Federal Reserve Chair Jerome Powell’s Jackson Hole Symposium Speech
Federal Reserve Chair Jerome Powell signaled Friday that it’s time to adjust monetary policy, effectively paving the way for the beginning of interest rate cuts.
Powell refrained from committing to a predetermined path for rate cuts or providing any hints about their size, emphasizing the decision will depend on incoming data.
“My confidence has grown that inflation is on a sustainable path back to 2 percent,” the Fed chair said at the Jackson Hole Symposium.
“The time has come for policy to adjust. 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,” he said.
Powell refrained from committing to a predetermined path for rate cuts or providing any hints about their size, emphasizing the decision will depend on incoming data.
“My confidence has grown that inflation is on a sustainable path back to 2 percent,” the Fed chair said at the Jackson Hole Symposium.
“The time has come for policy to adjust. 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,” he said.
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NewsTranscript
00:00I am delighted to say that we have Federal Reserve Chair Jay Powell here to deliver opening remarks.
00:08So with that, let me welcome Jay Powell to the podium.
00:13Thank you, Karen, and thanks to our hosts from the Kansas City Fed.
00:24It's great to be back here today.
00:27Four and a half years after COVID-19's arrival, the worst of the pandemic-related economic distortions are fading.
00:35Inflation has declined significantly.
00:38The labor market is no longer overheated, and conditions are now less tight than those that prevailed before the pandemic.
00:45Supply constraints have normalized, and the balance of risks to our two mandates has changed.
00:52Our objective has been to restore price stability while maintaining a strong labor market,
00:57avoiding the sharp increases in unemployment that characterized earlier disinflationary episodes
01:03when inflation expectations were less well-anchored.
01:07While the task is not complete, we have made a good deal of progress toward that outcome.
01:13Today, I will begin by addressing the current economic situation and the path ahead for monetary policy.
01:20I will then turn to a discussion of economic events since the pandemic arrived,
01:24exploring why inflation rose to levels not seen in a generation,
01:29and why it has fallen so much while unemployment has remained low.
01:33So let's begin with the current situation and the near-term outlook for policy.
01:40For much of the past three years, inflation ran well above our 2 percent goal,
01:45and labor market conditions were extremely tight.
01:48The FOMC's primary focus has been on bringing down inflation, and appropriately so.
01:54Prior to this episode, most Americans alive today had not experienced the pain of high inflation for a sustained period.
02:02Inflation brought substantial hardship, especially for those least able to meet the higher costs of essentials,
02:09like food, housing, and transportation.
02:13High inflation triggered stress and a sense of unfairness that linger today.
02:19Our restrictive monetary policy helped restore balance between aggregate supply and demand,
02:24easing inflationary pressures, and ensuring that inflation expectations remained well-anchored.
02:30Inflation is now much closer to our objective, with prices having risen 2.5 percent over the past 12 months.
02:38After a pause earlier this year, progress toward our 2 percent objective has resumed.
02:43My confidence has grown that inflation is on a sustainable path back to 2 percent.
02:49Turning to employment, in the years just prior to the pandemic,
02:54we saw the significant benefits to society that can come from a long period of strong labor market conditions.
03:01Low unemployment, high participation, historically low racial employment gaps,
03:06and with inflation low and stable, healthy real wage gains that were increasingly concentrated among those with lower incomes.
03:14Today, the labor market has cooled considerably from its formerly overheated state.
03:20The unemployment rate began to rise over a year ago and is now at 4.3 percent,
03:26still low by historical standards but almost a full percentage point above its level in early 2023.
03:34Most of that increase has come over the past six months.
03:38So far, rising unemployment has not been the result of elevated layoffs, as is typically the case in an economic downturn.
03:46Rather, the increase mainly reflects a substantial increase in the supply of workers
03:51and a slowdown from the previously frantic pace of hiring.
03:55Even so, the cooling in labor market conditions is unmistakable.
04:01Job gains remain solid but have slowed this year.
04:05Job vacancies have fallen and the ratio of vacancies to unemployment has returned to its pre-pandemic range.
04:11The hiring and quits rates are now below the levels that prevailed in 2018 and 19.
04:17Nominal wage gains have moderated, and all told, labor market conditions are now less tight
04:23than just before the pandemic in 2019, a year when inflation ran below 2 percent.
04:30It seems unlikely that the labor market will be a source of elevated inflationary pressures anytime soon.
04:37We do not seek or welcome further cooling in labor market conditions.
04:43Overall, the economy continues to grow at a solid pace,
04:47but the inflation and labor market data show an evolving situation.
04:51The upside risks to inflation have diminished, and the downside risks to employment have increased.
04:58As we highlighted in our last FOMC statement, we are attentive to the risks to both sides of our dual mandate.
