christopher j waller : fighting inflation with rate hikes and balance sheet reduction speech by mr christopher j waller, member of the board of governors of the federal reserve system, at the economic forecast project, university of california, santa barbara, california, 24 february 2022. * * * thank you peter, and thank you to the ucsb economic forecast project for the invitation to speak today. my plan is to start with my outlook for the u. s. economy in 2022, and then describe what i consider the appropriate path of monetary policy to keep the economy on a healthy and sustainable course. 1 but, before i get into that discussion, let me comment on what i think is on everyone ’ s minds today, russia ’ s attack on ukraine. obviously, there are people in harm ’ s way and we shouldn ’ t lose sight of them. it is far too early to judge how this conflict will affect the world, or the world economy, and what the implications will be for the u. s. economy. but this situation adds uncertainty to my outlook and will be something i will be monitoring very closely. as my speech will say, we will need to carefully look at the incoming data, especially during a time of heightened uncertainty. turning to my outlook for the economy, my greatest concern is continued elevated inflation. inflation is too high, and i think concerted action is needed to rein it in. the federal open market committee ( fomc ) has multiple tools to tighten monetary policy, and i will go into some detail about how i believe the fed should approach increasing the target range for the federal funds rate and reducing the size of the balance sheet. but let me start with the outlook for economic activity. i expect the economy to continue expanding at a healthy rate this year, slower than in 2021 but still at a solid pace that will keep employment growing strongly. while there are some signs that the effects of the omicron variant have dampened economic growth in the last month or two, it does not appear to have affected hiring, given the healthy jobs report for january. even covid - sensitive sectors such as leisure and hospitality saw big job gains last month. with covid cases dropping sharply, i expect this latest surge in infections will not be a major factor affecting the economy in 2022. supply bottlenecks and labor shortages, some of them related to the pandemic, continue to weigh on economic output, but i expect those to diminish later this year

interest rates and supporting economic recovery, though cyclical and structural headwinds have made achieving our inflation targets a challenge. a legacy of the crisis is that policymakers now have a broader range of tested tools to turn to the next time the effective lower bound is reached. we must continue to assess additional strategies and tools to bolster our economies and meet our inflation and employment mandates. finally, the crisis and great recession brought into stark relief the need for transparency and accountability for central banks. central bank communication is increasingly important and increasingly challenging. it is important because clear, transparent communication about the economy, the risks, and our policy responses is critical for the effectiveness of our tools and for our accountability to the public in a democratic society. it is challenging, because we are operating in a changing macroeconomic environment with tools that, while no longer new, remain less familiar to the public. moreover, our audience has become more varied, more attuned to our actions, and less trusting of public institutions. gone are the days when the federal reserve chair could joke, as my predecessor alan greenspan did, “ if i turn out to be particularly clear, you ’ ve probably misunderstood what i said. ” 1 central banks must speak to main street, as well as wall street, in ways we have not in the past, and main street is listening and engaged. where does this leave us, and how should policymakers adapt to this new environment? recognizing challenges posed by the changing structure of the economy, the need for effective policy responses, and the importance of clear communication, central banks are taking a closer look at their strategies and the range of tools currently at their disposal. for example, the bank of canada examines its framework every five years as part of the renewal of its inflation - control 3 / 4 bis central bankers'speeches agreement with the federal government. canadian officials have announced the bank will “ assess a broad range of monetary policy frameworks ahead of the renewal in 2021 ” of this agreement. 2 the bank of england commissioned a review over the past year of the future of the united kingdom ’ s financial system and what it might mean for the bank ’ s agenda, toolkit, and capabilities. 3 for our part, the federal reserve is conducting, for the first time, a public review of the strategy, tools, and communications that we use to promote our goals of maximum employment and price stability. 4 the heart of this review has been a series of fed listens events around the country,