john c williams : monetary policy and the economic outlook remarks by mr john c williams, president and chief executive officer of the federal reserve bank of new york, at euromoney real return xiii : the inflation - linked products conference 2019, new york city, 4 september 2019. * * * as prepared for delivery thank you for the opportunity to speak this morning. in a speech chair powell gave last month, he said, “ low inflation seems to be the problem of this era, not high inflation. ” 1 persistently low inflation is just one of the reasons the theme of this conference is very timely. our dual mandate goals and inflation is one of the topics i ’ m going to address today. the fed has two goals set by congress : maximum employment and price stability. these are also known as the dual mandate. when i talk about price stability, our objective is to keep the inflation rate near our symmetric 2 percent goal, 2 so understanding inflation data and how it fits into the broader economic picture is critically important. this morning i ’ m going to set the scene for that broader economic picture and explain how changes in the landscape influenced the rate adjustment the federal open market committee ( fomc ) made in july. i ’ ll then discuss the challenges on the horizon and how they feed into my thinking on monetary policy. this is as good a time as any to remind everyone that the views i express today are mine alone and do not necessarily reflect those of the federal open market committee or others in the federal reserve system. the economic outlook if you do an online search about recent economic developments, the word “ uncertainty ” will come up a lot. and it ’ s true that uncertainty, both at home and abroad, is playing an important role in my thinking about the economic outlook and monetary policy, as i ’ ll discuss shortly. but when you take a step back and look at where things stand today relative to our goals, the economy is in a favorable place. the current expansion is the longest on record. the economy continues to grow at a moderate pace, as seen in the latest gdp numbers. and this growth has supported month after month of job gains and a pickup in wage growth in the past couple of years. furthermore, the overall unemployment rate is near the lowest it has been in 50 years. and the benefits of the strong labor market have been broad across the population : unemployment rates for african - americans and hispanics, while still higher than the overall rate, are near their all -

markets did not just foster growth, it also made it easier for local crises to spread to other countries. in the past 15 years, there have been repeated instances where such global crises have prompted the major central banks to substantially ease their monetary policies to prevent severe economic declines and persistently negative inflation rates. this easing was initially achieved through interest rate reductions, but then increasingly by means of unconventional measures such as quantitative easing and, in the case of switzerland, foreign exchange market interventions. the expansion in the range of monetary policy instruments also has to do with globalisation. the traditional way to ease monetary policy is by lowering the policy rate below its neutral level. conversely, tightening is achieved by raising the policy rate above its neutral level. the level of this neutral rate of interest is determined by the supply of savings and the demand for these savings for investment purposes. at the outset of globalisation, the neutral interest rate was initially high owing to the considerable demand for investment in the newly opened economies. however, as prosperity increased and life expectancy rose, the supply of savings also grew markedly, and the neutral rate of interest declined as a result. if central banks wanted to ease their monetary policy, they therefore had to set their policy rate correspondingly low. and because you cannot lower interest rates indefinitely without at some point triggering a flight to cash, after the outbreak of the global financial crisis in 2008 many central banks resorted to unconventional monetary policy measures by buying various assets and expanding their balance sheets. thanks to this new, broad set of monetary policy instruments, central banks thus also had the necessary room to manoeuvre in helping to stabilise the economy during the coronavirus pandemic. they supplied the economy with additional liquidity and kept interest rates low. besides the monetary policy measures, the fiscal policy support packages, some of which were 2 / 5 bis central bankers'speeches sizeable, also had an expansionary effect. this made it possible to limit the severe economic downturn caused by the pandemic, and facilitated a rapid recovery. however, the support measures and the associated expansion in liquidity, pent - up consumer demand and the supply bottlenecks have subsequently led to increased inflationary pressure in many countries. and this brings me to current monetary policy. impact of the war on current monetary policy many countries began 2022 with inflation rates that were already significantly higher than in the recent past. since then, the war and sanctions have led to an additional marked rise in energy and