YELLEN ON WHEN FED WILL TRIM BALANCE SHEET

“We want to feel that if the economy were to suffer an adverse shock that we have some scope through traditional means of interest rate cuts to be able to respond to that.

“There’s no mechanical rule about what level of the federal funds rate we might deem appropriate to begin that process. It’s not something that only depend on the level of the federal funds rate. It also depends on our judgment of the amount of momentum in the economy and possible concerns about downside risks to the economy.

“So we have not yet made this decision but it is something that we had long planned to begin to allow our balance sheet to run off and that it would take several years and we would end up if all goes well with a substantially smaller balance sheet than we have at present.”

YELLEN ON DODD-FRANK

“I would say it’s very important not to roll back. There may be some changes that could be made and we’ve suggested a few, like eliminating the burden of compliance with the Volcker rule or incentive compensation regulations for smaller banks or modestly raising the threshold for banks that are subject to enhanced credential supervision. But I would urge that it’s important to keep this in place.”

YELLEN ON FOMC DISCUSSION OF TRUMP FISCAL PLAN, MARKET REACTION TO ELECTION

“We did discuss these topics in our meeting today. I would simply summarize by saying that all the FOMC participants recognize that there is considerable uncertainty about how economic policies may change, and what effect they may have on the economy.”

YELLEN ON PLANNING TO SERVE OUT FOUR-YEAR TERM AS FED CHAIR

“I do intend to serve out my four-year term. I haven’t made any decision about the future. I recognize I might or might not be reappointed. It’s a decision I don’t have to make and don’t have thoughts on at this time. As you said I recognize too that I could stay on as a board member, and that’s a decision for another day.”

YELLEN ON NEVER HAVING SAID SHE FAVORED A HIGH-PRESSURE ECONOMY

“I never said that I favor running a high-pressure economy. As you can see in the SEP projections of the participants, and this has long been true not just in this forecast but in earlier ones as well, you see a modest undershoot, the unemployment rate is projected to modestly undershoot for several years levels that are deemed to be normal in the longer run. That’s an appropriate policy purely on the grounds that inflation is running below our objective and while we don’t want to overshoot our 2 percent objective we also don’t want a persistent undershoot of our objective…. But I do want to make clear that I have not recommended running a hot economy as some sort of experiment.”

YELLEN ON FED INDEPENDENCE

“Well I’m not going to offer the incoming President advice about how to conduct himself in policy. I’m a strong believer in the independence of the Fed. We have been given the independence by Congress to make decisions about monetary policy in pursuit of our dual mandate objectives of maximum employment and inflation, and that is what I intend to stay focused on. That is what the committee is focused on.”

YELLEN ON FED NOT BEHIND THE CURVE

“We are not seeing evidence in labor markets of very substantial upward pressures on labor that could signify extreme shortages of labor that could propel inflation higher in a very rapid way, and inflation is still operating below our objective. So I do not judge that we are behind the curve. My judgment is that we are in a good path to reaching our objectives. But of course, the outlook is uncertain.”

YELLEN ON FISCAL POLICY NOT NEEDED TO STIMULATE LABOR MARKET

“There may be some additional slack in labor markets, but I would judge that the degree of slack has diminished. So I would say at this point that fiscal policy is not obviously needed to provide stimulus to help us get back to full employment.

“But nevertheless let me be careful that I am not trying to provide advice to the new administration or to Congress as to what is the appropriate stance for policy. There are many considerations that Congress needs to take account of and many bases for justifying changing fiscal policy.”

YELLEN ON CURRENT “MODERATE” LEVEL OF ACCOMMODATION

“The degree of accommodation I would characterize as moderate… We currently judge the neutral level of the federal funds rate to be pretty low. So there is some accommodation. Remember that inflation is still below our objective.”

YELLEN ON RATE HIKE AS A VOTE OF CONFIDENCE IN ECONOMY

“Our decision to raise rates should certainly be understood as a reflection of the confidence we have in the progress the economy has made and our judgment that that progress will continue… It is a vote of confidence in the economy.”

YELLEN ON ‘MODEST’ ADJUSTMENT TO PROJECTED RATE HIKE PATH

This is a very modest adjustment in the path of the fed funds rate, and involves changes by only some of the participants. Some of the participants, but not all of the participants, did incorporate some change in fiscal policy into their projections, and that may have been a factor.

YELLEN ON FISCAL POLICY

“Changes in fiscal policy or other economic policies could potentially affect the economic outlook. Of course it is far too early to know how these policies will unfold. Moreover, changes in fiscal policy are only one of the many factors that can influence the outlook in the appropriate course of monetary policy.”