WASHINGTON, Dec 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.
In terms of leverage and whether or not levered entities could be badly affected by movements in oil prices, leverage in the financial system in general is way down from levels before the crisis. So it’s not a major concern that there are levered entities that would be badly affected by this but we’ll have to watch carefully. There have been large and unexpected movements in oil prices.
ON CONGRESSIONAL THREAT TO FED‘S INDEPENDENCE
The ability of the central bank to make the decisions about monetary policy that it regards as in the best longer-run interest of the economy, free of short-run political interference, is very important to the effective conduct of monetary policy. I think history shows that not only in the United States but around the world that central bank independence promotes better economic performance. I do think central bank independence is important.
Well we certainly did review global economic developments including developments in the Russian economy. Clearly Russia has been hit very hard by the decline in oil prices and the rouble has depreciated enormously in value and this is posing a series of very difficult economic conditions in the Russian economy. Of course we discussed what the potential spillovers are to the United States, which could occur both through trade and financial linkages. But these linkages are actually relatively small.... in the case of the United States I see the spillover as pretty small but we’re obviously watching that closely.
ON RATE RISES NOT NECESSARILY “MEASURED”
There certainly has been no decision on the part of the committee to move at a measured pace or to use language like that....We’d probably not like to repeat a sequence in which there was a measured pace and 25-basis point moves at every meeting....
We expect to be able to normalize policy but until those conditions have lifted that have held back economic activity monetary policy will need to stay accommodative. So in that sense perhaps that’s equivalent to saying that the path of normalization is anticipated to be relatively gradual but again the path of rates will depend on how economic conditions actually evolve. And that’s nothing more than an expectation on the part of the committee.
At a time like this where we are making consequential decisions, I think it’s very reasonable to see divergences of opinion.
Every meeting that we have is a live meeting at which the committee could make a policy decision and we will feel free to do so. So I would really like to strongly discourage the expectation that policy moves can only occur when there is a scheduled press conference. ... Every meeting is live and if we were to decide at a meeting to begin to normalize policy, I expect we would hold a press conference call.
First of all, I want to emphasize that no meeting is completely off the table in the sense that if we do see faster progress toward our objectives than we currently expect then it is possible that the process of normalization would occur sooner than we now anticipated, and of course the converse is also true. So at this point, we think it unlikely that it will be appropriate that we will see conditions for at least the next couple of meetings that will make it appropriate for us to decide to begin normalization.
A number of committee participants have indicated that in their view conditions could be appropriate by the middle of next year but there is no preset time and there are a range of views as to when the appropriate conditions will likely fall in place. So that’s something we will be watching closely as the year unfolds.
“I think the judgment of the committee is that from the standpoint of the United States and the U.S. outlook, that the decline we’ve seen in oil prices is likely to be, on net, a positive. It’s something that’s certainly good for families, for households - it’s putting more money in their pockets, having to spend less on gas and energy. So in that sense it’s like a tax cut that boosts their spending power. The United States remains, although our production of oil has increased dramatically, we still remain a net importer of oil. Of course there may be some offset in the form of reduced drilling activity and possibly some ... reduction in capex plans in the drilling area. But on balance I would see these developments as a positive from the standpoint of the U.S. economy.”
With respect to deflation, we see downward pressure on headline inflation from declining energy prices. We certainly recognize that that is going to be pushing down headline inflation and may even spill over to some extent to core inflation. But at this point ... we see these developments as transitory.
By the time of liftoff, participants expect to see some further decline in the unemployment rate and additional improvement in labor market conditions. They also expect core inflation to be running near current levels, but foresee being reasonably confident in their expectation that inflation will move back toward our 2-percent longer-term inflation objective over time.
ON FED BEING “UNLIKELY” TO BEGIN NORMALIZATION VERY SOON
As progress in achieving maximum employment and 2-percent inflation continues, at some point it will become appropriate to begin reducing policy accommodation. But based on its current outlook, the committee judges that it can be patient in doing so. In particular, the committee considers it unlikely to begin the normalization process for at least the next couple of meetings. This assessment of course is completely data dependent.
ON WHAT “A COUPLE” SIGNIFIES
So, a “couple,” I believe, the dictionary probably says a “couple” means two. So a couple means two.
The committee expects inflation to move gradually back towards its objective. In making this forecast, the committee is mindful of the recent declines in market-based measures of inflation compensation. At this point the committee views these movements as likely to prove transitory, and survey-based measures of longer-term inflation expectations have remained stable. That said, developments in this area obviously bear close watching.
“The committee also updated its forward guidance for the federal funds rate indicating that the committee judges that it can be patient in beginning to normalize the stance of monetary policy. This new language does not represent a change in our policy intentions and is fully consistent with our previous guidance, which stated that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the end of our asset purchase program. But with that program having ended in October and the economy continuing to make progress toward our objectives, the committee judged that some modification to our guidance is appropriate at this time.” (Compiled by Lucia Mutikani, Ann Saphir, Jonathan Spicer and Andrea Ricci)