Janet Yellen Interview February 4, 2018

On February 4, 2018 there was an interview of Janet Yellen that aired on the CBS “Sunday Morning” show.  The interview was titled “Janet Yellen:  The exit interview.”

Below are segment excerpts and Janet Yellen’s comments I found most notable – although I don’t necessarily agree with them – in the order they appear in the interview:

Under Yellen’s leadership, the Board slowly raised interest rates, and also slowly started cutting back on bonds and other assets the Fed bought up to ease the recession.

It worked!  Inflation is now less than 2%, and unemployment — at 6.7% when she took office — has dropped significantly, to 4.1%.

“The labor market has become stronger,” Yellen said. “I believe that since I’ve become Chair, several million jobs have been created, [something] on the order of ten million.”

also:

As for whether Yellen’s view that the stock market (which plummeted on Friday) has been too high in recent months:

“Well, I don’t want to say too high.  But I do want to say high. Price-earnings ratios are near the high end of their historical ranges.  If you look at commercial real estate prices, they are quite high relative to rents.  Now, is that a bubble or is too high?  And there it’s very hard to tell.  But it is a source of some concern that asset valuations are so high.

“What we look at is, if stock prices or asset prices more generally were to fall, what would that mean for the economy as a whole?  And the financial system is much better capitalized. The banking system is more resilient.  And I think our overall judgment is that, if there were to be a decline in asset valuations, it would not damage unduly the core of our financial system.”

“We’re in the ninth year of a recovery; can it really keep going like this?” asked Braver.

“Yes, it can keep going.  Recoveries don’t die of old age!”

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2722.07 as this post is written

Janet Yellen’s December 13, 2017 Press Conference – Notable Aspects

On Wednesday, December 13, 2017 Janet Yellen gave her scheduled December 2017 FOMC Press Conference. (link of video and related materials)

Below are Janet Yellen’s comments I found most notable – although I don’t necessarily agree with them – in the order they appear in the transcript.  These comments are excerpted from the “Transcript of Chairman Yellen’s Press Conference“ (preliminary)(pdf) of December 13, 2017, with the accompanying “FOMC Statement” and “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, December 2017“ (pdf).

From Janet Yellen’s opening comments:

You may have noticed that we altered the statement language about the labor market outlook.  This change highlights that the Committee expects the labor market to remain strong, with sustained job creation, ample opportunities for workers, and rising wages.  We anticipate some further strengthening in labor market conditions in the months ahead; however, we expect the pace of job gains to moderate over time as we gradually reduce the degree of monetary policy accommodation.  Allowing the labor market to overheat would raise the risk that monetary policy would need to tighten abruptly at a later stage, jeopardizing the economic expansion.

Even with a firming of economic growth and a stronger labor market, inflation has continued to run below the FOMC’s 2 percent longer-run objective.  The 12-month change in the price index for personal consumption expenditures was 1.6 percent in October, up a bit from the summer but still below rates seen earlier in the year.  Core inflation–which excludes the volatile food and energy categories–has followed a similar pattern and was 1.4 percent in October.  We continue to believe that this year’s surprising softness in inflation primarily reflects transitory developments that are largely unrelated to broader economic conditions.  As a result, we still expect inflation will move up and stabilize around 2 percent over the next couple of years.  Nonetheless, as I’ve noted previously, our understanding of the forces driving inflation is imperfect.  As emphasized in our statement, we will carefully monitor actual and expected inflation developments relative to our symmetric inflation goal.  And, as I’ve noted before, we are prepared to adjust monetary policy as needed to achieve our inflation and employment objectives over the medium term.

Janet Yellen’s responses as indicated to the various questions:

STEVE LIESMAN. Steve Liesman, CNBC. Every day it seems we look at the stock market, it goes up triple digits in the Dow Jones. To what extent are there concerns at the Federal Reserve about current market valuations, and do they now or should they, do you think, if with keep going on this trajectory, should that animate monetary policy. Finally, maybe as a sign of what’s been going on with valuations, this cryptocurrency called bitcoin keeps going up every day. What is the policy of the Central Bank of the United States of the introduction, use, and incredible rise in popularity of bitcoin?

CHAIR YELLEN. Okay. So let me start, Steve, with the stock market generally. I mean of course the stock market has gone up a great deal this year, and we have in recent months characterized the general level of asset valuations as elevated. What that reflects is simply the assessment that looking at price earnings, ratios, and comparable metrics for other assets other than equities, we see ratios that are in the high end of historical ranges. And so that’s worth pointing out. But economists are not great at knowing what appropriate valuations are. We don’t have a terrific record, and the fact that those valuations are high doesn’t mean that they are necessarily overvalued. We are in a, I’ve mentioned this in my opening statement, and we’ve talked about this repeatedly, likely, a low interest rate environment lower than we’ve had in past decades, and if that turns out to be the case, that’s a factor that supports higher valuations. We’re enjoying solid economic growth with low inflation, and the risks in the global economy look more balanced than they have in many years. So I think what we need to and are trying to think through is if there were an adjustment in asset valuations with the stock market, what impact would that have on the economy and would it provoke financial stability concerns. And I think when we look at other indicators of financial stability risks, there’s nothing flashing red there or possibly even orange. We have a much more resilient, stronger banking system, and we’re not seeing some worrisome buildup in leverage or credit growth at successive levels. So, you know, this is something that the FOMC pays attention to, but if you ask me is this a significant factor shaping monetary policy now, well, it’s on the list of risks. It’s not a major, it’s not a major factor. And then you asked about bitcoin, and there I would simply say that bitcoin at this time plays a very small role in the payment system. It is not a stable source of store value, and it doesn’t constitute legal tender. It is a highly speculative asset, and the Fed doesn’t really play any role, any regulatory role, with respect to bitcoin other than assuring that banking organizations that we do supervise are attentive, that they’re appropriately managing any interactions they have with participants in that market and appropriately monitoring anti-money laundering bank secrecy act, you know, responsibilities that they have.

also:

VICTORIA GUIDA. Are there any banks that are too big to fail right now?

