Federal Reserve Chair Janet Yellen voiced confidence in the durability of the U.S. economic expansion in the face of slowing global growth and turbulent financial markets at a closed-door meeting in Washington last weekend, according to two people familiar with her comments.
The people, who asked not to be named because the meeting was private, said Yellen told the Group of 30 that the economy looked to be on track to achieve growth of around 3 percent. She also saw inflation eventually rising back to the Fed’s 2 percent target as unemployment falls further, according to the people.
Michelle Smith, a Fed spokeswoman, declined to comment on the meeting, which took place on the fringes of the annual gathering of the International Monetary Fund and World Bank.
The G-30 describes itself as a “nonprofit, international body composed of very senior representatives of the private and public sectors and academia.” Former European Central Bank President Jean-Claude Trichet is chairman, and former Fed Chairman Paul Volcker is chairman emeritus. G-30 Executive Director Stuart Mackintosh was unavailable for immediate comment.
Stocks pared losses after Yellen’s comments were reported, and Treasury yields rose. The Standard & Poor’s 500 Index was down 0.8 percent to 1,862.49 at the 4 p.m. close of trading in New York after falling as much as 3 percent. The yield on the two-year Treasury note was down 5 basis points, or 0.05 percentage point, to 0.32 percent after dropping as much as 13 basis points.
“She expressed some confidence” in the outlook, said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc.
Yellen’s reported remarks were roughly in line with the forecasts presented by Fed policy makers at their last meeting in September. They saw the economy growing by 2.6 to 3 percent next year and inflation rising to 1.7 to 2 percent in 2016, according to their central tendency forecasts, which excludes the three highest and three lowest projections.
The economy has expanded at a 2.2 percent annual rate since the recession ended in June 2009. Inflation, as measured by the personal consumption expenditures price index, was 1.5 percent in August.
In a press conference on Sept. 17 following the meeting of the Federal Open Market Committee, Yellen said policy makers expected “a moderate pace of growth going forward.”
Financial and commodity markets have been plagued since then by mounting concern that the euro region is falling into its third recession since 2008. The stock market and oil prices have plunged while bond prices and the dollar have risen.
The net impact of those market movements on the U.S. isn’t clear. While a rising dollar may curtail exports and declining stocks will reduce household wealth, a drop in long-term interest rates and energy prices will be a plus for growth.
Retail sales dropped more than forecast in September on a broad pullback in spending that indicates American consumers provided less of a boost for the economy in the third quarter.
The 0.3 percent decrease followed a 0.6 percent August gain that was the biggest in four months, Commerce Department figures showed today in Washington. The median forecast in a Bloomberg survey of economists called for a 0.1 percent drop.
Fed Vice Chairman Stanley Fischer said on Oct. 11 that weaker-than-expected global growth could prompt the U.S. central bank to slow the pace of eventual interest-rate increases.
“If foreign growth is weaker than anticipated, the consequences for the U.S. economy could lead the Fed to remove accommodation more slowly than otherwise,” he told central bankers and finance ministers gathered in Washington for the IMF and World Bank annual meeting.
The IMF last week trimmed its forecast for global growth next year to 3.8 percent from 4 percent while raising its prediction for the U.S. to 3.1 percent from 3 percent.