What did the Fed Chairman Yellen say on September 26?
Inflation is the theme of Yellen’s speech and her position is mixed. She says that inflation uncertainty has led to a slow rate increase. Although, gradual increases can lead to an overheated labor market and, in turn, to undesirable inflation pressures. Yellen repeats her previous comments that the effect of low inflation this year is probably due to one-time «special» factors, such as a decline in prices for cellular telephone services earlier in the year. Yellen also reiterates that they expects inflation to return the norm. This is due to the labor market intensifying further. And with it, the demands for higher wages begin to increase. Although this seems to tighten the Fed’s position, it also warns that many uncertainties remain and that inflation could remain low. Here, she points out that low wage growth is tied to a low productivity growth. She also hints at a continuation of the low wage period. The Federal Reserve puts a special emphasis on inflation expectations. Here, it also notes that expectations have «decreased a little» in the past 2-3 years. This can make achieving a two percent FOMC inflation target more difficult. However, Yellen offers a harsh note again, saying that it would be reckless to keep monetary policy pending until inflation returns to two percent. There are two sides at the same time in her comments. The door is still open. Will the FOMC raise rates again this year?
The final note was about reducing the Fed’s balance sheet, which will begin next month. Although, the Fed should still outline how far this will go. Yellen noted this in questions and answers that the current balance of $ 4.5 trillion will be higher than its level at the time of the crisis in 2008, which is about $ 1 trillion.