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It can be argued that this meant getting the economy back to its 2019 state with very low unemployment and inflation near 2 percent. | 2,020 | 2 |
An understanding of a likely long-run level of the equilibrium real rate is useful, even though the level is not directly observable, because it provides a general sense of the level that would, over that longer period, allow aggregate supply and demand to move into balance, given the evaluation of secular forces such as productivity and population growth. | 2,004 | 2 |
Global growth estimates continue to be marked down, and global disinflationary pressures cloud the outlook for U.S. inflation. | 1,998 | 0 |
From a longer-term perspective we have been guided by a firm commitment to contain any forces that would undermine economic expansion and efficiency by raising inflation, and we have kept our focus firmly on the ultimate goal of achieving price stability. | 2,008 | 1 |
Although we are hearing some reports of large retailers planning markdowns due to excess inventories, we do not have hard data at an aggregate level suggesting that businesses are reducing margins in response to more price sensitivity among customers. | 1,997 | 2 |
In any case, the real federal funds rate is now lower than prior to the easings, at the same time that the unemployment rate is lower and projected growth higher than it was prior to the easings. | 2,019 | 1 |
Long-run price stability certainly is essential for achieving maximum employment. | 2,005 | 1 |
As is evident in the right-hand chart, the relationship between the growth differential and capital inflows to EMEs seems to be quite strong. | 2,022 | 2 |
Global factors may have put downward pressure on term premiums because of anxiety about the foreign outlook, which may have increased demand for U.S. assets, or because low rates abroad have depressed U.S. term premiums through a global portfolio balance channel.5 And real rates are quite low globally, reflecting the step-down of productivity growth over the past 10 years as well as shifts in savings and investment demand due to demographic change.6 The Core of the Financial System Is Much Stronger Before turning to the interplay between low rates and the financial system, I will simply point out that both improved risk management at the largest, most systemically important financial institutions (SIFIs) and stronger regulation have made the core of the system much stronger and more resilient than before the crisis.7 The SIFIs have more stable funding, hold much more capital and liquidity, are more conscious of their risks, and are far more resolvable should they fail. | 1,998 | 2 |
In addition, at every policy meeting, each member of the MPC is operating with the same information from the staff, and before the quarterly meetings that precede an Inflation Report, the members have sat through a number of discussions covering all aspects of the forecast. | 2,000 | 2 |
A main reason I expect this outcome is simply the fact that the very low inflation readings during last spring's deep economic contraction will drop from the usual calculation of 12-month price changes. | 1,998 | 0 |
About two years after the onset of the financial crisis, the ECI moved up slightly in 2010 and then remained essentially flat at an annual growth rate of 2 percent over a five-year period between 2010 and 2015. | 2,004 | 2 |
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. | 2,013 | 0 |
The first question is whether the degree of easing implemented in response to financial market turbulence and the abrupt downward revision in the forecast should be reassessed in light of the subsequent improvement in financial conditions and the continued robustness of domestic demand. | 2,004 | 1 |
Independence and the Federal Reserve System The Federal Reserve, created in 1913, was established as an independent central bank--although, at the time, it was given no clear concept of its role in the conduct of monetary policy. | 2,021 | 2 |
This term has been interpreted by many observers to mean that the Committee's reaction function aimed to be symmetric on either side of the 2 percent inflation goal, and that the FOMC set policy with the (ex ante) aim that the 2 percent goal should represent an inflation ceiling in economic expansions following economic downturns in which inflation falls below target. | 1,999 | 1 |
Eventually, financial markets may develop the instruments and associated analytical techniques for unearthing these implicit changes in the general price level with some precision. | 1,996 | 2 |
To abstract from the potential effects of cyclical factors on the yield curve, consider the pattern of forward rates many years into the future, at which point the effects of current cyclical shocks would be expected to no longer be important.2 Such forward rates reflect not only market expectations of future short-term interest rates but also term premiums to compensate for the risk associated with commitments to extend credit so far in the future, including the risk of future inflation. | 2,003 | 2 |
But overly optimistic expectations for long-run earnings growth were not being driven by easy money, and I see no reason to believe that an extra 50 or even 100 basis points on the funds rate would have had much of a damping effect on investor beliefs in the potential profitability of emerging technologies. | 1,998 | 1 |
