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Yellen: Fed action marks an end of an extraordinary period

Opening remarks from Yellen

  • Move recognises considerable progress in the economy
  • Room remains for further labour market improvement
  • FOMC judged modest increase in rates was appropriate
  • Further process of normalisation is likely to be gradual
  • Labour market has clearly shown signs of further improvement
  • 5.0% unemployment close to median longer running level
  • Underemployment has also improved solidly
  • Some cyclical weakness remains in labour market
  • Wages have yet to show sustained pick up
  • Net exports have been restrained by dollar an foreign growth
  • New home building still remains low
  • Business investment has shown solid gains
  • With gradual rate adjustments, moderate growth is seen
  • Overseas risks have lessened since last summer
  • Anticipation of growth underpins inflation
  • Much of the shortfall from inflation target is tied to energy
  • Strength of dollar has also weighed on CPI
  • As these transitory factors fade, inflation should rise to 2.0%
  • Confidence in inflation relies on anchored expectations
  • LT inflation expectations are stable overall
  • Diminishing slack in labour should help boost CPI
  • Delaying lift off too long would risk an abrupt tightening
  • Importance of initial hike should not be overstated
  • Fed recognises that it takes time for policy action to have an impact
  • Neutral FFR low by historical standards
  • Growth moderate in recent years despite low rate
  • Fall in neutral rate may be partly due to headwinds
  • Headwinds include household deleveraging, fiscal contraction and uncertainty
  • As headwinds abate neutral rate should move higher
  • Stronger growth or faster inflation would make steeper hikes appropriate
  • Disappointing growth would mean they would rise more slowly

These last two comments are fairly as it means a downturn won't necessarily mean cutting. The buck is reading dovish on the path of hikes view

n all purple Yeller

A would make steeper hikes appropriate

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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