Special Fed Coverage: Yellen Press Conference
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What is the main topic discussed in this episode?
This is Your Money Matters from The Wall Street Journal.
Welcome to this special edition of Your Money Matters, focused on the Federal Reserve and Chairwoman Janet Yellen's final news conference.
What did the Fed announce about the new interest rate range?
and then two more in both 2019 and 2020. At a news conference on Wednesday, Yellen said the Fed expects the country's economic strength to continue and the unemployment rate to fall below the current level of 4.1 percent. But she warned against the jobless rate falling too much further.
You may have noticed that we altered the statement language about the labor market outlook. This change highlights that the committee expects the labor market to remain strong. with sustained job creation, ample opportunities for workers, and rising wages. We anticipate some further strengthening in labor market conditions in the months ahead. However, we expect the pace of job gains to moderate over time as we gradually reduce the degree of monetary policy accommodation. Allowing the labor market to overheat would raise the risk that monetary policy would need to tighten abruptly at a later stage, jeopardizing the economic expansion. Even with affirming of economic growth and a stronger labor market, inflation has continued to run below the FOMC's 2% longer-run objective.
Yellen has previously said the biggest surprise about the U.S. economy is the rate of inflation remaining below the central bank's target of 2% as a guide toward raising rates. She told reporters on Wednesday the Fed still believes inflation will tick higher, but it could take some time.
Core inflation, which excludes the volatile food and energy categories, has followed a similar pattern and was 1.4% in October. We continue to believe that this year's surprising softness in inflation primarily reflects transitory developments that are largely unrelated to broader economic conditions. As a result, we still expect inflation will move up and stabilize around 2% over the next couple of years. Nonetheless, as I've noted previously, our understanding of the forces driving inflation is imperfect.
Janet Yellen then took questions from reporters, one of whom asked if the Fed governors had discussed the taxed overhaul package that the House and Senate approved on Wednesday.
I think my colleagues and I mainly see the likely tax package as boosting aggregate demand, but also having some potential to boost aggregate supply so rapidly. Changes on the corporate tax side, the reduction in the corporate tax rate, expensing will lower the cost of capital. And while there are a range of estimates and uncertainty about how much stimulus that will provide to investment, in general, I would see some stimulus to investment. In terms of aggregate supply effects, a stronger pace of investment, could boost capital formation and thereby raise productivity growth and potential GDP or output to some extent.
During Yellen's news conference, President Trump predicted that the tax overhaul could generate economic growth approaching 4%. Yellen told reporters that could be a difficult level of economic growth to achieve.
My assessment, and I think most participants' assessments, as I said, of the impact of the tax policy on growth has been informed by work by the Joint Committee on Taxation. And everyone recognizes that there's uncertainty about what the economic effects would be, and I wouldn't want to rule anything out. It is challenging, however, to achieve growth of the levels that you mentioned. Look, if the package were to stimulate growth of that magnitude, let me just say again, the Federal Reserve would welcome that. If it's a favorable supply-side development that would be compatible with the attainment of our employment and inflation objectives, that's something that would be very, very welcome, but it would be challenging to achieve numbers like that.
When we come back, more from Janet Yellen, including her thoughts on Bitcoin and whether the Federal Reserve is considering its own version of digital currency. Plus, as she prepares to leave her post as Fed chairwoman, what are her thoughts on gender diversity at the Federal Reserve?
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:02–0:33
2
What did the Fed announce about the new interest rate range?
0:33–5:19
3
How does the Fed view current labor-market strength and unemployment risks?
5:19–11:34
4
Why is inflation running below the Fed's 2% target and what are the outlook assumptions?
11:34–16:14
Speakers
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