What to Expect When Janet Yellen Meets the Press

Her first move as head of the Fed’s policy-setting committee is probably going to be overseeing a change in how the Fed talks about its plans to raise interest rates.

Federal Reserve Board Chairman Janet Yellen testifies during a Senate Banking, Housing and Urban Affairs Committee hearing on Capitol Hill, February 27, 2014 in Washington, DC.
National Journal
Catherine Hollander
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Catherine Hollander
March 18, 2014, 3:37 p.m.

On Wed­nes­day, Janet Yel­len will be­come the second Fed­er­al Re­serve chair in his­tory to take ques­tions from the press.

She’s not ex­actly an un­fa­mil­i­ar face; Yel­len has been in the spot­light for months now. She was nom­in­ated to re­place Ben Bernanke as the Fed­er­al Re­serve chair in Oc­to­ber, ap­peared be­fore Con­gress in Novem­ber, and took the reins of the cent­ral bank on Feb. 1. Her life has been thor­oughly picked over and pub­li­cized; The New York Times even dug up a copy of an in­ter­view she con­duc­ted with her­self when she was a seni­or in high school in 1963 and gradu­at­ing as both head of the school pa­per and class va­le­dictori­an. (” ‘Just a minute,’ said Janet ab­ruptly, ‘I’m think­ing.””)

But this week marks the first time since her nom­in­a­tion that Yel­len will have to an­swer ques­tions, in real time and on live tele­vi­sion broad­cast up and down Wall Street, from a group of re­port­ers. She has giv­en one in­ter­view since be­com­ing Pres­id­ent Obama’s pick to run the Fed, with Time magazine in Janu­ary. If the 12 past press con­fer­ences hos­ted by Bernanke are any in­dic­a­tion, she’ll be asked ap­prox­im­ately 40 ques­tions in an hour-long press con­fer­ence sched­uled for Wed­nes­day af­ter­noon.

The biggest news of the day might come be­fore Yel­len even de­liv­ers her open­ing state­ment. Shortly be­fore the press con­fer­ence be­gins, the Fed will re­lease its policy state­ment. Eco­nom­ists widely ex­pect the cent­ral bank to cut its $65 bil­lion-a-month as­set-pur­chase pro­gram, in­ten­ded to bring down long-term in­terest rates, by an ad­di­tion­al $10 bil­lion as part of a gradu­al pro­cess to un­wind the stim­u­lus bond-buy­ing pro­gram.

More sig­ni­fic­antly, the cent­ral bank could also ad­just its “for­ward guid­ance,” which is the way it com­mu­nic­ates its plans for rais­ing in­terest rates. The Fed has one key in­terest rate, the fed­er­al funds rate, whose move­ment up and down ripples through in­terest rates across the eco­nomy. The goal of “for­ward guid­ance” is to bring down long-term in­terest rates by pledging to keep this short-term rate low for a long time. The Fed said in its Janu­ary policy state­ment that it would likely keep this rate near zero, where it has been since Decem­ber 2008, “well past the time that the un­em­ploy­ment rate de­clines be­low 6-1/2 per­cent, es­pe­cially if pro­jec­ted in­fla­tion con­tin­ues to run be­low the Com­mit­tee’s 2 per­cent longer-run goal.”

The un­em­ploy­ment rate is now 6.7 per­cent, and Fed of­fi­cials have been de­scrib­ing the 6.5 per­cent tar­get as passe. The Fed might drop its threshold to 6 per­cent to make it clear it thinks the cur­rent eco­nom­ic con­di­tions don’t mer­it high­er in­terest rates. Deutsche Bank eco­nom­ists think the Fed is likely to aban­don nu­mer­ic­al tar­gets in fa­vor of a fo­cus on a “broad­er ar­ray” of labor mar­ket in­dic­at­ors, such as payroll growth, and how many people are quit­ting their jobs, on Wed­nes­day. “When two FOMC mem­bers who have his­tor­ic­ally been on op­pos­ite ends of the mon­et­ary spec­trum are in agree­ment just days ahead of the FOMC meet­ing, it is ex­tremely note­worthy,” the Deutsche Bank eco­nom­ists wrote in a cli­ent note last week, point­ing to re­cent re­marks from Phil­adelphia Fed Pres­id­ent Charles Plosser, a mon­et­ary-policy hawk, and New York Fed Pres­id­ent Wil­li­am Dud­ley, a dove, in­dic­at­ing that the Fed’s cur­rent guid­ance was no longer a use­ful sig­nal to mar­kets and oth­ers.

