be subtle. for example, sargent and wallace ’ s “ unpleasant monetarist arithmetic ” suggested that a near - term tightening of monetary policy, by making the long - term fiscal situation less tenable, could ( in principle at least ) lead to inflation, because the public will anticipate that the fiscal deficit must be financed eventually by money creation. more recently, woodford ’ s fiscal theory of the price level suggests that nonsustainable fiscal policies can drive inflation, even if the central bank resists monetization. following woodford, olivier blanchard has recently argued that tight money policies in brazil, by raising the government ’ s financing costs and thus worsening the fiscal situation, might have had inflationary consequences. although this subsequent work has refined our understanding of the relationship between monetary and fiscal policy, these analyses are not inconsistent with the spirit of monetarist propositions, which place the blame for inflation on overissuance of nominal government liabilities. another area of pressing current interest derives from friedman ’ s tenth proposition, that monetary policy works by affecting all asset prices, not just the short - term interest rate. this classical monetarist view of the monetary transmission process has become highly relevant in japan, for example, where the short - term interest rate has reached zero, forcing the bank of japan to use so - called quantitative easing methods. the idea behind quantitative easing is that increases in the money stock will raise asset prices and stimulate the economy, even after the point that the short - term nominal interest rate has reached zero. there is some evidence that quantitative easing has beneficial effects ( including evidence drawn from the great depression by chris hanes and others ), but the magnitude of these effects remains an open and hotly debated question. the only aspect of friedman ’ s 1970 framework that does not fit entirely with the current conventional wisdom is the monetarists ’ use of money growth as the primary indicator or measure of the stance of monetary policy. clearly, monetary policy works in the first instance by affecting the supply of bank reserves and the monetary base. however, in the financially complex world we live in, money growth rates can be substantially affected by a range of factors unrelated to monetary policy per se, including such things as mortgage refinancing activity ( in the short run ) and the pace of financial innovation ( in the long run ). hence, it would not be safe to conclude ( for example ) that the recent decline in m2 is indicative of a tight - money

. quits are back to pre - pandemic levels, and the same is true of the wage premium earned by those who change jobs. 3 surveys of 1 / 3 bis - central bankers'speeches workers and employers show a return to pre - pandemic levels of tightness. 4 and indicators of wage growth show a gradual decline toward levels that would be consistent with 2 percent inflation over time. 5 growth to date, declining inflation has not come at the cost of meaningfully higher unemployment - a highly welcome development, but a historically unusual one. healing of supply chains in conjunction with the rebalancing of demand and supply in the labor market has allowed disinflation without substantially weaker economic activity. indeed, economic growth has consistently surprised to the upside this year, as most recently seen in the strong retail sales data released earlier this week. forecasters generally expect gross domestic product to come in very strong for the third quarter before cooling off in the fourth quarter and next year. still, the record suggests that a sustainable return to our 2 percent inflation goal is likely to require a period of belowtrend growth and some further softening in labor market conditions. 6 geopolitical tensions are highly elevated and pose important risks to global economic activity. our institutional role at the federal reserve is to monitor these developments for their economic implications, which remain highly uncertain. speaking for myself, i found the attack on israel horrifying, as is the prospect for more loss of innocent lives. monetary policy turning to monetary policy, the fomc has tightened policy substantially over the past 18 months, increasing the federal funds rate by 525 basis points at a historically fast pace and decreasing our securities holdings by roughly $ 1 trillion. the stance of policy is restrictive, meaning that tight policy is putting downward pressure on economic activity and inflation. given the fast pace of the tightening, there may still be meaningful tightening in the pipeline. my colleagues and i are committed to achieving a stance of policy that is sufficiently restrictive to bring inflation sustainably down to 2 percent over time, and to keeping policy restrictive until we are confident that inflation is on a path to that objective. we are attentive to recent data showing the resilience of economic growth and demand for labor. additional evidence of persistently above - trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy. along with many other factors, actual and expected