central Bank in the world by far. It's more powerful than any other part of the government when it comes to financial policy and financial markets. Congress has basically taken a backseat -- not much to help the economy arguably even hurt the economy that's has left the -- as the only player in town. And investors have been. If profoundly focused on what the Fed does. Down to every letter. In the statements that the Fed publishes every single word the Fed Chairman utters where -- if if things work out if the economy recovers well actually get to a point. Where everything depends a little bit less on the -- and this is not a healthy economy when the whole thing. Hinges on this committee in Washington so that's what we want to see but it's everything still hinges on the -- All right let's now go to -- Janet -- -- Good afternoon. And pleased to join you for the first of might -- FOMC press conferences. Like chairman Bernanke before me I appreciate the -- press conferences -- To explain the decisions of vehicle whimsy. And receive and respond to your questions. The Federal Open Market Committee concluded -- to -- meeting earlier today. -- -- -- know from our statement. The committee decided to make -- -- their modest reduction in the pace of its purchases. Of longer term securities. The committee also updated its guidance regarding the likely future -- -- that the short term interest rates. As I'll explain more fully in -- moment. This -- -- our guidance. Does not indicate any change in the committee's policy intentions. As set forth in its recent statements. -- -- the changes meant to clarify how the committee anticipates. Policy you vaulting after -- -- unemployment rate. Declines below six and half percent. Let me explain the economic outlook that underlies these actions. Despite some softer recent data. The FOMC's outlook for continued progress toward our goals of maximum of -- And inflation returning to 2%. Remains broadly unchanged. When usually harsh winter in January and February. His -- assessing the underlying strength of the economy. Especially challenging. Broadly speaking however this spending and production data. Well somewhat weaker than we -- expected in January. Are roughly in line with -- expectations. As of December. The last time committee participants submitted economic projections. In contrast. The -- market conditions who have continued to improve. The unemployment rate at six point 7%. It's three tenths slower -- in the data available at the time that the December meeting. Further. -- -- issues of unemployment such as the use six -- which includes marginally attached workers. And those working part time. What preferring full time work. Have fallen. Even more than the headline unemployment rate of that this period. And labor force participation. Is ticked up. What the committee continues to monitor developments in global financial markets carefully. Financial conditions remain broadly consistent with the yet for and seize objectives. In some the FOMC. Continues to see sufficient underlying strength in the economy. To support ongoing improvement in the labor market. Inflation. Has continued to run blow the committee's 2% objective. Given -- 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. -- -- -- continues to expect inflation to move gradually back toward its objective. The committee is mindful that inflation running persistently below -- subjective. Could pose risks to economic performance. The committee also recognized his -- where -- policy actions. -- to exert pressure on inflation. It is manifest only gradually over time. The FOMC will continue assisting incoming data carefully. To ensure -- -- policy is consistent with the teaming the FOMC's. Longer run objectives. Of maximum employment and inflation of 2%. This outlook is reflected in the individual economic projections submitted in conjunction with this meeting. But the sixteen FOMC participants. For board members and twelve reserve bank presidents. As always each participants projections are condition. On his -- or his or her own view of appropriate monetary policy. The central tendency of the unemployment rate projections. Has shifted down by about 210 since December. And now stands at between six point -- and six point 3%. At the end of this year. The unemployment rate is projected to reach its longer run normal level by the end of 2016. The central tendency of the projections for real GDP growth. Stands at two point 823%. For 2014. And remained somewhat above that of the yes commits to longer run normal growth through 26 -- Meanwhile as -- noted FOMC participants. Continued to see inflation. Moving only -- actually back toward 2% over time as the economy expands. The central tendency of inflation projections. Is one point 521 point 6%. And when he fourteen. Rising to one point 722 point 0%. In -- when -- sixteen. -- -- nail returned to court decision to make enough through emission reduction in the pace of -- purchases. Starting next month will be purchasing 55 billion dollars of securities per month. Down ten billion dollars per month from our current rate. Even after today's action takes effect we will continue to significantly. Expand our holdings of longer term securities. And you'll also continued to roll -- from curing treasury securities. And reinvest principal payments for India for when -- holdings of agency debt -- agency mortgage backed securities. In agency mortgage backed securities. The sizable -- increasing holdings will continue to put downward pressure on one for term interest rates. Support mortgage markets. And make financial conditions -- accommodative. Helping to support job creation in the return of inflation. To the -- subjective. The F -- and -- views can be used decision. To reduce the pace to -- -- purchases. As consistent. With the decision making framework. Redoubt last December. And still were -- today. -- four. If incoming information. Broadly supports the committee's expectation. Of ongoing improvement in labor markets and inflation moving back over time toward its longer run objective. The committee will likely continue to reduce the piece of asset purchases. In -- steps at future meetings. However purchases are not on -- preset course. And the committee's decisions at that pace of purchases. Remain contingent on its outlook for jobs and inflation. As -- its assessment of the likely efficacy and cost of such purchases. To -- the influence he also updated its forward guidance regarding the -- of short term interest rates. As emphasized in the statement. In new guidance does not indicate any change in the policy intentions of the opponents -- it. -- -- stand reflects changes in the conditions we face. Let me explain this more fully. In December 2012. The committee for stated its guidance in terms of economics rituals. Stipulating that the current will range for the federal funds rate target would be appropriate. At least as long as the unemployment rate remains -- -- six and -- half percent. Inflation is projected to be no more than -- half percentage point above all -- above our longer run goal. And longer term inflation expectations remain well anchored. Since that time prior christened the labor market -- been more rapid than -- -- -- anticipated. Well inflation -- been lower -- the community you'd expect it. Although the thresholds. Served well as a useful guide to policy over yesteryear. Last December -- the -- he judged it appropriate to update that guidance. Noting that the current target range for the federal funds rate would likely be mean teens. Will pass the time the unemployment rate declines Lusitania. Percent. Especially if projected inflation continues to run below the committee's 2% longer run goal. Today the committee is -- -- revise its forward guidance. To better reflect conditions as being nasty and and are likely to revolve -- for coming quarters. The revised formulation starts with the general description of the factors that drive FOMC. Decision making. In in provides the FOMC's current assessment. Of what those factors will likely -- implied. The future -- -- short term interest rates. In particular the committee states. Fit in determining how long to maintain the current 021 quarter percent target range for the federal funds trade. It will assess progress. Both realized and expected. Toward its objectives of maximum employment and 2% inflation. In sure it. The larger shortfall of employment or inflation. From the respective objectives sit by the affluent city. And the longer any -- shortfall is expected to persist. The longer the target federal funds rate is likely to remain in the -- since Euro to one quarter percent range. The FOMC will base its ongoing assessment on a wide range of information. Including measures -- labor market conditions. Indicators of inflation pressures. And inflation expectations. And readings on financial developments. As I've noted the FOMC's assessment of these factors at present. Is consistent with the characterization. Provided in previous forward guidance. The committee continues to anticipate the conditions. Will likely will -- maintaining the current range for the federal funds rate. For a considerable time after the -- purchase program Indians. Especially if projected inflation. Continues to run -- the -- 2%. Longer run goal. And provided that longer term inflation expectations remain mall anchored. The excellent -- also supplemented its guidance pertaining to the puree it after yes it purchase program millions. In the initial increase in the federal funds rate target as occurred. This statement -- -- used to know. Didn't deciding on the peace for re moving accommodation. The committee will take a balanced approach to retaining its objectives. The statement -- Eliot's the committee's current anticipation. It even after employment and inflation are near mandate consistent levels. Economic conditions. Me. For some time. Warrant keeping short term interest rates below levels that can be used as normal in the longer run. This guidance is consistent with the payouts for appropriate policy as reported in the participants projections. Which showed the federal funds rate for most participants. Remaining will balloon longer run normal values at the end of 26 -- Although with forum -- participants provide a number of explanations. For the federal funds rate -- get. Remaining below which longer run normal level. Mini site to 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. In summary. The committee's actions today reflects its assessment. It -- -- in the labor market is continuing. But -- -- -- means to be done on both the jobs and inflation fronts. Unemployment is still elevated. Underemployment and long term unemployment remains significant concerns. And inflation is running significantly below the FOMC subjective. These conditions warrant the continuation. Of highly accommodative policy. Reflected in today's policy statement. The Federal Reserve's interest rate guidance. And it's substantial -- still increasing holdings of longer determines securities. Will ensure that monetary policy. Remains highly accommodative. Promoting the F -- -- objectives. Of maximum employment and price stability. Thank you. -- -- -- to take