for release on delivery 1 : 00 p. m. edt ( 10 : 00 a. m. pdt ) october 20, 2021 how long is too long? how high is too high? : managing recent inflation developments within the fomc ’ s monetary policy framework remarks by randal k. quarles member board of governors of the federal reserve system at “ charting a new course ” 2021 milken institute global conference beverly hills, california october 20, 2021 thank you to the milken institute for the opportunity to join you today. this morning i ’ d like to outline my view of current economic conditions and the economic outlook and then turn to the implications for monetary policy. in particular, with employment still well below its february 2020 peak, i will focus on how the escalation in inflation this year is testing the monetary policy framework adopted by the federal open market committee ( fomc ) in august 2020. 1 outlook for economic growth recent data suggest that growth in the third quarter is likely to be lower than we had expected, but the foundations remain in place for strong economic growth over the remainder of this year and next. employment is growing, financial conditions are accommodative, businesses are investing, and households, in the aggregate, have a large stock of savings to draw on for future spending. weaker growth in payrolls in august and september, along with uneven consumer spending in july and august, appear to reflect ongoing concerns in some parts of the country about the spread of covid - 19, especially in high - contact service industries. supply bottlenecks and labor shortages that have been more widespread and persistent than many expected are camouflaging continued strong underlying demand for goods, services, and workers. supply constraints are particularly evident in interest - sensitive parts of the economy, such as residential investment and vehicle sales, limiting the scope for additional monetary accommodation to stimulate activity in those sectors. i expect that these developments, however, have for the most part simply postponed activity temporarily and that robust growth will return in the coming months. all of my remarks today represent my own views and not necessarily those of my colleagues on the federal open market committee. - 2there is evidence in recent weeks that we seem to be moving into a new phase of the economy. nominal retail sales rose seven - tenths of 1 percent in september on the heels of a nine - tenths increase in august, an indication that consumers kept up their pace of spending. robust business investment in equipment and

. finally, the anpr also indicates that the agencies are considering modifying the risk weights on other retail and commercial exposures based on credit scores or some other factors. bankers - - particularly at small - to - medium - sized institutions - - have expressed concerns about our work on regulatory capital rules because of the potential competitive implications of implementing basel ii rules. in drafting the anpr, the agencies have tried to take those concerns into account. at the federal reserve, we are particularly interested in effects that basel ii could have on banking markets. in that vein, we have published several white papers analyzing the potential impact on specific aspects of banking, such as small - business lending, mortgage lending, and mergers and acquisitions ; a paper on credit cards should be available before the end of the year. while the conclusions of the papers published so far do not point to broad disruptions in existing banking markets as a result of basel ii, we do acknowledge that certain participants could be affected, especially in commercial and residential credit markets. as we move forward with revisions to our basel i - based rules, we continue to be quite interested in the comments of bankers and others about the potential implications of these proposals. your input is vital to making the final product the right one. as supervisors, our focus will continue to be on ensuring that risk - management processes are appropriate for operations of each institution and that those risk systems operate effectively. thus, we expect that non - basel ii banks can continue to have camels 1 and 2 ratings as long as they operate in a safe and sound manner. the anpr represents our attempt to reduce some of the differences between basel i and basel ii, while acknowledging that simpler rules are still appropriate for nearly all members of the banking industry. to be quite clear, from the federal reserve's perspective, institutions should not be looked upon as having deficient risk - management systems simply because they choose to stay under the basel i capital framework. in considering changes to basel i, a challenge we face is how to make the capital requirements more risk sensitive and responsive to potential competitive concerns, while not adding unnecessary regulatory burden. to make capital more risk sensitive requires regulators and bankers to employ clearer measures of risk taking. if these measures are used by bankers in their internal credit - decision process and are readily available for reporting purposes, then the regulatory burden will be smaller. however, some of the proposed amendments may require significant changes to internal information systems. we hope that bankers and others will give us specific comments on