Fed Chair Jerome Powell participates in, 'Perspectives on Monetary Policy' conversation

THANK YOU FOR BEING HERE.

IT'S A 200 TODAY TO HAVE WITH

US TODAY.

THANK YOU FOR BEING HERE.

I VERY MUCH BEEN LOOKING

FORWARD TO THIS CONVERSATION

AND I'M SURE OUR AUDIENCE HAS,

TOO.

THIS CONFERENCE, AS EVERYONE

KNOWS, IS DEDICATED TO THE

MEMORY OF THOMAS.

WE HEARD SOME PERSONAL

REFLECTIONS ON WORKING WITH

THOMAS.

FROM SECRETARY JANET YELLEN AND

FORMER CHAIR OF THE FED AND FROM

PRESIDENT JOHN WILLIAMS.

BOTH OF YOU WORKED CLOSELY WITH

HIM AS WELL.

I WOULD LIKE TO GIVE YOU BOTH

AN OPPORTUNITY TO SHARE YOUR

THOUGHTS ABOUT THOMAS'S

CONTRIBUTIONS AS AN ECONOMIST

AND A COLLEAGUE AND THEN WE CAN

START WITH YOU.

>> IT'S GREAT TO BE HERE.

I WAS TALL MOSSES -- THOMAS' --

THAT WAS A LONG TIME AGO AND HE

WAS NOT YET IN HIS EXALTED

POSITION AT THE FED.

SO, I DON'T HAVE ANY SHORT

ANECDOTES TO GIVE, BUT I WANT

TO SAY, I THINK THERE ARE TWO

KINDS OF ACCOMPLISHMENTS A

PERSON CAN HAVE.

THEY CAN HAVE CURRICULUM

COMFORT -- AND EULOGY

ACCOMPLISHMENTS.

THINGS LIKE PUBLICS PAPERS AND

PROMOTIONS AND AWARDS AND

RECOGNITION, EULOGY

ACCOMPLISHMENTS ARE THE THINGS

YOUR FAMILY REMEMBERS.

YOUR KINDNESS, YOUR SUPPORT AND

HELPING OTHER PEOPLE.

THOMAS WAS ONE OF THE PEOPLE

WHO, FEW PEOPLE, WHO SCORED HIGH

ON BOTH DIMENSIONS.

ON THE CV SIDE, BEGINNING WITH

HIS WORK WITH ME, HE HAD A

TREMENDOUS INPUT INTO THE

FEDERAL RESERVE'S FRAMEWORK,

WORKING ON INFLATION TARGETING,

AND THE FED FRAMEWORK, AND HE

DID WORK, JOHN WILLIAMS TALKED

ABOUT HIS WORK WITH THOMAS ON

THE NATURAL RATE AND WORKED ON

THE EFFECTS OF DEFICITS ON

INTEREST RATES. ANOTHER

CONTRIBUTION.

A PERSON WHO MADE A LOT OF

INTELLECTUAL CONTRIBUTIONS.

BUT AS A PERSON, HE WAS A WARM,

KIND, FRIENDLY, HELPFUL PERSON

AND WAS JUST A JOY TO WORK

WITH.

I'M GLAD TO BE HERE TO SAY THIS

ABOUT HIM.

>> THANK YOU.

>> THANK YOU, TREVOR.

FIRST OF ALL, LET ME SAY THAT

THIS CONFERENCE IS A FITTING

TRIBUTE TO HIM AND I'M

DELIGHTED TO BE PART OF IT.

LET ME ADD MY THANKS TO THOSE

WHO HAVE MADE THIS HAPPEN

TODAY.

I FIRST MET THOMAS WHEN I

JOINED THE BOARD AS A GOVERNOR

IN MAY 2012, ALMOST EXACTLY 11

YEARS AGO.

IN PREPARING TO FOR -- JOINED

THE BOARD, I WAS FOCUSED ON

DEVELOPING A DEEPER BACKGROUND

IN MACROECONOMICS THE MILITARY

POLICY AND MANY PEOPLE HERE SO

PART OF ME IN THAT PROCESS.

THOMAS REALLY STOOD OUT AND IT

WAS DURING THE PROCESS OF

READING THE LITERATURE AND

DISCUSS GET THAT I STARTED TO

GET TO KNOW HIM.

HE HAD THIS GREAT ABILITY TO

COMMUNICATE COMPLICATED IDEAS

AND OBVIOUSLY LOVED TALKING

ABOUT ECONOMICS AND HIS

ENTHUSIASM AND WILLINGNESS TO

ENGAGE WITH ME, A NEW GOVERNOR,

WAS IMMEDIATELY EVIDENT. HE WAS

VERY GRACIOUS TO ME.

WE HAD A LOT OF INFORMATIVE

DISCUSSION. RATHER THAN BEING

HIS TEACHER, I WAS HIS STUDENT

IN THOSE EARLY YEARS BY THE

TIME, AS YOU NOTED, BY THE TIME

I BECAME CHAIR HE WAS AHEAD OF

MONETARY AFFAIRS AND WAS A

TRUSTED ADVISER TO MEET AND HIS

LEADERSHIP WAS PARTICULARLY

IMPORTANT AS WE CONTACTED OUR

FIRST EVER PUBLIC MONETARY

POLICY REVIEW.

HE PLAY A MAJOR ROLE IN

ORGANIZING THAT AND AND

EDIFYING KEY TOPICS.

HE ALSO PLAYED AN ABSOLUTELY

ESSENTIAL ROLE DURING THE

CRITICAL PERIOD OF THE PANDEMIC

AT THE BEGINNING WHEN WE ARE

MARSHALING OUR FORCES AND TOOLS

TO STABILIZE AND PROTECT THE

ECONOMY FROM MORE DIRE

CONSEQUENCES.

THROUGH IT ALL, HE CAME THROUGH

AS NOT JUST FOR HIS DEDICATION,

THAT IS GREAT INTELLECT AND

MASTERY OF MONETARY ECONOMICS,

BUT ALSO JUST FOR HIS KINDNESS

AS A HUMAN BEING AND BEING A

TRIP EFFECT COLLEAGUE IN PERSON.

>> THANK YOU.

I THINK THERE IS A LOT OF

AGREEMENT FROM THOSE SENTIMENTS.

BEFORE WE GET TO SOME QUESTIONS

ON SOME CURRENT ISSUES, I

WANTED TO ASK YOU BOTH ABOUT

ANY FORMATIVE EXPERIENCES YOU

MAY HAVE HAD THAT SHAPED YOUR

VIEWS, PARTICULARLY ABOUT YOUR

THINKING ON MONETARY POLICY.

IN HIS ORAL HISTORY INTERVIEW,

THEY TELL THE STORY OF HIS

MOTHER WHO WAS ADAMANT THAT HE

RECEIVED THE SAME DOLLAR VALUE

MONTHLY ALLOWANCE WHEN HE WAS

IN COLLEGE AND HIS OLDER

SISTERS IT 10 YEARS PRIOR.

OF COURSE, HE WAS NOT TOO HAPPY

ABOUT THAT BECAUSE INFLATION IN

THE INTERIM CHANGE THAT.

SO, AS THE STORY GOES, THAT WAS

THE BEGINNING OF HIS PERSONAL

COMMITMENT TO PRICE DEVELOPMENT.

SO, JAY, DO YOU HAVE ANY

STORIES TO TELL?

>> MAYBE NOT QUITE THAT ON

POINT, BUT I GRADUATED FROM

COLLEGE IN 1975 WHAT WE NOW

CALL THE GREAT INFLATION.

THE SAME COLLEGE YEAR AS A BEN

AND I STARTED WORKING AS A

LAWYER IN THE FINANCIAL SECTOR

IN THE LATE 1970s.

I RECALL FROM THAT TIME, A

GROWING SENSE THAT HIGH

INFLATION WAS ESSENTIALLY A

PERMANENT PART OF THE

LANDSCAPE, JUST SOMETHING WE

HAD TO ACCEPT AND DEAL WITH AND

AT THE COST OF GETTING RID OF

IT WERE TOO HIGH.

