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Financial Services Innovation Lab, Georgia Tech 20

In addition, contacts reported that softer export sales, weaker economic activity abroad, and elevated levels of uncertainty regarding the global outlook were weighing on business sentiment and leading firms to reassess plans for investment spending.

Inflation had been subdued of late,

But my colleagues and I continue to believe that the factors that are responsible this year for holding inflation down are likely to prove transitory.

But low rates are not solely or even primarily a result of the Federal Reserve's accommodative monetary policies; they are rooted in the market's expectations of low inflation and the weakness of the economic recovery, factors weighing on rates not just in the United States but throughout the advanced economies.7 Given low real rates and low inflation, expected nominal returns should be low across all asset classes.

Consistent with the optimism driving stock prices, spreads of corporate bond yields over comparable-maturity Treasury yields narrowed markedly across the credit spectrum, most notably for debt securities of the lowest credit quality firms.

As we gain experience with the enhanced forecasts, we will continue to evaluate how best to promote stability of both prices and employment.

Shortly after 9 a.m. each morning, the Desk staff and staff members at the Board of Governors confer over the phone to discuss their respective estimates of the day's demand for balances as well as to consider factors that may affect supply.

These authors point out (as have many others) that, when nominal interest rates are at or near zero, the central bank can lower the real rate of interest only by creating expectations of inflation on the part of the public.

Smoothing through these variations, average monthly job growth appears to have stepped down from last year’s strong pace, but job gains remain well above the pace necessary to provide jobs for new labor force entrants.

And I'm pleased to have the opportunity to share with you, the students of South Dakota State University (SDSU), my experience as a member of the Federal Reserve Board of Governors and my outlook for the U.S. economy.1 Today I will speak to you about my outlook for the U.S. economy and what the Federal Reserve has been doing to support economic activity during the COVID-19 pandemic recovery.

A variety of indicators, along with anecdotal reports, suggested that employment was expanding at a fairly good pace and labor compensation was rising moderately.

But what if the Fed were actually to propose a soft form of inflation targeting?

Most participants remarked that the standard of "substantial further progress" had been met with regard to the Committee's price-stability goal or that it was likely to be met soon.

Although the unemployment rate is around a 50-year low, wages are rising broadly in line with productivity growth and underlying inflation.

Total U. S. consumer prices, as measured by the PCE price index, increased 1.

But, in the interim, the absence of increasing inflation pressures meant that the Federal Reserve did not need to tighten to bring demand back in line with the potential as soon as it otherwise might have needed to.

While these studies allow for differences in the weighting of price indexes across different income groups, they rely on the same elementary price indexes for subcategories of goods and services.

The ebbing of stimulus from last year's tax cuts also could tend to slow growth in consumer spending.

What does this suggest about monetary policy strategy going forward?

Together these structural changes would imply that the economy can now operate at a lower unemployment rate and at a higher growth rate than previously without inflationary consequences.

Mr. Kocherlakota dissented because, in his view, the new forward guidance in the fifth paragraph of the statement would weaken the credibility of the Committee's commitment to its inflation goal by failing to communicate purposeful steps to more rapidly increase inflation to the 2 percent target and by suggesting that the Committee views inflation persistently below 2 percent as an acceptable outcome.

At longer maturities, yields drifted lower over most of the intermeeting period in response to incoming data that suggested economic growth would remain moderate and inflation subdued,

In recent years, aggressive cost-cutting in the United States has been linked to greater emphasis on maximization of shareholder value and less on growth and diversification, which was more prominent in the 1970s and 1980s.

Inflation expectations that currently appeared by various measures and survey results to be essentially flat or even to have declined a bit were reinforcing the factors holding down price increases.

Their forecasts of consumer price inflation for the year, as measured by the PCE chain-type price index, were centered in a range of 1-1/4 to 1-1/2 percent, with a full range of 1-1/4 to 1-3/4 percent.

In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal.

Productivity change for this output concept has increased even more than for traditional concepts.

Nonetheless, participants generally saw the unemployment rate as still elevated and were not yet confident that the recent progress toward the Committee's employment objective would be sustained.

The Committee also noted that output had continued to expand at a solid pace, new hiring had appeared to pick up, and although incoming data on inflation showed that it had moved somewhat higher, longer-term inflation expectations had remained well contained.

Although the Fed hasn't started raising rates or reducing the balance sheet, interest rates have moved up notably.

The Fed's credibility, earned over decades of low inflation, is a powerful policy tool that is critical to our long-term success.

Despite further declines in vacancy rates and rising real estate prices, business spending on nonresidential construction also seemed to have been lackluster, with such activity not having changed much since last summer.

Indeed, the members did not rule out the emergence of appreciably lower inflation.

