SF FED’s Yellen on Repeat: FED Won’t Allow Wage-Price Spiral
San Francisco FED president Janet Yellen, speaking in Portland, Ore., today, delivers a near-carbon copy of a speech given Monday in San Diego. It includes:
* 3 major risks: housing slump, financial market turmoil/credit crunch, and commodity prices
* Still much uncertainty about the valuation of complex, non-transparent financial instruments; still “hitches” in price discovery process
* Less leveraging and higher costs of credit ahead. Market functioning could worsen before it improves, especially if house prices fall further, reducing household wealth and therefore dragging down spending and engendering an adverse feedback loop.
* In commodities, neither supply nor demand adjusts quickly. Inventories seem to be declining. If prices reflect fundamentals, “situation is not likely to turn around any time soon”
* Overall, only modest growth in H2, and core inflation could run “modestly higher.” For monetary policy, “readiness is all” — FED will be on top of developments and act as needed to fulfill mandate of price stability and sustainable growth