If this high-pressure management inadvertently carried the economy beyond its productive potential, some cost in terms of inflation could be expected, but such costs appeared tolerable in light of the employment gains that came with them. | 2,019 | 2 |
But this is largely accounted for by a convergence of inflation rates. | 2,006 | 2 |
For example, in his monetary policy testimony of July 1992, Chairman Greenspan said, "As I have often noted to this committee, the most important contribution the Federal Reserve can make to encouraging the highest sustainable growth the U.S. economy can deliver over time is to provide a backdrop of reasonably stable prices on average for business and household decisionmaking" (Greenspan, 1992, pp. | 1,997 | 1 |
That interdependence suggests that monetary policy makers must pay attention to conditions abroad as well as at home. | 2,002 | 2 |
Since inflation is unacceptably high, it doesn't make sense to have the nominal federal funds rate below near-term inflation expectations. | 2,020 | 1 |
But because the United States has run persistent and sizable primary trade deficits since 1990, the net external debt is now 25 percent of GDP and rising sharply. | 2,022 | 1 |
Since June, however, inflation fears have receded, and some financial-market participants have become less optimistic about the economy's near-term growth prospects. | 2,020 | 0 |
Implications of Increases in Productivity Growth In the long run, the implications of increases in productivity growth rates are fairly obvious. | 2,022 | 0 |
As a result, deregulation, globalization, and innovation have made it easier for citizens to move their wealth out of nominal assets in their local currency and thereby avoid any inflation tax should their government show signs that it might resort to inflationary tactics to finance spending.6 At the same time, the public’s understanding of the costs of inflation has increased, in part because of experiences of high inflation in many countries in the 1980s. | 2,004 | 2 |
If, in their quest to reduce macroeconomic risk, policymakers overshoot and ease policy too much, they need to be willing to expeditiously remove at least part of that ease before inflationary pressures become a threat. | 2,019 | 1 |
Policy tightening started last year, as emerging markets including Mexico and Brazil increased rates substantially amid expectations of accelerating inflation. | 2,002 | 1 |
I should note that growth itself does not cause inflation. | 2,022 | 2 |
And similar, sometimes even sharper, trajectories of house prices have been witnessed in some economies in which the central banks said they were paying more attention to asset prices. | 1,998 | 2 |
But the cumulative force of recent developments appears likely to yield a slowing in the pace of growth next year. | 2,006 | 0 |
Subsequent to monetary union, harmonized consumer prices can be used as the best available measure of inflation in the Euro area. | 2,004 | 2 |
In these models, each asset price contains a risk premium that represents the additional return demanded by risk-averse investors for bearing risk. | 2,020 | 2 |
Survey measures give us an idea of what the average household expects inflation to be in the coming years. | 2,005 | 2 |
That apparently has not made its way into prices yet, but how long before it becomes a factor driving inflation? | 2,005 | 2 |
In particular, Do all equity price movements--whether related to fundamentals or not--have the same effect on investment spending? | 2,006 | 2 |
Sargent, T. "Discussion of 'Policy Rules for Open Economics' by Lawrence Ball," in J.B. Taylor, ed., Monetary Policy Rules. | 2,020 | 2 |
China has eased some of its most stringent COVID containment measures but recently revived travel restrictions in some areas, and its approach to the pandemic remains an upside risk for inflation. | 2,007 | 1 |
Moreover, the resulting robust gains in labor productivity have been well ahead of compensation growth and have dramatically boosted corporate profits. | 2,006 | 0 |
In the United States, evaluating the effects on the economy of shifts in balance sheets and variations in asset prices have been an integral part of the development of monetary policy. | 2,022 | 2 |
The fundamental price of an asset typically is defined in terms of the discounted present value of the income stream or equivalent services that the asset is expected to provide over time. | 2,004 | 2 |
Productivity change for this output concept has increased even more than for traditional concepts. | 2,001 | 0 |
A concern that one might have about price-level targeting, as opposed to more conventional inflation targeting, is that it requires a short-term inflation rate that is higher than the long-term inflation objective. | 1,997 | 2 |
First, policymakers should continuously update their estimates of the NAIRU and the output gap, using all available information, particularly the realizations of unemployment, output, and inflation. | 2,001 | 2 |
Inflation is much too high, and I strongly believe that bringing inflation back to our target is a necessary condition for meeting the goals mandated by Congress of price stability and maximum employment on a sustainable basis. | 2,005 | 1 |