CHAIR YELLEN. So, you know, we continue to work seriously on resolution and the resolution plans, the living wills, and the structure of systemic firms, to ensure that it would be possible to resolve a firm under the bankruptcy code would be the top choice of methods, or alternatively under the orderly liquidation authority, and I think it’s fair to say that over time we have learned more ourselves and more clearly detailed our expectations for the firms that file living wills, and the firms themselves have made considerable progress in, you know, changing what they do, whether it’s adopting financial contracts that would facilitate a resolution rather than a disorderly unwinding of contracts, making sure that they’re appropriately dealing with shared services so that key services would be able to continue governance arrangements, legal entity structures, the firms have all made progress in adapting to our expectations of what would enable a successful resolution. So I think it’s an ongoing process, and I believe we have made substantial progress.

also:

HOWARD SCHNEIDER. Hi, Howard Schneider with Reuters. So you mentioned in response to Steve’s question that asset valuations you didn’t thing were on the sort of high priority risk list right now. So I’m wondering what do you think is on that risk list, and more broadly, what have you left undone? You’ve gotten high marks for bringing the economy back towards its goals, but are there things that are going to nag you when you walk out of here in February and say really I wish I’d seen this to completion. I mean we’re not doing negative interest rates. We’re not doing inflation framework. What’s at your top of, what’s at the top of the to-do list that you are not getting to see to bring to ground here?

CHAIR YELLEN. So you asked about the risk list. There are always risks that affect the outlook. We tend to focus in our own evaluation on economic risks, and we’ve characterized them as balanced. And I think they are balanced. You know, I can always give you a list of, you know, potential troubles, international developments that could result in downside economic risks. But, look, at the moment the U.S. economy is performing well. The growth that we’re seeing, it’s not based on, for example, an unsustainable, build-up of debt as we had in the run-up to the financial crisis. The global economy is doing well. We’re in a synchronized expansion. This is the first time in many years that we’ve seen this. Inflation around the world is generally low. So I think the risks are balanced, and there’s less to lose sleep about now than has been true for quite some time, so I feel good about the economic outlook. I feel, you know, good that the labor market is in a very much stronger place than it was eight years ago. We have created 17 million jobs. We’ve got a good strong labor market and a very low unemployment rate, and I think that’s been tremendously important to the well-being of American households and workers, and I feel very pleased when I hear anecdotes from firms that tell me they’re having a hard time finding workers, and they talk about given that they’re taking on people with skills that don’t quite match what they want, but they’re training them, and, you know, giving them the training that they need in order to be able to fill jobs. I think that’s a development that is a natural one that occurs in a strong labor market that tends to build human capital and worker skills and that that’s a strong positive. As I mentioned, I think the financial system is on much sounder footing and that we have done a great deal to put in place greater capital, liquidity, and so forth that make it less crisis prone and that has been an important objective. What’s on my undone list, you ask? We have a two percent symmetric inflation objective, and for a number of years now, inflation has been running under 2 percent, and I consider it an important priority to make sure that inflation doesn’t chronically undershoot our 2 percent objective, and I want to see it move up to 2 percent. So most of my colleagues and I do believe that it’s being held down by transitory factors, but there’s work undone there in the sense we need to see it move up in line with our objective.

also:

GREG ROBB. Thank you. Chair Yellen, what do you think will be the drivers of inflation over the next couple of years, and how long will the committee go with low unemployment, low inflation, before you rethink monetary policy as gradual rate hikes? Thank you.

CHAIR YELLEN. So, you know, I think for a number of years we’ve had an undershoot of inflation for a number of years. We absolutely recognize that. I think until this year undershoot was understandable. First we had a good deal of slack in the labor market. Then we had plummeting oil prices, and beginning in mid-2014, there was a marked depreciation in the dollar. And those three factors held down inflation for a number of years. Now in 2016, core inflation came very close to 2 percent. We seemed to be on a path of inflation moving up, and this year, beginning in March, there seemed to be a sequence of negative surprises. Some reflect one-time factors that were easily identifiable like a marked decline in quality adjusted cell phone plans. There may be other factors that are not so easy to name, but we would judge, inflation doesn’t always follow exactly their errors, and many factors that affect it beyond the key influences of labor market slack, exchange rates, and import prices, and oil prices. Those are three big ones, but there are other factors that affect inflation too, and our judgment at this point is that transitory factors that are unrelated to the broader macroeconomic outlook are holding inflation down. But I have tried to be straightforward in saying that this could end up being something that is more engrained and turns out to be permanent. It’s very important to watch it and if necessary, rethink what’s determining inflation. A possibility is that the longer run sustainable rate of unemployment, it’s been coming down, estimates in the committee have come down. It’s conceivable that they need to come down even more. It’s not my judgment that inflation expectations have slipped but that also remains a possibility that needs to be monitored. So there are, you know, there could be a rethink of inflation. I think it’s important to watch inflation outcomes carefully, and if we don’t see inflation moving in the manner that the Committee anticipates to alter policy so that we do achieve our two percent objective, but at the moment, most of my colleagues and I believe we are on track to achieve it.

also:

MICHAEL MCKEE. Michael McKee from Bloomberg Television and Radio. I suppose I should be asking you a valedictory question since it’s the last question, but I don’t think you can top what you’ve already said, so let me just do a couple of cleanup questions here. President Trump, while you were speaking, just said that he thinks his tax plan will produce four percent growth. Do you think that is possible? Second, do you think that there is any Fed blame or complicity in the flattening of the yield curve, and are you worried that there might be some sort of policy mistake built into that that could slow the economy. And the last question, which is a bit of a valedictory, is one that everybody on Wall Street has wanted to ask you for four years.

Since this is your last press conference, can you tell us which dot is yours?

CHAIR YELLEN. Well, I can answer the last question first. The answer is no, I’ve never been willing to reveal which dot is mine, and I’m not going to change that now. So, you know, my assessment, and I think most participants’ assessments, as I said, of the impact of the tax policy on growth has been informed by work by the Joint Committee on Taxation and other analysts, and everyone recognizes that there’s uncertainty about what the economic effects would be, and I wouldn’t want to rule anything out. It is challenging, however, to achieve growth of the levels that you mentioned. Look, if the package were to stimulate growth of that magnitude, let me just say again, the Federal Reserve would welcome that. If it’s a favorable supply side developments that would be compatible with the attainment of our employment and inflation objectives, that’s something that would be very welcome, but it would be challenging to achieve numbers like that. Let’s see, I think you also then asked me about the yield curve, and I mean there is much discussion about yield curve inversions and whether or not a flattening yield curve could signal a recession. Is that the brunt of your question?

MICHAEL MCKEE. And whether the Fed has made, if there’s a policy mistake embedded in that.

