US: Fed Chair Press Conference

Wed Dec 16 13:30:00 CST 2015

It's time for a rate hike is Janet Yellen's theme in her press conference following the Fed's big liftoff. She is stressing that employment growth has met the necessary conditions for a rate hike and that the medium-term outlook for inflation is still pointing toward 2 percent. She dismissed the importance of the need to assert the Fed's credibility as a reason for the hike, stressing that rates have been extremely low for a very long time and its balance sheet extremely high for a very long time. She said this is raising the risk that growth and inflation may overshoot their objectives resulting in a disruptive reversal of policy that could lead to recession.

However historic, she repeatedly downplayed the importance of today's hike, saying it represents only the first of a gradual rate-hike sequence spread over a long period of time, one that will be based on the unfolding of economic data. Yet she did cite negatives to the outlook especially weak foreign demand for U.S. goods tied in part to strength in the dollar, but she noted what she described as "solid" strength in the domestic economy especially for car sales as well as in both residential and business investment. Still, she noted that wage growth has yet to pickup and that the labor force participation rate still remains historically low. On inflation, she sees economic growth as well as additional growth in the labor market giving prices a boost and she downplayed the risk of low oil prices, saying oil has only to hold steady for its drag on inflation to ease. In sum, the Fed is confident in the strength of the economy allowing policy to unfold as Yellen has been signaling all along, ending the year with liftoff and pointing to extending accommodation, though diminishing accommodation, in the years ahead.

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.