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Yellen Speech: From Adding Accommodation to Scaling It Back

March 06, 2017 / Source: FRB

Chair Janet L. Yellen
At The Executives' Club of Chicago, Chicago, Illinois
March 3, 2017

I am pleased to join you today to discuss the U.S. economy and the Federal Reserve's monetary policy. I strongly believe that my colleagues and I should explain, as clearly as we can, both the reasons for our decisions and the fundamental principles that underlie our strategy.

Today I will review the conduct of monetary policy during the nearly 10 years since the onset of the financial crisis. Although the Federal Reserve's policy strategy for systematically pursuing its congressionally mandated goals of maximum employment and price stability has not changed during this period, the Federal Open Market Committee (FOMC) has made significant tactical adjustments along the way. I will spend most of my time today discussing the rationale for the adjustments the Committee has made since 2014, a year that I see as a turning point, when the FOMC began to transition from providing increasing amounts of accommodation to gradually scaling it back.

The process of scaling back accommodation has so far proceeded at a slower pace than most FOMC participants anticipated in 2014. Both unexpected economic developments and deeper reevaluations of structural trends affecting the U.S. and global economies prompted us to reassess our views on the outlook and associated risks and, consequently, the appropriate stance of monetary policy, both in the near term and the longer run. Looking ahead, we continue to expect the evolution of the economy to warrant further gradual increases in the target range for the federal funds rate. However, given how close we are to meeting our statutory goals, and in the absence of new developments that might materially worsen the economic outlook, the process of scaling back accommodation likely will not be as slow as it was in 2015 and 2016.

I should note that I will discuss the process of scaling back accommodation mostly from the perspective of our interest rate decisions, which my FOMC colleagues and I see as our primary tool for actively adjusting the stance of monetary policy when our actions are not constrained by the zero lower bound on short-term interest rates.1

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