Our test for this step was making "substantial further progress" toward our employment and inflation goals. | 1,997 | 2 |
While each of the Asian economies is unique in many important respects, the sources of their spectacular growth in recent years, in some cases decades, and the problems that have emerged are relevant to a greater or lesser extent to nearly all of them. | 2,019 | 2 |
Indeed, scattered evidence dating back to ancient Rome and before reflects the same order of interest rate magnitude, not a one percent interest rate nor 200 percent. | 2,005 | 2 |
Indeed, the website of the Central Bank of Brazil explicitly acknowledges the role of inflation in driving financial innovations that enabled firms and households to economize on cash balances in that country. | 2,021 | 2 |
Even as the outlook for real activity has weakened, there have been some important developments on the inflation front. | 2,003 | 1 |
Inflation-targeting regimes make sense only if the central bank has independent control of the instruments of monetary policy, as holding the central bank responsible for meeting its inflation target is hardly possible otherwise. | 1,998 | 2 |
Rather, it is that the underlying sources of productivity growth are very complex. | 2,005 | 0 |
The specific price-stability target of an inflation rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, was announced as part of the Statement on Longer-Run Goals and Monetary Policy Strategy following the January 2012 Federal Open Market Committee (FOMC) meeting. | 2,001 | 2 |
The extraordinary achievement of 1996, of course, was reaching such low levels of unemployment and inflation at the same time. | 2,013 | 2 |
At the same time, an acceleration in productivity also appears to have a direct disinflationary effect. | 2,022 | 0 |
It also requires that policy tighten or ease systematically to bring aggregate demand in line with the economy's productive potential, not only because output stabilization is a policy objective in its own right but also because such actions help to head off undesirable changes in inflation down the road. | 2,020 | 2 |
In contrast, the rise in oil prices during the 1970s was probably seen at the time as largely reflecting a permanent shift in global demand/supply balances. | 2,022 | 1 |
For a variety of reasons, some emerging-market economies have resisted upward pressures on their exchange rates, even if that resistance requires buying large quantities of dollars to keep their currencies from appreciating. | 2,000 | 0 |
But we are also searching for an absolute concept, the point of balance between supply and demand in the respective markets that divides excess demand from excess supply--in effect, the origin in a diagram relating inflation to excess demand and supply. | 2,006 | 2 |
No matter the near-term path of reducing accommodation, the FOMC must respond decisively to the data so as to maintain our credibility that we will bring down inflation. | 1,999 | 1 |
Moreover, the variance of GDP growth markedly lessened as inflation tumbled from its double-digit high in the early 1980s. | 2,006 | 2 |
To achieve its mandated objectives, the FOMC must influence the course of the U.S. economy, helping it to grow rapidly enough to make full use of available resources but not so rapidly as to stoke inflation. | 2,022 | 0 |
But, as a consequence of low interest rates, the servicing requirement for that debt relative to homeowners' income is roughly in line with the historical average. | 2,004 | 0 |
Flexible inflation averaging would bring some of the benefits of a formal average-inflation-targeting rule, but it could be more robust and simpler to communicate and implement. | 1,996 | 2 |
To do this will demand not only greater specialized knowledge, but also an ability to deal with risk and uncertainty. | 2,021 | 2 |
I look forward, as always, to my conversation with Tim, but first, please allow me to offer a few remarks on the economic outlook, Federal Reserve monetary policy, and our new monetary policy framework. | 2,022 | 2 |
But is it really true that prices are more responsive to productivity than wages? | 1,998 | 2 |
The Federal Reserve takes into account the spillovers of higher interest rates, a stronger dollar, and weaker demand from foreign economies into the United States, as well as in the reverse direction. | 2,020 | 0 |
Stock prices and existing home sales are somewhat correlated, a not altogether unexpected result, because each is affected by interest rates and presumably the gains from each help finance the other. | 2,006 | 2 |
Indeed, an oft-quoted quip by economist Robert Solow held that, as of the late 1980s, "computers are everywhere except in the productivity statistics." | 2,006 | 2 |
A number of commodity price indexes have indeed risen sharply over the past couple of years, including a large jump in the past several months. | 2,004 | 2 |
For equities, a stock's price-earnings ratio is a standard benchmark for assessing valuation. | 2,000 | 2 |
But what does this mean for monetary policy? | 2,004 | 2 |
With about $250 billion of these inflation-protected securities now outstanding, we can get readings along the entire maturity structure of real interest rates. | 2,000 | 2 |
Generally speaking, the growth of profits and the related buildup of cash have been broadly distributed across industries. | 1,998 | 2 |