your questions. -- Marty -- -- the Associated Press. Could you give us a little insight and vision how the decision was made on dropping -- six and a half percent numerical target. In the forward guidance. Did was there any concern expressed that -- there's been criticism on forward guidance it. That -- -- confusing markets not helping them in some ways was her concern expressed dead. Perhaps it would have been better to go to a kind of just a lower target save 6% and could you also address the concerns raised in the -- That by dropping this -- lowers the commitment on fighting. Low inflation thank you. Things will. -- -- mentioned in my statement. The reason the committee -- is the time he'd come to revise the forward guidance. Is not because we think it is not been effective. Believe the committee does think it's been effective. On I think it's had a very useful impact. -- helping markets. Understand our expectations. And shaping their own. But. It is becoming as the unemployment rate -- closer -- closer to sixty -- percent. To reaching that racial that seems like the one it is likely to be reached. On the question is markets want to know the public wants to understand. Beyond that racial how we decide what to do. -- the purpose of this change is simply to provide more information in -- captain and asked. Even though it is qualitative information. A -- What we will be looking at as the unemployment rate declines below six and -- half percent. In deciding. How long to -- the federal funds rate at this 02 quarter percent range and as I said. We've tried to give the general formulation. Before will be looking at which -- How far are we out -- -- shortfalls. In achieving our goals and -- -- we expect progress to be that would be the -- factors will be looking at. We initially started with in the unemployment rate as a threshold that -- he's -- enough that the committee -- -- With an unemployment rate above six and -- half percent. We know we're not close to full employment. Not close to an employment level consistent with -- -- -- And in less inflation -- significant concern we wouldn't dream of raising the federal funds rate market. Now would that committing his never felt that the unemployment rate is -- sufficient statistic for the labor market. I think if I had to choose one indicator of the labor market the unemployment. Rate is probably his go to one is I could find. But in assessing. The real state of slack in the labor market. And ultimately if inflationary pressures that might Wear -- deflationary pressures. It could result from net it's appropriate to look -- many more things. And that's why the committee now states we will look into Roy green chipped -- for -- so the closer we get is we never we end. I'm coming close to -- the target we will and we need. We will be carefully considering. Mini indicators. How close or -- -- -- market to those who could mean. The main reason -- You asked is -- -- ballot to -- end. President coach who -- code filled. Believe he noted in his decision. That he endorses. -- new guidance. A -- the likely -- that the federal funds rate. After. We begin to finally -- In that indicates that -- it's unlikely to be back to normal levels for some time. But he questions where three not to -- formulated. For -- guidance shows sufficient commitment. Of the committee to -- two -- -- inflation objective. And I will simply say. I'm my own behalf and on behalf of the committee that we are fully committed to the 2%. Inflation objective. And we do not -- and you shoot. Inflation. For a prolonged period of time as I mentioned monetary policy operates with -- -- So the policies we kept in place we think will gradually. Only gradually move inflation is expected to. And of course we're gonna offer this live -- -- erupted. Fed chair Janet -- -- first news conference at the conclusion of the federal open market committee's two day meeting today. The big headline coming out there today is that the Fed will no longer tied its decision on short term interest rates -- right now are between zero and quirk percent. Who will not be tied to the unemployment rate so for some context and I don't want to bring in -- -- reform finance Rick. Let me ask you this because the Fed chair -- is sort of explained from that first question right there why that decision was made. Does it though shake the confidence of investors that if in fact that was operating under this policy that the unemployment rate was at least a variable and again Janet you ought to saying that it was one variable of many. That's used to determine short term interest rates. But if that is now not being highlighted factor what does that do to the market and at the overall comp. It eventually it will -- a little bit of uncertainty. But I think you could argue that there's been and certainly all along because. The Fed first linked. Its policies to this threshold. If you will of six point 5% a little over a year ago. And we've been getting close to six point 5% -- everybody has known it's too early to raise short term interest rates so investors have basically known that this threshold. It's sort of invalid. Just because we've had a number doesn't mean that once we hit that number something's automatically going to happen and I think what Janet Yellen is saying is. It's the wrong number. So -- we thought it was a good idea when we did this we didn't anticipate it would get down to six point 5% so fast. You know the markets investors would love to have perfect predictability about about what the Fed is going to do. I think what we -- learning is that even when we think we have clear