Jerome H Powell: Opening remarks - Stanford Business,
Government, and Society Forum
Opening remarks by Mr Jerome H Powell, Chair of the Board of Governors of the
Federal Reserve System, at the Stanford Business, Government, and Society Forum,
Stanford Graduate School of Business, Stanford, California, 3 April 2024.
* * *
It is a pleasure to be here today. I will begin with the economy and the road ahead for
monetary policy before briefly discussing the Federal Reserve's monetary policy
independence.
Over the past year, inflation has come down significantly but is still running above the
Federal Open Market Committee's (FOMC) 2 percent goal. In February, headline
inflation was 2.5 percent over the past 12 months based on the personal consumption
expenditures (PCE) index. A year earlier, it was 5.2 percent. Core inflation, which
excludes the volatile food and energy components, stood at 2.8 percent; a year ago, it
was 4.8 percent. While this progress is welcome, the job of sustainably restoring 2
percent inflation is not yet done.
Tight monetary policy continues to weigh on demand, particularly in interest-sensitive
spending categories. Nonetheless, growth in economic activity and employment was
strong in 2023, as real gross domestic product expanded more than 3 percent and 3
million jobs were created, even as inflation fell substantially. This combination of
outcomes reflects significant improvements in supply that offset to some extent the
effects on demand of tighter financial conditions. The healing of global supply chains
helped address pent-up demand for goods, particularly in sectors that had faced
considerable shortages, such as autos. In addition, labor supply increased significantly,
thanks to rising participation among 25-to-54-year-olds, as well as a strong pace of
immigration.
Recent readings on both job gains and inflation have come in higher than expected.
The economy added an average of 265,000 jobs per month in the three months through
February, a faster pace than we have seen since last June. And the higher inflation
data over January and February were above the low readings in the second half of last
year.
The recent data do not, however, materially change the overall picture, which continues
to be one of solid growth, a strong but rebalancing labor market, and inflation moving
down toward 2 percent on a sometimes bumpy path. Labor market rebalancing is
evident in data on quits, job openings, surveys of employers and workers, and the
continued gradual decline in wage growth. On inflation, it is too soon to say whether the
recent readings represent more than just a bump. We do not expect that it will be
appropriate to lower our policy rate until we have greater confidence that inflation is
moving sustainably down toward 2 percent. Given the strength of the economy and
progress on inflation so far, we have time to let the incoming data guide our decisions
on policy.
We have held our policy rate at its current level since last July. As shown in the
individual projections the FOMC released two weeks ago, my colleagues and I continue
to believe that the policy rate is likely at its peak for this tightening cycle. If the economy
evolves broadly as we expect, most FOMC participants see it as likely to be appropriate
to begin lowering the policy rate at some point this year.
Of course, the outlook is still quite uncertain, and we face risks on both sides. Reducing
rates too soon or too much could result in a reversal of the progress we have seen on
inflation and ultimately require even tighter policy to get inflation back to 2 percent. But
easing policy too late or too little could unduly weaken economic activity and
employment. As progress on inflation continues and labor market tightness eases,
these risks continue to move into better balance.
As conditions evolve, monetary policy is well positioned to confront either of these risks.
We are making decisions meeting by meeting, and we will do everything we can to
achieve our maximum-employment and price-stability goals.
That brings me to my second topic. The Fed has been assigned two goals for monetary
policy-maximum employment and stable prices. Our success in delivering on these
goals matters a great deal to all Americans. To support our pursuit of those goals,
Congress granted the Fed a substantial degree of independence in our conduct of
monetary policy. Fed policymakers serve long terms that are not synchronized with
election cycles. Our decisions are not subject to reversal by other parts of the
government, other than through legislation. This independence both enables and
requires us to make our monetary policy decisions without consideration of short-term
political matters. Such independence for a federal agency is and should be rare. In the
case of the Fed, independence is essential to our ability to serve the public. The record
shows that independent central banks deliver better economic outcomes.1
We recognize that we need to continually earn this grant of independence, and we do
so by carrying out our work with technical competence and objectivity, in a transparent
and accountable manner, and by sticking to our knitting.
By technical competence, I mean that Fed policymakers use the most up-to-date
information and research to deepen our understanding of the ever-evolving economy
and to reliably deliver on our assigned goals. We are supported by a highly capable
staff. We also draw on the insights and experiences of a wide array of business,
academic, community, and labor leaders, as well as others engaged in the economy.
And by objective, I mean that our analysis is free from any personal or political bias, in
service to the public. We will not always get it right-no one does. But our decisions will
always reflect our painstaking assessment of what is best for our economy in the
medium and longer term-and nothing else.
Transparency and accountability are fundamental for any government agency in a
democracy but are especially important for one granted policy independence. The Fed
has a special obligation to explain ourselves clearly-to describe what we are doing and
why we are doing it. We are always striving to improve on this communication, and it is
a job that is never complete. But we have come a long way. Before 1994, the FOMC did
not even announce our monetary policy decisions. Today we announce those decisions
and explain the thinking behind them in our post meeting statement and press
conference. We publish detailed minutes of our deliberations and a quarterly summary
of the economic and policy projections of each FOMC participant. We publish a
monetary policy report twice a year, and the Chair appears before Congress to present
that report and answer any and all questions that are on the minds of our oversight
committee members. In 2020, we completed a yearlong public review of our monetary
2
policy framework, and late this year, we will begin another such review. My colleagues
and I explain our views on the economic outlook and monetary policy in speeches like
this one, and in visits to communities across the country, as part of extensive outreach
in which we seek input from individuals and groups throughout society. Transparency is
an affirmative and proactive commitment to the public.
To maintain the public's trust, we also need to avoid "mission creep." Our nation faces
many challenges, some of which directly or indirectly involve the economy. Fed
policymakers are often pressed to take a position on issues that are arguably relevant
to the economy but are not within our mandate, such as particular tax and spending
policies, immigration policy, and trade policy. Climate change is another current
example. Policies to address climate change are the business of elected officials and
those agencies that they have charged with this responsibility. The Fed has received no
such charge. We do, however, have a narrow role that relates to our responsibilities as
a bank supervisor. The public will expect that the institutions we regulate and supervise
will understand and be able to manage the material risks that they face, which, over
time, are likely to include climate-related financial risks. We will remain alert to the risk
that there will be pressure to expand that role over time. We are not, nor do we seek to
be, climate policymakers.
In short, doing our job well requires that we respect the limits of our mandate.
Thank you. I look forward to our discussion.
1
See, for example, Alberto Alesina and Lawrence H. Summers (1993), "Central Bank
Independence and Macroeconomic Performance: Some Comparative Evidence,"
Journal of Money, Credit and Banking, vol. 25 (May), pp. 151-62; Christopher Crowe
and Ellen E. Meade (2007), "The Evolution of Central Bank Governance around the
World," Journal of Economic Perspectives, vol. 21 (Fall), pp. 69-90; Christopher Crowe
and Ellen E. Meade (2008), "Central Bank Independence and Transparency: Evolution
European Journal of Political Economy,
and Effectiveness," vol. 24 (December), pp.
763-77; and N. Nergiz Dincer and Barry Eichengreen (2014), "Central Bank
Transparency and Independence: Updates and New Measures," International Journal
of Central Banking, vol. 10 (March), pp. 189-253.
2
We expect to release the results of this review about a year after it begins.