Yellen on economic outlook and monetary policy

In a presentation at he Stanford Institute for Economic Policy Research, Federal Reserve Board Chair Yellen reviewed the economic outlook and the conduct of monetary policy. She discussed the progress to date, maintaining sustainable growth in a context of price stability, and evaluating the appropriate stance of monetary policy. In her concluding remarks, Yellen said, "it is important to emphasize the considerable uncertainty that attaches to such assessments and the need to constantly update them. In particular, the path of the neutral federal funds rate, which plays an important role in determining the appropriate policy path, is highly uncertain. For example, productivity growth is a key determinant of the neutral rate, and while most forecasters expect productivity growth to pick up from its recent unusually slow pace, the timing of such a pickup is highly uncertain. Indeed, there is little consensus among researchers about the causes of the recent slowdown in productivity growth that has occurred both at home and abroad. The strength of global growth will also have an important bearing on the neutral rate through both trade and financial channels, and here, too, the scope for surprises is considerable. Finally, I would mention the potential for changes in fiscal policy to affect the economic outlook and the appropriate policy path. At this point, however, the size, timing, and composition of such changes remain uncertain. However, as this discussion highlights, the course of monetary policy over the next few years will depend on many different factors, of which fiscal policy is just one."