From Adding Accommodation to Scaling It Back.

Chair Janet L. Yellen

At The Executives’ Club of Chicago, Chicago, Illinois

March 3, 2017, source


En résumé, une augmentation du taux de la FED : FDD, de 0.75 % est enviségée dans le cours de cette année 2017, si  …. les prévisions de la FED se révèlent conformes à ses  attentes.

Avis : Il est possible qu’on ait une augmentation des taux de 0.25 point, mercredi dans 15 jours.


Today I will review the conduct of monetary policy during the nearly 10 years since the onset of the financial crisis

2014, a year that I see as a turning point, when the FOMC began to transition from providing increasing amounts of accommodation to gradually scaling it back.

The process of scaling back accommodation has so far proceeded at a slower pace than most FOMC participants anticipated in 2014. Both unexpected economic developments and deeper reevaluations of structural trends affecting the U.S. and global economies prompted us to reassess our views on the outlook and associated risks

the process of scaling back accommodation likely will not be as slow as it was in 2015 and 2016.

the neutral « real » federal funds rate, defined as the level of the federal funds rate that, when adjusted for inflation, is neither expansionary nor contractionary when the economy is operating near its potential.

most FOMC participants assessed the longer-run value of the neutral real federal funds rate to be in the vicinity of 1 percent.3 This level is quite low by historical standards, reflecting, in part, slow productivity growth and an aging population not only in the United States, but also in many advanced economies.

With the actual value of the real federal funds rate currently near minus 1 percent, a near-zero estimate of the neutral real rate means that the stance of monetary policy remains moderately accommodative, an assessment that is consistent with the fact that employment has been growing at a pace–around 180,000 net new jobs per month–that is notably above the level estimated to be consistent with the longer-run trend in labor force growth–between 75,000 and 125,000 per month.5 As I will explain, this policy stance seems appropriate given that the underlying trend in inflation appears to be still running somewhat below 2 percent. But as that gap closes, with labor market conditions now in the vicinity of our maximum employment objective, the Committee considers it appropriate to move toward a neutral policy stance.

My colleagues and I generally anticipate that the neutral real federal funds rate will rise to its longer-run level over the next few years. This expectation partly underlies our view that gradual increases in the federal funds rate will likely be appropriate in the months and years ahead: Those increases would keep the economy from significantly overheating, thereby sustaining the expansion and maintaining price stability.

We have followed this basic strategy for decades and, in 2012, the FOMC formalized it in our « Statement on Longer-Run Goals and Monetary Policy Strategy. »6 The Committee has reaffirmed this commitment annually. But the challenges brought about by the financial crisis, and the very deep recession and painfully slow recovery that followed, compelled us to adjust our tactics for carrying out our policy strategy. In particular, once the Committee had cut the federal funds rate to near zero in late 2008, it became necessary to deploy new tools to supply the considerable monetary accommodation required by the extremely weak state of the job market and persistently low inflation.7 Those tools–especially our large-scale securities purchases and increasingly explicit forward guidance pertaining to the likely future path of the federal funds rate–enabled the Federal Reserve to provide necessary additional support to the U.S. economy by pushing down longer-term interest rates and easing financial conditions more generally.

2014: A Turning Point for Monetary Policy
By late 2013
Payroll gains were solid; job openings had risen significantly; and the number of workers voluntarily quitting their jobs–a sign of confidence in the labor market--was rising back toward pre-crisis levels. We were also seeing progress on achieving our price stability goal: Total inflation as measured by changes in the headline personal consumption expenditures (PCE) price index reached about 1-3/4 percent by mid-2014 after hovering around 1 percent in the fall of 2013. Inflation seemed to be moving toward the FOMC’s 2 percent objective,

The progress seen during 2014 indicated to the FOMC that it was no longer necessary to provide increasing amounts of support to the U.S. economy by continuing to add to the Federal Reserve’s holdings of longer-term securities. Accordingly, the Committee continued to reduce the pace of asset purchases over the course of the year, ending its purchases in October.

U.S. gross domestic product (GDP) growth generally surprised to the downside in 2015, reflecting, in part, weak economic activity abroad, the earlier appreciation of the dollar, and the effect of falling oil prices on business fixed investment.

Reassessing Longer-Run Conditions
The slower-than-anticipated increase in our federal funds rate target in 2015 and 2016 reflected more than just the inflation, job market, and foreign developments I mentioned. During that period, the FOMC and most private forecasters generally lowered their assessments of the longer-run neutral level of the real federal funds
and suggested that fewer federal funds rate increases would be necessary than previously thought to scale back accommodation

Moreover, after remaining disappointingly low through mid-2016, inflation moved up during the second half of 2016, mainly because of the diminishing effects of the earlier declines in energy prices and import prices. More recently, higher energy prices appear to have temporarily boosted inflation, with the total PCE price index rising nearly 2 percent in the 12 months ending in January. Core PCE inflation–which excludes volatile energy and food prices and, therefore, tends to be a better indicator of future inflation–has been running near 1-3/4 percent. Market-based measures of inflation compensation have moved up, on net, in recent months, although they remain low.

With the job market strengthening and inflation rising toward our target, the median assessment of FOMC participants as of last December was that a cumulative 3/4 percentage point increase in the target range for the federal funds rate would likely be appropriate over the course of this year.

we projected additional gradual rate hikes in 2018 and 2019

 we currently judge that it will be appropriate to gradually increase the federal funds rate if the economic data continue to come in about as we expect.
For instance, as we noted in our latest Monetary Policy Report to the Congress, the ongoing expansion has been the slowest since World War II, with real GDP growth averaging only about 2 percent per year.12 This subdued pace reflects, in part, slower growth in the labor force in recent years–compared with much of the post-World War II period–and disappointing productivity growth both in the United States and abroad.

 In addition, the economic circumstances of blacks and Hispanics, while improved since the depths of the recession, remain worse, on average, that those of whites or Asians.

These unwelcome developments unfortunately reflect structural challenges that lie substantially beyond the reach of monetary policy. Monetary policy cannot, for instance, generate technological breakthroughs or affect demographic factors that would boost real GDP growth over the longer run or address the root causes of income inequality. And monetary policy cannot improve the productivity of American workers. Fiscal and regulatory policies–which are of course the responsibility of the Administration and the Congress–are best suited to address such adverse structural trends.
conclusion :

This same approach will continue to drive our policy decisions in the months and years ahead. With that in mind, our policy aims to support continued growth of the American economy in pursuit of our congressionally mandated objectives. We do that, as I have noted, with an eye always on the risks. To that end, we realize that waiting too long to scale back some of our support could potentially require us to raise rates rapidly sometime down the road, which in turn could risk disrupting financial markets and pushing the economy into recession. Having said that, I currently see no evidence that the Federal Reserve has fallen behind the curve, and I therefore continue to have confidence in our judgment that a gradual removal of accommodation is likely to be appropriate. However, as I have noted, unless unanticipated developments adversely affect the economic outlook, the process of scaling back accommodation likely will not be as slow as it was during the past couple of years.



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