Special Fed Coverage: Yellen Press Conference
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This is Your Money Matters from The Wall Street Journal. Welcome to this special edition of Your Money Matters here at The Wall Street Journal. I'm J.R. Whalen in New York. In this special report, we will hear from Fed Chairwoman Janet Yellen, as well as hear some of the questions reporters had for her on Wednesday afternoon. First, here's Fed Chairwoman Janet Yellen and her overview of the Fed's decision.
Good afternoon. At our meeting that concluded earlier today, my colleagues and I on the Federal Open Market Committee decided to maintain the target range for the federal funds rate at 1 to 1.25 percent. This accommodative policy should support some further strengthening in the job market and return to 2 percent inflation, consistent with our statutory objectives. We also decided that in October we will begin the balance sheet normalization program that we outlined in June. This program will reduce our securities holdings in a gradual and predictable manner. I'll have more to say about these decisions shortly, but first I'll review recent economic developments in the outlook. As we expected, and smoothing through some variation from quarter to quarter, economic activity has been rising moderately so far this year.
Household spending has been supported by ongoing strength in the job market. Business investment has picked up, and exports have shown greater strength this year, in part reflecting improved economic conditions abroad. Overall, we expect that the economy will continue to expand at a moderate pace over the next few years. In the third quarter, however, economic growth will be held down by the severe disruptions caused by hurricanes Harvey, Irma, and Maria. As activity resumes and rebuilding gets underway, growth likely will bounce back. Based on past experience, These effects are unlikely to materially alter the course of the national economy beyond the next couple of quarters. Of course, for the families and communities that have been devastated by the storms, recovery will take time.
And on behalf of the Federal Reserve, let me express our sympathy for all those who have suffered losses. In the labor market, job gains averaged 185,000 per month over the three months ending in August, a solid rate of growth that remained well above estimates of the pace necessary to absorb new entrants to the labor force. We know from some timely indicators such as initial claims for unemployment insurance that the hurricane severely disrupted the labor market in the affected areas, and payroll employment may be substantially affected in September. However, such effects should unwind relatively quickly. Meanwhile, the unemployment rate has stayed low in recent months, and at 4.4% in August, was modestly below the median of FOMC participants' estimates of its longer-run normal level.
Participation in the labor force has changed little, both recently and over the past four years. Given the underlying downward trend in participation stemming largely from the aging of the U.S. population, a relatively steady participation rate is a further sign of improving conditions in the labor market. We expect that the job market will strengthen somewhat further. Turning to inflation, the 12-month change in the price index for personal consumption expenditures was 1.4% in July last year. down noticeably from earlier in the year. Core inflation, which excludes the volatile food and energy categories, has also moved lower. For quite some time, inflation has been running below the committee's 2% longer-run objective.
However, we believe this year's shortfall in inflation primarily reflects developments that are largely unrelated to broader economic conditions. For example, one-off reductions earlier this year in certain categories of prices, such as wireless telephone services, are currently holding down inflation, but these effects should be transitory. Such developments are not uncommon, and as long as inflation expectations remain reasonably well anchored, are not of great concern from a policy perspective because their effects fade away.
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:02–7:25
2
What did the Fed announce about keeping interest rates steady and why?
7:25–12:21
3
How will the Fed's October balance sheet normalization program work?
12:21–15:09
4
What is the Fed's assessment of recent economic growth and hurricane effects?
15:09–21:44
Speakers
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