Transcript: a selection of quotations from the speech of Yellen

Yellen in Cleveland, Ohio

  • «As noted in its recent statement, the FOMC continues to anticipate that, with gradual adjustments in the monetary policy stance, inflation will increase and stabilise around 2% over the medium term.»
  • «Some of the recent decline in inflation, but not all, reflects idiosyncratic changes in the prices of some items, such as the significant reduction of telecommunication services prices seen earlier in the year, which are unlikely to be repeated.»
  • «My colleagues and I currently think that this year, the low inflation is probably temporary, so that we continue to expect that inflation should stabilise around 2% over the next few years. But our understanding of the forces of inflation is imperfect, and we recognize that something more persistent, may be responsible for the current undershooting of our long-term goal. As a result, we will continue to monitor the incoming data closely and be ready to change our point of view based on what we learn.»
  • «Although we think that inflation will be more likely to stabilise around 2% over the next few years, the chances that this could be significantly different are huge.»
  • «How should policy be formulated in the face of such large uncertainties? From my point of view, it strengthens the arguments in favor of a gradual pace of adjustments. Moving too quickly risks overadjusting policy to the head of the projected developments that may not happen. A phased approach is particularly appropriate in the light of low inflation and a low real interest rate neutral, which implies that the FOMC will have a limited scope to cut the federal funds rate should the economy be hit by a negative shock. But we should also be wary of moving too slowly. Job gains continue to run well ahead of the long-term rate we estimate would be sufficient, on average, to provide jobs for new entrants on the labour market. So, without further modest increases in the federal funds rate over time, there is a risk that the labour market might become overheated, which could create a problem of inflation down the road that could be difficult to overcome without causing a recession. The persistence of easy monetary policy could also possibly lead to an increase of the leverage effect, and other developments, with adverse consequences for financial stability. For these reasons, and given that monetary policy affects economic activity and inflation with a significant gap, it would be imprudent to pursue a monetary policy on hold until inflation is back to 2 percent.»
  • «To conclude, the standard empirical analyses support the FOMC’s outlook progressive adjustments of the monetary policy, the inflation will stabilize at around the FOMC’s 2 per cent target over the next few years, accompanied by a new appreciation of the labour market. But the outlook is uncertain.»

Full text

Luke Kawa note that the policy shift-or a variant of it — appears 10 times in his speech.

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