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Financial Services Innovation Lab, Georgia Tech 19

Also, the recent evidence could be interpreted as indicating that the surprisingly sharp decline in measured inflation in 2003 exaggerated the drop in the underlying rate of inflation.

On the other hand, if recent productivity gains were to be sustained, as some business contacts indicated they would be, potential output currently could be higher than standard measures suggested, and the high level of the unemployment rate could be a more accurate indication of slack in resource utilization than usual measures of the output gap.

So let me talk about the coronavirus specifically, and then I’ll turn more to global growth more generally.

Another clear attempt at political interference emerged in February 1988 when an undersecretary of the Treasury sent a letter to Federal Reserve officials urging them to ease monetary policy.

Today a rise in oil prices has mixed effects on the economy, lowering real household incomes and thus demand, but raising investment in drilling over time and benefiting oil-producing areas more generally.

Specifically, the projections converged on CPI inflation rates of 2-1/4 to 2-1/2 percent in 1997 and 2-1/2 to 3 percent in 1998.

survey-based measures of longer-term inflation expectations are little changed.

This monetary expansion could generate domestic inflation unless it is sterilized with other open market sales of securities--and the mere scale of present and expected future debt stocks may make continued sterilization impossible.

Higher productivity growth has apparently increased aggregate demand through at least three channels.

thought that potential output growth was likely to be a bit higher than forecast by the staff.

It is worth noting that today the economy is very strong and is well positioned to handle tighter monetary policy.

Market-based measures of inflation compensation had remained low,

I don’t know that demand for reserves has risen over the past years.

One objective--price stability--can be well defined and is fully under the control of monetary policymakers, at least over a period of time.

As a case in point, the increase in the transparency of U.S. monetary policy over the past two decades has been quite significant.

They also generally expected that inflation would remain, for some time, below levels the Committee considers most consistent, over the longer run, with maximum employment and price stability.

The members agreed that the statement to be issued after this meeting should highlight their view that even after their firming today the risks remained weighted mainly in the direction of rising inflation pressures.

continued to anticipate a moderate strengthening of the expansion in 2011 as well as a further pickup in economic growth in 2012.

In light of the robust expansion of capital spending thus far this year, the outlook for business investment spending was revised up appreciably, as more of the strength over the latter part of 2004 was attributed to underlying demand and less to the effects of the partial-expensing tax provision.

The Federal Reserve is taking action to keep inflation expectations anchored and bring inflation back to 2 percent over time.1 While last year's rapid pace of economic growth was boosted by accommodative fiscal and monetary policy as well as reopening, demand has moderated this year as those tailwinds have abated.

Indeed, in the IMF's latest World Economic Outlook, four out of five countries in this group are expected to post inflation rates between 1 percent and 3 percent this year.

The Federal Reserve’s enhanced guidance about its policy intentions and its substantial and still-increasing holdings of longer-term securities will ensure that monetary policy remains highly accommodative, consistent with the pursuit of its mandated objectives of maximum employment and price stability.

Notwithstanding the shift toward monetary policy committees, each central bank and its institutional structure reflects the politics and culture of the country that it serves (or "countries" in the case of the European Central Bank).

Monetary Policy in a World without Treasuries Today, monetary policy decisions are implemented through a mix of outright purchases and sales of assets held in the Fed's portfolio, temporary operations through repurchase agreements, and discount window loans.2 It seems to me that the same three operations, though perhaps in different proportions, could be used in the absence of Treasury securities.

You’ll never get inflation to 2 percent.” Some of our critics now who say inflation’s too tight—too high were the same ones who were saying, “You’ll never get to 2 percent.” Well, but anyway, that’s what happened.

For 2000, the Committee agreed on a tentative basis in June to retain the same ranges for growth of the monetary aggregates and debt, measured from the fourth quarter of 1999 to the fourth quarter of 2000.

With longer-run inflation expectations assumed to remain stable, changes in commodity and import prices expected to be modest, and significant resource slack persisting over the forecast period, inflation was forecast to be subdued through 2015.

Nonetheless, with the unemployment rate anticipated to increase somewhat during the remainder of 2009 and to decline only gradually in 2010, the staff still expected core PCE inflation to slow substantially over the forecast period; the very low readings on hourly compensation lately suggested that such a process might already be in train.

Treasury yields rose sharply on its release as market participants traced out the report's presumed implications for monetary policy.

Such forces can also cause short-term fluctuations in the economy that are, at least in part, beyond the control of monetary policy.

Most analysts would contend that U.S. interest rates were lowered by the world's accumulation of dollars.

So I don’t have a sense—the Committee doesn’t try to gauge what is the right level of equity prices.

And—and we do that with measures that—that, you know, keep people in their homes; that—that support hiring; that support growth; that avoid unnecessary, avoidable business insolvencies.