YOU JUST FOR GETTING USED TO IT.

OF COURSE, OPENLY, THE FED DID

UP UP AND RESTORE PRICE

STABILITY, AND ONE LESSON IS

THAT PRICE STABILITY IS THE

FOUNDATION OF A STRONG ECONOMY

AND THE ECONOMY DOESN'T WORK

FOR ANYONE WITH THAT PRICE

STABILITY.

ANOTHER IS THAT HIGH INFLATION

IS WHEN WE HAVE HIGH INFLATION

IS A RESPONSIBILITY AND

OBLIGATION OF THE CENTRAL BANK

TO RESTORE AND SUSTAIN PRICE

STABILITY.

WHILE INFLATION ISN'T AS HIGH

AS IT WAS WHEN I WAS IN

COLLEGE, IT IS STILL ABOVE THE

OBJECTIVE AND MANY PEOPLE ARE

CURRENTLY EXPERIENCING HIGH

INFLATION FOR THE FIRST TIME IN

THEIR LIVES.

IT'S NOT A HEADLINE THAT THEY

DON'T LIKE IT, BUT WE ARE VERY

AWARE THAT HIGH INFLATION

IMPOSES SIGNIFICANT HARDSHIP AS

IT REDUCES PURCHASING POWER,

ESPECIALLY FOR THOSE WHO ARE AT

THE MARGINS OF THE ECONOMY AND

LIVING PAYCHECK TO PAYCHECK AND

NEED TO USE ALL OF THEIR INCOME

TO PAY FOR FOOD, HOUSING, AND

TRANSPORTATION, AND OTHER

ESSENTIALS.

THAT IS WHY THE COMMITTEE IS SO

COMMITTED TO RETURNING TO OUR

2% GOAL.

WE THINK FAILURE TO GET

INFLATION DOWN WOULD NOT ONLY

PROLONG THE PAIN, BUT ALSO

INCREASED THE SOCIAL COST OF

GETTING BACK TO PRICE STABILITY

CAUSING GREATER HARM TO

FAMILIES AND BUSINESSES AND WE

AIM TO AVOID THAT.

>> THANK YOU.

I HAD MENTORS, BUT I'M GOING TO

TELL YOU ABOUT SOMETHING THAT

HAPPENS ME WHEN I WAS 6 YEARS

OLD.

I USED TO VISIT MY GRANDPARENTS

IN NORTH CAROLINA DURING THE

SUMMER AND I WOULD SIT ON THE

PORCH OF THEIR HOUSE AND LISTEN

TO MY GRANDMOTHER TELL STORIES

ABOUT HER LIFE AND SHE TOLD

ABOUT HOW SHE RAISED HER FAMILY

IN CONNECTICUT IN THE 1930s

DURING THE GREAT DEPRESSION.

IT WAS SPECIALIZING IN SHOE

MANUFACTURING AND DURING THE

DEPRESSION MANY FACTORS SHUT

DOWN AND SHE TOLD ME IT WAS A

HARD TIME AND A LOT OF THE KIDS

WENT TO SCHOOL IN TATTERED SHOES

OR NO SHOES AT ALL.

I SAID, GRANDMA, WHY WOULD THEY

DO THAT?

AND SHE SAID, BECAUSE THEIR

FATHERS LOST THEIR JOBS.

WHY DID THEY LOSE A JOB SPEC

BECAUSE THE SHOE FACTORY

SHUTDOWN.

I WAS ONLY 6 YEARS OLD, BUT I

COULD SEE THE PROBLEM WITH THAT

ARGUMENT.

WHY DIDN'T THEY JUST OPEN THE

SHOE FACTORIES?

I MAKE SHOES FOR THE CHILDREN?

AND SHE SAID, IT DOESN'T WORK

THAT WAY.

I THINK IT WAS A PUZZLE TO ME

THAT YOU HAD THE SAME

PRODUCTION CAPACITY IN 1933

THAT YOU HAD IN 1928 AND IN

1920, PEOPLE WERE DANCING IN

THE CHARLESTON AND IN 1933,

THEY WERE IN BREAD LINES.

THAT IMPRESSED UPON ME THAT

ECONOMICS CAN MAKE A BIG

DIFFERENCE IN PEOPLE'S LIVES

AND MONETARY POLICY IS LIKE

THAT.

AS JAY AND ALL OF YOU WELL

KNOW, THE DECISIONS MADE IN

THIS BUILDING HAVE A VERY BROAD

AND REAL EFFECT ON PEOPLE'S

LIVES AND FOR THAT REASON,

BESIDES, IT'S WORTH STUDYING

AND UNDERSTANDING.

>> THANK YOU.

I KNOW THAT IS CERTAINLY A KEY

MOTIVATION FOR MANY PEOPLE IN

THIS ROOM TO BE WORKING SO

HARD.

LET'S TURN TO SOME TOPICS OF

MORE CURRENT INTEREST.

I WOULD LIKE TO START WITH THAT

NEXUS BETWEEN THE FINANCIAL

SYSTEM AND THE MACRO ECONOMY.

BOTH OF YOU DURING YOUR 10

YEARS AS CHAIR HAVE FACE VERY

SIGNIFICANT HISTORIC FINANCIAL

CRISES.

BEN, YOU CONFRONTED THE GLOBAL

CRISIS AND JAY, THE GLOBAL

PANDEMIC . THOSE EPISODES WERE

CLEARLY ACUTE AND VERY VIVID

EXAMPLES OF THE CONNECTIONS

BETWEEN THE MACRO ECONOMY AND

THE FINANCIAL SYSTEM.

AS WELL AS I THINK A GOOD

ILLUSTRATION OF THE RULE ROLE

OF CENTRAL BANKS IN SUCH

EPISODES.

YOUR RESEARCH, AND THE RESEARCH

YOU HAVE INSPIRED, HAS REALLY

DEMONSTRATED THAT UNDERSTANDING

THE CONNECTIONS BETWEEN THE

FINANCIAL SECTOR, CREDIT

MARKETS, AND BANKS AND THE REAL

ECONOMY, IS CRITICAL FOR

UNDERSTANDING TRADITIONAL

CYCLES.

SO, WITH THAT IS BROWN ROUND,

WE HAVE EXPERIENCED AS.

-- IN SPITE OF THE BANKING

SYSTEM HERE IN THE UNITED

STATES.

I WANT TO GET YOUR TAKE ON

THOSE DEVELOPS AND KATE HOW YOU

THINK THEY MATCH UP COMPARED TO

SOME PREVIOUS EPISODES AND WHAT

THEY MIGHT MEAN FOR THE

ECONOMY.

>> IN SOME DIMENSION, THE

RECENT CRISIS HAS FOLLOWED THE

STANDARD SEQUENCE.

I DON'T KNOW ANYTHING ABOUT

SILICON VALLEY BANK EXCEPT WHAT

I READ IN THE PAPER, SO DON'T

MISINTERPRET THIS, BUT IT WAS A

CLASSIC SITUATION WHERE THEY HAD

ASSETS THAT WERE SUBJECT TO

RISKS AND AS INTEREST RATES

ROAD, THERE CAPITAL FELL IN

THEY HOPED TO HEDGE THAT BY

THEIR DEPOSIT FRANCHISE, WHERE

AS INTEREST RATES ROSE AND MOVE

MORE SLOWLY ON DEPOSITS, THAT

WOULD PARTIALLY COMPENSATE, BUT

THEY WERE DEALING WITH

CUSTOMERS WHO WERE VERY SOCIAL

MEDIA SAVVY AND THAT DIDN'T

WORK.

SO, AFTER THE DECLINE IN

CAPITAL, YOU HAD THE SECOND

STAGE WHICH IS A RUNS.

PEOPLE TAKING OUT THEIR MONEY

WHICH LED TO THE COLLAPSE OF

THE BANK.

