Name: Jackson Hole Symposium Federal Reserve Chair Jerome Powell’s remarks
Uploaded: 2024-09-30T12:07:02.000Z
Duration: 17 min 43 s
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Thank you, and welcome to the first day of sessions for the Federal Reserve Bank of Kansas City Jackson Hole Economic Symposium.

My name is Karen Dinan, and I'm going to be your moderator for today's sessions.

As you heard last night from Jeff, the topic for the symposium is reassessing the effectiveness and transmission of monetary policy.

So it's a super important topic, particularly right now.

And we've got some great papers lined up for this morning.

We've got two papers, and we also have a panel lined up for that.

But before we get to any of that, I am delighted to say that we have Federal Reserve Chair Jay Powell here to deliver opening remarks.

So with that, let me welcome Jay Powell to the podium.

Thank you, Karen, and thanks to our hosts from the Kansas City Fed.

Four and a half years after COVID-19's arrival, the worst of the pandemic-related economic distortions are fading.

The labor market is no longer overheated, and conditions are now less tight than those that prevailed before the pandemic.

Supply constraints have normalized, and the balance of risks to our two mandates has changed.

Our objective has been to restore price stability while maintaining a strong labor market, avoiding the sharp increases in unemployment that characterized earlier disinflationary episodes when inflation expectations were less well-anchored.

While the task is not complete, we have made a good deal of progress toward that outcome.

Today, I will begin by addressing the current economic situation and the path ahead for monetary policy.

I will then turn to a discussion of economic events since the pandemic arrived, exploring why inflation rose to levels not seen in a generation, and why it has fallen so much while unemployment has remained low.

So let's begin with the current situation and the near-term outlook for policy.

For much of the past three years, inflation ran well above our 2 percent goal, and labor market conditions were extremely tight.

The FOMC's primary focus has been on bringing down inflation, and appropriately so.

Prior to this episode, most Americans alive today had not experienced the pain of high inflation for a sustained period.

Inflation brought substantial hardship, especially for those least able to meet the higher costs of essentials, like food, housing, and transportation.

High inflation triggered stress and a sense of unfairness that linger today.

Our restrictive monetary policy helped restore balance between aggregate supply and demand, easing inflationary pressures, and ensuring that inflation expectations remained well-anchored.

Inflation is now much closer to our objective, with prices having risen 2.5 percent over the past 12 months.

After a pause earlier this year, progress toward our 2 percent objective has resumed.

My confidence has grown that inflation is on a sustainable path back to 2 percent.

Turning to employment, in the years just prior to the pandemic, we saw the significant benefits to society that can come from a long period of strong labor market conditions.

Low unemployment, high participation, historically low racial employment gaps, and with inflation low and stable, healthy real wage gains that were increasingly concentrated among those with lower incomes.

Today, the labor market has cooled considerably from its formerly overheated state.

The unemployment rate began to rise over a year ago and is now at 4.3 percent, still low by historical standards, but almost a full percentage point above its level in early 2023.

Most of that increase has come over the past six months.

So far, rising unemployment has not been the result of elevated layoffs, as is typically the case in an economic downturn.

Rather, the increase mainly reflects a substantial increase in the supply of workers and a slowdown from the previously frantic pace of hiring.

Even so, the cooling in labor market conditions is unmistakable.

Job gains remain solid but have slowed this year.

Job vacancies have fallen, and the ratio of vacancies to unemployment has returned to its pre-pandemic range.

The hiring and quits rates are now below the levels that prevailed in 2018 and 19.

Nominal wage gains have moderated, and all told, labor market conditions are now less tight than just before the pandemic in 2019, a year when inflation was at its lowest level.

The labor market is also at its lowest level since the pandemic in 2019, a year when inflation ran below 2%.

It seems unlikely that the labor market will be a source of elevated inflationary pressures anytime soon.

We do not seek or welcome further cooling in labor market conditions.

Overall, the economy continues to grow at a solid pace, but the inflation and labor market data show an evolving situation.

And the downside risks to employment have increased.

As we highlighted in our last FOMC statement, we are attentive to the risks to both sides of our dual mandate.

The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.

We will do everything we can to support a strong labor market as we make further progress toward price stability.