CHAIR YELLEN. So this is something that we discussed and have looked at. The yield curve has flattened some as we have raised short rates. Mainly, the flattening yield curve mainly reflects higher short-term rates. The yield curve is not currently inverted, and I would say that the current slope is well within its historical range. Now there is a strong correlation historically between yield curve inversions and recessions, but let me emphasize that correlation is not causation, and I think that there are good reasons to think that the relationship between the slope of the yield curve and the business cycle may have changed. And one reason for that is that longterm interest rates generally embody two factors. One is the expected average value of short rates over say ten years, and the second piece of it is a so-called term premium that often reflects things like inflation risk. Typically, the term premium historically has been positive. So when the yield curve has inverted historically, it meant that short-term rates were well above average expected short rates over the longer run. So with the positive term premium, that’s what it means. And typically that means that monetary policy is restrictive, sometimes quite restrictive, and some of those recessions were situations in which the Fed was consciously tightening monetary policy because inflation was high and trying to slow the economy. Well, right now the term premium is estimated to be quite low, close to zero, and that means that structurally, and this can be true going forward, that the yield curve is likely to be flatter than it’s been in the past. And so it could more easily invert if the Fed were to even move to a slightly restrictive policy stance you could see an inversion with a zero term premium. So, I think the fact the term premium is so low and the yield curve is generally flatter is an important factor to consider. Now, I think it’s also important to realize that market participants are not expressing heightened concern about the decline of the term premium, and when asked directly about the odds of recession, they see it as low, and I would concur with that judgment.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2660.24 as this post is written

Janet Yellen’s September 20, 2017 Press Conference – Notable Aspects

On Wednesday, September 20, 2017 Janet Yellen gave her scheduled September 2017 FOMC Press Conference. (link of video and related materials)

Below are Janet Yellen’s comments I found most notable – although I don’t necessarily agree with them – in the order they appear in the transcript.  These comments are excerpted from the “Transcript of Chairman Yellen’s Press Conference“ (preliminary)(pdf) of September 20, 2017, with the accompanying “FOMC Statement” and “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, September 2017“ (pdf).

From Janet Yellen’s opening comments:

Turning to inflation, the 12-month change in the price index for personal consumption expenditures was 1.4 percent in July, down noticeably from earlier in the year.  Core inflation-which excludes the volatile food and energy categories–has also moved lower.  For quite some time, inflation has been running below the Committee’s 2 percent longer-run objective.  However, we believe this year’s shortfall in inflation primarily reflects developments that are largely unrelated to broader economic conditions.  For example, one-off reductions earlier this year in certain categories of prices, such as wireless telephone services, are currently holding down inflation, but these effects should be transitory.  Such developments are not uncommon and, as long as inflation expectations remain reasonably well anchored, are not of great concern from a policy perspective because their effects fade away.  Similarly, the recent, hurricanerelated increases in gasoline prices will likely boost inflation, but only temporarily.  More broadly, with employment near assessments of its maximum sustainable level and the labor market continuing to strengthen, the Committee continues to expect inflation to move up and stabilize around 2 percent over the next couple of years, in line with our longer-run objective.  Nonetheless, our understanding of the forces driving inflation is imperfect, and in light of the unexpected lower inflation readings this year, the Committee is monitoring inflation developments closely.  As always, the Committee is prepared to adjust monetary policy as needed to achieve its inflation and employment objectives over the medium term.

also:

As I noted, the Committee announced today that it will begin its balance sheet normalization program in October.  This program, which was described in the June addendum to our Policy Normalization Principles and Plans, will gradually decrease our reinvestments of proceeds from maturing Treasury securities and principal payments from agency securities.  As a result, our balance sheet will decline gradually and predictably.  For October through December, the decline in our securities holdings will be capped at $6 billion per month for Treasuries and $4 billion per month for agencies.  These caps will gradually rise over the course of the following year to maximums of $30 billion per month for Treasuries and $20 billion per month for agency securities and will remain in place through the process of normalizing the size of our balance sheet.  By limiting the volume of securities that private investors will have to absorb as we reduce our holdings, the caps should guard against outsized moves in interest rates and other potential market strains.

Janet Yellen’s responses as indicated to the various questions:

NICK TIMIRAOS. Nick Timiraos, Wall Street Journal. Chair Yellen Fed Governor Leal Brainard recently gave a speech, in which she said trend inflation appeared to have moved lower by around half a percentage point. I wanted to ask do you agree? And what would the Fed need to do if anything to boost trend inflation if it has fallen? And related to that you’ve said you expect the inflation softness this year to prove transitory. Compared to three months ago how firm is your current expectation that the slowdown will remain transitory and what implications would that have for monetary policy if it has not.

CHAIR YELLEN. So the term trend inflation, usually there are a variety of statistical techniques that can be used to extract a trend from a series. Exactly what that means is, in some sense a statistical thing, and there are methodologies that would show some modest decline in recent years, in the trend. After all, we’ve had a number of years in which inflation has been low. As I said in answer to an earlier question, I think if you go back to, say 2013, and consider the until this year, the reasons why inflation was low are not hard to understand. It’s a combination of slack in the labor market, declines in energy prices, and the strong dollar that pulled down import price inflation. So, what’s important in determining inflation going forward, is inflation expectations. By some, by many, by some survey measures of professional forecasters, those have been rock solid. We do also look at household expectations, which have come down some. Market-based measures of inflation compensation, as we mentioned in the statement, they have declined, and they’ve been stable in recent months, but they have declined to levels that are low by historical standards. That might suggest that inflation expectations have come down, but one can’t get a clear read, there are risk premia built in to inflation compensation that make it impossible to extract directly what inflation expectations are. So, you know, there is a miss this year I can’t say I can easily point to a sufficient set of factors that explain this year why inflation has been this low. I’ve mentioned a few idiosyncratic things, but frankly, the low inflation is more broad-based than just idiosyncratic things. The fact that inflation is unusually low this year does not mean that that’s going to continue. Remember that in January and February, core inflation was running over a 12-month basis, at around 1.9 percent, and we look to be very close to 2 now. We’ve had several months of data that have meaningfully pulled, pulled that down, and what we need to do is figure out whether or not the factors that have lowered inflation are likely to prove persistent, or they’re likely to prove transitory, and that’s what we’re going to try to be determining on the basis of incoming data, and you asked me about the policy implications. Of course, if it, if we determined our view changed, and instead of thinking that the factors holding inflation down were transitory, we came to the view that they would be persistent, it would require an alteration in monetary policy to move inflation back up to 2 percent, and we would be committed to making that adjustment.

also:

ADAM SHAPIRO. Adam Shapiro, Fox Business. Chair Yellen a month ago you delivered a speech in Wyoming, in which you said, the balance of research suggests that the core reforms we have put in place have substantially boosted resilience, without unduly limiting credit availability or economic growth. I have a two-part question based on the quote. First, what message do you want Congress and President Trump to hear from that statement? And then regarding economic growth, the accommodative process that the Fed has followed for the last 10 years has helped bring us to full employment, but economists point out that there been people who haven’t benefited, for instance 52 percent of Americans own stock 48 percent don’t. They’ve not participated in the gains in the stock market. Housing prices, the median house prices now at a record high, and 39 million Americans according to a Harvard study, spend more than 30 percent for housing. So, what would you say to those people about Fed policies, and the impact they’ve had on their lives?

