Today Fed Chair Janet yellen gave a speech at the “Designing Resilient Monetary Policy Frameworks for the Future,” symposium in Jackson Hole, Wyoming.
Her speech was on The Federal Reserve’s Monetary Policy Toolkit: Past, Present, and Future.
“I believe the case for an increase in the federal funds rate has strengthened in recent months. Of course, our decisions always depend on the degree to which incoming data continues to confirm the Committee’s outlook,” said Yellen.
As usual, the word “uncertainty” was prominent in the discussion.
And, as ever, the economic outlook is uncertain, and so monetary policy is not on a preset course. Our ability to predict how the federal funds rate will evolve over time is quite limited because monetary policy will need to respond to whatever disturbances may buffet the economy. In addition, the level of short-term interest rates consistent with the dual mandate varies over time in response to shifts in underlying economic conditions that are often evident only in hindsight. For these reasons, the range of reasonably likely outcomes for the federal funds rate is quite wide–a point illustrated by figure 1 in your handout.
Fed Confidence Levels
Amusingly, that slide shows how little faith the Fed has in its own projections, and deservedly so.
By some calculations, the real neutral rate is currently close to zero, and it could remain at this low level if we were to continue to see slow productivity growth and high global saving. If so, then the average level of the nominal federal funds rate down the road might turn out to be only 2 percent, implying that asset purchases and forward guidance might have to be pushed to extremes to compensate.
Asset purchases are not at an extreme already? Would it buy every bond like Japan? Here’s an amusing paragraph:
If future policymakers responded to a severe recession by announcing their intention to keep the federal funds rate near zero for a very long time after the economy had substantially recovered and followed through on that guidance, then they might inadvertently encourage excessive risk-taking and so undermine financial stability.
Hello Janet, wake up! You are talking about the future. But we are there already there.
On the monetary policy side, future policymakers might choose to consider some additional tools that have been employed by other central banks, though adding them to our toolkit would require a very careful weighing of costs and benefits and, in some cases, could require legislation. For example, future policymakers may wish to explore the possibility of purchasing a broader range of assets. Beyond that, some observers have suggested raising the FOMC’s 2 percent inflation objective or implementing policy through alternative monetary policy frameworks, such as price-level or nominal GDP targeting. I should stress, however, that the FOMC is not actively considering these additional tools and policy frameworks, although they are important subjects for research.
Beyond monetary policy, fiscal policy has traditionally played an important role in dealing with severe economic downturns. A wide range of possible fiscal policy tools and approaches could enhance the cyclical stability of the economy.25 For example, steps could be taken to increase the effectiveness of the automatic stabilizers, and some economists have proposed that greater fiscal support could be usefully provided to state and local governments during recessions. As always, it would be important to ensure that any fiscal policy changes did not compromise long-run fiscal sustainability.
Conclusion
Although fiscal policies and structural reforms can play an important role in strengthening the U.S. economy, my primary message today is that I expect monetary policy will continue to play a vital part in promoting a stable and healthy economy. New policy tools, which helped the Federal Reserve respond to the financial crisis and Great Recession, are likely to remain useful in dealing with future downturns. Additional tools may be needed and will be the subject of research and debate. But even if average interest rates remain lower than in the past, I believe that monetary policy will, under most conditions, be able to respond effectively.
Yellen sounds clueless as ever.
Mike “Mish” Shedlock
This actually makes her look smarter. Definitely gets a point from me.
Smarter than what?
A bag full of rocks?
What do you have against rocks?
100% Bullsheeet.
On the other hand, it was a tell. Sometimes a stupid thing is a revealing thing … sometimes it’s just a stupid thing. In this case, I favor the former since she presumably uses proof readers.
She’s telling us she’s in over hear head and just keeping the chair warm. Or she’s educated far beyond her intelligence and can’t comprehend how radically stupid a statement like that sounds coming from her.
Basically, something like that is a tell. You figure out what she’s telling us.
As a ‘tell’, it could also have been a Fu*k Y*u to all of us for giving her a hard time. Seriously.
Between 0 and 4-1/2%? Are you sure you allowed enough wiggle room there, Janet?
My, what a helpful “prediction”. Clueless indeed.