DESPITE, I MAY ADD, THE EFFORT

OF THE FED AND FDIC TO PROVIDE

LIQUIDITY AND SUPPORT FOR

DEPOSITORS. THE THIRD STAGE OF

A BANKING CRISIS IS CONTAGION

AND PEOPLE LOOK AT OTHER BANKS

AND SAID HE LOOKED VAGUELY LIKE

SILICON VALLEY BANK. HAVE THE

SAME NUMBER OF LETTERS IN THEIR

NAME AND ALL KINDS OF THINGS

LIKE THAT AND THAT CAUSED

PEOPLE TO BEGIN TO REMOVE

DEPOSITS ELSEWHERE.

FINALLY, THE REASON THIS IS

IMPORTANT IS THAT IT ULTIMATELY

EFFECTS THE CONDITIONS.

THE FEDERAL RESERVE IS, OF

COURSE, LOOKING AT THE EFFECTS

OF BANK PROBLEMS AND OTHER

FINANCIAL ISSUES ON THE

EXTENSION OF CREDIT AND

THEREFORE, ON THE REAL ECONOMY.

SO, IN THAT RESPECT, I THINK IT

IS VERY SIMILAR TO OTHER

CRISES.

IT'S DIFFERENT FROM THE GLOBAL

FINANCIAL CRISIS IN MANY WAYS,

INCLUDING ITS SCALE AND SCOPE,

OF COURSE, BUT I WOULD VENTURE

A COUPLE IMPORTANT DIFFERENCES.

ONE IS THAT THE ASSET IN THIS

CASE WAS U.S. TREASURIES.

WHICH ARE VERY DIFFERENT IN

KIND FROM SOME PRIME MORTGAGES

IN THAT U.S. TREASURIES CAN

ALWAYS BE VALUED ACCURATELY.

THERE IS NOT THE UNCERTAINTY

ASSOCIATED WITH SUBPRIME

MORTGAGES AND AS THE ECONOMY

DECLINES, IF IT DOES DECLINE,

U.S. TREASURIES BECOME MORE

VALUABLE RATHER THAN LESS

VALUABLE.

SO THAT IS ONE VERY IMPORTANT

DIFFERENCE.

THE OTHER WORTH MENTIONING BUT

VERY IMPORTANT IS THAT RELATIVE

TO SAY GMC OR THE GREAT

DEPRESSION, OVERALL, BORROWERS

ARE IN BETTER SHAPE THAN THEY

WERE IN THESE PREVIOUS

EPISODES.

THAT MAKES A BIG DIFFERENCE IN

TERMS OF THE STABILITY OF THE

BANKS AND IN TERMS OF IMPACT ON

CONSUMER SPENDING AND THE

ECONOMY IN GENERAL.

>> I GUESS, A MAJOR REGION --

REASON IT DIDN'T GET WORSE IS

BECAUSE THE CONTAGION WAS

CONTAINED.

IN THE ACTIONS THE FEDERAL

RESERVE TOOK THROUGH THE

LIQUIDITY TOOLS AND THE

CREATION OF THE BANK TERM

FUNDING PROGRAM.

HOWEVER, IN DEPLOYING THESE

LIQUIDITY TOOLS, AGAINST HIS

BACKDROP, IS HIGH INFLATION.

THAT IS A LITTLE DIFFERENT FROM

SOME OF THE EARLIER EPISODES

AND HAS RAISED RENEWED

DISCUSSIONS ABOUT THE SO-CALLED

SEPARATION PRINCIPLE.

SO, I WANTED TO ASK YOU, HOW DO

YOU THINK ABOUT THE USE OF

FINANCIAL STABILITY TOOLS AND

LIQUIDITY TOOLS AS OPPOSED TO

MORE TRADITIONAL MONETARY

POLICY TOOLS AND HOW THEY FIT

TOGETHER.

>> IT'S AN INTERESTING

QUESTION, BUT I WANT TO START

BY SAYING THAT THE OVERALL

BANKS AND BANKING SYSTEM ARE

STRONG AND RESILIENT AND WELL

REPAIRED TO DEAL WITH THE

THINGS A FACE NOW AND IN THE

FUTURE.

WE DO HAVE SEPARATE TOOLS.

MONETARY POLICY AND LIQUIDATE

SUPERVISORY AND REGULATORY

TOOLS TO ADDRESS MENTAL

STABILITY ISSUES, BUT I SEE AN

IMPORTANT DISTINCTION BETWEEN

THE SEPARATION.

SEPARATION AND INDEPENDENCE ARE

TOOLS. THEY HAVE SEPARATE

OBJECTIVES BUT THEIR EFFECTS

ARE NOT INDEPENDENT.

THE TOOLS ARE A COMPLEMENTARY

ALMOST ALL THE TIME BECAUSE

FINANCIAL AND MACROECONOMIC

STABILITY ARE SO DEEPLY

INTERTWINED IN OUR CONSENSUS

STATEMENT NOTES THAT

SUSTAINABLY A CHANGE BEING --

SO, BECAUSE THEY ARE SO

INTERTWINED, THERE IS NOT

LIKELY TO BE AN ABSOLUTE AND

COMPLETE SEPARATION OF THE

TOOLS IS THAT POSSIBLE OR

DESIRABLE.

I THINK AS BEN'S RESEARCH IN

THE GLADE NET -- FINANCIAL

STABILITY AFFECTS MACROECONOMIC

STABILITY AND VICE VERSA.

WE SAW THAT CLEARLY AT THE

ONSET OF THE PANDEMIC.

AS A RESULT, THE TOOLS WE USE

CAN AND WILL EFFECT BOTH,

ESPECIALLY DURING EXTREME

CIRCUMSTANCES.

THAT SAID, THE TOOLS ARE

SEPARATE AND HAVE INDIVIDUAL

PURPOSES AND MOST OF THE TIME

THEY CAN BE USED FOR ITS

INTENDED PURPOSE WITHOUT

COMPROMISING THE OTHER.

FOR EXAMPLE, WHEN BANKING

STRESS IS IMMERSED IN MARCH, WE

USE OUR LIQUIDITY TOOLS TO MAKE

LIQUIDITY AVAILABLE TO BANKS

THAT MIGHT NEED IT.

THAT LIQUIDITY SUPPORTED THE

STABILITY OF THE FINANCIAL

SYSTEM WITHOUT RESTRICTING THE

USE OF OUR AUDITORY POLICY

TOOLS.

WHILE THE FINANCIAL STABILITY

TOOLS HELP CALM CONDITIONS IN

THE BANKING SECTOR,

DEVELOPMENTS THERE, ON THE

OTHER HAND, ARE CONTRIBUTING

AND ARE LIKELY TO WEIGH ON

ECONOMIC GROWTH, HIRING

INFLATION.

OUR RATE MAY NOT NEED TO RISE

AS MUCH AS IT WOULD HAVE

OTHERWISE TO ACHIEVE OUR GOALS.

THE EXTENT OF THAT IS HIGHLY

UNCERTAIN.

>> THANK YOU.

OF COURSE, I THINK THE

EFFECTIVENESS OF THOSE TOOLS IS

REFLECTED IN THE FACT THAT THEY

HAVE RAISED INTEREST RATES

TWICE SINCE THE EMERGENCE OF

THE BANKING -- AND THAT

PURPOSES TO CONFRONT THE

INFLATION ISSUE.

WHICH BRINGS US TO OUR NEXT

TOPIC WAS DISINFLATION.

AND IN THE PANDEMIC AND THE

AFTERMATH, WE HAVE HAD MANY

DISCUSSIONS ABOUT THE

DISTINCTION BETWEEN SALON --

SUPPLY SHOCKS AND DEMAND

SHOCKS AND THE PARTICULAR

CHALLENGES THAT A SUPPLY SHOCK

CAN PRESENT TO A CENTRAL BANK.

THAT HAS ALSO RAISED A LOT OF

QUESTIONS IN ACADEMIA AND

POLICY CIRCLES AS TO WHETHER

THE INFLATION PROCESS

POSTPANDEMIC WILL LOOK

DIFFERENT THAN PRIOR.

MAYBE WE CAN START WITH YOU,

JAY.

A NUMBER OF FOLKS HAVE ARGUED

THAT WE ARE ENTERING A NEW

PERIOD WHERE SUPPLY SHOCKS WILL

BE MORE FREQUENT.