The delays often reflected concerns about the putative costs and risks of these policies, such as stoking high inflation and impairing market functioning.

A key factor in this assessment continued to be their outlook for rapid further gains in structural productivity that would help to hold down increases in unit labor costs.

But a longer-term trend--slow productivity growth--helps explain why we don't think dramatic interest rate increases are required to move our federal funds rate target back to neutral.

On balance, while the business investment outlook seemed vulnerable to somewhat greater than projected weakness in the short run, the members were persuaded that, against the background of large continuing gains in structural productivity and cost savings from further investment in equipment and software, business firms were likely to accelerate their spending for new capital after a period of adjustment.

This outcome would be entirely consistent with the new framework we adopted in August 2020 and began to implement at our September 2020 FOMC meeting.3 In our new framework, we aim for inflation outcomes that keep inflation expectations well anchored at 2 percent.

One member was persuaded that policy had already become so expansionary that further easing ran an unacceptable risk of exacerbating inflation over time.

Looking ahead, reports from retailer contacts were somewhat mixed; many anticipated relatively depressed holiday sales and where possible were making efforts to limit buildups of holiday merchandise, while other retailers were confident that sales would be reasonably well maintained, albeit generally somewhat below levels or growth rates experienced in previous holiday seasons.

The underlying rate of consumer price inflation in recent months was lower than the staff expected at the time of the November meeting, and the staff forecast anticipated that core PCE prices would rise a bit more slowly in 2011 and 2012 than previously projected.

Future policy adjustments would depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

But again, our basic forecast is one which is basically, as was pointed out earlier by Mr. Hilsenrath, a moderately optimistic forecast, where growth picks up as we pass through this period of fiscal restraint

Companies can keep their focus on cutting costs and increasing productivity; they can foster research and innovation; they can offer training and employee incentives to acquire more education and skills.

indeed, inflation might edge a bit lower in the early stages of the expansion.

More information might provide a better sense of how the higher interest rates were affecting aggregate demand and perhaps also help--to a small degree--to shed light on the considerable uncertainties surrounding the relationship of output to inflation.

Participants agreed that the longer-run normal federal funds rate was likely lower than in the past, in part because of secular forces that had put downward pressure on real interest rates.

Rather, central banks have learned over the years that their policies should be devoted to fostering macroeconomic balance and price stability.

Almost all participants reaffirmed the view that further gradual increases in the target range for the federal funds rate would likely be consistent with sustaining the Committee's objectives of maximum employment and price stability.

Against this background, the risks in the outlook for prices also seemed to be tilted toward somewhat higher inflation.

For these reasons, I have been interested in exploring approaches that expand the space for targeting interest rates in a more continuous fashion as an extension of our conventional policy space and in a way that reinforces forward guidance on the policy rate.18 In particular, there may be advantages to an approach that caps interest rates on Treasury securities at the short-to-medium range of the maturity spectrum—yield curve caps—in tandem with forward guidance that conditions liftoff from the ELB on employment and inflation outcomes.

Market-based measures of inflation compensation remained low

We’re not seeing evidence in labor markets of very substantial upward pressures on labor that could signify extreme shortages of labor that could propel inflation higher in a very rapid way, and inflation is still operating below our objective.

But in the shorter run, we must also develop strategies to overcome the education deficiencies of all too many of our young people, and to renew the skills of workers who have not kept up with the changing demands of the workplace.

Some price increases had been noted

The external sector was expected to exert a small restraining influence on economic activity over the projection period.

In my comments today, I will focus on the Fed's efforts to promote our maximum employment and price stability goals amid this upheaval, and suggest how lessons from history and a careful focus on incoming data and the evolving risks offer useful guidance for today's unique monetary policy challenges.

After a short coffee break, we have a staff presentation on the alternatives we face in setting monetary policy.

We have Chair Yellen’s Press Conference FINAL households who are becoming more comfortable with their debt levels and more able to service that debt, an improving job market.

Long-term sovereign bond yields declined notably in the advanced economies, in part as foreign central banks announced additional monetary policy easing measures.

Nonetheless, many participants expressed concern that ongoing developments in the housing market could have a more pronounced impact on consumer and other spending, especially if house prices declined significantly.

Moreover, the absence of significant growth in employment, should it persist, could at some point have significant adverse repercussions on consumer spending.

During the period examined, the rate of overall consumer inflation was 2.78 percent, as measured by the regular CPI-U for All Items.

While overall employment conditions, the buildup of household net worth, and access to financing would bolster consumer expendi- tures, members also cited a number of limiting factors.

The nominal deficit on U. S. trade in goods and services narrowed somewhat in August from a high rate in July

Though labor markets were expected to remain relatively tight for some time, the members saw little prospect that inflation would gather significant momentum in coming quarters.

