US: Federal Reserve Chair Janet Yellen Speech

Tue Sep 26 11:45:00 CDT 2017

Federal Reserve Chair Janet Yellen to deliver the keynote address at the NABE Annual Meeting to Assess Prospects for Growth in Shifting Global Economy, in Cleveland, with audience Q&A.

Inflation is Janet Yellen's topic and her position is mixed. The chair says that uncertainties related to inflation call for gradual rate hikes though gradual hikes could make for an overheated labor market and in turn unwanted inflation pressures. Yellen is repeating her prior comments that this year's run of low inflation is probably due to one-time "idiosyncratic" factors, such as the sweep lower in cell phone service prices earlier in the year, and is also repeating that she expects inflation to return to normal as the labor market tightens further and with it wage pressures begin to pick up. Though this sounds hawkish, she also warns that many uncertainties remain and that inflation could stay low. Here, she points out that low wage growth is tied to low productivity growth which hints at a continuation of low wages. The Federal Reserve puts special emphasis on inflation expectations and here too she notes that expectations have "slipped a bit" over the the past 2 to 3 years which could make achieving the FOMC's 2 percent goal more difficult. But here she offers again a hawkish note, concluding, given all the uncertainties, that it would be imprudent to keep monetary policy on hold until inflation is back at 2 percent. Yes there's the one hand and the other hand both at once and judging by the mix in her remarks, the door is still open whether or not the FOMC raises rates one more time this year.

A final note is on balance-sheet unwinding which will begin next month though the Fed has yet to outline how far the unwinding the will go. Yellen noted in questions and answers that the balance sheet, currently at $4.5 trillion, will end up larger than its roughly $1 trillion level before the financial crisis hit in 2008.