WE WOULD LOVE TO HEAR YOUR VIEWS

ON WHETHER YOU THINK THAT IS A

POSSIBILITY AND WHAT THAT MIGHT

MEAN FOR CENTRAL BANKS.

>> IS A GREAT QUESTION AND ONE

WE WILL BE DEALING WITH FOR

QUITE A LONG TIME.

IT IS CERTAINLY POSSIBLE WE

WILL SEE CONTINUED SUPPLY

SHOCKS, BUT HARD TO FORECAST

WITH ANY CONFIDENCE THAT YOGI

BERRA IS SUCH THAT SAID, AND

GEARED THE BASEBALL EXPERT AND

YOU CAN CONFIRM OR DENY THIS,

IT IS DIFFICULT TO MAKE

PREDICTIONS ESPECIALLY ABOUT

THE FUTURE.

SO, I THINK THE BEST WE CAN DO

AT THIS STAGE IS PROBABLY

IDENTIFY THE FACTORS THAT WE

THINK CAN LEAD TO FURTHER

NEGATIVE SUPPLY SHOCKS.

I WILL SAY THAT POSITIVE SUPPLY

SHOCKS PROBABLY CONTRIBUTED TO

THE VACANTLY TO THE PERIOD OF

LOW INFLATION THAT WAS

INTERRUPTED BY THE ONSET OF THE

PANDEMIC AND I'M THINKING OF

THE VAST INCREASE IN MOBILE

LABOR SUPPLY AND THE

DEVELOPMENT OF EFFICIENT GLOBAL

SUPPLY CHAINS.

I WOULD SAY THOSE POSITIVE

SUPPLY SHOCKS DO NOT SEEM

LIKELY TO BE REPEATED.

AT THE SAME TIME, THE DRIVERS

OF THE CURRENT INFLATIONARY

SURGE -- TO THE GLOBAL SUPPLY

CHAIN FOR GOODS AND A SHIFT IN

DEMAND FROM SERVICES TO SUPPLY

WORKERS ON TOP OF THAT.

RUSSIA'S WAR AGAINST UKRAINE

BROUGHT SHOCKS, FURTHER SHOCKS,

TO GLOBAL SUPPLY CHAINS.

SO, WE CAN'T KNOW HOW

PERSISTENT THOSE SHOCKS WILL BE

OUR WEATHER FURTHER NEGATIVE

SUPPLY SHOCKS WILL COME ALONG,

AND WILL GLOBALIZATION BE

PARTIALLY OR FULLY HALTED OR

REVERSED?

WILL IT RESUME AGAIN AS THE

PANDEMIC RECEDES INTO MEMORY?

WE CAN'T KNOW THAT NOW.

BUT FOR POLICYMAKERS, THE

BOTTOM LINE IS CENTRAL BANKS

WILL CONTINUE TO BE RESPONSIBLE

FOR PROVIDING PRICE STABILITY

AND THAT WILL REQUIRE US TO

NAVIGATE WHATEVER ADDITIONAL

SUPPLY SHOCKS OCCUR.

AS THOMAS AND BEN AND COAUTHORS

WROTE IN THE INFLATION

TARGETING BOOK WHAT A CENTRAL

BANK CAN DO IS CONTROL

INFLATION AND THAT IS TRUE EVEN

IN THE PRESENCE OF SUPPLY

SHOCKS, SHOULD THEY COME.

>> BEN, I WOULD LIKE TO HEAR

YOUR INPUT ON THIS.

>> UNUSUAL EVENT THAT DISRUPT

ECONOMIC FUNCTIONING ARE OFTEN

FOLLOWED BY INFLATION.

EXAMPLES ARE WORLD WAR I, WORLD

WAR II, THE KOREAN WAR, AND NOW

THE PANDEMIC.

THE PANDEMIC MAKES IT HARDER

FOR POLICYMAKERS TO UNDERSTAND

WHAT'S HAPPENING AND IN

PARTICULAR, THE PANDEMIC

SCRAMBLED THE LABOR MARKET AND

MADE IT HARDER TO JUDGE THE

STATE OF THE LABOR MARKET.

THE OPENING LEAD TO AN EXTENDED

RISE IN COMMODITY PRICES WHICH

WAS DIFFICULT TO DEAL WITH. WE

HAD SUPPLY CHAIN ISSUES WHICH

WAS A NEW THING AND ALSO A

CONTRIBUTOR TO INFLATION.

THERE ARE MANY FEATURES OF THE

PANDEMIC THAT MADE THIS AN

UNUSUAL EPISODE AND DIFFICULT

EPISODE TO ADDRESS.

THAT BEING SAID, I THINK AND

I'VE DONE SOME RESEARCH ON THIS,

THAT WE ARE PRESENTING NEXT

WEEK, THE BASIC MECHANISMS ARE

STILL THE SAME.

BUT YOU HAVE A BUNCH OF BAD

SHOCKS AND THAT WILL GIVE YOU A

PROBLEM.

THE UNDERLYING MECHANISMS OF

SUPPLY SHOCKS AND HIGH LABOR

MARKETS AND SO ON ARE THE SAME.

SO, I THINK -- I DON'T THINK

THERE HAS BEEN A MAJOR CHANGE

IN THE UNDERLYING PROCESS THAT

GENERATES INFLATION, ONLY A

SERIES OF SHOCKS RELATED TO THE

PANDEMIC THE MSS EPISODE.

GOING FORWARD, I AGREE WITH

JAY.

WE CAN'T PREDICT WHAT NEW

SHOCKS WILL COME AND WE GOT NEW

TECHNOLOGIES OUT THERE THAT

MIGHT MAKE CHANGES TO THE

ECONOMY.

WE'VE GOT GREEN INVESTMENT AND

THINGS LIKE THAT THAT MIGHT

AFFECT THE PRICE OF

AVAILABILITY OF FOSSIL FUELS.

THERE ARE MANY DO THINGS WE

CAN'T PREDICT, BUT I THINK

BROADLY SPEAKING, THE INFLATION

PROCESS HAS NOT CHANGED AND ONE

ASPECT, WHICH IS GOOD NEWS, IS

THAT THE FEDERAL RESERVE'S

CREDIBILITY HAS CAN'T --

EXPECTATIONS WELL ANCHORED

WHICH IS ALWAYS SORT OF THE

FIRST STEP IN GETTING CONTROL

OF INFLATION.

>> YOU MENTIONED THE ROLE OF

THE LABOR MARKET IN THE

INFLATION PROCESS.

I THINK IT IS QUITE STRIKING

THAT THE PANDEMIC, THE

UNEMPLOYMENT RATE WAS 3.5% AND

A FIVE DECADE LOW.

YET, AT THE SAME TIME,

INFLATION WAS STRUGGLING TO GET

TO 2% ON A SUSTAINED RACES.

HERE WE ARE IN 2023 AND THE

UNEMPLOYMENT RATE IS THE SAME

AS IT WAS AT THE BEGINNING OF

THE PANDEMIC INFLATION IS FAR

ABOVE 2%.

IN THAT CONTEXT, SHOULD WE BE

THINKING ABOUT THE RELATIONSHIP

BETWEEN SLACK IN THE LABOR

MARKET AND INFLATION

DIFFERENTLY?

DO WE NOT HAVE THE RIGHT

MEASURES OF SLACK AS IT

PROBLEMS WITH UNDERSTANDING

WHAT THE RATE OF UNEMPLOYMENT

IS?

OR IS THAT NOT THE KEY TO

UNDERSTANDING INFLATION IN THE

FIRST PLACE

>> AS I WAS TALKING ABOUT

BEFORE, I THINK THE PANDEMIC,

TO SOME EXTENT, SCRAMBLED THE

USUAL SIGNAL TO THE LABOR

MARKET AND THE FEDERAL RESERVE

HAS BEGUN TO PUT MORE WEIGHT ON

THINGS LIKE THE UNEMPLOYMENT

RATIO WHICH GIVES A BETTER

SIGNAL IN A PERIOD OF CHANGE

WHEN THE LABOR MARKET MATCHING

PROCESS IS IN CHANGE.