Participants noted that the timing of the resumption of growth in the U. S. economy depended on the containment measures put in place, as well as the success of those measures, and on the responses of other policies, including fiscal policy.

So in—in—in U-6, the U-6 level of unemployment has tripled from 7 percent to 21 percent.

Moreover, to the extent that more-rapid growth of productivity shows through to faster gains in nominal wages, there will be fewer instances in which nominal wages will be pressured to fall.

Implications of Increases in Productivity Growth In the long run, the implications of increases in productivity growth rates are fairly obvious.

The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

This direction of causality may obscure the negative relationship, running from higher inflation to lower growth, presumed to hold in the longer term.

Weaker demand and significantly lower oil prices are holding down consumer price inflation.

And as I mentioned earlier, the unemployment decline last month was more than 100 percent accounted for by declines in participation.

Well, we—as a Committee, we do not desire inflation undershoots.

It is not a Taylor rule but it has the same feature that it relates policy to observables in the economy, such as unemployment and inflation.

Some participants judged the risks to the outlook for inflation as tilted to the downside, particularly in the near term, in light of the large amount of resource slack already prevailing in the economy, the significant downside risks to the outlook for real activity, and the possibility that inflation expectations could begin to decline in response to low actual inflation.

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.

Moreover, if declines in house prices were to damp consumption, that could feed back on employment and income, exerting additional restraint on the demand for housing.

More subtly, my conclusion that the effects on inflation of transitory changes in commodity prices or in the value of the dollar tend to dissipate in the longer run depends on the assumption that the public's inflation expectations are well anchored.

Most survey-based measures of longer-term inflation expectations had been little changed in recent months.

During the past several years, workers across the wage distribution--not just at the upper end--have seen noticeable increases in the inflation-adjusted value of their wages.

The idea is that providing more information about the Committee's views of the economic outlook may allow financial market prices to reflect more accurately the likely future stance of monetary policy.

We need to avoid expectations rising so much that they become a factor that drives inflation higher.

So far this year, payroll employment had expanded at a faster pace than last year and the unemployment rate had declined further, although it remained elevated.

The pace of inventory liquidation was thought likely to moderate in coming quarters and subsequently turn to accumulation as inventories came into better balance with sales, with increasingly positive implications for overall production and economic activity.

Historically, recessions often occurred when the Fed tightened to control inflation.

For 1998, the Committee agreed on a tentative basis to set the same ranges as in 1997 for growth of the monetary aggregates and debt, measured from the fourth quarter of 1997 to the fourth quarter of 1998.

At some point, continued large-scale trade deficits could trigger equilibrating, and possibly dislocating, changes in prices, interest rates, and exchange rates.

Indeed, given the externalities involved, it seems plausible that a monopoly central bank that issued fiat money would not respond optimally to crises (it would charge too much for liquidity) or to cyclical variations (it would be maximizing the present discounted value of its seigniorage income rather than minimizing some weighted sum of discounted inflation and output losses).

Consumer credit jumped in May and remained strong in June, reflecting a rebound in credit card balances and continued robust growth in auto loans.

A fifth factor is supply bottlenecks that manufacturers and importers are currently experiencing; supply chain constraints are boosting prices, particularly for goods—less so for services.

The Committee also noted in March that although output had continued to expand at a solid pace, new hiring had lagged, and increases in core consumer prices were muted and expected to remain low.

Vice Chair Richard H. Clarida At the 2020 U.S. Monetary Policy Forum, sponsored by the Initiative on Global Markets at the University of Chicago Booth School of Business, New York, New York Share Thank you to the conference organizers for inviting me here to discuss what former Chair Bernanke has famously referred to as a "hall of mirrors" problem: a situation in which a central bank's reaction function and financial market prices interact in economically suboptimal and potentially destabilizing ways.1 In my remarks today, I will lay out the way I think about the interplay between financial markets and monetary policy, with a focus on how I myself seek to integrate noisy but often correlated signals about the economy that I glean from models, surveys, and financial markets.2 Three Observations I begin with three unobjectionable observations.

Participants marked up their inflation projections, as they assessed that supply constraints in product and labor markets were larger and likely to be longer lasting than previously anticipated.

they rebounded late in the period in response to the release of firmer economic data and growing concerns regarding the sustainability of current domestic asset prices.

However, a couple of participants noted that the recent oil price decline could also be associated with increasing oil supply rather than softening global demand.

In his view, historical precedents suggested that prolonged periods of taut labor markets were eventually associated with rising inflation.

The technical measures we are undertaking do not represent a change in the stance of monetary policy, which we continue to implement by adjusting the target range for the federal funds rate.

A few participants argued that maintaining a highly accommodative stance of monetary policy over the medium run would erode the stability of inflation expectations.