CHAIR YELLEN. Okay. So you asked me what was the main, first what was the main message of my speech, and I would say it’s that we put in place, since the financial crisis, a set of core reforms that have strengthened the financial system, and in my personal view, it’s important they remain in place, and those core reforms are more capital, higher-quality capital, more liquidity, especially in systemically, important banking institutions, stress testing, and resolution plans, and those four prongs of improvements in banking supervision have really strengthened the financial system, and made it more resilient, and I believe they should stay in place. But I also tried to emphasize, and I believe that they have contributed to growth and the availability of credit. I’ve also tried to emphasize that all regulators should be attentive to undue regulatory burden, and look for ways to try to scale that back, and this is especially true after years in which we have implemented a large number of complex regulations, and we have been committed to doing that. I would point out particularly community banks, that are laboring under significant regulatory burden, we have been looking for ways to scale back burdens, running the Gripper Process, where we’ve listened to concerns among community banks, and are looking for ways, for example to simplify capital standards and reduce burdens, and that’s, that’s very important. More generally, we want to tailor, we want to win, we would like to see Congress as well, we can do things to appropriately tailor regulations to the risk posed by different kinds of banking organizations. There is some things the Congress could also do to help, help that process, and we have made some concrete suggestions, and in some of the regulations that we have put in place with other regulators since the crisis, like the Volcker Rule are really quite complex, and we’re working, we believe we should, and we’re working with other regulators to try to see if we can find ways while carrying out what Dodd Frank intended, that banking organizations not be involved in proprietary trading, nevertheless the implementation can be less complex. So that was, that was my main message. Your second question asked about what impact the Fed has had on income distribution, because of the fact that stocks and homes tend to be disproportionate. So, I say look we were faced with a huge recession that took an enormous toll in terms of depriving large numbers of people and disproportionately lower income people, who are less, who were less advantaged in the labor market, found themselves without work. We had a 10 percent unemployment rate, and our congressional mandate is maximum employment, and price stability. So we set monetary policy, not with a view toward affecting the distribution of income, but toward pursuing those congressionally mandated goals, and I am pleased to see the unemployment rate, and every other measure that I know of, pertaining to the labor market, show dramatic improvement over these years, and that is hugely important to the economic well-being, not at the top end of the, of the wealth and income distribution, but to the bottom end of the income distribution, and we have seen this year median income in real terms rise significantly with gains throughout the income distribution.

also:

DAVID HARRISON. Hi, thank you. David Harrison with Dow Jones. I’d like to followup on, on the Balance Sheet question if I may. What specifically would it take for you to reverse the decision to wind down the balance sheets, and under what conditions would you consider adding to the balance sheet again, and separately as a follow-up to that, looking more broadly, how do you think history will judge the effectiveness of your asset purchases, and the conditions under which that policy should be, should be used?

CHAIR YELLEN. So starting with the last part of the question, I mean, my own judgment, based on my experience in the economic research, that has tried to estimate the effectiveness of our Balance Sheet actions, starting in 2008, and has also looked at the similar Balance Sheet actions in other parts of the world, including the Euro area, is that these actions were successful in making financial conditions more accommodative, and I believe in stimulating a faster recovery than we otherwise would’ve had. A recent Fed working paper estimated that the full set of Balance Sheet actions that we took during the crisis may have lowered long-term interest rates by about 100 basis points. There is obviously, there are different, there are different estimates around of what difference it made, but I would say that it’s effective. It will be up to future policymakers to decide, in the event of a severe downturn, whether they think it’s appropriate to again resort to balance sheet, to adding, adding assets to a balance sheet. I would, I would say that if economists are correct, that we’re living in a world where the level of neutral interest rates, not only in the United States, but around the world, is likely to be low in the future due to slow productivity growth and demographics. Now we don’t know that that view will bear out to be correct, but it is a view that many people adhere to when there is evidence of it. Then future policymakers will be faced with the question of, in the event of a severe downturn where they’re not able to provide as much stimulus as they would ideally like by cutting overnight interest rates, what other actions are available to them, and during the crisis we bought longer-term assets and used forward guidance, and for my own part, I would want to keep those things in the toolkit as being available. It will be up to future policymakers to decide how to rank those, and whether or not there might be other options that are available to them, but I don’t think this issue will go away, although perhaps it’s only, well, this if, this could well be a decision that future policymakers will have to face in the event of a significant asset, economic shock. I mean, you, you asked me what would it take for us to resume reinvestment, and I can’t really say much more than we said in the guidance that we provided, which is that if there is a material deterioration in the economic outlook, and we thought we might be faced with the situation where we would need to substantially cut the federal Funds Rate, and could be limited by the so-called zero lower bound, it, it is that type of determination that our committee is saying would, might lead us to read, to resume reinvestment. So that’s, our committee has been unanimous and affirming this statement of intentions, so, you know, I think that’s where our committee stands, that so, that is a somewhat high bar to resume reinvestments, and that’s why in answering previous questions, I would say well, you know, to some small negative shock, our first tool, our most important and reliable tool will be the federal funds rate, but if there is a significant shock that some material deterioration to the outlook, we would consider resuming reinvestment.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2503.97 as this post is written

Janet Yellen’s June 14, 2017 Press Conference – Notable Aspects

On Wednesday, June 14, 2017 Janet Yellen gave her scheduled June 2017 FOMC Press Conference. (link of video and related materials)

Below are Janet Yellen’s comments I found most notable – although I don’t necessarily agree with them – in the order they appear in the transcript.  These comments are excerpted from the “Transcript of Chairman Yellen’s Press Conference“ (preliminary)(pdf) of June 14, 2017, with the accompanying “FOMC Statement” and “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, June 2017“ (pdf).

From Janet Yellen’s opening comments:

Following a slowdown in the first quarter, economic growth appears to have rebounded,
resulting in a moderate pace of growth so far this year. Household spending, which was
particularly soft earlier this year, has been supported by solid fundamentals, including ongoing improvement in the job market and relatively high levels of consumer sentiment and wealth.
Business investment, which was weak for much of last year, has continued to expand. And
exports have shown greater strength this year, in part reflecting a pickup in global growth.
Overall, we continue to expect that the economy will expand at a moderate pace over the next
few years.