THEN THE UNEMPLOYMENT RATE.

THERE HAS BEEN SOME SCRAMBLING

OF THOSE SIGNALS.

THAT BEING SAID, IT IS SIMPLY

NOT TRUE THAT EVEN WITH PEOPLE

WHO UNDERSTOOD SINCE THE '70s

THAT THERE IS NOT A SIMPLE

INVERSE RELATIONSHIP BETWEEN

INFLATION AND UNEMPLOYMENT.

IN PARTICULAR, WHAT CAN BREAK

THAT RELATIONSHIP IS SUPPLY

SHOCKS.

DURING THE '70s WE DIDN'T THINK

WE HAD TIGHT LABOR MARKETS BUT

WE HAD HIGH INFLATION MARTIN --

WHICH THE FED DID NOT RESPOND

TO ADEQUATELY BECAUSE, B, THEY

WERE NOT ANCHORED AND THERE WAS

A STRONG TENDENCY FOR PRICE

INCREASES TO FEED INTO WAGE AND

PRICE INCREASES.

BECAUSE OF THE PRESENCE OF

SUPPLY SHOCKS, INFLATION AND

EXPECTATION DYNAMICS, THERE IS

NO REASON WHY LOW UNEMPLOYMENT

AND HIGH INFLATION CAN'T

COEXIST.

BUT THE REMEDIES MIGHT BE,

DEPENDING ON THE SITUATION,

MIGHT BE DIFFERENT.

>> HOW ARE YOU THINKING ABOUT

THAT?

>> I AM VERY MUCH IN AGREEMENT

WITH THAT.

IT IS TRUE THAT WE HAD BOTH

BEFORE AND AFTER THE PANDEMIC,

UNEMPLOYMENT VERY LOW AND THEN

WE ONLY HAD HIGH INFLATION

AFTER THE PANDEMIC.

DOES THAT MEET OUR

UNDERSTANDING OF THE

RELATIONSHIP BETWEEN SLACK AND

INFLATION IS WRONG HAS CHANGED

FUNDAMENTALLY AFTER THE

PANDEMIC?

MY ANSWER WOULD BE,

TENTATIVELY, NO TO BOTH OF

THOSE QUESTIONS.

WHAT IS DIFFERENT IS A SERIES

OF UNEXPECTED -- AND I DON'T

THINK LABOR MARKET SLACK WAS AN

IMPORTANT FEATURE OF INFLATION

WHEN IT FIRST SPIKE IN SPRING

OF 2021 BY CONTRAST, I DO THINK

LABOR MARKET SLACK IS AN

INCREASINGLY IMPORTANT FACTOR

IN INFLATION GOING FORWARD IN

PARTICULAR IN INFLATION AND

NONHOUSING SERVICES.

-- LABOR COSTS ARE A HIGH

PROPORTION OF TOTAL COSTS IN

THAT SECTOR ACCOUNTS FOR MORE

THAN HALF OF THE CORE INDEX.

BUT, ALL OF THIS, THE POINT IS

ALL OF THIS CAN BE EXPLAINED

USING OUR STANDARD FRAMEWORK

FOR UNDERSTANDING LABOR SLACK.

YOU COULD SAY IT THIS WAY.

THE NATIONAL RATE OF EMPLOYMENT

ROSE SHARPLY AS THE PANDEMIC

SEVERELY DISRUPTED THE LABOR

MARKET AND THE IMPLICATION IS

THAT UNEMPLOYMENT RATE OF 4%

INDICATED A MUCH TIGHTER LABOR

MARKET IN 2021 THAN IT DID IN

2018.

IT HAS -- AFTER THE PANDEMIC,

WE BEGAN LOOKING AT ALTERNATIVE

MEASURES, PARTICULARLY -- BUT

ALSO -- WHICH HAVE SIGNALED

EVEN GREATER TIGHTNESS IN

EMPLOYMENT RATE.

I MEAN, TO PUT SOME NUMBERS ON

IT, AT THE END OF 2018 AND THE

END OF 2021, WE HAD OR PERCENT

UNEMPLOYMENT BUT IN 2018, THE

RATIO WAS 11 AND IN 2021, IT

WAS TO -- STAND-ALONE

UNEMPLOYMENT RATE. ALTHOUGH,

YOU COULD ALSO THINK OF IT AS

THE NATURAL RATE.

-- THE OTHER THING IS, IT MAY

ALSO BE THE CASE THAT -- IS THE

BEEN MEANING INFLATION HAS

RETURNED BURNOUT TO BEING MORE

RESPONSIVE TO CHANGES IN THE

LABOR MARKET SLACK, BUT THE

PHILLIPS CURVE WAS ONCE THOUGHT

TO BE FAIRLY STEEP AFTER

FLATTENING RELATIONSHIPS IN THE

ECONOMY.

I WOULD NOT CHARACTERIZE THAT

AS A PROBLEM FOR UNDERSTANDING

INFLATION.

>> VERY GOOD.

THANK YOU.

MAYBE WE CAN PIVOT TO THE TOPIC

OF CENTRAL BANK COMMUNICATIONS.

IT IS WIDELY UNDERSTOOD NOW

THAT THE PUBLIC UNDERSTANDS THE

CONDUCT OF MONETARY POLICIES

AND THE MORE EFFECTIVE IT WOULD

BE THE FOSTERING THAT

UNDERSTANDING REQUIRES A LOT OF

COMMUNICATIONS AND, OF COURSE,

THAT CAN BE HARD.

BOTH OF YOU HAVE BEEN POWERFUL

ADVOCATES FOR ADVANCING

MONETARY POLICY COMMUNICATIONS.

THEN, YOU PLAYED A CRITICAL

ROLE HERE ADVANCING

COMMUNICATIONS INCLUDING THE

INTRODUCTION OF PRESS

CONFERENCES AFTER -- MEETING

AND THE INTRODUCTION OF

PROJECTIONS AND WHAT CHANGES

OVER THIS PERIOD SINCE THE

COMMUNICATIONS REVOLUTION BEGAN

WOULD YOU HIGHLIGHT AS BEING

SOME OF THE MOST EFFECTIVE AND

MOST IMPORTANT AND WHAT ARE

SOME CHALLENGES THAT EXIST?

>> YOU TALK ABOUT

COMMUNICATION.

IT SERVES MULTIPLE PURPOSES.

ONE OF THE PURPOSES TO TRY TO

ALIGN MARKET EXPECTATIONS WITH

THINKING AND I THINK THAT GOES

BACK TO ALAN GREENSPAN AND 1994.

SINCE THEN, THE FED HAS TRIED

AT LEAST TO GIVE SOME

INDICATION OF WHAT IT IS

THINKING AND SEES AS THE RISKS

TO THE ECONOMY, BUT BEYOND THAT,

YOU MENTIONED TRANSPARENCY AND

ACCOUNTABILITY.

THIS IS A POWERFUL INSTITUTION

AND IT IS IMPORTANT THAT IS

ACCOUNTABLE TO CONGRESS AND THE

PUBLIC IN THE BEST WAY TO DO

THAT IS TO EXPLAIN WHAT WE WILL

GO ABOUT THAT.

THE OTHER REASONS FOR

COMMUNICATION, ONE I WOULD TALK

ABOUT, IS FEEDBACK.

WE ARE HAVING A CONFERENCE HERE

AND IF THE FED PUTS OUT THE

ISSUES IT IS CONCERNED ABOUT,

ECONOMISTS WILL WRITE ARTICLES

OR TWEETS AND RESPOND TO THAT.

OR IN THE CASE OF THE FED

LISTENS PROGRAM, MAYBE ORDINARY

PEOPLE WILL EXPLAIN HOW

MONETARY POLICY EFFECTS THEM.

ONE FINAL THING I WOULD MENTION

IS DIVERSITY OF VIEWS BECAUSE

THE FED HAS A CONSENSUS CULTURE

AND THERE ARE FEW DISSENTS

NORMALLY.

