Yellen: We’re Being Careful About Not ‘Overheating,’ Then Having to Tighten Quickly
RUSH TRANSCRIPT:
REPORTER: “Could you talk more specifically about what warned development to discuss the meeting today. We all discussed it the China individualized. Are you concerned about the shiny economy -- the Chinese economy slowing. Any concerns about the European economy. Related to stock markets, could I ask you about how you feel about U.S. Equity markets right now, because you talked about your concern back in may. They were generally quite high and worried about potential dangers. Now equity prices have old back. Thank you.”
YELLEN: “We have room -- review developments all of the world but focus on China and emerging-market. We have long expected to see some slowing in Chinese growth over time as they rebalance their economy. They have planned that, and I think there are no surprises there. The question is whether or not there may be a risk of the more abrupt slowdown than most analysts expect. I think most development that we saw and financial markets and are -- in August in part reflect concerns that Chinese, there is a downside risk to Chinese economic performance and deafness with which policymakers were addressing the concerns. In addition, we saw substantial downward pressure on oil prices and commodity markets. Those developments have had a significant impact on many economies that are important producers of commodities, as well as more advanced countries, including Canada, and of Orton trading partner of ours that has been negatively affected by declining commodity prices. There are a lot of countries that are net importers of energy that are positively affected by developments. Emerging markets have been negatively affected by those developments. We have seen significant outflows of capital from those countries, pressure on the exchange rate, and concern about the performance going forward. A lot of the focus has been on risk around China, but not just China. In terms of thinking about financial developments and our reaction to them, I think a lot of the financial development -- we don't want to respond to market turbulence. It is certainly not our policy to do so. When there are significant unusual developments, it is incumbent to ask themselves. It seems concerns about the global economic outlook were drivers of the financial developments. They have concerned us in part because they take us to the global outlook and how that will affect us. To some extent, we have tightening or financial conditions during the intro meeting time. The stock market adjustment combined with a somewhat stronger dollar represents some tightening of financial conditions. It is not the end of the story in terms of the policy, because we have to put a lot of different pieces together. The U.S. Economies have been performing well. Impressing us by the pace at which they create jobs and the strength of domestic demand. So we have that. We have concerns about negative impacts. Negative impact from global developments and tightening of financial conditions. Trying to put all of that together in a picture. Importantly that in spite of all of this we continue to view the risk to economic activity and labor markets as balanced. A lot of different pieces. Some strengthening the outlook. Overall, no significant change in the economic outlook.”
REPORTER: “The U.S. Economy seems to be growing. Are you worried given the low inflation locally and all of the other concerns that you just spoke about that you may never escape from this very low bound situation?”
YELLEN: “I would be very surprised if that was the case. That is not the way I see the outlook. Can I completely rule it out yet so I cannot completely rule it out. That is an extreme downside risk that is in no way near the center of my outlook.”
REPORTER: “Michael Mckee from Bloomberg radio and television. If the economy suggests, you will see improvement in labor markets, but it will not push inflation of faster. I am wondering what the argument is for raising rates this year and suggesting by the. Clock has even allowing for long and variable lags, you are not forecasting and inflation rate path for at least a couple of years.”
YELLEN: “If we maintain a highly accommodative monetary policy for a very long time from here, and the economy performs as we expect, namely strong and the risks that are out there don't materialize, the concern will be they will have much more tightening in the labor markets than you see in that projection. The lags will be probably slow, but eventually we will find ourselves with financial institute, and then we will be forced into a stop go policy. We will have pushed the economy so far it will have become overheated. We will then have to tighten policy more abruptly than we like. Instead of having low, steady growth, improvement in the labor market and continued improvement and good performance in the labor market. I don't think it is good policy to then hatches them and risk the downturn on the economy."
