Yellen explains liftoff – live blog

Fed Chair Yellen explained  the historic rate hike  which triggered a stronger dollar initially but a weakening afterwards.

Here is the  live blog we had

• Confidence in the economy
• Recovery has come a long way.  Room for improvement remains.  Inflation still low.  Economy performing well
• Modest increase is now appropriate
• Labor market has certainly  improved: 218K in the last 3 months
• The unemployment rate is close to the longer term goal
• Wage growth has yet to sustain a sustained pickup
• US GDP probably increased 2.25% in Q1-Q3.
• Solid expansion of domestic spending beats exports.
• Autos particularly strong.
• Low level of home building but rising prices
• Economic activity is expected to continue expanding at a moderate pace.
• Less  external risks than we had in the past.
• We have more confidence that inflation will return to normal.
• Most of the shortfall reflects the fall in energy prices and this should dissipate.
• Strong dollar held down imported inflation but this should move away.
• Inflation should return to normal in the medium term
• While some surveys have edged down, they have been stables.
• Carefully monitor progress towards the inflation goal
• About the dot plot: each participant’s projections depend on changes in the interest rates.
• GDP stronger in 2016 and  should then slide back down to normal levels.
• The unemployment rate should decline a bit further before leveling out.  Some participants have edged down their estimates.
• Inflation expected to be very low this year due to transitory factors. Growing economy should support stronger inflation towards the target.
• Why a rate hike on low inflation? Transitory factors from oil and eventually employment will trigger inflation.
• In addition, the Fed needs to be ahead of the curve: better act now than act abruptly. Such an abrupt tightening could trigger a recession.
• Rates will rise gradually and is meant to maintain growth.
• US  economic growth has been only moderate despite low rates and QE.
• The marked decline to a lower neutral rate may be attributed to the conditions after the crisis: tighter rules, tight fiscal policy, slower productivity growth and deleveraging.
• But things have been improving…
• As these effects abate, the FFR should move higher over time, and this view is  reflected.
• The median FFR shows nearly 1.5% in 2016 and 2.5% in 2017. Later to 3.5%
• The path of the next moves is data dependent.
• Regarding the balance sheet: we will keep it high as long as needed to support the economy and balance potential shocks.
• Yellen goes on to explain some technical details about controlling the FFR, discount rate, explains testing, etc.
• Questions begin
• Did you fear to lose your  credibility without a hike? No, says Yellen, conditions have been satisfied.
• Important not to overblow the move: it’s only 25 basis points. We remain loose.
• Neutral is not a goal, says Yellen. Policy is still accommodative. We forecast another decline in the unemployment rate.
• There are still margins of slack in the economy: part time employment as an example. We want to see inflation rising.
• With 0% interest rates we have less room for shock absorbers. So, raising rates in order to cut them if needed?
• We would like to avoid a situation where we would need to raise rates abruptly and not kill the long recovery.
• We are all committed to reach our inflation goal. We are equally committed to have inflation that is too low.
• We have reasonable confidence to see inflation rising over time. We will monitor it over time.
• No need to see inflation reach 2% before moving again.
• No simple formula for acting.
• We have been surprised by falling oil prices. No need to see oil prices rise in order to see inflation rise.
• Tolerating overshoots? Also in the past, we had oil prices pushing inflation higher and looked through them.
• In the meantime, the US dollar is still looking for a direction
• No simple answer and no simple formula.
• A number of different channels to transmit monetary policy.
• Short term volatility in financial markets doesn’t guide us.
• Pressures on the economy in manufacturing but the underlying strength of the economy is solid.
• Expansions don’t die of old age.
• The economy does get hit by various shocks and at any year we can get a shock that could put the economy into a recession.
• During the bad years, we’ve studied our policy.
• One factor is desiring to have this shock absorber.
• What about junk bonds? Third Avenue is a special case.
• Fed’s decision reflects confidence and the USD becomes more confident as well.
• The USD regains strength in the meantime
• Yellen explains how they see through transitory shocks to inflation.
• Our objective is the PCE inflation: 2%
• Consumers are doing better: more auto buys, recovery in housing, more residential investment. There is upside risk.
• The decline in drilling has lowered  investment, but it’s not always the case.
• Around the globe, some emerging markets are actually growing. So, there are also upside risks.
• Not equally spaced hikes.
• How are you adapting your models? Yellen explains that the decline in the dollar weighs also on core inflation and that this will move away as well.
• There are some idiosyncratic factors for some sectors, but in general, inflation is moving like in the past.
• We are monitoring global developments.
• The greenback is looking good.
• We may be seeing some signs in wage growth in some measures but I hesitate to say if this is a trend. Wage growth is not definitive but is useful to look at inflation. It does affect views.
• Press conference ends

More:

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• EUR/USD only a bit lower after the Fed – sell opportunity?

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