THE OUTSIDE PERCEPTION IS THE

FED IS SUBJECT TO GROUPTHINK

WHICH IS POSSIBLE, BUT WITH

PEOPLE TALKING ABOUT THEIR OWN

VIEWS, AND EXPLAINING WHY THEY

SEE THE ECONOMY AS THEY DO, IT

DOES, I THINK, TO SOME EXTENT,

SO THERE IS A RANGE OF OPINION

ON -- IN TERMS OF TOOLS, I

GUESS I DO FEEL PROUD OF ABOUT

THE PRESS CONFERENCES WHICH I

INTRODUCE FOUR TIMES A YEAR

AFTER THE SUMMARY ECONOMIC

PRODUCTIONS WHICH THEY HAVE

TAKEN TO AN ART FORM.

THE -- I THINK ALSO, THE

INFLATION TARGET, THE FORECAST

THAT WE RELEASE, AND THERE IS A

CULTURAL CHANGE WHICH SOME

PEOPLE DON'T LIKE, BUT IS GOOD

BECAUSE IT USED TO BE, IF YOU

LOOK BACK AT BEACHES, THE

PRESIDENT OF THE FEDERAL

RESERVE BANK OF MINNEAPOLIS

WOULD TALK ABOUT HARVEST OR

SOMETHING I WOULDN'T TALK MUCH

ABOUT THE GLOBAL OR NATIONAL

ECONOMY.

NOW YOU HAVE A LOT OF PEOPLE

TALKING ABOUT DIFFERENT ASPECTS

OF THE FEDERAL RESERVE'S AND

AGAIN, THAT CONTRIBUTES TO BOTH

MARKET TRANSPARENCY AND ALSO TO

ACCOUNTABILITY AND --

>> WE WILL CONTINUE TO PUSH

FORWARD ON COMMUNICATIONS AND

TRANSPARENCY FRIENDS.

YOUR THOUGHTS?

>> I THINK THE BROADER SETTING

IS TRANSPARENCY, ESPECIALLY

IMPORTANT TODAY, THE POLLING

DATA SHOW THAT MANY IMPORTANT

PUBLIC AND PRIVATE INSTITUTIONS

GLOBALLY HAVE STRUGGLED TO

RETAIN THE PUBLIC'S TRUST AND

WE ARE AN INSTITUTION THAT

SERVES A CRITICAL PUBLIC

MISSION, BUT TO BE HERE AND

WORK HERE IS TO KNOW THAT THE

PARTICULARS OF WHAT WE DO AND

HOW WE DO IT ARE NOT GENERALLY

TOP OF MIND FOR MOST PEOPLE.

AND ON TOP OF THAT, WE HAVE A

CRITICAL -- AND ALL OF THAT

MEANS WE HAVE A SPECIAL

OBLIGATION TO OURSELVES CLEARLY

, WHAT WE DO, WHY WE DO IT, TO

PROVIDE TRANSPARENCY TO THE

PUBLIC AND THEIR ELECTED

REPRESENTATIVES IN CONGRESS SO

WE CAN EARN AND DELIVER --

DESERVE THE TRUST AND SUPPORT.

-- THIS INTERESTING PERIOD.

MY COLLEAGUES AND I TAKE THAT

AS A PRIMARY AND AFFIRMATIVE

PROACTIVE OBLIGATION AND NOT

SOMETHING WE SEE AS A BURDEN.

IN THAT SPIRIT, TO YOUR POINT,

WE HAVE FALLOWED THE EXAMPLE OF

GREENSPAN WITH THE FIRST

STATEMENT THROUGH THE

INNOVATIONS AND LOOKING TO

FOSTER GREATER TRANSPARENCY AND

ACCOUNTABILITY A COUPLE

EXAMPLES, WE DO A PRESS

CONFERENCE AFTER EVERY MEETING,

NOT EVERY OTHER ONE.

WE HAVE EXPANDED OUR

CONGRESSIONAL OUTREACH TO HEAR

DIRECTLY FROM LAWMAKERS ON AN

ONGOING BASIS SO THEY HAVE THE

INFORMATION THEY NEED TO

CONDUCT APPROPRIATE OVERSIGHT.

AS I MENTIONED, IN 2019 AND

'20, WEEK CONDUCTED A REVIEW

SEEKING INPUT FROM A BROAD

RANGE OF PEOPLE AND GROUPS ALL

AROUND THE COUNTRY. WE ALSO

HAVE EXPENDED TRANSPARENCY

BEYOND MONETARY POLICY.

WE NOW PUBLISH SEMIANNUAL

FINANCIAL STABILITY AND

SUPERFICIAL GALATIAN REPORTS.

-- THERE ARE ALWAYS

COMMUNICATION CHALLENGES,

ESPECIALLY COMMUNICATING WITH

THE UNCERTAINTY OF THE ECONOMIC

CONDITIONS AND OUTLOOK.

A GOOD EXAMPLE OF THIS IS

DESPITE OUR EFFORTS TO EXPLAIN

OTHERWISE, THE POLICY PATHS

FROM THE -- SEEM TO BE TAKEN

AS A PLAN OR COMMITTEE DECISION

INSTEAD OF WHAT THEY ARE.

-- UNDER THE ASSUMPTION THAT

THE CONDITIONS ARE IN LINE WITH

THEIR BASELINE FORECAST.

THAT IS JUST THE CHALLENGE WE

CONSTANTLY FAITH IN DESPITE

THAT, I WOULD SAY THE ECONOMIC

PROJECTIONS HAVE BEEN USEFUL

DURING THIS TIGHTENING CYCLE AS

MARKETS HAVE LOOKED AHEAD AND

-- LONG BEFORE THEY ARE

IMPLEMENTED.

>> YOUR LAST POINT BRINGS UP

THE IDEA OF COMMUNICATION BEING

AN EFFECTIVE POLICY TOOL.

I GUESS THE KEY ELEMENT OF THAT

IS THE USE OF FORWARD GUIDANCE.

JAY AND ONE SCHOOL OF THOUGHT

IT SHOULD ONLY BE DEPLOYED WHEN

INTEREST RATES ARE LOWER BOUND

AND YOU CAN NO LONGER PROVIDE

-- SO, YOU DO SO THROUGH BY

COMMUNICATING.

ANOTHER SCHOOL OF THOUGHT,

FORWARD GUIDANCE SHOULD JUST BE

A REGULAR PART OF COMMUNICATING

WITH THE PUBLIC TO CONVEY THE

INTENTIONS EVEN FAR AWAY FROM

THE AFFECTED --.

WHERE DO YOU COME OUT IN THAT

DEBATE?

>> I THINK IT DEPENDS ON

CIRCUMSTANCES.

FORWARD GUIDANCE CAN BE USEFUL

WHEN THERE IS A MATERIALLY

DIFFERENT OR CLEARER VIEW OF

THE PATH OF POLICY THEN THE

INTERESTED PUBLIC.

I WOULD AGREE THAT THE LOWER --

PROVIDE MORE STIMULUS BY

INDICATING -- LONGER THAN THE

PUBLIC EXPECTS.

I ALSO WOULD SAY THAT

COMMUNICATION COMES WITH THE

CONCEPT MISINTERPRETATION AND

THEY LIMIT FLEXIBILITY.

I THINK WE SHOULD USE OUR

GUIDANCE SPARINGLY WHEN THE

COURSE OF POLICY IS REASONABLY

WELL UNDERSTOOD OR ON THE

CONTRARY IS SO DEPENDENT ON

UNCERTAIN FUTURE DEVELOPMENT

THAT LITTLE CAN BE SAID

CONSTRUCTIVELY ABOUT THE

FUTURE.

A GOOD EXAMPLE OF THAT WAS THE

MARCH 2020 -- MEETING IN THE

PANDEMIC SHUTDOWNS WERE JUST

BEGINNING. THE LEVEL OF

CERTAINTY WAS ALMOST

UNIMAGINABLE.

-- OUR VIEW WAS THAT RELEASING

A FORECAST AT THAT TIME MIGHT

HAVE BEEN MORE OF AN OBSTACLE

TO CLEAR COMMUNICATION THAN A

HELP.

IN CONTRAST, AS I MENTIONED A

MINUTE AGO, FORWARD GUIDANCE

HAS BEEN AN EFFECTIVE TOOL

DURING THE CURRENT TIGHTENING

CYCLE.

