Yellen says Fed may have been wrong on employment and inflation, which would mean easier policy ahead

CNBC/Jeff Cox/09-26-17

The Federal Reserve may have overstated the strength of the labor market and the rate of inflation, leading to monetary policy ahead that will be easier than previously thought, Fed Chair Janet Yellen said Tuesday.

…The result would be an even more dovish Fed when it comes to removing the historically aggressive policy accommodation in place since the financial crisis.

“My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation,” Yellen said, according to prepared remarks.

PG View: While the market seems to have latched on to the reiteration that gradual rate hikes are appropriate, the acknowledgement that the Fed might be wrong seems pretty dovish in actuality.

“…if longer-run inflation expectations are running at levels consistent with longer-run PCE price inflation somewhat below 2 percent, the FOMC can still achieve its inflation goal. Under those conditions, continuing to revise our assessments in response to incoming data would naturally result in a policy path that is somewhat easier than that now anticipated–an appropriate course correction that would reflect our commitment to maximum employment and price stability. — Janet Yellen
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