Hang tight while we fetch the video data and transcripts. This only takes a moment.
Connecting to YouTube player…
Fetching transcript data…
We’ll display the transcript, summary, and all view options as soon as everything loads.
Next steps
Loading transcript tools…
Fed Chair Powell's Full Speech at Jackson Hole | Bloomberg Television | YouTubeToText
YouTube Transcript: Fed Chair Powell's Full Speech at Jackson Hole
Skip watching entire videos - get the full transcript, search for keywords, and copy with one click.
Share:
Video Transcript
In my remarks today, I will first address the current economic situation
and the near-term outlook for monetary policy.
I will then turn to the results of our second public review of our monetary
policy framework as captured in the revised statement on longer run goals in
monetary policy strategy that we released today.
When I appeared at this podium one year ago, the economy was at an inflection
point. Our policy rate had stood at five and a
quarter to five and a half percent for more than a year.
That restrictive policy stance was appropriate to help bring down inflation
and to foster a sustainable balance between aggregate demand and supply.
Inflation had moved much closer to our objective and the labour market had
cooled from its formerly overheated state.
Upside risks to inflation had diminished, but the unemployment rate
had increased by almost a full percentage point, a development that
historically has not occurred outside of recessions.
Over the subsequent three Federal Open Market Committee meetings, we
recalibrated our policy stance, setting the stage for the labour market to
remain in balance near maximum employment over the past year.
This year, the economy has faced new challenges.
Significantly higher tariffs across our trading partners are remaking the global
trading system. Tighter immigration policy has led to an
abrupt slowdown in labor force growth over the longer run.
Changes in tax spending and regulatory policies may also have important
implications for economic growth and productivity.
There is significant uncertainty about where all of these policies will
eventually settle and what their lasting effects on the economy will be.
Changes in trade and immigration policies are affecting both demand and
supply In this environment.
Distinguishing cyclical developments from trend or structural developments is
difficult. This distinction is critical because
monetary policy can work to stabilise cyclical fluctuations but can do little
to alter structural changes. The labor market is a case in point.
The July employment report released earlier this month showed that payroll
job growth slowed to an average pace of only 35,000 per month over the past
three months, down from under 68,000 per month during 2020 for.
This slowdown is much larger than assessed.
Just a month ago, as the earlier figures for May and June were revised down
substantially. But it does not appear that the slowdown
in job growth has opened up a large margin of slack in the labour market, an
outcome we want to avoid. The unemployment rate, while edging up
in July, stands at a historically low level of 4.2% and has been broadly
stable over the past year. Other indicators of labor market
conditions are also little changed or have softened only modestly, including
quits layoffs, the ratio of vacancies to unemployment and nominal wage growth.
Labor supply has softened in line with demand, sharply lowering the break even
rate of job creation needed to hold the unemployment rate constant.
Indeed, labour force growth has slowed considerably this year with the sharp
fall off in immigration and the labor force participation rate has edged down
in recent months. Overall, while the labor market appears
to be in balance, it is a curious kind of balance that results from a marked
slowing in both the supply of and demand for workers.
This unusual situation suggests that downside risks to employment are rising.
And if those risks materialize, they can do so quickly in the form of sharply
higher layoffs and rising unemployment. At the same time, GDP growth has slowed,
notably in the first half of this year, to a pace of 1.2%.
Roughly half the 2.5% pace in 2024. The decline in growth has largely
reflected a slowdown in consumer spending, as with the labor market.
Some of the slowing in GDP likely reflects slower growth of supply or
potential output. Turning to inflation, higher tariffs
have begun to push up prices in some categories of goods.
Estimates, based on the latest available data, indicate that total PC prices rose
2.6% over the 12 months ending in July. Excluding the volatile food and energy
categories, core PC prices rose 2.9% above their level of a year ago.
Within core prices of goods increased 1.1% over the past 12 months.
A notable shift from the modest decline seen over the course of 2020 for.
In contrast, housing services inflation remains on a downward trend and non
housing services inflation is still running at a level a bit above what has
been historically clear, consistent with a 2% inflation.
The effects of tariffs on consumer prices are now clearly visible.
We expect those effects to accumulate over coming months, with high
uncertainty about both timing and amounts.
The question that matters for monetary policy is whether these price increases
are likely to materially raise the risk of an ongoing inflation problem.
A reasonable base case is that the effects will be relatively short lived.
A one time shift in the price level, of course, one time does not mean all at
once. It will continue to take time for tariff
increases to work their way through supply chains, chains and distribution
networks. Moreover, tariff rates continue to
evolve, potentially prolonging the adjustment process.
It's also possible, however, that the upward pressure on prices from tariffs
could spur a more lasting inflation dynamic, and that is a risk to be
assessed and managed. One possibility is that workers who see
their real incomes decline because of higher prices demand and get higher
wages from employers setting off adverse wage price dynamics.
Given that the labour market is not particularly tight and faces increasing
downside risks, that outcome does not seem likely.
Another possibility is that inflation expectations could move up, dragging
actual inflation with them. Inflation has been above our target for
more than four years and remains a prominent concern for households and
businesses. Measures of longer term inflation
expectations, however, as reflected in market and survey based measures, appear
to remain well anchored and consistent with our longer run inflation objective
of 2%. Of course, we cannot take the stability
of inflation expectations for granted come what may.
We will not allow a one time increase in the price level to become an ongoing
inflation problem. So putting the pieces together, what are
the implications for monetary policy in the near term?
Risks to inflation are tilted to the upside and risks to employment to the
downside. A challenging situation when our goals
are in tension like this. Our framework calls for us to balance
both sides of our dual mandate. Our policy rate is now 100 basis points
closer to neutral than it was a year ago, and the stability of the
unemployment rate and other labour market measures allows us to proceed
carefully as we consider changes to our policy stance.
Nonetheless, with policy in restrictive territory, the baseline outlook and the
shifting balance of risks may warrant adjusting our policy stance.
Monetary Policy is not on a pre-set course.
FOMC members will make these decisions based solely on their assessment of the
data and its implications for the economic outlook and the balance of
risks. We will never deviate from that
approach. So turning then to my second topic,
our monetary policy framework is built on the unchanging foundation of our
mandate from Congress to foster maximum employment and stable prices for the
American people. We remain fully committed to fulfilling
our statutory statutory mandate, and the revisions to our framework work will
support that mission across a broad range of economic conditions.
Our revised statement on longer run goals and monetary policy strategy,
which we refer to as our consensus statement to save time, describes how we
pursue our dual mandate goals. It is designed to give the public a
clear sense of how we think about monetary policy, and that understanding
is important both for transparency and accountability and for making monetary
policy more effective. The changes we made in this review are a
natural progression grounded in our ever evolving understanding of our economy.
We continue to build upon the initial consensus statement adopted in 2012
under Chairman Ben Bernanke's leadership.
Today's revised statement is the outcome of the second public review of our
framework, which we conduct at five year intervals.
This year's review included three elements Fed listen to events at Reserve
Banks around the country, a flagship research conference and policymaker
discussions and deliberations supported by staff analysis at a series of FOMC
meetings. In approaching this year's review, a key
objective has been to make sure that our framework is suitable across a broad
range of economic conditions. At the same time, the framework needs to
evolve with changes in the structure of the economy and our understanding of
those changes. The Great Depression presented different
challenges from those of the great inflation and the Great Moderation,
which in turn are different from the ones we face today.
At the time of the last review, we were living in a new normal, characterised by
the proximity of interest rates to the effect of lower bound or LP, along with
low growth, low inflation and a very flat Phillips curve,
meaning that inflation was not very responsive to slack in the economy.
To me, a statistic that captures that era is that our policy rate was stuck at
the Elbe for seven long years following the onset of the global financial crisis
in late 2008. Many here will recall the sluggish
growth and painfully slow recovery of that era.
It appeared highly likely that if the economy experienced even a mild
downturn, our policy rate would be back at the ECB very quickly, probably for
another extended period. Inflation and inflation expectations
could then decline in a weak economy, raising real interest rates as nominal
rates were pinned near zero. Higher real rates could would further
weigh on job growth and reinforce the downward pressure on inflation and
inflation expectations, triggering an adverse dynamic.
The economic conditions that brought the policy rate to the MLB and drove the
2020 framework. Changes were thought to be rooted in
slow moving global factors that would persist for an extended period, and they
might well have done so if not for the pandemic.
The 2020 consensus statement included several features that addressed the MLB
related risks that had become increasingly prominent over the
preceding two decades. We emphasized the importance of anchored
inflation, longer term inflation expectations to support both our price
stability and maximum employment goals. Drawing on an extensive literature on
strategies to mitigate risks associated with the PLB.
We adopted flexible average inflation targeting a makeup strategy to ensure
that inflation expectations would remain well anchored, even with the yield
constraint. In particular, we said that following
periods when inflation had been running persistently above 2% appropriate
monetary policy would likely aim to achieve inflation moderately above 2%
for some time in the event rather than low inflation in the ELB.
The post-pandemic reopening brought the highest inflation in 40 years to
economies around the world. Like most other central banks and
private sector analysts, through year end 2021, we thought that inflation
would subside fairly quickly without a sharp tightening in our policy stance,
as this slide will show. When it became clear this was not the
case, we responded forcefully, raising our policy rate by five and a quarter
percentage points over 16 months. That action, combined with the unwinding
of pandemic supply disruptions, contributed to inflation moving much
closer to our target. Without the painful rise in unemployment
that has accompanied previous efforts to counter high inflation.
This year's review considered how economic conditions have evolved over
the past five years. During this period, we saw that the
inflation situation can change rapidly in the face of large shocks.
In addition, interest rates are now substantially higher than was the case
during the era between the global financial crisis and the pandemic.
With inflation above target, our policy rate is restrictive, modestly so, in my
view. We cannot say for certain where rates
will settle out over the longer run, but their neutral rate may now be higher
than during the 20 tens, reflecting changes in productivity, demographics,
fiscal policy and other factors that affect the balance between saving and
investment. During the review, we discussed how the
2020 statements focus on the EOB may have complicated communications about
our response to high inflation. We concluded that the emphasis on an
overly specific set of economic conditions may have led to some
confusion, and as a result, we made several important changes to the
consensus statement to reflect that insight.
First, we removed language indicating that the Elbe was a defining feature of
the economic landscape. Instead, we noted that our monetary
policy strategy is designed to promote maximum employment and stable prices
across a broad range of economic conditions.
The difficulty of operating near the ILB remains a potential concern, but it is
not our primary focus. The revised statement reiterates that
the committee is prepared to use its full range
of tools to achieve its maximum employment and price stability goals,
particularly if the federal funds rate is constrained by the EIB.
Second, we return to a framework of flexible inflation targeting and
eliminated the make up strategy. As it turns out, the idea of an
intentional moderate inflation overshoot had proved irrelevant.
There was nothing intentional or moderate about the inflation that
arrived a few months after we announced our 2020 changes to the consensus
statement. As I acknowledged publicly in 2021.
Well anchored. Inflation expectations were critical to
our success in bringing down inflation without a sharp increase in
unemployment. Anchored expectations Promote the return
of inflation to target when adverse shocks drove inflation higher and limit
the risk of deflation when the economy weakens.
Further, they allow monetary policy to support maximum employment in economic
downturns without compromising price stability.
A revised statement emphasizes our commitment to act forcefully to ensure
that longer term inflation expectations remain well anchored to the benefit of
both sides of our dual mandate. It also notes that price stability is
essential for a sound and stable economy and supports the well-being of all
Americans. This theme came through loud and clear
at our Fed listeners events. The past five years have been a painful
reminder of the hardship that high inflation imposes, especially on those
least able to meet the higher costs of necessities.