When anticipations of Fed tapering led to higher U.S. interest rates and higher market volatility, these trades may have been quickly unwound, engendering particularly sharp declines in EME exchange rates and asset prices.

Indeed, the commitment to long-run price stability can afford the central bank some flexibility in employing its tools to address shorter-run economic issues.

In the end, they concurred that the statement should note that economic growth had rebounded in the current quarter but that it appeared likely to moderate to a more sustainable pace in coming quarters.

As you can see, transforming the information available from published statistics into concepts useful for assessing the consequences of monetary policy is, in fact, quite complex.

While participants generally felt that the pace of underlying productivity growth remained robust, careful attention would need to be paid to developments regarding unit labor costs and profit margins.

King (1999) shows that, if a long enough interval is given to hit the target, there may be little difference between a price level target and an inflation rate target.

Some participants judged that a less accommodative future stance of policy would likely be warranted and that the Committee should convey a strong commitment to address elevated inflation pressures.

I don’t think we look at—I understand what you’re asking, but we’re looking at—our mandate is price inflation and maximum employment, and that’s what we’re looking at with setting interest rates.

If you look at the number of job openings compared to the number of unemployed, it’s—we’re, we’re clearly on a path to a very strong labor market with high participation, low unemployment, high employment, wages moving up across the spectrum.

Wage growth is not—there are many factors that affect it—it’s not definitive in any sense in determining our policy,

The growth of subprime mortgage lending is one indication of the extent to which access to credit has increased for all households, including those with lower incomes.

However, some participants noted that the recent rise in the prices of oil and other commodities, as well as increases in import prices stemming from the decline in the foreign exchange value of the dollar, could boost inflation pressures.

As the economy approached full employment, the Federal Open Market Committee (FOMC), the monetary policymaking arm of the Federal Reserve System, was faced with the classic problem of managing the mid-cycle slowdown--that is, of setting policy to help guide the economy toward sustainable growth without inflation.

The staff interpreted the increases in prices of energy and nonmarket services that recently boosted consumer price inflation as largely transitory.

PCE core is at about 2, and I think we see that, you know, the temporary increase in headline inflation as being a function of oil prices probably, and we expect inflation to go back down to 2 percent.

* * * What then are the implications of this largely irreducible uncertainty for the conduct of monetary policy?

it was noted that this drop could be explained by a reduction in the number of respondents who had previously expected relatively high inflation outcomes.

The Phillips curve has become, according to most estimates, quite flat in the sense that movements in unemployment have only a modest impact on inflation, so we shouldn’t overblow how large that is.

In these circumstances, inflation pressures could be expected to remain subdued and some further disinflation might well occur.

Venezuela provides one counterexample, with a long-term inflation forecast now of 15 percent.

Job gains had been robust in recent months, and the unemployment rate had declined substantially.

If the demand growth that caused the oil price increases is domestic, it could mean that the price shock might be less permanent.

The economy continued to perform well into 2007, with solid growth through the third quarter and unemployment remaining near recent lows.

Our role, though, is also to, you know, to make sure that—that maximum employment happens in a context of price stability and financial stability, which is why we’re gradually raising rates.

Ensuring that every American has the chance to improve his or her economic circumstances through hard work, saving, entrepreneurship, and other productive activities is essential for building healthy communities and achieving sustainable economic growth.

The effect can be accentuated by the temporary parking in liquid accounts of the proceeds from the more-frequent turnover and refinancings that often accompany a house price boom.

Long-term government bond yields declined and headline equity indexes increased, on net, in most of these countries, with bank stock prices in the euro area rising more than broader indexes.

will soon fall well below its underlying trend as the price of energy falls back to its initial level.

Core price inflation was projected to rise a little over the forecast horizon, in part as a result of higher import prices

The hurricanes were also expected to depress payroll employment in September, with a reversal over the next few months.

Rapid responses by businesses to changes in free-market prices have muted much of the tendency for unsold goods to back up, or unmet needs to produce shortages.

Several members noted the benefits of accumulating further information that could help clarify the contours of the outlook for economic activity and inflation as well as the need for further policy action.

Several mentioned that the revisions to the NIPA pointed to a modest downward adjustment in projected growth of actual and potential GDP,

The staff continued to project that the accommodative stance of monetary policy, together with a further attenuation of financial stress, the waning of adverse effects of earlier declines in wealth, and improving household and business confidence, would support a moderate recovery in economic activity and a gradual decline in the unemployment rate over the next two years.

At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until it was instructed otherwise, to execute transactions in the System Account in accordance with the following domestic policy directive: "The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output.

But change is hard and not everyone is willing or able to pay the price.

