jerome h powell : economic outlook and monetary policy review speech by mr jerome h powell, chair of the board of governors of the federal reserve system, at the council on foreign relations, new york, new york city, 25 june 2019. * * * good afternoon. it is a pleasure to speak at the council on foreign relations. i will begin with a progress report on the broad public review my federal reserve colleagues and i are conducting of the strategy, tools, and communication practices we use to achieve the objectives congress has assigned to us by law — maximum employment and price stability, or the dual mandate. then i will discuss the outlook for the u. s. economy and monetary policy. i look forward to the discussion that will follow. during our public review, we are seeking perspectives from people across the nation, and we are doing so through open public meetings live - streamed on the internet. let me share some of the thinking behind this review, which is the first of its nature we have undertaken. the fed is insulated from short - term political pressures — what is often referred to as our “ independence. ” congress chose to insulate the fed this way because it had seen the damage that often arises when policy bends to short - term political interests. central banks in major democracies around the world have similar independence. along with this independence comes the obligation to explain clearly what we are doing and why we are doing it, so that the public and their elected representatives in congress can hold us accountable. but real accountability demands more of us than clear explanation : we must listen. we must actively engage those we serve to understand how we can more effectively and faithfully use the powers they have entrusted to us. that is why we are formally and publicly opening our decisionmaking to suggestions, scrutiny, and critique. with unemployment low, the economy growing, and inflation near our symmetric 2 percent objective, this is a good time to undertake such a review. another factor motivating the review is that the challenges of monetary policymaking have changed in a fundamental way in recent years. interest rates are lower than in the past, and likely to remain so. the persistence of lower rates means that, when the economy turns down, interest rates will more likely fall close to zero — their effective lower bound ( elb ). proximity to the elb poses new problems to central banks and calls for new ideas. we hope to benefit from the best thinking on these issues. at the heart of the review are our

policy financial market participants have no simple formula to guide them in forming expectations about future short - term rates ; instead, they must infer the likely course of policy based on their own economic forecasts and their knowledge of policymakers ’ outlook and objectives. given the complexity of the central bank ’ s forecasting and policy evaluation processes, making these inferences is a daunting challenge. clearly, under a forecastbased policy, central bankers have scope to provide considerable help to the private sector in its attempts to anticipate policy changes. to the extent that policymakers can accurately communicate their outlook, objectives, and tactics to the public, financial markets will be more efficient and monetary policy more effective ( bernanke, 2004 ). i will return to the issue of communication shortly. the policy framework of the federal reserve it would be nice, at this point, if i could tell you definitively whether simple feedback policies or forecast - based policies represent the superior approach to making monetary policy. but drawing strong conclusions at this juncture would be premature, to say the least. the debate in the monetary economics literature remains lively. moreover, to some degree, central bank practice remains eclectic. at the federal reserve, both simple feedback and forecast - based approaches are used to provide information to policymakers. for example, fomc members routinely compare their policy choices with both the prescriptions of various forms of the taylor rule ( as noted, a type of simple feedback policy ) and the results of model simulations and forecasting exercises undertaken by staff at the board and at the twelve reserve banks ( as required by the forecast - based approach ). 8 although i will not try here to resolve the deeper debate about frameworks, i can say something about the degree to which central banks rely on these approaches in practice. both simple feedback policies and forecast - based policies influence how policymakers think about their decisions, as i have just noted. however, in my judgment, reliance on these two approaches is not symmetric ; instead, the forecast - based approach has become increasingly dominant in the monetary policymaking of leading central banks. this dominance is reflected in the resources that central banks devote to data collection and modeling and in the increasing sophistication and detail of central bank forecasts. 9 indeed, a number of central banks with explicit inflation objectives publish regular forecasts and closely link monetary policy decisions to those forecasts. 10 the federal reserve does not explicitly link policy actions to forecasts, but projections of how the economy