05:05The time has come for policy to adjust.
05:09The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data,
05:15the evolving outlook, and the balance of risks.
05:19We will do everything we can to support a strong labor market as we make further progress toward price stability.
05:26With an appropriate dialing back of policy restraint, there is good reason to think
05:30that the economy will get back to 2 percent inflation while maintaining a strong labor market.
05:37The current level of our policy rate gives us ample room to respond to any risks we may face,
05:42including the risk of unwelcome further weakening in labor market conditions.
05:49So let's now turn to the questions of why inflation rose and why it has fallen so significantly,
05:54even as unemployment has remained low.
05:57There is a growing body of research on these questions, including Gowdy Eggerson's work,
06:01which we'll shortly discuss, and this is a good time for this discussion.
06:06It is, of course, too soon to make definitive assessments.
06:10This period will be analyzed and debated long after we are all gone.
06:16The arrival of the COVID-19 pandemic led quickly to shutdowns in economies around the world.
06:21It was a time of radical uncertainty and severe downside risks.
06:26As so often happens in times of crisis, Americans adapted and innovated.
06:30Governments responded with extraordinary force, especially in the United States.
06:35Congress unanimously passed the CARES Act.
06:38At the Fed, we used our powers to an unprecedented extent to stabilize the financial system
06:43and help stave off an economic depression.
06:47After a historically deep but brief recession, in mid-2020, the economy began to grow again.
06:54And as the risks of a severe extended downturn receded, and as the economy reopened,
06:59we faced the risk of replaying the painfully slow recovery that followed the global financial crisis.
07:06Congress delivered substantial additional fiscal support in late 2020 and again in early 2021.
07:14Spending recovered strongly in the first half of 2021.
07:18And the ongoing pandemic shaped the pattern of the recovery.
07:21Lingering concerns over COVID weighed on spending on in-person services,
07:26but pent-up demand, stimulative policies, pandemic changes in work and leisure practices,
07:34and the additional savings associated with constrained services spending
07:39contributed to a historic surge in consumer spending on goods.
07:44The pandemic also wreaked havoc on supply conditions.
07:47Eight million people left the workforce at its onset,
07:51and the size of the labor force was still four million below its pre-pandemic level in early 2021.
07:58The labor force would not return to its pre-pandemic trend until mid-2023.
08:04Supply chains were snarled by a combination of lost workers, disrupted international trade linkages,
08:10and tectonic shifts in the composition and level of demand.
08:15Clearly, this was nothing like the slow recovery after the global financial crisis.
08:21Enter inflation.
08:23After running below target through 2020, inflation spiked in March and April 2021.
08:30The initial burst of inflation was concentrated rather than broad-based,
08:34with extremely large price increases for goods in short supply, such as motor vehicles.
08:40My colleagues and I judged at the outset that these pandemic-related factors would not be persistent,
08:45and thus that the sudden rise in inflation was likely to pass through fairly quickly,
08:49without the need for a monetary policy response.
08:52In short, that the inflation would be transitory.
08:56Standard thinking has long been that, as long as inflation expectations remain well-anchored,
09:01it can be appropriate for central banks to look through a temporary rise in inflation.
09:07The good ship transitory was a crowded one.
09:12With most mainstream analysts and advanced economy central bankers on board,
09:16I think I see some former shipmates out there today.
09:21The common expectation was that supply conditions would improve reasonably quickly,
09:26that the rapid recovery in demand would run its course,
09:30and that demand would rotate back from goods to services, bringing inflation down.
09:35For a time, the data were consistent with the transitory hypothesis.
09:39Monthly readings for core inflation declined every month from April through September 2021,
09:45although progress came slower than expected.
09:48The case began to weaken around mid-year, as was reflected in our communications,
09:53and beginning in October, the data turned hard against the transitory hypothesis.
09:58Inflation rose and broadened out from goods to services,
10:01and it became clear that high inflation was not transitory,
10:05and that it would require a strong response if inflation expectations were to remain well-anchored.
10:11We recognized that and pivoted beginning in November.
10:14Financial conditions began to tighten, and after phasing out our asset purchases,
10:19we lifted off in March of 2022.
10:22By early 2022, headline inflation exceeded 6% and core was above 5%.
10:28New supply shocks appeared.
10:30Russia's invasion of Ukraine led to a sharp increase in energy and commodity prices.
10:35The improvements in supply conditions and the rotation in demand from goods to services
10:40were taking much longer than expected,
10:43in part due to further COVID waves in the United States.
10:47And COVID continued to disrupt production globally,
10:50including through new and extended lockdowns in China.
10:55Higher rates of inflation were a global phenomenon, reflecting common experiences,
10:59rapid increases in the demand for goods, strained supply chains, tight labor markets,
11:05and sharp hikes in commodity prices.
