Saturday, March 19, 2016

Does the Fed Have A Communications Problem? No, She Responded, Incoherently

In fairness it wasn't so much incoherent as it was Greenspanian.
From the transcript of Fed Chair Janet Yellen's March 16, 2016 press conference:
...Thank you, and I’ll be happy to take your questions.

Steve Liesman, CNBC. Madam Chair, as you know, inflation has gone up the last two months. We had another strong jobs report, the tracking forecast for GDP have returned to 2 percent, and yet the Fed stands pat while it's in a process of what it said it launch ed in December was a process of normalization. So I have two questions about this. Does the Fed have a credibility problem , in the sense that it says it will do one thing under certain conditions but doesn't end up doing it? And then frankly, if the current conditions are not sufficient for the F ed to raise rates, well, what would those conditions ever look like?

Well, let me start with the question of the Fed's credibility. And you used the word promises in connection with that. And as I tried to emphasize in my opening statement, the paths that the participants project for the federal funds rate and how it will evolve are not a pre-set plan or commitment or promise of the Committee. Indeed, they are not even -- the median should not be interpreted as a Committee -endorsed forecast. And there's a lot of uncertainty around each participant's projection. And they will evolve, those assessments of appropriate policy are completely contingent on each participant's forecast of the economy and how economic events will unfold. And they are, of course, uncertain, and you should fully expect that forecast for the appropriate path of policy on the part of all participants will evolve over time as shocks, positive or negative, hit the economy that alter those forecasts. So, you have seen a shift this time in most participants' assessments of the appropriate path for policy. And as I tried to indicate, I think that largely reflects a somewhat s lower projected path for global growth, for growth in the global economy outside the United States , and for some tightening in credit conditions in the form of an increase in spreads. And those changes in financial conditions and in the path of the global economy have induced changes in the assessment of individual participants in what path is appropriate to achieve our objectives. So, that's what you see. That's what you see.... 
Glad we cleared that up.