predictability we don't. Because the Fed issued this threshold and then did not stick to the threshold now I think the feds doing the right thing it would be foolish for the sadness for the Fed to say. We are blindly devoted to that six point 5% number we came up with fifteen months ago and therefore we're gonna change the policy because six point five this year they would never do that. I think what Ginny Helms also almost saying is we're going back to the way it used to be. If it's not predictable you guys would like tough. I would hope particularly the part -- that wrong number at six point at six point 5% or wrong factor in the process. Well I think if -- Janet -- she would just say circumstances have changed in ways they didn't exactly anticipate so they have. Change the way they're formulating a policy if you well but you know she was she was making a big deal -- by saying that we look at. Many different factors not just one number not just the unemployment rate I think that's been the case hall -- I think that if you're when you're going back to 2012 -- this began. I think the Fed you perhaps you could argue the Fed was trying to give. -- to reassure markets a little bit more than it actually was able to do but at the time. We were we were not close to that six point 5% number so it it didn't give investors something to hang onto and basically told them. We're not we're not there yet we're not close -- long way to go before we get to this. -- -- we're gonna -- were actually I'm gonna have to worry about rising short term interest rates. That's been a little less clear lately as we're getting close that six point 5% I think Janet Yellen today. Definitively pushed that date when interest rates right might rise. Further into the future. But. When we get to 2015 it's going to be a situation where we're not -- -- know exactly what that's Fed's thinking and is beyond press conferences like this so. Getting into next year it's going to be a little less certain but my argument is I think it's been less certain that we thought all along. And just how close that we've got the unemployment rate in December it was six point seven in January 6 point six and now up at six point 7%. That's the unemployment headline I was coming out of this but lets us talk about the Fed's. Bond buying program. No real surprises about that cut back grind. -- it has been it has said again that it will continue doing what it has said it is going to do. And that is basically what everybody expected I think the only wiggle room and that was we know that some of the economic indicators were pretty weak in January February. You heard Janet -- say we think that's largely because of the weather. Therefore we think the underlying strength in the economy is still there just as we thought it was there a couple of months ago so we're gonna continue to scale back this bond buying program. 55 billion mind if it continues to cut that back by ten billion dollars a month that means by next fall this will be over. The Fed will not be buying any more bonds on the market it will still hold the bonds that it has. And probably hold those till maturity unless something changes in the economy. But I think. My guess is I think the Fed when this is over and done with and some of these people are MS Pamela tell us on the inside thinking. Think the Fed really wants to get out of quantitative easing I think they feel it's gone on. Long enough perhaps too long. It's time to rein this in before it really does start to create some problems so they saw weakness in the economy related to whether they said that's not enough think. Get -- to change our minds -- gonna continue scaling this back. On the floor on Wall Street the guys that are handling our 401 k.s are mutual funds all of our pensions all that -- -- -- Has that already been built into their consideration when they're making decisions that the Fed in fact is going to continue that now will now be 55 billion dollars a month -- in the economy. But there are two types of guys on Wall Street in this regard the first of the guys who were managing long term our retirement accounts and things like that. -- I'm sure are doing nothing at all different today just because of something that came out of the Fed this there is nothing we heard today they would change any -- -- long term outlook. Traders who were trying to make a daily profit on quick swings in the market are quite active today we're seeing we saw the which saw the market's drop down. -- they bounce back up I mean you know we have this sort of schizophrenic reactions in the market. Just about every time there's a fed statement people try to guess right away in the first seconds what does it mean is it hawkish Darvish. They look for little points of leverage and and quite often these statements seemed to be a little -- -- important then maybe -- start right at the outset was I think that's what we saw snapped back in the market today. Quite often -- market sort of settles out. -- where was before the -- before -- this activity took place. The -- hair -- -- especially polka -- take a look at where it's at right now. The Dow is down about 42 points 161293. In about a little bit -- and our -- left in the day. Regular -- -- finance Rick always appreciate your time thank you sir attendants and pushing -- latest developments on Janet yells press conference in real time. By downloading the ABC news app and starring distort for exclusive updates on the go. For now though I'm Dan Cutler in new York and it has been an ABC news digital special report.

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