Quote of the Day:
“Think of how stupid the average person is, and then realize half of them are stupider than that.” ~ George Carlin
“On the monetary policy side, future policymakers might choose to consider some additional tools that have been employed by other central banks,”
pray tell … what tools by other central banks have, uhh, worked?
Mind numbing gibberish….I hope everybody there is enjoying Jenny Lake and hiking up to the overlook, since the conference is worthless.
“I believe the case for an increase in the federal funds rate has strengthened in recent months. Of course, our decisions always depend on the degree to which incoming data continues to confirm the Committee’s outlook,” said Yellen.
…
Oh, … and shouldn’t that be reflected in tax revenue growth?
Virginia Governor McAulliffe today on budget shortfall:
“Almost all of the shortfall was due to poor performance of withholding and sales tax collections, the 2 revenue sources most closely tied to current economic conditions.
…
Virginia is not alone in this situation.
Many other states are experiencing similar budget challenges.
We have been advised that Maryland is seeing weak collections in the same 2 revenue sources: withholding receipts and sales taxes.
New York officials this week reported that their state’s tax collections declined by $1.1 billion dollars over the past 4 months compared to last year, primarily due to weak personal income tax revenues.
Moreover, the federal deficit is coming in higher this year than expected.
The Congressional Budget Office attributes this primarily to lower than expected receipts coming into the US Treasury.”
– See more at: https://governor.virginia.gov/newsroom/newsarticle?articleId=16512#sthash.NIftEV3U.dpuf
This morning’s headlines:
“Stocks march higher as Wall Street bets a rate hike isn’t in the offing”
“Wall Street gains as Yellen says rate-hike case strengthens”
Good luck using the news to figure out market direction.
First, compliments to Mish Shedlock for quality stuff. Then about stupid and Yellen. Its maybe not about stupidity but dishonesty. And that is worse because she is out to con honest hardworking people.
The worst element here is PhDs telling us that the Fed can cancel US Treasuries it is holding and thereby cancel debt forever. The corresponding item on the liability/equity side must certainly be negative equity. PhDs seem to believe that this is playing with numbers because they never learned about the “market”. The real world.
Once the “market” sees giant negative equity in CBs the confidence game will be over. Kaput!
I am surprised that so few have pushed back at this crazy idea about cancelling debt.
Greetings from Norwegistan, a socialist paradise or as we say Venezuela and Greece without the good climate.
You are absolutely correct, Lars – but crazy proposals (like cancellation of CB Treasury debt) are “the new normal” now that we are in the “terminal/dysfunctional phase” of a global fiat debt-money system.
And I am certain that it will get more and more insane, as we approach the inevitable end game and denouement.
Alice laughed. “There’s no use trying,” she said: “one can’t believe impossible things.”
“I daresay you haven’t had much practice,” said the Queen. “When I was your age, I always did it for half-an-hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.”
“If you don’t know where you’re going, any road will take you there.” – from George Harrison’s song “Any Road”
“This is Kent Brockman vowing to debunk this so-called miracle. The idiotic things people believe in. Up next, stay tuned for your winning lottery numbers! It’s your turn for sure!” – Kent Brockman
“That’s unpossible!” – Ralph Wiggum
Foggy Forecasts: Meteorologists Chat About How Tough It Is To Predict A Hurricane http://fivethirtyeight.com/features/foggy-forecasts-meteorologists-chat-about-how-tough-it-is-to-predict-a-hurricane/
If I told my old man my grade point average would be between 0 and 4.5, he’d have sent me to boarding school.
“Nothing to see here, move along.”
Today’s sell-off in bonds was expected based on Elliott wave analysis.
Since the middle of July 2016, a symmetrical triangle had formed in US 10yr bond yield. This means the trend leading into the triangle is going to resume sharply. Today’s pop in yield meets that historical observation. The other predictive property of triangles is the move after the triangle completes is the last of the larger degree of trend; in this case, from the early July 2016 lows. Once this pop in yields completes, yields should then retest the July 2016 lows, not continue to rise in anticipation of inflation or a FED rate hike.
It’s still the early stages of a complete loss of confidence in the FED, but more mainstream media will begin to question the FED’s ability to control rates and the economy as both refuse to do what the FED predicts. The data will become irrefutable.
a high school senior could come up with a better “prediction”.