In the labor market, job gains have averaged about 160,000 per month since the start of
the year--a solid rate of growth that, although a little slower than last year, remains well above estimates of the pace necessary to absorb new entrants to the labor force. The unemployment rate has fallen about 1/2 percentage point since the beginning of the year and was 4.3 percent in May, a low level by historical standards and modestly below the median of FOMC participants’ estimates of its longer-run normal level. Broader measures of labor market utilization have also improved this year. Participation in the labor force has been little changed, on net, for about three years. Given the underlying downward trend in participation stemming largely from the aging of the U.S. population, a relatively steady participation rate is a further sign of improving conditions in the labor market. Looking ahead, we expect that the job market will strengthen somewhat further.

Janet Yellen’s responses as indicated to the various questions:

SAM FLEMING. Thank you very much. Sam Fleming from the Financial Times. We've
now had a very long streak of-- or fairly long streak of weak inflation numbers at least measured by the CPI this morning as well. Marketplace-based inflation expectations are declining. What kind of vigilance are you now saying is needed in terms of weak inflation? How does that interact with your policy outlook? And would further disappointments argue for pressing pause on rate hikes or delaying balance sheet run-off? How do you think about those two potential responses to weak inflation?

CHAIR YELLEN. So, let me just say as I emphasized in my statement and always say monitory policy is not on a preset course. We indicated in our statement today that we're closely
monitoring inflation developments and certainly have taken note of the fact there have been
several weak readings particular on core inflation. Our statement indicates that we expect
inflation to remain low in the near term. But on the other hand, we continue to feel that with a
strong labor market and labor market that's continuing to strengthen, the conditions are in place for inflation to move up. Now, obviously we need to monitor that very carefully. And ensure especially with roughly five years of inflation running under our 2 percent objective that is a goal to which the committee is strongly committed. And we need to make sure that we have in place the policies that are necessary to achieve 2 percent inflation and I pledge that we will do that. But let me say with respect to recent readings, it's important not overreact to a few readings and data on inflation can be noisy. As I pointed out, there have been some idiosyncratic factors I think that have held down inflation in recent months, particularly a huge decline in cell telephone service plan prices, some declines in prescription drugs. We had an exceptionally low reading on core PC in March, and that will continue to hold down 12-month changes until that reading drops out. But we are this morning's reading on the CPI showed weakness in a number of categories and it's certainly something that we will be closely monitoring in the months ahead. We will--we're focused on in making our policy decisions on the medium term outlook and we will, you know, be looking carefully at incoming data and as always revising our outlook and policy plans as appropriate.

also:

BINYAMIN APPELBAUM. Binyamin Appelbaum, the New York Times. Measures of financial conditions show that since the Fed started raising interest rates two years ago, financial conditions actually have loosened. Consumer business borrowing costs in many cases are down. Do you have the sense that the market is not listening to you? How much of a concern is that for you? And at some point, does it convince you that you need to raise rates perhaps more quickly?

CHAIR YELLEN. Well, in deciding what the appropriate path of rates is, we take many
different factors into account. We have certainly noticed the stock market is up considerably over the last year. That usually shows up in financial conditions indexes and is an important reason why some of them show easier financial conditions. There has been a modest decrease recently in the value of the dollar although it's up substantially since mid-2014. So, we take those factors into account in deriving our forecasts and deciding the appropriate stance of policy. We have done that and-- but other things also affect the stance of policy. So there really can't be any simple relationship. We're not targeting financial conditions. We're trying to set a path of the federal funds rate, the taking into account of those factors and others that don't show up in the financial conditions index. We're trying to generate paths for employment and inflation that meet our mandated objectives.

also:

NANCY MARSHALL-GENZER. Hi, Nancy Marshall-Genzer from Marketplace.  Recently, a group of economists send the Fed a letter earlier this month, disagreeing with your 2 percent inflation target and saying, they would like the economy to run a bit hotter. They don't think the labor market is so tight. You say you're committed to the 2 percent target, but what do you say to them?

CHAIR YELLEN. So, at the time that we adopted the 2 percent target, it was back in
2012, we had a very thorough discussion of the factors that should determine what our inflation objective should be. And, you know, I believe that was a well thought out decision. Now, at the moment, we are highly focused on trying to achieve our 2 percent objective. And we recognize the fact that inflation has been running below and it's essential for us to move inflation back to that objective. Now, we've learned a lot in the meantime and assessments of the level of the neutral likely level currently and going forward of the neutral federal funds rate have changed and are quite a bit lower than they stood in 2012 or earlier years. And that means that the economy is-- has the potential where policy could be constrained by the zero lower bound more frequently than at the time that we adopted our 2 percent objective. So, it's that recognition that causes people to think we might be better off with a higher inflation objective, and that's an important set. This is one of our most critical decisions and one we are attentive to evidence and outside thinking. It's one that we will be reconsidering at some future time. And it's important for our decisions to be informed by a wide range of views and research which is ongoing inside and outside the Fed. But a reconsideration of that objective needs to take account, not only of benefits of a higher in potential benefits, of a higher inflation target, but also the potential cost that could be associated with it. It needs to be a balanced assessment. But I would say that this is one of the most important questions facing monetary policy around the world in the future and we very much look forward to seeing research by economists that will help inform our future decisions on this.

also:

MICHAEL MCKEE. And the characterization of you as a low-interest rate person?

CHAIR YELLEN. Well, I have felt that it's been appropriate for interest rates to remain
low for a very long time. We are in the process of as the economy strengthens normalizing
interest rates. But certainly, we've had a lot of years in which interest rates have been low. I
thought it was necessary to support the economy at that time and was strongly in favor of those policies.

also:

MICHAEL DERBY. Mike Derby from Dow Jones Newswires. In light of the plans to trim the balance sheet hopefully later this year, what have you learned about QE and your bond
buying policies as a tool for monetary policy? When they were launched, it wasn't something
you had, you know, engaged in that scale before, a lot of fear and said it was going to create a
hyperinflation that hasn't ever seem to come to pass. So, you know, in light of QE as potentially
a tool for the future, you know, it might come back again, what have you learned about how it
works in the economy? Like where do you see it affect things? You know, what are sort of the
lessons learned of the experience?

CHAIR YELLEN. Well, thanks. That's a great question. I mean, staff in the Federal Reserve and outside economists who have done a great deal of work trying to evaluate QE, I think the general conclusion is that it has worked in that it has put some downward pressure on
longer term interest rates, so-called term premiums embedded in longer term interest rates.
There's disagreement among economists about exactly how large those effects are and it's
something that's difficult to pin down. But obviously, it has not caused runaway inflation quite
the contrary. I mean, that was never my expectation but I do remember when people were afraid that that would happen. We do have the tools. We have, you know, even with a large balance sheet, we intend to shrink our balance sheet now. But even with a large balance sheet, we retain the ability to move the fed funds rate and set it as appropriate to the needs of the economy. So, I think we have learned that it works. It's a valuable part of the toolkit. It's something that if we were to encounter an episode in the future of extreme weakness where I've said, we want the fed funds rate and movements in short-term interest rates, that's our go-to number one main policy tool. But if we were to hit the zero lower bound and constrained in our use of that tool, certainly balance sheet policies and forward guidance of the type that we provided, I believe based on the evidence of how they worked or to remain part of our toolkit. And we have said in the bullets that we released today on our balance sheet that in such of-- an episode of such extreme weakness in the future, those are things we would consider going forward.