The flow of macrodata received since May has been surprisingly strong, and GDP growth in the third quarter is estimated by many forecasters to have rebounded at roughly a 30 percent annual rate. | 2,004 | 1 |
In particular, the unemployment rates in the metropolitan areas of South Dakota have consistently been lower than in rural areas, and this relative abundance of job opportunities has tended to encourage migration to areas such as Sioux Falls. | 2,021 | 2 |
By definition, multifactor productivity includes technical change, organizational improvements, cyclical factors, and myriad other influences on output per hour, apart from capital investment. | 2,013 | 2 |
Fiscal policy, on the other hand, can be an instrument of growth policy, through its effect on national saving via the structural budget deficit, through incentive effects on work, saving and investment via tax rates and tax structure, and through public investment in human capital and physical infrastructure. | 1,996 | 0 |
Unfortunately, I suspect that this call would often come so late in the day that, given the lags in the monetary transmission mechanism and uncertainty about the duration of bubbles, raising interest rates might actually risk exacerbating instability. | 2,005 | 0 |
You might ask: Does successful monetary policymaking really require all this additional knowledge? | 1,999 | 2 |
The dual mandate seems proper and fitting, given that economic costs are incurred both by having inflation stray from its long-run goal and by having output deviate from the economy's potential to produce; and it seems to produce results not too different in practice from those associated with central banks that are flexible inflation targeters. | 2,004 | 2 |
In contrast, in cases in which variations in the demand for reserves or in external factors affecting reserve supply appear likely to be temporary, the Desk typically prefers to conduct open-market operations through short-term or long-term repurchase agreements, known as repos. | 2,007 | 2 |
The first area is the characterization of good monetary policy in increasingly realistic and complex model environments. | 2,013 | 2 |
From a low near $30 per barrel in late 2003, the price of oil rose to $70 per barrel by the middle of 2006, and it has stayed high, with the current price more than $80. | 2,008 | 1 |
For example, wages and prices that are set for some period in the future will of necessity embody the inflation expectations of the parties to the negotiation; increases in expected inflation will thus tend to promote greater actual inflation. | 2,004 | 2 |
In addition, the maximum sustainable levels of output and employment cannot be known with any assurance (Mishkin, 2007b). | 2,019 | 2 |
I look forward to my conversation with Steve Liesman and to your questions, but first, please allow me to offer a few remarks on the economic outlook, Federal Reserve monetary policy, and our new monetary policy framework. | 2,003 | 2 |
While recognizing the value of smoothing, I still feel that in the interest rate targeting regime the Fed now uses, we should at times be ready to change interest rates quite quickly in response to economic conditions. | 2,019 | 2 |
Many of our critics tend to focus only on the inflation aspect of our mandate and ignore the employment leg of our mandate. | 2,021 | 0 |
Workers in the lowest-wage quartile face an extremely elevated rate of unemployment of around 23 percent.7 The advent of widespread vaccinations should revive in-person schooling and childcare along with demand for the in-person services that employ a significant fraction of the lower-wage workforce. | 1,999 | 0 |
For the Monetary Policy Committee (MPC) at the Bank of England, they find heterogeneous views among voters, but no systematic differences based on whether the MPC member is an insider--that is part of the hierarchy at the Bank--or an outsider appointed for a short term just to the MPC; whether the person comes from an academic background; or whether that person has worked at the Treasury. | 2,020 | 2 |
The unmooring of inflation expectations greatly complicated the process of making monetary policy; in particular, the Fed's loss of credibility significantly increased the cost of achieving disinflation. | 1,999 | 1 |
Very low inflation and deflation pose qualitatively similar economic problems, though the magnitude of the associated costs can be expected to increase sharply as deflationary pressures intensify. | 2,005 | 0 |
For example, core CPI (consumer price inflation) prices fell 0.4 percent in April, the largest monthly decrease since the beginning of the series in 1957. | 2,004 | 0 |
We indicated that, with inflation running persistently below 2 percent, our policy will aim to achieve inflation outcomes that keep inflation expectations well anchored at our 2 percent longer-run goal. | 2,003 | 0 |
But strong demand and a very tight labor market have also contributed to inflation pressures, and the FOMC can help alleviate those pressures by removing the extraordinary monetary policy accommodation that is no longer needed. | 1,997 | 1 |
This linkage establishes one important connection between the FOMC's target funds rate and interest rates more broadly. | 2,020 | 2 |
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