US: Fed Chair Press Conference

Wed Jun 17 13:30:00 CDT 2015

The coming rate hike may be on a meeting-to-meeting basis, but Janet Yellen doesn't sound like the FOMC will be acting very soon. She's citing continued weakness in the labor market where improvement has slowed this year and, importantly, she says wage growth remains subdued. She says decisive jobs improvement is needed before the federal funds rate will be increased and says the first increase is likely to come later this year. This latter comment contrasts, at least slightly, with general expectations for a September rate hike.

Asked about the IMF's recent call for the Fed to wait to next year before raising rates, Yellen isn't making waves. She notes that the IMF's opinion is also reflected among the views on the FOMC itself. She said the important point, on which everyone agrees, is that policy will be data dependent, and that whether the first rate hike comes in September or December or in 2016, normalization will be gradual.

Yellen also sounds dovish on inflation, stressing that there's still an unusually large amount of slack in the jobs market and wide measures of labor participation are still low. She concedes that some on the FOMC are warning that the economy is now at maximum employment, but says that most on the committee don't see it that way. She calls signs of wage growth, specifically the employment cost index and average hourly earnings, as "tentative." She says inflation, as well as core inflation, are still running below target: "We need to see additional strength in the labor market and the economy moving closer to capacity in order to have confidence that inflation will move up to 2 percent. But we'll have to make some progress."

On Greece, the Fed chair is expressing hope that an agreement will be reached. She notes that the US has limited financial exposure to Greece though she does warn that there could be some spillover from increasing Greek trouble. Regarding the effect of the Fed's coming rate hike on the international markets, she says there's no promises that there won't be volatility: "But we can communicate as best we can to avoid needless misunderstanding."

To a question on the dollar, Yellen describes its appreciation as significant and notes its negative effects on the nation's net exports: "It's been a drag on the economy and the drag will continue for some time to come." She also notes that prices of non-oil imports continue to fall and are pushing down core inflation. Looking at the larger picture, she says the Fed has no target for the dollar and movements in the currency are only one of many factors to be considered by policy makers. And she stresses that strength in the dollar alone, and it's negative effect on exports, will not block an eventual tightening in rates, one she describes, based on the FOMC's economic projections, as "inevitable."

The Fed announced on March 24, 2011 that then Fed Chair Ben Bernanke would hold press briefings four times a year to explain the FOMC's latest quarterly economic projections. Additionally, the purpose of the briefings is to provide additional context for the FOMC's policy decisions and to allow for Q&A with the press. According to the Fed, the "introduction of regular press briefings is intended to further enhance the clarity and timeliness of the Federal Reserve's monetary policy communication." As of March 20, 2013, the press briefing is held at 2:30 p.m. ET on the days of FOMC statements in which quarterly projections are released. These FOMC statement dates are designated as the ones released in the final month of each quarterMarch, June, September, and December. The policy statement is released at 2:00 p.m. ET after the conclusion of every FOMC meeting regardless of whether there are forecasts or not. This schedule started March 20, 2013. Fed Chair Janet Yellen continues this practice of holding the quarterly chair press conference.

The Fed's meeting statement and economic projections can move financial markets. However, the Fed's meeting statementwhich indicates any changes in monetary policytypically is very concise and lacking in detail. However, the Fed now releases its economic forecasts four times a year. As of March 20, 2013, the forecasts are released at the same time as the FOMC statement during the months of March, June, September, and December. These are the months that the chair holds a press conference to explain the forecasts and other policy issues. The chair's press conference allows for the financial markets and public in general to learn more about why and how the monetary policy decision was made and to learn more about FOMC views on the direction of the economyincluding real growth, inflation, unemployment, expected timing of changes in the fed funds rate, and expected levels of the fed funds rate in the near term.