MICHAEL DERBY. One small follow-up. Is four and a half trillion sort of a natural limit
to how high you might want to push the balance sheet or could you envision it going higher if
you needed it to?

CHAIR YELLEN. Well, we've had no discussion of that issue, you know. And our focus
now is on getting it back to a more normal size. But I would say the use of QE in the United
States relative to the size of our economy is not as high as it's been in some other countries that
have employed it. But that's something we haven't seriously even discussed.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2432.46 as this post is written

Janet Yellen’s March 15, 2017 Press Conference – Notable Aspects

On Wednesday, March 15, 2017 Janet Yellen gave her scheduled March 2017 FOMC Press Conference. (link of video and related materials)

Below are Janet Yellen’s comments I found most notable – although I don’t necessarily agree with them – in the order they appear in the transcript.  These comments are excerpted from the “Transcript of Chairman Yellen’s Press Conference“ (preliminary)(pdf) of March 15, 2017, with the accompanying “FOMC Statement” and “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, March 2017“ (pdf).

From Janet Yellen’s opening comments:

CHAIR YELLEN. Good afternoon. Today, the Federal Open Market Committee decided to raise the target range for the federal funds rate by 1/4 percentage point, bringing it to 3/4 to 1 percent. Our decision to make another gradual reduction in the amount of policy accommodation reflects the economy’s continued progress toward the employment and price stability objectives assigned to us by law. For some time the Committee has judged that, if economic conditions evolved as anticipated, gradual increases in the federal funds rate would likely be appropriate to achieve and maintain our objectives. Today’s decision is in line with that view and does not represent a reassessment of the economic outlook or of the appropriate course for monetary policy. I’ll have more to say about monetary policy shortly, but first I’ll review recent economic developments and the outlook.

The economy continues to expand at a moderate pace. Solid income gains and relatively high levels of consumer sentiment and wealth have supported household spending growth. Business investment, which was soft for much of last year, has firmed somewhat, and business sentiment is at favorable levels. Overall, we continue to expect that the economy will expand at a moderate pace over the next few years.

Janet Yellen’s responses as indicated to the various questions:

SAM FLEMING. Thanks very much, Sam Fleming from the Financial Times. Picking up on the last topic, balance sheet normalization. Clearly you said you don't want to start pulling in the size of the balance sheet until normalization is well under way. Could you give us some sort of sense about what well under way means, at least in your mind? What kind of hurdles are you setting? What kind of economic conditions would you like to see? Is it just a matter of the level of the short-term federal funds rate as being the main issue? And what kind of role do you see the role of the balance sheet playing in the normalization process over the longer term? Is it an active tool, or is it a passive tool? Thanks.

CHAIR YELLEN. So let me start with the second question first. We've emphasized, for quite some time, that the Committee wishes to use variations in the Fed Funds Rate target, our short-term interest rate target as our key active tool of policy. We think it's much easier in using that tool to communicate the stance of policy. We have much more experience with it, and have a better idea of its impact on the economy. So, while the balance sheet asset purchases are a tool that we could conceivably resort to if we found ourselves in a serious downturn where we were, again, up against the zero bound, and faced with substantial weakness in the economy. It's not a tool that we would want to use as a routine tool of policy. You asked what well under way means. I can't give you a specific answer to that. And I think the right, the right way to look at it is in qualitative, and not quantitative, terms. It doesn't mean some particular cutoff level for the federal funds rate that, when we've reached that level, we would consider ourselves well under way. I think what we want to have is confidence in the economy's trajectory. A sense that the economy will make progress, that we're not overly worried about downside risks, and adverse shocks that could hit the economy, that could quickly after setting it off on the path to shrinking the balance sheet gradually over time cause us to want to begin to add monetary policy accommodation. So I think it has to do with the balance of risks and confidence in the economic outlook, and not simply the level of the federal funds rate.

also:

BINYAMIN APPELBAUM. Binyamin Appelbaum, the New York Times. The Bank for International Settlement has raised concerns that central banks are being insufficiently attentive to asset, price -- excuse me, asset price inflation. And stock market investors in the United States certainly don't seem to be waiting for the Trump administration to actually implement its fiscal policies. And I guess I'm just curious to know how much of a concern that is for you. And, if not, why not, given the remarkably elevated level of stock price evaluation?

CHAIR YELLEN. Well, we do look at financial conditions in formulating our view of the outlook. And stock prices do figure into financial conditions. So, I think, the higher level of stock prices is one factor that looks like it's likely to somewhat boost consumption spending. We also notice that, in the last several months, that risk spreads particularly for lower grade corporate issuers have narrowed, which is another signal that financial conditions have become somewhat easier. Now, on the other side, longer term interest rates are up some in recent months, and the dollar is a little stronger. How does that net out? There are private sector analysts that produce financial conditions, indices that attempt to aggregate all these different factors affecting financial conditions. And, for some of the more prominent analysts and indices, I think the conclusion they've reached is that financial conditions on balance have eased. And that's partly driven by the stock market. So, that is a factor that affects the outlook.

also:

KATHLEEN HAYS. Chair Yellen, Kathleen Hays. Oh excuse me, Kathleen Hays from Bloomberg. I'm going to try to take the opposite side of this because, on this question about market expectations and how the markets got things wrong, and then how you say the Fed suddenly clarified what it already said. But, for example, if the--if you look at the Atlanta Fed's latest GDP tracker for the first quarter, it's down to 0.9 percent. We had a retail sales report that was mixed, granted the, you know, upper divisions of previous months make it look better, but the consumer does not appear to be roaring in the first quarter, kind of underscoring the waitand-see attitude you just mentioned. If you look at measures of labor compensation, you note in this statement that they're not moving up. And, in fact, they are--and if you look at average--there are so many things you can look at. And you, yourself, have said in the past that the fact that that is happening is perhaps an indication there's still slack in the labor market. I guess my question is this, in another sense, what happened between December and March? GDP is tracking very low. Measures of labor to compensation are not threatening to boost inflation any time fast. The consumer is not picking up very much. Fiscal policy--we don't know what's going to happen with Donald Trump. And, yet, you have to raise rates now. So what is the, what is the motivation here? The economy is so far from your forecast, in terms of GDP, why does the Fed have to move now? What is this signal, then, about the rest of the year?