THE TWO YEAR BETWEEN SEPTEMBER

'21 AND LIFT UP IN MARCH '20,

-- BEFORE WE LIFTED RATES.

THAT IS BECAUSE OF OUR

COMMUNICATION.

THE CURRENT CONTEXT, UNTIL

RECENTLY, IT HAS BEEN

RELATIVELY CLEAR -- IN OUR

FOURTH -- NOW, WE HAVE COME A

LONG WAY IN POLICY TIGHTENING

AND IT IS RESTRICTIVE WE FACE

UNCERTAINTY ABOUT THE LAG

EFFECTS OF OUR TYPING SO FAR

AND THE EXTENT OF CREDIT

TIGHTENING FROM RECENT BANK

STRESSES.

TODAY, WE ARE LIMITED TO

IDENTIFYING FACTORS WE WILL

MONITOR AS WE ASSESS WHAT

ADDITIONAL POLICIES MAY BE

APPROPRIATE TO RETURN INFLATION

TO 2% OVER TIME.

AT THE LAST PRESS CONFERENCE, I

NOTED THAT THAT WILL BE AN

ONGOING ONE AS WE GO AHEAD.

COMING THIS FAR, WE CAN LOOK AT

THE DATA AND MAKE CAREFUL

ASSESSMENTS.

>> THANK YOU.

JAY, YOU MENTIONED GUIDANCE CAN

BE USEFUL AT TIMES WHEN THE

PUBLIC MAY EXPECT A DIFFERENT

POLICY PATH THAN POLICYMAKERS.

HOW DO YOU THINK ABOUT THOSE

SORTS OF SITUATIONS?

>> RECENTLY, IT HAS BEEN THE

CASE THAT MARKETS ARE ON A

DIFFERENT RATE PATH.

BUT I WOULD SAY THAT THIS

DISCONNECT IS NOT SEEM TO

REFLECT A MISUNDERSTANDING OF

OUR REACTION OR LACK OF BELIEF

THAT WE WILL DO WHAT IS

NECESSARY TO BRING INFLATION

DOWN.

RATHER IT REFLECTS A DIFFERENT

FORECAST.

ONE IN WHICH INFLATION COMES

DOWN MORE QUICKLY THAN THE

COMMITTEE PARTICIPANTS THINK IS

LIKELY.

I WOULD SAY, SO FAR, THE DATA

HAVE SUPPORTED THE COMMITTEE

YOU THAT IT WILL TAKE SOME

TIME.

MOREOVER, SOMETHING WE OFTEN

DON'T REMEMBER TO THINK ABOUT

IS MARKET PRICES ALWAYS REFLECT

BOTH EXPECTATION AND

COMPENSATION FOR RISKS.

WHAT MARKET PARTICIPANTS SAY IN

SURVEYS OF THEIR EXPECTATIONS

IS CLOSER TO THE VIEWS IN THE

SEP AND WHAT IS REFLECTED IN

MARKET PRICES.

SO, ULTIMATELY, WE HAVE -- HAVE

THEIRS IN OUR ROLE IS NOT TO

ADVOCATE FOR A FORECAST. WHAT

WE CAN DO IS BE CLEAR ABOUT OUR

EXPECTATIONS FOR GROWTH,

UNEMPLOYMENT, AND INFLATION AND

THE IMPLICATIONS OF POLICY.

WE WANT THE PUBLIC TO

UNDERSTAND HOW POLICY WOULD

REACT IF THE PATH OF THE

ECONOMY WERE TO DIFFER THAN OUR

EXPECTATIONS AND WE LAY OUT OUR

INDIVIDUAL FORECASTS.

THEN, WHAT WOULD BE YOUR

TAKEAWAYS?

FOR THE PAST COUPLE DECK WHICH

YOU HAS USED --

>> -- FORWARD GUIDANCE IS A

COMMITMENT FORWARD GUIDANCE

WHICH IS RARELY USED, TYPICALLY

AT THE LOWER BOUND, WHERE

CENTRAL BANK PROMISES TO DO

SOMETHING IN THERE IS

CREDIBILITY ON THE LINE THAT IT

WILL FOLLOW A CERTAIN PATH

GOING FORWARD.

THAT IS A WAY OF GETTING MORE

STIMULUS.

THAT GOES BACK TO ALAN

GREENSPAN TO INDICATE THAT A

CERTAIN PATH WAS VERY LIKELY

AND ACTUALLY HELPS ACHIEVE THE

OBJECTIVES.

-- FORWARD GUIDANCE IS A

FORECAST.

HERE IS WHAT WE THINK. TOMORROW

WE MIGHT THINK SOMETHING

DIFFERENT, THAT WE ARE TRYING

TO GIVE YOU A SENSE OF WHERE

THE ECONOMY IS GOING AND HOW WE

THINK POLICY WILL REACT.

'S.

ONE IS PEOPLE DON'T UNDERSTAND

THE DIFFERENCE ALL THE TIME

BETWEEN THE COMMITMENT AND A

FORECAST.

THAT IS SOMETHING THAT JAY HAS

EMPHASIZED AND SHOULD BE

EMPHASIZED.

ANOTHER IS PEOPLE UNDERESTIMATE

THE AMOUNT OF UNCERTAINTY

INVOLVED WHICH IS ENORMOUS.

SO, I DON'T THINK YOU CAN DO

WITHOUT SOME FORM OF FORWARD

GUIDANCE BECAUSE THE IDEA OF

TRANSPARENCY SAYS, HERE IS WHAT

WE SEE.

AND HERE IS WHAT WE ARE

THINKING.

THE IDEA THAT THERE IS NO

GUIDANCE AT ALL, MOST OF THE

TIME, I TAKE MARCH 2020 AS A

COUNTER EXAMPLE, BUT MOST OF

THE TIME YOU WANT TO GIVE A

SENSE OF WHERE YOU THINK THE

ECONOMY ARE HEADING.

I THINK THAT ONE OF THE ISSUES

IS THE -- IS SO LARGE AND

GEOGRAPHICALLY DISPERSED IT IS

DIFFICULT TO COME UP WITH A

COLLECTIVE KITTY -- COMMITTEE

FORECASTS.

THE -- IS A COMPROMISE THAT IS

NOT IDEAL . OTHER CENTRAL BANKS

DO OTHER THINGS.

SOMETIMES THEY HAVE COLLECTED

FORECASTS AND SOMETIMES THEY --

THERE ARE DIFFERENT WAYS TO GO

ABOUT THIS, BUT I THINK FORWARD

GUIDANCE IS AN INSTRUMENTAL

TOOL, BUT, AGAIN, LETTING

PEOPLE KNOW HOW THE CENTRAL BANK

SEES THE EVOLVING SITUATION,

NORMALLY, IT'S PART OF

TRANSPARENCY.

>> SO YOU HIGHLIGHTED

UNCERTAINTY AS BEING A KEY

FACTOR IN DEALING WITH SOME OF

THE ISSUES.

UNCERTAINTY IS A PERVASIVE

FEATURE OF MONETARY POLICY

MAKING AND ALSO INVOKES THE SO-

CALLED RISK MANAGEMENT APPROACH

TO MAKING MONETARY POLICY.

JAY, IF THEY RAISE THE FUNDS

RATE BY FIVE PERCENTAGE POINT

IN MORE THAN A YEAR, THAT IS A

RAPID PACE BY HISTORICAL

STANDARDS.

HOW DO YOU VIEW THOSE ACTIONS

IN THE CONTEXT OF THE

UNCERTAINTIES THAT YOU AND THE

COMMITTEE FAITH ABOUT THE

ECONOMIC OUTLOOK AND HOW DID --

IN YOUR DECISIONS?

>> I WILL START BY REMEMBERING

ALAN GREENSPAN FAMOUSLY SAID

THAT PERVASIVE UNCERTAINTY WAS

THE DEFINING CHARACTERISTIC OF

THE POLICY LANDS. IS WORTH

REMEMBERING THAT HE MADE THE

COMMENT WHICH WE NOW THINK OF

AS THE GREAT MODERATION.

