richard h clarida : us economic outlook and monetary policy speech by mr richard h clarida, vice chair of the board of governors of the federal reserve system, at the c. peter mccolough series on international economics, council on foreign relations, new york city, 9 january 2020. * * * thank you for the opportunity to join you bright and early on this january 2020 thursday morning. as some of you may know, i am a longtime member of the council on foreign relations and have attended and participated in many such events over the past 20 years, although i will point out that in my previous visits to the dais, i was in the somewhat less demanding position of asking the questions rather than answering them. i am really looking forward to this conversation, but i would like first to share with you some thoughts about the outlook for the u. s. economy and monetary policy. 1 the u. s. economy begins the year 2020 in a good place. the unemployment rate is at a 50 - year low, inflation is close to our 2 percent objective, gross domestic product growth is solid, and the federal open market committee ’ s ( fomc ) baseline outlook is for a continuation of this performance in 2020. 2 at present, personal consumption expenditures ( pce ) price inflation is running somewhat below our 2 percent objective, but we project that, under appropriate monetary policy, inflation will rise gradually to our symmetric 2 percent objective. although the unemployment rate is at a 50 - year low, wages are rising broadly in line with productivity growth and underlying inflation. we are not seeing any evidence to date that a strong labor market is putting excessive cost - push pressure on price inflation. committee projections for the u. s. economy are similar to our projections at this time one year ago, but over the course of 2019, the fomc shifted the stance of u. s. monetary policy to offset some significant global growth headwinds and global disinflationary pressures. in 2019, sluggish growth abroad and global developments weighed on investment, exports, and manufacturing in the united states, although there are some indications that headwinds to global growth may be beginning to abate. u. s. inflation remains muted. over the 12 months through november, pce inflation was running at 1. 5 percent, and core pce inflation, which excludes volatile food and energy prices and is a better measure of underlying inflation, was running at 1. 6 percent.

financial turbulence and the weak economic activity on euro area banks ’ net income and capital position, it is evident that they will need to strengthen their balance sheets. in order to restore an adequate flow of credit to the economy, banks should take advantage of governments ’ commitments to support banks ’ balance sheets through capital injections, the provision of government guarantees on new bank debt, as well as through asset relief schemes aiming at removing troubled assets from banks ’ balance sheets. the common goals of these government measures in europe and elsewhere are to safeguard financial stability, help restore the provision of credit to the economy and bolster confidence in the soundness of the financial system and in the prospects of the economy. needless to say, the ongoing structural adjustment in the banking sector and the low confidence of investors in the soundness of some institutions cannot be counteracted by monetary policy and the provision of central bank liquidity. iv. bank support measures and fiscal stimulus at present, the european economy is experiencing a mutually reinforcing interaction between, on the one hand, the weakening of economic activity and rising unemployment, and, on the other hand, the deleveraging of banks ’ balance sheets and the persisting bank stresses in some bank funding markets. the deleveraging process and the emergence of an adverse feedback loop between the real economy and the financial sector will affect the favourable impact of monetary policy and liquidity provision on the economy. these developments underscore the importance of effective implementation of the government measures to strengthen bank balance sheets and improve banks ’ medium - term market funding. these measures are complementary to the actions of the ecb and play a crucial role in improving the financing of the economy and fostering its recovery. to give an idea of the scale of the governments ’ banks support measures, let me mention a few figures : until early may, banks in the euro area had received just over eur 113 billion of capital injections from governments and around eur 300 billion of government guarantees. however, only one third of the commitments for capital injections had been used until the end of april and a smaller fraction, less than 18 %, of the commitments to guarantee new bank debt have been called for. the use of government credit guarantees varies considerably across countries for several reasons. for example, banks ’ needs for such guarantees depend on the time profile of the maturity of their debt, but they also reflect the relatively retrained demand for loans by the private sector. moreover, the unlimited financing provided by the ec