CHAIR YELLEN. So, GDP is a pretty noisy indicator. If one averages through several quarters, I would describe our economy as one that has been growing around 2 percent per year. And, as you can see from our projections, we, that's something we expect to continue over the next couple of years. Now that pace of growth has been consistent with a pace of job creation that is more rapid than what is sustainable if labor force participation begins to move down in line with what we see as its longer run trend with an aging population. Now, unemployment hasn't moved that much, in part because people have been drawn into the labor force. Labor force participation, as I mentioned in my remarks, has been about flat over the last 3 years. So, in that sense, the economy has shown, over the last several years, that it may have had more room to run than some people might have estimated, and that's been good. It’s meant we've had a great deal of job creation over these years. And there could be, there could be room left for that to play out further. In fact, look, policy remains accommodative. We expect further improvement in the labor market. We expect the unemployment rate to move down further, and to stay down for the next several years. So, we do expect that the path of policy we think is appropriate is one that is going to lead to some further strengthening in the labor market.

KATHLEEN HAYS. Just quickly then, I just want to underscore. I want to ask you, so following on that, you expect it to move. What if it doesn't? What if GDP doesn't pick up? What if you don't see wage measures rising? What if you don't, what if the core PCE gets stuck at 1.7 percent, would you, is it your view, perhaps, that if there's a risk right now in the median forecast for dots, that it's fewer hikes this year rather than the consensus or more?

CHAIR YELLEN. Well, look, our policy is not set in stone. It is data dependent and we're, we’re not locked into any particular policy path. Our, you know, as you said, the data have not notably strengthened. I, there's noise always in the data from quarter to quarter. But we haven't changed our view of the outlook. We think we're on the same path; not, we haven't boosted the outlook projected faster growth. We think we're moving along the same course we've been on, but it is one that involves gradual tightening in the labor market. I would describe some measures of wage growth as having moved up some. Some measures haven't moved up, but there's some evidence that wage growth is gradually moving up, which is also suggestive of a strengthening labor market. And we expect policy to remain accommodative now for some time. So we're, we’re talking about a gradual path of removing policy accommodation as the economy makes progress, moving toward neutral. But we're continuing to provide accommodation to the economy that's allowing it to grow at an above-trend pace that's consistent with further improvement in the labor market.

also:

JO LING KENT. Hi, Chair Yellen. I'm Jo Ling Kent with NBC News. I just want to know, what message are you trying to send consumers with this particular rate hike?

CHAIR YELLEN. I think that's a great question; I appreciate your asking it. And the simple message is the economy's doing well. We have confidence in the robustness of the economy and its resilience to shocks. It's performed well over the last several years. We've created, since the trough in employment after the financial crisis, around 16 million jobs. The unemployment rate has moved way down. And many more people feel optimistic about their prospects in the labor market. There's job security. We're seeing more people who are feeling free to quit their jobs, getting outside offers, looking for other opportunities. So, I think the job market, which is an important focus for us, is certainly improving. That's not to say that it's good labor market conditions for every individual in the United States. We know there are problems that face, particularly people with less skill and education, and certain sectors of the economy, but many Americans are enjoying a stronger labor market and feel better, feel very much better about that. And inflation is moving, moving up, I think, toward our 2 percent objective. And we're operating in a, in an environment where the U.S. economy is performing well, and we seem pretty balanced. So, I think people can feel good about the economic outlook.

also:

NANCY MARSHALL-GLENZER Some Fed critics have said it's too soon to raise interest rates because wages haven't risen enough to justify a rate increase. What would you say to that?

CHAIR YELLEN. Well, I don't, I would like to see wages increase and think there's some scope for them to increase somewhat further. But our objectives are maximum employment and inflation. And we need to consider what path of rates is appropriate to foster those objectives. Unfortunately, one of the things that's been holding down wage increases is very slow productivity growth. And I think we are seeing some upward pressure as the labor market tightens. I take that as a signal that we're coming closer to our maximum employment objectives. But productivity is, for those focusing on wage growth, productivity is an additional important factor.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2381.38 as this post is written

Janet Yellen’s December 14, 2016 Press Conference – Notable Aspects

On Wednesday, December 14, 2016 Janet Yellen gave her scheduled December 2016 FOMC Press Conference. (link of video and related materials)

Below are Janet Yellen’s comments I found most notable – although I don’t necessarily agree with them – in the order they appear in the transcript.  These comments are excerpted from the “Transcript of Chairman Yellen’s Press Conference“ (preliminary)(pdf) of December 14, 2016, with the accompanying “FOMC Statement” and “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, December 2016“ (pdf).

From Janet Yellen’s opening comments:

CHAIR YELLEN: Good afternoon. Today, the Federal Open Market Committee decided to raise the target range for the federal funds rate by 1/4 percentage point, bringing it to 1/2 to 3/4 percent. In doing so, my colleagues and I are recognizing the considerable progress the economy has made toward our dual objectives of maximum employment and price stability. Over the past year, 2-1/4 million net new jobs have been created, unemployment has fallen further, and inflation has moved closer to our longer-run goal of 2 percent. We expect the economy will continue to perform well, with the job market strengthening further and inflation rising to 2 percent over the next couple of years. I’ll have more to say about monetary policy shortly, but first I’ll review recent economic developments and the outlook.

Economic growth has picked up since the middle of the year. Household spending continues to rise at a moderate pace, supported by income gains and by relatively high levels of consumer sentiment and wealth. Business investment, however, remains soft, despite some stabilization in the energy sector. Overall, we expect the economy will expand at a moderate pace over the next few years.

Job gains averaged nearly 180,000 per month over the past three months, maintaining the solid pace that we’ve seen since the beginning of the year. Over the past seven years, since the depths of the Great Recession, more than 15 million jobs have been added to the U.S. economy. The unemployment rate fell to 4.6 percent in November, the lowest level since 2007, prior to the recession. Broader measures of labor market slack have also moved lower, and participation in the labor force has been little changed, on net, for about two years now, a further sign of improved conditions in the labor market given the underlying downward trend in participation Page 2 of 20 stemming largely from the aging of the U.S. population. Looking ahead, we expect that job conditions will strengthen somewhat further.

Janet Yellen’s responses as indicated to the various questions:

JAMES PUZZANGHERA. Hi. Jim Puzzanghera with the LA Times. For the average American, can you explain what the impact of this hike and three additional hikes will be next year? And should they feel more confident in the economy now that you are raising rates to a slightly faster pace?