THAT STATEMENT HAS NEVER BEEN

MORE APT THAN IT IS TODAY.

IF YOU LOOK BACK AT THE

PANDEMIC, THE GLOBAL SHUTDOWN,

THE FORCEFUL RESPONSE AND

REOPENING, ALL OF IT, HAD NO

MODERN PRESIDENT.

IT HAS BEEN A TIME OF -- NO

ADVANCE ECONOMY HAD EVER FACED

A SHUTDOWN AND REOPENING AND NOW

ALL OF THEM WHAT THEY SAID AT

THE SAME TIME.

NO MATTER WHAT HAPPENED, THE

OUTCOME IS GOING TO BE

UNPRECEDENTED.

THIS POSES REAL CHALLENGES FOR

POLICY AND POLICY

COMMUNICATIONS.

WE HAD TO BE NIMBLE TO RESPOND

TO THE EVOLVING SITUATION, ON

THE OTHER HAND, WE WANTED TO BE

AS CLEAR AS POSSIBLE ABOUT WHAT

WE WERE DOING.

I WOULD SAY POLICY HAS BEEN

MOBILE -- GLOBAL AND

CONSISTENT WITH WHAT WAS IN OUR

EXPECT HAITIANS.

THE DATA DID SHOW DECLINING --

BUT THEN TURNED DECISIVELY

AGAINST THE EXPECTATIONS.

IN RESPONSE, WE ACCELERATED OUR

POLICY AFFIRMING AND AS YOU

NOTED, RAISING RATES.

OVER THIS PERIOD, WE

COMMUNICATED THAT THE OBJECT

WAS TO REACH -- POLICY

RESTRICTIVE TO RETURN INFLATION

TO 2% OVER TIME.

WE ALSO COMMUNICATED THAT THE

LEVEL OF RATES REQUIRED WAS

UNCERTAIN.

UNTIL RECENTLY, IT HAS BEEN

CLEAR THAT FURTHER POLICY ARMING

WOULD BE REQUIRED AS POLICY

HAVE BECOME MORE -- BURSTING TO

-- WE HAVEN'T MADE ANY

DECISIONS ABOUT THE EXTENT OF

WHAT WOULD BE APPROPRIATE, BUT

GIVEN HOW FAR WE HAVE COME, WE

CAN LOOK AT IT AND MAKE CAREFUL

ASSESSMENTS.

>> WHEN YOU BECAME A

POLICYMAKER, YOU WERE WELL

VERSED IN THE ACADEMIC

LITERATURE.

>> I MOVED FROM THE SITE TO

THAT SIDE.

-- IN ACTUAL POLICYMAKING, YOU

DON'T EVEN KNOW WHAT THE

CURRENT GDP IS BECAUSE IT WILL

GET REVISED SEVERAL TIMES DOWN

THE ROAD.

I REMEMBER WHEN I WAS SITTING

AS A MEMBER OF THE BOARD AND

ALAN GREENSPAN WAS IN THE CHAIR

AND WE HAD RESPONDED TO SOME

INFLATION DATA AND A LITTLE BIT

LATER, IT TURNED OUT THAT

CHANGE HAVE BEEN REVISED AWAY.

I ASKED THE CHAIR, DO YOU THINK

WE CAN REVISE OUR INTEREST RATE

POLICY?

IT IS VERY DIFFICULT.

WE GOT A LAUGH AT THAT, BUT

JUST TRYING TO MAKE POLICY, IT

INVOLVES NOT JUST UNCERTAINTY

ABOUT THE DATA IN THE MODEL AND

ALL THE THINGS THAT CAN HAPPEN,

ABOUT THE SOCIAL AND ECONOMIC

AND POLITICAL ENVIRONMENT, IT

IS VERY DIFFICULT.

UNFORTUNATELY OR FORTUNATELY,

GIVEN THAT MONETARY POLICY

WORKS ON A LEG, AND THERE ARE

RISKS ON BOTH SIDE OF THE

FORECAST, THERE'S NOT MUCH

CHOICE BUT TO ACCEPT THAT

UNCERTAINTY AND TRY TO DO THE

BEST YOU CAN BEING READY TO

ADJUST AS NEW INFORMATION

ARRIVES.

>> VERY GOOD.

THANK YOU.

WE ARE GETTING CLOSE TO OUR

ALLOTTED TIME.

MAYBE WE CAN WRAP UP WITH THE

QUESTION LOOKING AHEAD.

WHAT DO YOU -- WHAT WOULD YOU

.2 AS SOME OF THE KEY ISSUES

THAT WILL BE MOST RELEVANT TO

THE RESEARCH COMMUNITY AS WELL

AS POLICYMAKING COMMUNITY?

>> I GUESS I WOULD START WITH

THE LABOR MARKET.

WHAT WE TALKED ABOUT EARLIER,

VACANCIES IN PARTICULAR IN THE

WHOLE DISCUSSION OVER WHETHER

THE EXTRAORDINARILY HIGH LEVELS

OF SURPLUS CEMENT IN THE LABOR

MARKET CAN BE LESSENED THROUGH

THE VACANCIES CHANNEL WITHOUT A

SIGNIFICANT INCREASE IN

UNEMPLOYMENT.

THAT WILL BE A QUESTION WE WILL

RESOLVE EMPIRICALLY, BUT I

THINK WE ARE LEARNING NEW

THINGS ABOUT THE WORKINGS OF

THE LABOR MARKET, AT LEAST IN

THIS ONE SITUATION.

I THINK ON MONETARY POLICY, IT

WILL BE INTERESTING TO LOOK

BACK AND TO TRY TO UNDERSTAND

HOW INFLATION SPREAD FROM WHAT

WAS VERY, AT THE BEGINNING,

FOCUSED ON THE GOODS SECTOR AND

THEN THE TREMENDOUS AMOUNT OF

SUPPORT THAT GOODS PURCHASES GOT

FROM FISCAL AND MONETARY

STIMULUS.

HOW DID IT SPREAD THROUGH --

REALLY, INTO THE SERVICE SECTOR

THERE?

I THINK WE ARE SEEING MUCH

PROGRESS ON GOODS AND WE HAVE

PROGRESS IN THE PIPELINE ON

HOUSING SERVICES, BUT WHERE WE

SEE PERSISTENT INFLATION IS IN

THE SERVICES.

WHY IS -- WHAT ARE THE

IMPLICATIONS?

>> I THINK ONE OF THE THINGS I

WOULD URGE RESEARCHERS TO LOOK

AT IS THE RELATIONSHIP BETWEEN

MONETARY POLICY AND FINANCIALS

ABILITY.

IF YOU READ THE PAPERS AND

EVERYONE HAS A STRONG OPINION

ABOUT THIS, THAT DON'T

NECESSARILY CORRELATE, AND AS

MARK TWAIN ONCE SAID, THE

THINGS YOU DON'T KNOW CAN HURT

YOU AS MUCH OF THE THINGS YOU

KNOW FOR SURE, BUT I KNOW -- I

THINK WE DON'T UNDERSTAND TO

THE EXTENT THAT WE NEED TO THE

RELATIONSHIP BETWEEN DIFFERENT

ASPECTS OF MONETARY POLICY,

RISK-TAKING, BALANCE SHEET

BEHAVIOR, ET CETERA.

AND IT IS JUST SOMETHING --

THERE IS A LOT OF WORK DONE,

DON'T GET ME WRONG.

I THINK WE NEED TO UNDERSTAND

MUCH BETTER WHAT THE CHANNELS

ARE AND TO QUANTIFY THE

RELATIONSHIPS WE CAN THINK ABOUT

TO WHAT EXTENT WE NEED TO TAKE

THAT INTO ACCOUNT IN MONETARY

POLICY.

IN VERY GOOD.

LET ME THINK BOTH OF YOU

TREMENDOUSLY FOR SHARING YOUR

PROSPECTUS WITH US TODAY.

IT HAS BEEN A HIGHLIGHT OF OUR

CONFERENCE HONORING THOMAS.

THANK YOU VERY MUCH.