The producer price index for core intermediate materials dropped for a fifth month in February, reflecting, in part, weaker global demand and steep declines in the prices of a wide variety of energy-intensive goods, such as chemicals and plastics.

The information reviewed at this meeting indicated that economic activity had turned up in the final quarter of last year and strengthened further since then.

So, I think you raise a very important point because, although there is a great deal of market focus on the timing of liftoff, what to matter in thinking about the stance of policy is what the entire path of interest rates will look like.

Williamson cited Hayek's 1945 paper, along with Adam Smith's The Wealth of Nations from the eighteenth century, as forming the core of a "venerated tradition in economics" of studying the notion of "spontaneous order" arising from a freely operating market system.9 How does Hayek's case for the price system fit in alongside the other work that Williamson mentioned?

The U. S. trade deficit in goods and services widened substantially in January and February from its fourth-quarter average, with exports falling sharply and imports rising strongly.

Inflation is also being held down, reflecting weaker demand as well as significantly lower energy prices.

however, apart from the energy and health care sectors, price inflation had remained relatively subdued, evidently reflecting the combination of diminished growth in overall demand and strong competitive pressures in most markets.

The members viewed the outlook for core price inflation as still quite benign, largely reflecting the ample availability of labor and other producer resources to accommodate rising economic activity and the favorable prospects for further robust growth in productivity.

First, we must be mindful that an unexpected slowdown might occur in the growth of productivity.

Housing demand remained strong, but business fixed investment was still in the doldrums and consumer spending had flagged in late summer before apparently picking up somewhat in the autumn.

Following the deepest plunge since the Great Depression, employment and activity rebounded faster and more sharply than anticipated.

May 21, 2020 U.S. Economic Outlook and Monetary Policy Vice Chair Richard H. Clarida At the New York Association for Business Economics, New York, New York (via webcast) Share Accessible Keys for Video [Space Bar] toggles play/pause; [Right/Left Arrows] seeks the video forwards and back (5 sec ); [Up/Down Arrows] increase/decrease volume; [M] toggles mute on/off; [F] toggles fullscreen on/off (Except IE 11); The [Tab] key may be used in combination with the [Enter/Return] key to navigate and activate control buttons, such as caption on/off.

The behavior of the monetary aggregates will continue to be evaluated in the light of progress toward price level stability, movements in their velocities, and developments in the economy and financial markets.

the new statement maintains our definition that the longer-run goal for inflation is 2 percent, it elevates the importance—and the challenge—of keeping inflation expectations well anchored at 2 percent in a world in which an effective-lower-bound constraint is, in downturns, binding on the federal funds rate.

There is, in fact, an unusual discrepancy between the unemployment and capacity utilization rates, compared to previous expansions

We have long said that the size of the balance sheet will be considered normalized when the balance sheet is once again at the smallest level consistent with conducting monetary policy efficiently and effectively.

Labor demand remained strong, and the labor market continued to be very tight.

So the FOMC will always, in some sense, trump the projections of forward interest rates, but clearly, because the participants and the people around the table are the same, the projections should give significant information about where the FOMC is likely to go.

However, it was noted that the Committee had in place tools that would enable it to remove policy accommodation quickly if necessary to avoid an undesirable increase in inflation.

U. S. real GDP was forecast to plummet and the unemployment rate to soar in the second quarter of this year.

Real GDP growth was expected to step down in 2022 and 2023

Back then, the unemployment rate was 8.1percent and nonfarm payrolls were reported to have increased at a monthly rate of 97,000 over the prior six months; today, those figures are 7.6 percent and 194,000, respectively.

"The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output.

Homebuilding was forecast to decline somewhat but to stabilize at a relatively high level in the context of continued income growth and the generally favorable cash-flow affordability of home ownership.

And if we do that, inflation expectations will be right at 2 percent, and that’ll help us achieve 2 percent inflation over time and avoid the situation where the central bank loses its ability to support the economy.

Share prices of financial firms fell especially sharply, reportedly a reflection, in part, of concerns about exposures to subprime mortgages and about the effect of a potential slowdown in merger activity on operating profits.

After falling steeply before the August FOMC meeting, emerging market equity prices were little changed, on net, over the period.

When the government runs deficits, it siphons off private savings (reducing national saving), leaving less available for capital investment.

Analysis suggests it could take many years with a formal AIT rule to return the price level to target following a lower-bound episode, and a mechanical AIT rule is likely to become increasingly difficult to explain and implement as conditions change over time.15 In contrast, FAIT is better suited for the highly uncertain and dynamic context in which policymaking takes place.

Labor cost increases had not turned up and core inflation continued to edge lower.

At the moment, trend growth near full employment appears to be a reasonable prospect in the year ahead.