11:08The global nature of inflation was unlike any period since the 1970s.
11:13Back then, high inflation became entrenched, an outcome we were utterly committed to avoiding.
11:19By mid-2022, the labor market was extremely tight,
11:23with employment increasing by 6.5 million jobs from the middle of 2021.
11:28This increase in labor demand was met, in part, by workers rejoining the labor force
11:33as health concerns began to fade.
11:35But labor supply remained constrained, and in the summer of 2022,
11:40labor force participation remained well below pre-pandemic levels.
11:44There were nearly twice as many job openings as unemployed persons
11:48from March 2022 through the end of the year, signaling a severe labor shortage.
11:53And inflation peaked at 7.1% in June 2022.
11:58At this podium two years ago, I discussed the possibility
12:02that addressing inflation could bring some pain in the form of higher unemployment and slower growth.
12:08Some argued that getting inflation under control would require a recession
12:11and a lengthy period of high unemployment.
12:14And I expressed our unconditional commitment to fully restoring price stability
12:18and to keeping at it until the job is done.
12:22The FOMC did not flinch from carrying out our responsibilities,
12:25and our actions forcefully demonstrated our commitment to restoring price stability.
12:30We raised our policy rate by 425 basis points in 2022 and another 100 basis points in 2023,
12:37and we've held our policy rate at its current restrictive level since July 2023.
12:45The summer of 2022 proved to be the peak of inflation.
12:48The 4.5 percentage point decline in inflation from its peak two years ago
12:52has occurred in a context of low unemployment, a welcome and historically unusual result.
12:59How did inflation fall without a sharp rise in unemployment above its estimated natural rate?
13:06Pandemic-related distortions to supply and demand,
13:09as well as severe shocks to energy and commodity markets,
13:12were important drivers of high inflation,
13:15and their reversal has been a key part of the story of its decline.
13:19The unwinding of these factors took much longer than expected,
13:23but ultimately played a large role in the subsequent disinflation.
13:27Our restrictive monetary policy contributed to a moderation in aggregate demand,
13:32which combined with improvements in aggregate supply to reduce inflationary pressures,
13:36while allowing growth to continue at a healthy pace.
13:40As labor demand also moderated,
13:42the historically high level of vacancies relative to unemployment
13:46has normalized primarily through a decline in vacancies,
13:49without sizable and disruptive layoffs,
13:52bringing the labor market to a state where it is no longer a source of inflationary pressures.
13:58A word on the critical importance of inflation expectations.
14:02Standard economic models have long reflected the view
14:05that inflation will return to its objective when product and labor markets are balanced,
14:10without the need for economic slack,
14:12so long as inflation expectations are anchored at our objective.
14:16That's what the model said.
14:19But the stability of longer run inflation expectations since the 2000s
14:23had not been tested by a persistent burst of high inflation.
14:27It was far from assured that the inflation anchor would hold.
14:31Concerns over de-anchoring contributed to the view
14:34that disinflation would require slack in the economy,
14:37and specifically in the labor market.
14:39An important takeaway from recent experience
14:42is that anchored inflation expectations,
14:44reinforced by vigorous central bank actions,
14:47can facilitate disinflation without the need for slack.
14:52This narrative attributes much of the increase in inflation
14:55to an extraordinary collision between overheated
14:58and temporarily distorted demand and constrained supply.
15:02While researchers differ in their approaches,
15:04and to some extent in their conclusions,
15:06a consensus seems to be emerging, which I see,
15:09as attributing most of the rise in inflation to this collision.
15:13All told, the healing from pandemic distortions,
15:16our efforts to moderate aggregate demand,
15:18and the anchoring of expectations,
15:20have worked together to put inflation
15:22on what increasingly appears to be a sustainable path
15:26to our 2% objective.
15:29Disinflation while preserving labor market strength
15:31is only possible with anchored inflation expectations,
15:34which reflect the public's confidence
15:36that the central bank will bring about 2% inflation over time.
15:40That confidence has been built over decades
15:43and reinforced by our actions.
15:46That is my assessment of events.
15:48Your mileage may differ.
15:51So let me wrap up by emphasizing
15:53that the pandemic economy has proved to be unlike any other
15:57and that there remains much to be learned
15:59from this extraordinary period.
16:01Our statement on longer-run goals
16:03and monetary policy strategy emphasizes our commitment
16:06to reviewing our principles and making appropriate adjustments
16:09through a thorough public review every five years.
16:12As we begin this process later this year,
16:15we will be open to criticism and new ideas
16:17while preserving the strengths of our framework.
16:20The limits of our knowledge,
16:22so clearly evident during the pandemic,
16:24demand humility and a questioning spirit
16:27focused on learning lessons from the past
16:30and applying them flexibly to our current challenges.