Fed Vice Chair Yellen Telegraphs Inflation/Employment Goals and Long-Term Communications


Janet Yellen, Vice Chair of the Federal Reserve, is speaking at the Haas School of Business at the University of California, Berkeley in Berkeley, California today. Her speech is about the recent revolution and continuing evolution in communication by central banks. As she is largely in charge of communications her words may be more important today than in other speeches because she is commenting on Fed outlook and how it would be communicated.

Yellen has said that the Fed is actively considering expanding upon individual quarterly forecasts. She is also in favor of providing policy triggers. She said that the Fed's 2% inflation target is a goal and that cannot be a ceiling. If the Fed offers guidance it will enable the public to alter their expectations.

Yellen has also said that a market response could be an automatic stabilization for the economy. She also expects that the Fed will continue to reaffirm its long-term goals each year. The big admission today is that the FOMC can control inflation much easier than it can directly target the employment level. Yellen believes that both the employment and inflation targets are equally likely to deviate through time.


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