Gold­man Sachs eco­nom­ists see the Fed chan­ging its guid­ance in one of two ways: Poli­cy­makers could keep the 6.5 per­cent threshold but make clear­er — in qual­it­at­ive terms — how the Fed will pro­ceed after it has been crossed, or they can switch en­tirely to qual­it­at­ive guid­ance, say­ing something like, “The Com­mit­tee in­tends to main­tain the cur­rent ex­cep­tion­ally low tar­get range for the fed­er­al funds rate of 0 to 1/4 per­cent as long as em­ploy­ment or in­fla­tion re­main well be­low their longer-run goals.” (The lat­ter ex­ample was giv­en in a Gold­man cli­ent note.)

The press con­fer­ence will provide a for­um for Yel­len to ex­plain the Fed’s de­cision on for­ward guid­ance, even if poli­cy­makers stick with the cur­rent lan­guage. Here are a couple of ad­di­tion­al places where Yel­len could be asked to fill in the blanks:

Old Man Winter. This winter has been bru­tal, as storm after storm has brought snow and sub­zero tem­per­at­ures to broad swaths of the coun­try. The tough con­di­tions have kept people from work, and are seen con­trib­ut­ing to a much weak­er-than-ex­pec­ted eco­nom­ic start to 2014. Last month, Yel­len told mem­bers of the Sen­ate Bank­ing Com­mit­tee, “I think it’s clear that … un­season­ably cold weath­er has played some role in much of [the re­cent soft data]. There are many ways in which weath­er would have af­fected these series. What we need to do and will be do­ing in the weeks ahead is to try to get a firmer handle on ex­actly how much of that set of soft data can be ex­plained by weath­er and what por­tion, if any, is due to a softer out­look.” The Fed’s latest eco­nom­ic pro­jec­tions, which will also be re­leased be­fore the news con­fer­ence, will provide a big-pic­ture over­view of how the cent­ral bank is read­ing the latest eco­nom­ic re­ports. Yel­len may be asked to get in­to the weeds about how the Fed has in­ter­preted the past few months of data, and wheth­er it’s ex­pect­ing it to bounce back once warm weath­er sweeps in this spring.

Is “too big to fail” alive and well? The policy state­ment re­leased after the Fed­er­al Open Mar­ket Com­mit­tee meets cov­ers only mon­et­ary policy and the eco­nom­ic out­look; it doesn’t tackle the Fed’s oth­er ma­jor role as a bank reg­u­lat­or. So ex­pect some ques­tions about the con­tinu­ing im­ple­ment­a­tion of the 2010 Dodd-Frank fin­an­cial re­form law (whose rules, ac­cord­ing to law firm Dav­is Polk & Ward­well, are just over halfway fi­nal­ized). A par­tic­u­larly key is­sue is that of “too big to fail,” the no­tion that some banks are so sys­tem­ic­ally im­port­ant that the gov­ern­ment would be as­sured to step in and help them out, rather than let them go un­der, if they got in trouble, as it did dur­ing the fin­an­cial crisis. “Ad­dress­ing ‘too big to fail’ has to be among the most im­port­ant goals of the post-crisis peri­od,” Yel­len said at her Sen­ate Bank­ing Com­mit­tee nom­in­a­tion hear­ing in Novem­ber. ” ‘Too big to fail’ is dam­aging. It cre­ates mor­al haz­ard. It cor­rodes mar­ket dis­cip­line. It cre­ates a threat to fin­an­cial sta­bil­ity and it does un­fairly, in my view, ad­vant­age large bank­ing firms over small ones.”

In Feb­ru­ary, though, she told the same com­mit­tee, “I’m not pos­it­ive that we can de­clare with con­fid­ence that ‘too big to fail’ has ended un­til it’s tested in some way.” She may be asked to elab­or­ate again on how she’s as­sess­ing the Fed’s ef­forts to ad­dress that is­sue, as well as the oth­er Dodd-Frank rules that still need to be fi­nal­ized.

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