Janet Yellen
speaker
179 appearances
2 recordings
1 series
first heard Sep 2017
last heard Dec 2017
Janet Yellen’s voice in public audio — every appearance, attributed to the second.
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As I noted, the committee announced today that it will begin its balance sheet normalization program in October.
This program, which was described in the June addendum to our policy normalization principles and plans, will gradually decrease our reinvestments of proceeds from maturing Treasury securities and principal payments from agency securities.
As a result, our balance sheet will decline gradually and predictably.
For October through December,
the decline in our securities holdings will be capped at $6 billion per month for treasuries and $4 billion per month for agencies.
These caps will gradually rise over the course of the following year to maximums of $30 billion per month for treasuries and $20 billion per month for agency securities and will remain in place through the process of normalizing the size of our balance sheet.
By limiting the volume of securities that private investors will have to absorb as we reduce our holdings, the cap should guard against outsized moves in interest rates and other potential market strains.
Finally, as we have noted previously, changing the target range for the federal funds rate is our primary means of adjusting the stance of monetary policy.
Our balance sheet is not intended to be an active tool for monetary policy in normal times.
We therefore do not plan on making adjustments to our balance sheet normalization program.
But of course, as we stated in June, the committee would be prepared to resume reinvestments if a material deterioration in the economic outlook were to warrant a sizable reduction
in the federal funds rate.
So we have two policy tools that are available to us to use, the balance sheet and adjustments in short-term interest rates, our federal funds rate target.
And historically, the committee has operated to adjust monetary conditions to meet our economic goals when there are shocks to the economy by adjusting the federal funds rate, our short-term interest rate target.
And that's something, a technique of monetary control that we've used for a very long time, that we're familiar with.
We believe we understand pretty well what the effects are on the economy.
Market participants understand how that tool has been used and would likely be adjusted in response to shocks to the economy.
And our preference is when we have two different tools that we could use to actively adjust the stance of policy to prefer and to make a commitment that to the maximum extent possible, the federal funds rate will be the active tool of policy.
That's our go-to tool.
That is what we intend to use unless we think that the threat to the economy is sufficiently great
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