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Broad equity prices rose, adding to their substantial gains since the middle of 2010.

neutral

For 1997 the Committee agreed on a tentative basis to set the same ranges as in 1996 for growth of the monetary aggregages and debt, measured from the fourth quarter of 1996 to the fourth quarter of 1997.

neutral

Computing power may not be falling in price quite so rapidly now as in the late 1990s, but a dollar nevertheless buys a great deal more computational capacity today than it did even five years ago.

neutral

In the textbook world of Mundell-Fleming, unanticipated monetary ease leads to lower interest rates, a drop in the home currency's value, and a stimulus to net exports.

dovish

However, if real (or nominal) government spending is held constant, the surplus will rise over time as a share of GDP, putting downward pressure on the equilibrium real rate, offsetting, at least in part, the effect on the real rate of the higher trend productivity.

dovish

Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports.

hawkish

We also expect it will be appropriate to maintain the current target range for the federal funds rate at 0 to 1/4 percent until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment, until inflation has risen to 2 percent, and until inflation is on track to moderately exceed 2 percent for some time.

dovish

Credit conditions in the commercial real estate (CRE) sector continued to ease, and growth in CRE loans at banks stayed solid.

hawkish

We want to see lower unemployment.

dovish

Fiscal austerity is the one tried and true approach to dealing with budget and trade deficits simultaneously.

hawkish

market-based measures of inflation compensation remained low.

dovish

The broad index of the foreign exchange value of the dollar rose nearly 3 percent over the intermeeting period amid the rise in U. S. interest rates, market expectations that U. S. tax reform was becoming more likely, and foreign central bank actions and communications.

hawkish

Consequently, following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.

dovish

Although in a number of sectors of the economy the imbalances between demand and supply—including labor supply—are substantial, I do continue to judge that these imbalances are likely to dissipate over time as the labor market and global supply chains eventually adjust and, importantly, do so without putting persistent upward pressure on price inflation, wage gains adjusted for productivity, and the 2 percent longer-run inflation objective.

neutral

This evaluation assumed continued sluggish growth in final demand during the period immediately ahead.

neutral

Housing activity was generally holding up well across the country as the effects of appreciably reduced mortgage interest rates apparently compensated for the negative effects of declining financial wealth on the demand for housing.

dovish

And, in particular, I do personally believe that the slowdown is at least partly temporary, and that we’ll see greater growth going forward.

dovish

The considerable monetary ease already in place, the prospect of significantly more fiscal stimulus, the continuing strong gains in structural productivity, and the anticipated improvement in business confidence would provide significant impetus to spending.

neutral

In the household sector, mortgage debt increased at its lowest pace since the late 1990s, reflecting the continued deceleration in house prices.

dovish

Although the economy has indeed strengthened over the past few quarters, job growth has been anemic and considerable slack persists in labor markets.

dovish

In several Districts, reports from business contacts or evidence from surveys pointed to some difficulty in finding qualified workers; in some cases, labor shortages were making it hard to fill customer demand or expand business.

neutral

Although the required amount of cumulative tightening may have increased, members noted that an accelerated pace of policy tightening did not appear necessary at this time, as a degree of economic slack apparently remained, productivity growth would probably continue to damp increases in unit labor costs and prices, and inflation would most likely continue to be contained.

neutral

More than two years after the recession trough, and following several quarters of strong growth, the historically normal pattern would be for the Fed to be well into the process of tightening policy by now.

hawkish

The rapid pace of investment also helped to hold down inflationary pressures by increasing the growth of productive capacity.

hawkish

Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

neutral

A number of participants stressed that recently enacted fiscal support would help address some of the hardships faced by these groups and that monetary policy would also help by promoting the economy's return to the Committee's goals of broad-based and inclusive maximum employment and price stability.

dovish

As always, my colleagues on the FOMC and I will act to foster our dual objectives of price stability and sustainable economic growth.

hawkish

If the prices are wrong -- built on the base on an incorrect view of the economy or Federal Reserve intentions -- we will prove them wrong and provide an anchor for the market to adjust to.

neutral

In each case, my own preferred approach is to take the other variable into account in performing our main job of dealing with inflation and unemployment

neutral

Rather, it is that the underlying sources of productivity growth are very complex.

dovish

Market-based measures of inflation compensation remained low

dovish

We all saw the remarkable price increases and shortages in the used car market.

hawkish

That sentiment was apparently reinforced over the remainder of the period by the comments of several Federal Reserve officials and the release of the August employment report, which seemed to convey the view that the economy was emerging from its "soft patch. "

neutral

She showed there some so-called optimal policy rules that come from trying to get the best possible outcomes from our quantitative econometric models, and what you see, if you look at that, is that the best possible outcomes, assuming perfect certainty, assuming perfect foresight—very unrealistic assumptions—still involve inflation staying quite close to 2 percent.

neutral

Although we cannot ascertain the precise rates of resource utilization that the economy can sustain, we can have little doubt that, after three years of above-trend growth, slack has been substantially reduced.

hawkish

The effect of higher energy prices on real incomes was likely still restraining consumer spending.

