Courtesy of Mish.
Today Fed Chair Janet yellen gave a speech at the “Designing Resilient Monetary Policy Frameworks for the Future,” symposium in Jackson Hole, Wyoming.
Her speech was on The Federal Reserve’s Monetary Policy Toolkit: Past, Present, and Future.
“I believe the case for an increase in the federal funds rate has strengthened in recent months. Of course, our decisions always depend on the degree to which incoming data continues to confirm the Committee’s outlook,” said Yellen.
As usual, the word “uncertainty” was prominent in the discussion.
And, as ever, the economic outlook is uncertain, and so monetary policy is not on a preset course. Our ability to predict how the federal funds rate will evolve over time is quite limited because monetary policy will need to respond to whatever disturbances may buffet the economy. In addition, the level of short-term interest rates consistent with the dual mandate varies over time in response to shifts in underlying economic conditions that are often evident only in hindsight. For these reasons, the range of reasonably likely outcomes for the federal funds rate is quite wide–a point illustrated by figure 1 in your handout.
Fed Confidence Levels
Amusingly, that slide shows how little faith the Fed has in its own projections, and deservedly so.
By some calculations, the real neutral rate is currently close to zero, and it could remain at this low level if we were to continue to see slow productivity growth and high global saving. If so, then the average level of the nominal federal funds rate down the road might turn out to be only 2 percent, implying that asset purchases and forward guidance might have to be pushed to extremes to compensate.
Asset purchases are not at an extreme already? Would it buy every bond like Japan? Here’s an amusing paragraph:
