00:00So, putting the pieces together, what are the implications for monetary policy?
00:06In the near term, risks to inflation are tilted to the upside, and risks to employment to the downside, a challenging situation.
00:15When our goals are intentioned like this, our framework calls for us to balance both sides of our dual mandate.
00:21Our policy rate is now 100 basis points closer to neutral than it was a year ago,
00:27and the stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance.
00:37Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.
00:47Monetary policy is not on a preset course.
00:50Of 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.
01:00We will never deviate from that approach.
01:04So, turning then to my second topic.
01:07Our 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.
01:16We remain fully committed to fulfilling our statutory mandate, and the revisions to our framework will support that mission across a broad range of economic conditions.
01:28Our 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.
01:38It 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.
01:51The changes we made in this review are a natural progression, grounded in our ever-evolving understanding of our economy.
01:58We continue to build upon the initial consensus statement adopted in 2012 under Chairman Ben Bernanke's leadership.
02:04Today's revised statement is the outcome of the second public review of our framework, which we conduct at five-year intervals.
02:13This year's review included three elements.
02:16Fed listens 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.
02:28In 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.
02:38At the same time, the framework needs to evolve with changes in the structure of the economy and our understanding of those changes.
02:45The 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.
02:53At the time of the last review, we were living in a new normal characterized by the proximity of interest rates to the effect of lower bound, or ELB, along with low growth, low inflation, and a very flat Phillips curve, meaning that inflation was not very responsive to slack in the economy.
03:13To me, a statistic that captures that era is that our policy rate was stuck at the ELB for seven long years, following the onset of the global financial crisis in late 2008.
03:26Many here will recall the sluggish growth and painfully slow recovery of that era.
03:31It appeared highly likely that if the economy experienced even a mild downturn, our policy rate would be back at the ELB very quickly, probably for another extended period.
03:41Inflation and inflation expectations could then decline in a weak economy, raising real interest rates as nominal rates were pinned near zero.
03:51Higher real rates would further weigh on job growth and reinforce the downward pressure on inflation and inflation expectations, triggering an adverse dynamic.
04:01The economic conditions that brought the policy rate to the ELB 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.
04:16The 2020 consensus statement included several features that addressed the ELB-related risks that had become increasingly prominent over the preceding two decades.
04:27We emphasized the importance of anchored inflation, longer-term inflation expectations, to support both our price stability and maximum employment goals.
04:34Drawing on an extensive literature on strategies to mitigate risks associated with the ELB, we adopted flexible average inflation targeting, a makeup strategy to ensure that inflation expectations would remain well anchored, even with the ELB constraint.
04:51In particular, we said that following periods when inflation had been running persistently above 2 percent, appropriate monetary policy would likely aim to achieve inflation moderately above 2 percent for some time.
05:02In 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.
05:13Like 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.
05:26When it became clear this was not the case, we responded forcefully, raising our policy rate by 5.25 percentage points over 16 months.
05:36That 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.
05:49developed standpoints by 5.25 percentage points over 16.25 percent ofcience.
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