neutral

With the risks to the forecast for economic activity tilted to the downside, the risks to the inflation projection were also viewed as having a downward skew.

dovish

To date, the spillover from the surge in oil prices has been modest.

hawkish

In contrast, the dollar appreciated against the AFE currencies, reflecting continued divergence in monetary policy expectations for the United States and AFEs as well as political uncertainty in Europe.

dovish

Although not without some serious shortcomings, the published productivity data provide little encouragement to the view that there has been a significant improvement in underlying productivity growth.

dovish

Presumably even normal amortized equity that did not come from higher home prices was extracted in this manner.

neutral

Developments during the Second Period: 1998-2007 Research during the past ten years has been very fruitful in expanding the profession's understanding of the implications of uncertainty for the design and conduct of monetary policy.

neutral

In contrast, the past few cycles did not see this kind of behavior, and in each case, financial imbalances, rather than goods and services inflation, were notably elevated at the onset of the downturn.

hawkish

In particular, Do all equity price movements--whether related to fundamentals or not--have the same effect on investment spending?

neutral

Retail energy prices were likely to retrace at least a portion of the post-hurricane increase, and consumer confidence should rebound.

neutral

Business Caution As I discussed earlier, regression analysis suggests that the robust growth in profits and the comparatively modest recovery in capital expenditures leaves a good part of the extraordinary cash buildup unexplained.

neutral

If this high-pressure management inadvertently carried the economy beyond its productive potential, some cost in terms of inflation could be expected,

neutral

At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until it was instructed otherwise, to execute transactions in the System Account in accordance with the following domestic policy directive: The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output.

hawkish

The slower growth of final spending resulted in inventory overhangs in a number of industries, most notably those related to the motor vehicle sector.

neutral

Consumer price inflation continued to run below the Committee's longer-run objective of 2 percent, restrained in part by earlier decreases in energy prices and in prices of non-energy imports.

dovish

In fact, the low funds rate has been necessary to promote growth that, to date, has been just sufficient to begin reducing substantial margins of slack in resource utilization.

dovish

The several extensions of emergency unemployment insurance benefits appeared to have raised the measured unemployment rate, relative to levels recorded in past downturns, by encouraging some who have lost their jobs to remain in the labor force.

dovish

Treasury bond yields declined somewhat, perhaps reflecting both expectations of lower policy rates and greater investor demands for safety.

dovish

Moreover, if, as some members thought likely, productivity growth slowed as employment picked up, the result could be reductions in slack accompanied by higher unit labor costs and associated pressures on prices.

hawkish

Indeed, how will we measure inflation, and the associated financial market implications, in the twenty-first century when our data--using current techniques--could become increasingly less adequate to trace price trends over time?

neutral

To measure productivity and standards of living we need measures of output but, to measure output, we need to be able to define products clearly and in terms of units that do not change from one period to the next.

neutral

For example, changes in U.S. short-term interest rates seem to exert a substantial influence on euro area bond yields (Ehrmann, Fratzscher, and Rigobon, 2005

neutral

Some participants also noted that recent readings on some survey measures of consumers' inflation expectations had declined or stood at historically low levels.

dovish

To keep the experiments as clean as possible, I assume that the economy begins at full employment and with both headline and core inflation at desired levels.

neutral

November 19, 2021 Perspectives on Global Monetary Policy Coordination, Cooperation, and Correlation Vice Chair Richard H. Clarida At the "Macroeconomic Policy and Global Economic Recovery" 2021 Asia Economic Policy Conference, sponsored by the Federal Reserve Bank of San Francisco Center for Pacific Basin Studies, San Francisco, California (via webcast) Share Watch Live In my remarks today, I would like to offer some perspectives on global monetary policy correlation and what it can—and cannot—reveal about the prevalence and value of global monetary policy coordination or, in the limit, binding global monetary cooperation.1 In both the Global Financial Crisis (GFC) and the Global Pandemic Collapse (GPC), major central banks around the world responded by cutting policy rates to, and then keeping them at, their effective lower bounds (ELBs); by increasing their balance sheets through ambitious and expansive large-scale asset purchase and lending programs; and by offering forward guidance—both Delphic and Odyssean—on the stance of their future monetary policies.2 As these examples make clear, we certainly do observe that national monetary policies are often correlated, and such examples are not confined to recent experience.

dovish

The release this year and last of mortgage price data gathered under the Home Mortgage Disclosure Act (HMDA) has highlighted a different, but potentially related, concern about access to credit on equal terms.

neutral

Indeed, the proposed reduction in the nominal federal funds rate would about offset the apparent increase in the real federal funds rate stemming from a recent decline in inflation.

dovish

I look forward, as always, to my conversation with Ellen Zentner, but first, please allow me to offer a few remarks on the economic outlook, Federal Reserve monetary policy, and our new monetary policy framework.

neutral

When governments resort to printing money to finance their spending, inflation rises and nominal assets lose their value.

neutral

The first is what to do about supply shocks, like large increases in oil prices, which tend to increase both inflation and unemployment.

