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Yellen talks rate hike, outlook


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Yellen talks rate hike, outlook

The Federal Open Market Committee decided to lift the target range of the central bank's key interest rate to between 50 basis points and 75 basis points. Federal Reserve Chair Janet Yellen began a press conference at 2:30 p.m. ET. Below are updates on her comments.

2:34 p.m.: Yellen lauded "considerable progress" toward the Fed's unemployment and inflation goals. Core inflation has reached 1.75%, and she said overall inflation will rise toward 2% "over the next couple of years."

2:38 p.m.: GDP and unemployment projections among Fed policymakers are a bit more positive than after the September meeting, according to Yellen. Median inflation expectations were unchanged. The median projection for the federal funds rate at the end of next year is 1.4%.

2:41 p.m.: The median FOMC projection calls for three rate hikes next year, versus two, because of changes to the outlook "by only some of the participants," Yellen said. Those officials "did incorporate some assumption of a change in fiscal policy into their projections and that may have been a factor ... that occasioned these shifts."

2:44 p.m.: Yellen said the impact of potential fiscal policy changes, including tax reform and reductions, remains unclear. "I really can't tell you what the Fed's response would be to any policy changes that would be put into effect," she said.

2:45 p.m.: "Our decision to raise rates should be understood as a reflection of the confidence we have in the progress the economy has made and our judgement that progress will continue," Yellen said. The markets anticipated the move, and it "should have a very small effect on market rates."

2:49 p.m.: Yellen said she would label the level of accommodation at current levels as "moderate." She said policymakers are not seeing signs of overheating in labor markets.

2:59 p.m.: The Fed has been in touch with President-elect Donald Trump's transition team, although Yellen said there have been no major discussions beyond that. On potential changes to financial regulation, the Fed chair argued that regulators have succeeded in creating a stronger financial system. "I think it's very important that we have reduced the odds that a systemically important firm could fail," Yellen said. She added that progress on reducing systemic risks is "very important not to roll back."

3:05 p.m.: Yellen plans to finish out her term. "I haven't made any decisions about the future. I recognize I might or might not be re-appointed," she said.

3:09 p.m.: In response to a question on improvements in the business and ethical culture at banks, Yellen noted that there have been compliance failures at major banks. "The board will undertake a review of compliance and the management of compliance risk ... the failings we've seen at a number of institutions certainly suggest there's room for improvement."

3:13 p.m.: The FOMC will not only raise rates when markets are anticipating a rate hike, the Fed chair said. "It's not a prerequisite," but well-communicated outlooks should put the market and committee members in sync, Yellen said.

3:17 p.m.: "We expect to diminish the size of our portfolio over time by ceasing reinvestments ... rather than selling securities," Yellen said. She added, "We have not made any precise decisions about when that will occur."

3:21 p.m.: Inequality and wage stagnation are not new concerns, but they were likely exacerbated by the financial crisis, Yellen said. The Fed is not "well-positioned" to implement a full policy solution to address the issues, she said.