US Federal Reserve Vice Chairman Janet Yellen threw her support behind proposals to tie the central bank’s low-rate outlook to economic goals, raising the odds the Fed will replace its current commitment to a calendar date.
“The committee might eliminate the calendar date entirely and replace it with guidance on the economic conditions that would need to prevail before liftoff of the federal funds rate might be judged appropriate,” Yellen said on Tuesday in a speech in Berkeley, California.
She is “strongly supportive” of such a change, she said.
Yellen joined three other Fed officials who have endorsed tying zero interest rates with progress on fighting unemployment as a way to provide more clarity on the central bank’s outlook for monetary policy.
The policy-setting Federal Open Market Committee (FOMC) said last month it expects to keep its benchmark rate near zero through at least mid-2015.
“Under such an approach, liftoff would not be automatic once a threshold is reached,” Yellen said at the University of California at Berkeley, where she is a professor emeritus. “That decision would require further committee deliberation and judgement.”
The Fed, which is required by the US Congress to pursue the twin goals of full employment and price stability, may adopt the strategy as soon as its next meeting on Dec. 11 and Dec. 12, said Ward McCarthy, chief financial economist at Jefferies Group Inc in New York and a former Richmond Fed economist.
“They’ve been kicking around the idea of changing the communications policy for a while, and she pretty much summed it up,” McCarthy said. “They want to put rate guidance in the context of the dual-mandate objectives. That was probably the main discussion at the most recent FOMC meeting.”
Policymakers may need more time to reach agreement on details of a new framework, said Roberto Perli, a managing director at International Strategy and Investment Group Inc in Washington.
Still, Yellen “wouldn’t have supported those ideas if the committee didn’t have consensus about moving in that direction,” said Perli, a former economist for the Fed’s Division of Monetary Affairs.
Since June last year, Yellen has led a committee created by Fed Chairman Ben Bernanke to shed light on Fed decision making and minimize public confusion over its goals. Fed officials say that greater transparency makes their actions more potent because the economy is affected by public expectations about the future policy.
“We’ve made progress, but much work remains to be done,” Yellen, 66, said on Tuesday.
She said tying the outlook for low interest rates to economic thresholds, rather than a date, “would enable the public to immediately adjust its expectations concerning the timing of liftoff in response to new information affecting the economic outlook.”
Last year, Chicago Fed President Charles Evans first called for the central bank to tie policy to specific numerical thresholds, saying it should keep rates near zero until unemployment falls below 7 percent or inflation rises above 3 percent.
In September, Minneapolis Fed President Narayana Kocherlakota endorsed a variation of the pledge, calling for low rates until joblessness falls to 5.5 percent as long as inflation remains below 2.25 percent.
Boston Fed president Eric Rosengren said on Nov. 1 that the central bank should buy mortgage bonds until the jobless rate falls to 7.25 percent and hold the target interest rate near zero until hitting 6.5 percent unemployment.
Yellen said the Fed’s 2 percent inflation goal set in January should not be viewed as a ceiling, arguing that such an interpretation would lead to inflation that is more frequently below the target than above.
“To balance the chances that inflation will sometimes deviate a bit above and a bit below the goal, 2 percent must be treated as a central tendency around which inflation fluctuates,” she said.
The central bank is “thinking carefully” about the potential adverse effects of a prolonged period of low interest rates, Yellen said in response to a question from the audience.
These effects include reducing yields for savers, insurance companies and pension funds, in addition to possibly stoking excessive risk-taking in financial markets, she said.
Still, “we do not have any evidence yet of any increase in risk-taking that would be a major financial-stability concern,” she said.
BUSINESS UPDATE: The iPhone assembler said operations outlook is expected to show quarter-on-quarter and year-on-year growth for the second quarter Hon Hai Precision Industry Co (鴻海精密) yesterday reported strong growth in sales last month, potentially raising expectations for iPhone sales while artificial intelligence (AI)-related business booms. The company, which assembles the majority of Apple Inc’s smartphones, reported a 19.03 percent rise in monthly sales to NT$510.9 billion (US$15.78 billion), from NT$429.22 billion in the same period last year. On a monthly basis, sales rose 14.16 percent, it said. The company in a statement said that last month’s revenue was a record-breaking April performance. Hon Hai, known also as Foxconn Technology Group (富士康科技集團), assembles most iPhones, but the company is diversifying its business to
Apple Inc has been developing a homegrown chip to run artificial intelligence (AI) tools in data centers, although it is unclear if the semiconductor would ever be deployed, the Wall Street Journal reported on Monday. The effort would build on Apple’s previous efforts to make in-house chips, which run in its iPhones, Macs and other devices, according to the Journal, which cited unidentified people familiar with the matter. The server project is code-named ACDC (Apple Chips in Data Center) within the company, aiming to utilize Apple’s expertise in chip design for the company’s server infrastructure, the newspaper said. While this initiative has been
GlobalWafers Co (環球晶圓), the world’s No. 3 silicon wafer supplier, yesterday said that revenue would rise moderately in the second half of this year, driven primarily by robust demand for advanced wafers used in high-bandwidth memory (HBM) chips, a key component of artificial intelligence (AI) technology. “The first quarter is the lowest point of this cycle. The second half will be better than the first for the whole semiconductor industry and for GlobalWafers,” chairwoman Doris Hsu (徐秀蘭) said during an online investors’ conference. “HBM would definitely be the key growth driver in the second half,” Hsu said. “That is our big hope
The consumer price index (CPI) last month eased to 1.95 percent, below the central bank’s 2 percent target, as food and entertainment cost increases decelerated, helped by stable egg prices, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said yesterday. The slowdown bucked predictions by policymakers and academics that inflationary pressures would build up following double-digit electricity rate hikes on April 1. “The latest CPI data came after the cost of eating out and rent grew moderately amid mixed international raw material prices,” DGBAS official Tsao Chih-hung (曹志弘) told a news conference in Taipei. The central bank in March raised interest rates by