Federal Reserve Chair Janet Yellen is speaking after the Fed released its latest monetary policy statement.
As Yellen speaks, the dollar is sliding, as it did immediately after the release of the Fed’s statement.
Yellen said that the labour market continues to make “gradual progress” towards the Fed’s objectives, but it still hasn’t recovered.
Yellen said that third quarter GDP appears to be expanding at a moderate pace.
Yellen said inflation has “firmed some” since earlier in the year, and said the FOMC sees a decreased likelihood that inflation will continue to run below 2%, the Fed’s stated inflation goal.
Yellen said the central tendency of unemployment rate projections in the Fed’s latest Summary of Economic Projections is slightly lower than it was in June. Real GDP projections run “somewhat above” the estimates for normal longer-run growth.
Yellen reiterated that the Fed expects to end its QE program at its next meeting, and will continue its policy of reinvesting proceeds from maturing securities.
Keeping “considerable time” in the Fed’s statement is based on the FOMC’s assessment of the labour market, inflation, and readings on financial developments. Yellen said the FOMC sees economic conditions, for some time, warranting keeping short-term interest rates below what the FOMC views as normal over the long run.
Yellen said the FOMC now expects to establish a target range, rather than a single point, when it begins raising interest rates, and added that the dots are the midpoint of the expected target range.
Yellen emphasised that the FOMC’s view of the path of future interest rates are contingent on the economic outlook. If the economy improves quicker than expected, a faster than expected increase in rates would follow; if the economy improves at a pace slower than the Fed expects, then rates would increase slower than the FOMC may currently expect.
In discussing some of the Fed’s plans for exiting QE and raising rates, it says that it will use the overnight reverse repo facility only as needed, eventually phasing it out.
Yellen said that the Fed also intends to reduce its holdings gradually as it sees appropriate.
Yellen said the Fed doesn’t see the Fed selling agency mortgage-backed securities as part of the process of normalizing its balance sheet. Yellen said the FOMC does not intend, over the long run, to hold any more securities than necessary to effectively executive its policy goals, and any remaining holdings will likely be Treasury securities.
Yellen’s press conference follows the latest monetary policy decision from the Fed, which saw the Fed keep interest rates unchanged and take another $US10 billion off its quantitative easing program.
The Fed also released its latest Summary of Economic Projections, which included the Fed’s latest dot plot. The latest plot was a little more hawkish than in June, as the average for the end of next year increased to 1.27% from 1.2%.
The Fed also kept the phrase “considerable time” when describing how long it expects to keep interest rates near zero after the conclusion of its QE program.
Additionally, the Fed released details on how it plans to exit its QE program.
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