adriana d kugler : the outlook for the economy and monetary policy speech by ms adriana d kugler, member of the board of governors of the federal reserve system, at the weidenbaum center on the economy, government, and public policy, washington university in st. louis, st. louis, missouri, 3 april 2024. * * * thank you, andrew, and thank you for the opportunity to speak here today. 1 i am very pleased to be talking here at the weidenbaum center. as an economist currently working on policy, but with a long trajectory in research, i particularly appreciate the center's multidisciplinary approach to building bridges between these two applications of economics. the federal open market committee ( fomc ) has been working to lower inflation in the context of our dual mandate of maximum employment and price stability. today i will discuss economic developments in the u. s. and how i view the current stance of monetary policy in light of recent data and longer - run trends. since i am an economist, you will not be surprised that i will talk about recent economic developments by highlighting the dynamics of supply and demand. as you all know, inflation began to rise in 2021. by mid - 2022, 12 - month inflation, based on the personal consumption expenditures ( pce ) price index, was around 7 percentmuch too high and far above the fomc's 2 percent longer - run objective. but since that time, pce inflation has slowed significantly, declining to 5. 4 percent at the end of 2022, then to 2. 6 percent at the end of 2023, and then to 2. 5 percent in february. inflation can sometimes be hard to read from overall pce inflation figures due to the volatility of food and energy prices. for that reason, it is sometimes helpful to focus on " core " pce inflation, which excludes those categories and is a better guide to the direction of inflation. core pce inflation peaked at a rate above 5 - 1 / 2 percent in early 2022 but fell rapidly during 2023. in fact, the core pce disinflation we saw last year was the fastest since the early 1980s. the progress has sometimes been bumpy from month to month, and, indeed, january and february of this year showed a bit of firming in the inflation data. but the january numbers, in particular, featured some atypical or seasonal factors that

system. 5 however, in my view, the single most important cause of the ongoing expansion in productivity is that china has moved, gradually but steadily, away from central planning and toward a greater reliance on markets. in 1978, almost no prices in china were determined by the market, and most production was controlled or directed by the state. since then, the government has reduced its direct intervention in the economy and scaled back state - owned enterprises, in the process allowing more scope for market forces. by 1999, according to one estimate, about 95 percent of retail business, together with more than 80 percent of trade in agricultural commodities and producer goods, was conducted at market - determined prices. 6 bergsten and others ( 2006 ), p. 3. world bank ( 2006 ). for example, according to 2005 data from the international monetary fund's world economic outlook database, china's per capita gdp is about one - sixth of that of the united states on a purchasing - power - parity basis and about one twenty - fifth that of the united states at current exchange rates. productivity growth rates are calculated by federal reserve board staff using chinese data on output and employment. productivity can be difficult to measure, and so these figures should be treated as approximate. a new method for surveying employment was introduced in 1990, resulting in a break in the series in that year. see, for example, chapter 2 of bergsten and others ( 2006 ) for a discussion of why china has grown so rapidly. lardy ( 2002 ), p. 25. substantial experience has shown that modern economies, including those in early stages of development, are too complex to be managed effectively on a centralized basis. prices set in free and competitive markets serve several critical functions, among them aggregating disparate information about supply and demand conditions and the relative scarcities of specific goods and services ; directing resources to their most productive uses ; and providing incentives to engage in cost reduction, innovation, and entrepreneurial activities. a free market for labor is particularly critical for sustained economic development. china has made substantial progress in this area over the past few decades, most notably by reducing barriers to the movement of workers among regions, sectors, and firms and by allowing greater flexibility in the determination of employment and wages. 7 indeed, the ongoing movement of workers from relatively low - productivity, low - wage jobs in agriculture to higher - productivity, higher - wage jobs in manufacturing and services has been a significant source of chinese economic growth. the