CHAIR YELLEN. So, let me say that our decision to raise rates is-- should certainly be understood as a reflection of the confidence we have in the progress the economy has made and our judgment that that progress will continue and the economy is proven to be remarkably resilient. So it is a vote of confidence in the economy. As you know, this was a decision that was well anticipated in markets and I think it will have relatively small effect on market rates. It could boost very slightly some short-term interest rates that could have an effect on borrowing costs that are linked to them. But overall, I think that households and firms will see very modest changes from this decision. But certainly, it's important for households and businesses to understand that my colleagues and I have judged the course of the U.S. economy to be strong so that we're making progress toward our inflation and unemployment goals. We have a strong labor market and we have a resilient economy.

also:

BINYAMIN APPLEBAUM. About how the system should be improved?

CHAIR YELLEN. About how-- Financial rate. Yeah. So, OK on financial regulation, I feel that we lived through a devastating financial crisis that took a huge toll on our economy. And most members of Congress and the public came away from that experience feeling that it was important to take a set of steps that would result in a safer and stronger financial system. And I feel that we have done that. That has been our mission since the financial crisis for the last six or seven years. That's what Dodd-Frank was designed to do. I think it's very important that we have reduced the odds that a systemically important firm could fail by requiring higher capital, higher liquidity by performing stress tests that provide us another way of insuring that the firms we count on to supply credit to households and businesses would be able to go on doing that even in the face of a severely adverse shock. The firms, the largest firms have a great deal more capital than they did before the crisis. Those are important changes. We have placed the toughest regulations on those firms that are systemically important. I would advise that-- and we have been trying to do this, that it's important to look for ways to relieve regulatory burden on community banks and smaller institutions to tailor regulation so that it's appropriate for the systemic risk profile of the particular institutions. I think there was broad agreement also that we should end too big to fail and that means not only reducing the odds of the failure of a systemically important institution but also making sure that should such a firm fail that it could be resolved in an orderly way. And the living wills process has been about that and I think we've made considerable progress in making sure that the largest and most systemic firms conduct their businesses in a day-to-day way with some thought about-- with important thinking in place about whether or not the way they are conducting their business would aid resolution in the event that they encountered a severe negative shock. So, this is progress, I would say, is very important not to roll back. There may be some changes that could be made and we've suggested a few like eliminating the burden of compliance with the Volcker rule or incentive compensation, regulations for smaller banks or modestly raising the threshold for banks that are subject to enhanced prudential supervision. But I would urge that it's important to keep this in place.

also:

NANCY MARSHALL-GENZER. Hi, Nancy Marshall-Genzer with Marketplace. Wondering about slack, when do you think the slack in the labor market will have worked its way through so we're no longer talking about it at press conferences and it's not such a big issue?

CHAIR YELLEN. So, this is not something that it's possible to judge precisely. My colleagues write down their best estimates of a normal longer run unemployment rate. The median stands at 4.8 percent, so we're close possibly-- the unemployment rate right now is ever so slightly below but in the neighborhood. If we look at larger, broader measures of slack like the U6 measure that includes involuntary part-time employment and those who are marginally attached to the labor force. They're slightly higher than pre-recession levels, but they've come down considerably. We look at a broad array of indicators of the labor market, and if you look at job openings or the hires rate or the quick rate or difficulty of hiring workers as reported in business surveys, you know, I would say the labor market looks a lot like the way it did before the recession that it's-- We're roughly comparable to 2007 levels when we thought the, you know, there was a normal amount of slack in the labor market. The labor market was in the vicinity of maximum employment.

also:

PETER BARNES. On equity prices, you have talked about whether or not the valuations are still-- are within historical ranges of norms. Is this Dow 20,000 kind of within historical norms? Are you comfortable with that?

CHAIR YELLEN. Well, I think rates of return in the stock market relative to-- Remember that the level of interest rates is low and taking that into account, I believe it's fair to say that they remain within normal ranges.

also:

JUSTINE UNDERHILL. Justine Underhill, Yahoo Finance. So the Fed's balance sheet has grown to over $4 trillion dollars. And as the Fed begins removing policy accommodation, under what circumstances would you see the Fed removing or possibly winding down its balance sheet? And either letting mature-- securities mature or possibly outright selling bonds from the-- SOMA portfolio?

CHAIR YELLEN. So, we've indicated in our normalization principles that we expect to diminish the size of our portfolio over time largely by ceasing reinvestments of principal rather than by selling securities. We've indicated that once the process of normalization of the federal funds rate is well under way, we would probably begin to allow our portfolio to run off. We've not yet made any precise decisions about when that will occur. We want to feel that if the economy were to suffer an adverse shock, that we have some scope through traditional means of interest rate cuts to be able to respond to that. Now there's no mechanical rule about what level of the federal funds rate we might deem appropriate to begin that process. It's not something that only depends on the level of the federal funds rate, it also depends on our judgment of the amount of momentum in the economy and the possible concerns about downside risks of the economy. So, we've not yet made this decision, but it is something that we have long planned to begin to allow our balance sheet to run off. And then it would take several years. And we would end up if all goes well with the substantially smaller balance sheet than we have at present.

also:

MIKE DERBY. Mike Derby from Dow Jones Newswires. I'm wondering if the unexpected outcome of the election and the sense that a lot of people are really upset with how the economy is performing despite having, you know, aggregate economic statistics that look pretty good. Is that causing you in any way to think differently about how you evaluate the economy, like what sort of things you look for to get a sense of what's going on in the economy. Is, you know, basically, did-- how things turn on the election, is it making you think differently about how you evaluate the economy's performance and how it's dealing?

CHAIR YELLEN. Well, I mean, we've long been aware. And I've spoken about previously disturbing trends in the economy, particularly, rising wage inequality, income inequality, and the fact that a significant share of our population hasn't been enjoying significant real wage gains if any. And so, these are longstanding concerns. These are not new phenomenon, but the recession was very severe and probably exacerbated developments that had long been affecting many American workers and households. And I think they are quite disturbing. Now, they’re ones that the Fed is not well-positioned, I think our policies can affect the general level of economic activity and slack in the labor market, the level, the rate of inflation which we focus on. But I think it's important for policymakers more broadly to be attentive to these trends and to think about policies that could address them. We've been quite attentive with respect to particular demographic groups in the labor market, particularly minorities tend to be very badly affected by downturns. We've discussed that, we've been focused on it. It's not just since the election, and are pleased to see that they are enjoying gains. For example, the African-American unemployment rate at this point is now rough-- about back to 2007 levels as well. But these are important trends, and I think it's important for policy to address them.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2262.03 as this post is written