Addressing Economic and Monetary Challenges in Changing Times
It’s invigorating to be here today in Salt Lake City, engaging with Utah’s business and banking leaders at this pivotal breakfast meeting. The insights I gain from your firsthand experiences are invaluable, providing essential context to the raw economic data that guides our policy decisions. I eagerly anticipate discovering more about the challenges and opportunities your enterprises, along with the communities you support, are currently facing.
Over the past five years since my appointment to the Federal Reserve’s Board of Governors, the U.S. economy has encountered numerous unprecedented challenges. In my address today, I will share my observations on these economic shifts and the Federal Open Market Committee’s (FOMC) responsive measures. I will also discuss the lingering uncertainties that affect my perspective on suitable monetary policies moving forward, including ongoing supply-side improvements and their potential impact on inflationary pressures.
Reflecting on Post-Crisis Monetary Policy and Economic Adjustments
Looking back five years, the economic landscape was significantly different, characterized by concerns over persistently low inflation despite extensive accommodative monetary policies post-2008 financial crisis. This was a global issue, with central banks worldwide grappling with potential long-term low interest rates driven by demographic shifts, lower productivity growth, and heightened demand for secure assets like U.S. Treasuries.
During my initial year on the FOMC in 2018 and 2019, a key focus was how to adapt our monetary policy tools to effectively sustain price stability and maximum employment amidst these challenges. The proximity of federal funds rates to zero limited our ability to combat economic downturns through traditional rate cuts, highlighting the need for innovative policy approaches even as the economy expanded and inflation approached our 2% target.
Addressing the Pandemic’s Economic Shock and Policy Response
The onset of COVID-19 in March 2020 ushered in a global economic and financial upheaval unparalleled in recent history. The Federal Reserve responded decisively to stabilize financial markets and cushion the pandemic’s economic impact. This included reducing the federal funds rate to near zero and implementing large-scale Treasury and mortgage-backed securities purchases to maintain market functionality and support credit flow.
Globally, central banks introduced similar policies, while fiscal measures like the Paycheck Protection Program under the CARES Act played critical roles in sustaining employment and economic activity in the U.S. These combined efforts not only addressed immediate financial disruptions but also facilitated a rapid economic recovery in 2021, supported by excess savings and innovative business adaptations to new operational norms.
Conclusion
As we continue to navigate through these complex economic conditions, the FOMC remains vigilant, making informed decisions based on the latest data to address inflation effectively and support a robust labor market. The path of monetary policy will adjust as needed, reflecting ongoing economic developments and structural changes. My commitment is to ensure that our policy decisions are well-calibrated to promote long-term economic stability and prosperity.