hawkish

Although readings on core inflation had improved modestly since the spring, nearly all participants viewed core inflation as uncomfortably high and stressed the importance of further moderation.

hawkish

This conclusion is buttressed by recent sizable increases estimated for labor productivity for the manufacturing sector, derived from a data system that, for the most part, is independent of the national accounts.

neutral

Consumer price inflation remained subdued in November, with both the overall index and the index excluding food and energy items rising at the same relatively low rates as in October.

dovish

In December, the consumer price index (CPI) rose somewhat faster than in recent months, primarily reflecting an upturn in consumer energy prices

hawkish

Those few members who expressed a preference for easing at this meeting believed that, with unit labor costs and inflation expectations contained, enough evidence of further weakness already existed to warrant an immediate action.

dovish

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.

neutral

In light of these uncertainties as well as continued evidence of muted inflation pressures, participants generally agreed that a patient approach to determining future adjustments to the target range for the federal funds rate remained appropriate.

neutral

The staff raised slightly its projection for inflation during the second half of this year, as the upward pressure on consumer prices from earlier increases in import and commodity prices was expected to persist a little longer than previously anticipated.

hawkish

In addition, to address the sizable demand for dollar funding in foreign jurisdictions, the FOMC authorized the expansion of its existing swap lines with the European Central Bank and Swiss National Bank; by the end of the intermeeting period, the formal quantity limits on these lines had been eliminated.

dovish

The trimmed mean measure of 12-month PCE price inflation constructed by the Federal Reserve Bank of Dallas remained at or near 2 percent in recent months.

neutral

Some uncertainties, such as those associated with the election, had been resolved, but others persisted, including the prospects for oil prices and their consequences for the economy.

neutral

While labor markets were anticipated to remain tight in the near term, participants expected labor demand and supply to come into better balance over time, helping to ease upward pressure on wages and prices.

hawkish

If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability.

dovish

As you may know, the interest rate that we target is the federal funds rate, the rate banks charge each other for overnight loans.

neutral

Most major indexes of equity prices moved up sharply on the bullish economic reports.

hawkish

Although higher energy and other costs had the potential to add to inflation pressure, core inflation had been relatively low in the preceding few months and longer-term inflation expectations remained contained.

neutral

U.S. inflation remains muted.

dovish

In their comments about the external sector of the economy, members referred to indications of strengthening economic activity abroad that in conjunction with a weaker dollar was fostering some improvement in exports.

neutral

For example, in the mid-1970s, just when the FOMC began to specify money growth targets, econometric estimates of M1 money demand relationships began to break down, predicting faster money growth than was actually observed.

neutral

Headline stock price indexes in the AFEs generally ended the period higher, whereas bank stocks in Europe declined.

neutral

It is true that changes in longer-term interest rates in the United States—but also in other advanced economies—does have some effect on emerging markets, particularly those who are trying to peg their exchange rate, and can lead to some capital inflows or outflows.

neutral

But, first, on inflation expectations, it is true that the breakevens from the inflation-adjusted—inflation-indexed bonds have come down.

dovish

"4 While this new framework represents a robust evolution in our monetary policy strategy, this strategy is in service to the dual-mandate goals of monetary policy assigned to the Federal Reserve by the Congress—maximum employment and price stability—which remain unchanged.5 Concluding Remarks While economic recovery since the spring collapse has been robust, let us not forget that full economic recovery from the COVID-19 recession has a long way to go.

dovish

With regards to inflation, the median inflation projection of FOMC participants is 2.4 percent this year and declines to 2 percent next year before moving back up to 2.1 percent in 2023.

neutral

Members recognized that from the standpoint of the level of real short-term interest rates, monetary policy could already be deemed to be fairly restrictive.

hawkish

If so, GDP growth this calendar year could be the fastest since 1983.

hawkish

An extreme version of this view is that bubbles probably do not exist--that rational market processes always price assets at their fundamental value.

neutral

Risk sentiment abroad fluctuated over the intermeeting period as market participants weighed increasing coronavirus cases in a number of countries against improving economic data releases and ongoing fiscal and monetary policy support.

neutral

So in terms of financial markets and monetary policy, we—as we say in our statement every cycle, we do take financial conditions into consideration because financial—broader financial conditions do affect the broader economy, and they’re one of the many things that we take into account.

neutral

they also concurred that it would be necessary to continue to monitor inflation developments carefully.

neutral

Overall employment gains were relatively well maintained, and labor markets were still tight though showing signs of softening.

neutral

While a constant rate of money growth will not always be optimal, if money demand is sufficiently stable, and not particularly interest sensitive, it will pin down inflation in the long run and help smooth the business cycle in the short run.

dovish

Well, you’re certainly right that we have been over-optimistic about out-year growth.

hawkish

And productivity’s been very low.

hawkish

The role of the Board vis-à-vis the regional Banks was elevated in the aftermath of the stock market crash of 1929 and in the early years of the Great Depression, but the combination of centralized and regional responsibilities remains an important strength of the Federal Reserve System, as I'll explain shortly when I discuss the formulation of monetary policy.

neutral