Third, our 2020 statement said that we would mitigate shortfalls rather than
deviations from maximum employment. The use of shortfalls reflected the
insight that our real time assessments of the natural rate of unemployment and
hence of maximum employment are highly uncertain.
The later years of the post global financial crisis recovery featured
employment running for an extended period above mainstream estimates of its
sustainable level, along with inflation running persistently below our 2%
target. In the absence of inflationary
pressures, it might not be necessary to tighten policy based on based solely on
uncertain real time estimates of the natural rate of unemployment.
We still have that view, but our use of the term shortfalls was not always
interpreted as intended. Raising communications challenges in
particular, the use of shortfalls was not intended as a commitment to
permanently forswear preemption or to ignore labour market tightness.
Accordingly, we removed shortfalls from our statement.
Instead, the revised document now states more precisely that the committee
recognises that employment may run at times above real time assessments of
maximum employment without necessarily creating risks to price stability.
Of course, pre-emptive action would likely be warranted if tightness in the
labour market or other factors pose risks to price stability.
The revised statement also notes that maximum employment is the highest level
of employment that can be achieved on a sustained basis in a context of price
stability. This focus on promoting a strong labour
market underscores the principle that durably achieving maximum employment
fosters broad based economic opportunities and benefits for all
Americans. The feedback we received at Fed
listeners events reinforced the value of a strong labor market for American
households, employers and communities. Fourth.
Consistent with the removal of shortfalls, we made changes to clarify
our approach in periods where our employment and inflation objectives are
not complementary. In those circumstances, we will follow a
balanced approach in promoting them. The revised statement now more closely
aligns with the original 2012 language. We take into account the extent of
departures from our goals and potentially different time horizons over
which each is projected to return to a level consistent with our dual mandate.
These principles guide our policy decisions today as they did in the 2022
to 24 period when the departure from our 2% inflation target was the overriding
concern. In addition to these changes, there is a
great deal of continuity with past statements.
The document continues to explain how we interpret the mandate Congress has given
us and describes the policy framework that we believe will best promote
maximum employment and price stability. We continue to believe that monetary
policy must be forward looking and consider the lags and its effects on the
economy. For this reason, our policy actions
depend on the economic outlook and the balance of risks, the outlook.
We continue to believe that setting a numerical goal for employment is unwise
because the maximum level of employment is not directly measurable and changes
over time for reasons unrelated to monetary policy.
We also continue to view a longer run inflation rate of 2% as most consistent
with our dual mandate goals. We believe that our commitment to this
target is a key factor helping keep longer term inflation expectations well
anchored. Experience has shown that 2% inflation
is low enough to ensure that inflation is not a concern in household and
business decision making, while also providing a central bank with some
policy flexibility to provide accommodation during economic downturns.
Finally, the revised Consensus statement retained our commitment to conduct a
public review roughly every five years. There's nothing magic about the five
year pace. That frequency allows policymakers to
reassess structural features of the economy and to engage with the public,
practitioners and academics on the performance of our framework is also
consistent with several global peers. To wrap up, I want to thank President
Schmid and all of his great Kansas City staff who work so diligently to host
this outstanding event annually, counting a couple of virtual appearances
during the pandemic. This is the eighth time I've had the
honor to speak from this podium. Each year, this symposium offers the
opportunity for Fed leaders to hear ideas from leading economic thinkers and
focus on the challenges we face. The Kansas City Fed was very wise to
lure Chair Volker here to this national park more than 40 years ago, and I am so
proud to be part of that tradition. Thank you very much.
Click on any text or timestamp to jump to that moment in the video
Share:
Most transcripts ready in under 5 seconds
One-Click Copy125+ LanguagesSearch ContentJump to Timestamps
Paste YouTube URL
Enter any YouTube video link to get the full transcript
Transcript Extraction Form
Most transcripts ready in under 5 seconds
Get Our Chrome Extension
Get transcripts instantly without leaving YouTube. Install our Chrome extension for one-click access to any video's transcript directly on the watch page.
Chrome Extension