With an appropriate dialing back of policy restraint, there is good reason to think that the economy will get back to 2% inflation while maintaining a strong labor market.

The current level of our policy rate gives us ample room to respond to any risks we may face, including the risk of unwelcome further weakening in labor market conditions.

So let's now turn to the questions of why inflation rose and why it has fallen so significantly even as unemployment has remained low.

There is a growing body of research on these questions, including Gary Eggerson's work, which we'll shortly discuss, and this is a good time for this discussion.

It is, of course, too soon to make definitive assessments.

This period will be analyzed and debated long after we are all gone.

The arrival of the COVID-19 pandemic led quickly to shutdowns in economies around the world.

It was a time of radical uncertainty and severe downside risks.

As so often happens in times of crisis, Americans adapted and innovated.

Governments responded with extraordinary force, especially in the United States.

Congress unanimously passed the CARES Act.

At the Fed, we used our powers to an unprecedented extent to stabilize the financial system and help stave off an economic depression.

After a historically deep but brief recession, in mid-2020, the economy began to grow again.

And as the risks of a severe extended downturn receded and as the economy reopened, we faced the risk of replaying the painfully slow recovery that followed the global financial crisis.

Congress delivered substantial additional fiscal support in late 2020 and again in early 2021.

Spending recovered strongly in the first half of 2021.

And the ongoing pandemic shaped the pattern of the recovery.

Lingering concerns over COVID weighed on spending on in-person services, but pent-up demand, stimulative policies, pandemic changes in work and leisure practices, and the additional savings associated with constrained services spending all contributed to a historic surge in consumer spending on goods.

The pandemic also wreaked havoc on supply conditions.

Eight million people left the workforce at its onset.

And the size of the labor force was still four million below its pre-pandemic level in early 2021.

The labor force would not return to its pre-pandemic trend until mid-2023.

Supply chains were snarled by a combination of lost workers, disrupted international trade linkages, and tectonic shifts in the composition and level of demand.

Clearly, this was nothing like the slow recovery after the global financial crisis.

After running below target through 2020, inflation spiked in March and April 2021.

The initial burst of inflation was concentrated rather than broad-based with extremely large price increases for goods in short supply, such as motor vehicles.

My colleagues and I judged at the outset that these pandemic-related factors would not be persistent and thus that the sudden rise in inflation was likely to pass through fairly quickly without the need for a monetary policy response.

In short, that the inflation would be transitory.

Standard thinking has long been that as long as inflation expectations remain well-anchored, it can be appropriate for central banks to look through a temporary rise in inflation.

The good ship transitory was a crowded one.

With most mainstream analysts and advanced economy central bankers on board,

I think I see some former shipmates out there today.

The common expectation was that supply conditions would improve reasonably quickly, that the rapid recovery in demand would run its course, and that demand would rotate back from goods to services, bringing inflation down.

For a time, the data were consistent with the transitory hypothesis.

Monthly readings for core inflation declined every month from April through September 2021, although progress came slower than expected.

The case began to weaken around mid-year, as was reflected in our communications.

And beginning in October, the data turned hard against the transitory hypothesis.

Inflation rose and broadened out from goods to services, and it became clear that high inflation was not transitory and that it would require a strong response if inflation expectations were to remain well-anchored.

We recognized that and pivoted beginning in November.

Financial conditions began to tighten, and after phasing out our asset purchases, we lifted off in March of 2022.

By early 2022, headline inflation exceeded 6% and core was above 5%.

Russia's invasion of Ukraine led to a sharp increase in energy and commodity prices.

The improvements in supply conditions and the rotation in demand from goods to services were taking much longer than expected, in part due to further COVID waves in the United States.

And COVID continued to disrupt production globally, including through new and extended lockdowns in China.

Higher rates of inflation were a global phenomenon, reflecting common experiences.

Rapid increases in the demand for goods, strained supply chains, tight labor markets, and sharp hikes in commodity prices.

The global nature of inflation was unlike any period since the 1970s.

Back then, high inflation became entrenched, an outcome we were utterly committed to avoiding.

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Jackson Hole Symposium Federal Reserve Chair Jerome Powell’s remarks

extraordinary

commitment

extremely

pandemic