Powell Excerpt

Powell: Great. So let me start by thanking Randy and Bill and Chavi and Tiff for this. It's great to be here today. I want to echo what Randy said about the mutually beneficial, respectful, great relationship we have with Canada, economically, culturally. And I'd also like to echo I thought Tiff did a great job talking about the similarities and differences in our economy or financial markets, the challenges we face in our policy stance. It's almost as though you have had a copy of that part of my remarks. So I'm not going to repeat that but what I will do is talk if I could a little bit about the US economy and where we find ourselves right now.

So as I think Randy pointed out, the performance of the US economy over the past year has really been quite strong. We had growth of more than 3% last year as rebounding supplies supported both robust growth and in spending and also on employment alongside a considerable decline in inflation. More recent data shows solid growth and continued strength in the labor market, but also a lack of further progress so far this year on returning to our 2% inflation goal. So I'll say a little bit about our two mandate goals, maximum employment and price stability.

As I mentioned, the labor market remains very strong payroll. Job gains have been strong over the first quarter averaging just a tick above 275,000 per month. The unemployment rate has been below 4% for 26 consecutive months, which hasn't happened in more than half a century, the longest streak of its kind. Strong demand for workers has been met by a substantial increase in the workforce due both to rising labor force participation and a substantial increase in immigration as indeed Canada has experienced as well. So even by with even with this strength, by many measures, our labor market has been moving into better balance over the past year. The ratio of job openings to unemployed workers was extremely elevated in 2021 and 22, has now moved back down to levels just above the pre pandemic era. Surveys of workers and businesses indicate a normalizing labor market. So do the rates of both quits and hires and broader wage pressures also continue to moderate albeit gradually. So the overall picture for the labor market is one of real strength, but gradual normalization.

Turning to price stability, or inflation mandate. Inflation, of course declined quite significantly over the second half of last year, over the whole year, but particularly in the second half. But 12 month core PCE inflation which is one of the most important things we look at is estimated to have been little changed in march over February at 2.8%. In the three and six month, measures of inflation are actually above that level. So we've said at the FOMC that we'll need greater confidence that inflation is moving sustainably toward 2% Before the appropriate to ease policy. You know, we took that cautious approach and sought that greater confidence so as not to overreact to the string of low inflation readings that we had in the second half of last year. The recent data have clearly not given us greater confidence and instead indicates that it's likely to take longer than expected to achieve that confidence. That said, we think policy is well positioned to handle the risks that we face. If higher inflation does persist, we can maintain the current level of restriction for as long as needed. At the same time we have significant space to ease should the labor market unexpectedly weaken right now given the strength of the labor market and progress on inflation so far, it's appropriate to allow restrictive policy for their time to work and let the data and the evolving outlook guide us. We remain committed to returning inflation over time sustainably to 2%

Powell: So to give you an idea, we do meet quite regularly. So Tiff and I attend to G7 meetings per year for ministers, that's finance ministers and central bank governors. We don't attend a leaders meeting but we attend i in the United States. We attend the meetings with the finance ministers, which which Bill was and also to G20 meetings. So that's two it's four meetings per year right there. We also have six meetings at the Bank for International Settlements in Basel. One of those is now virtual, but we're in and that's only central bankers, know, finance ministry. So it's all central banking stuff. And you know, it's economics, its financial regulation, all those things. We also come here to Washington or every third year we go someplace else, twice a year for the IMF, World Bank meetings, which is kind of what everybody's doing in Washington right now. So it's a lot of meetings. What do we do with these meetings? Fair question. Essentially, we the central bankers are having an ongoing conversation about what's going on in their own economies and their own financial markets, their own regulatory world, with each other. And we're also talking about the big global issues of the day, as you would expect. So some of which are really the business of the elected government, not the business of central bankers, but we you know, we had that discussion. It's more or less ongoing. We're seeing each other all the time. They're very informative, these discussions and they really are for me anyway, part of the way that I get to thinking about what the right policy is for the United States is to hear what is going on around the world what what what's happening globally, and how are people thinking about that? So it's, it's very, very useful, particularly though given our close cultural financial, and economic ties with Canada. Those discussions are especially fruitful, important and you know, I have regular conversations with Jeff by the way I do. Keep very close track of the actions of the Bank of Canada I read TIfs press conference transcripts carefully, and pay close attention to that. Tiff did mention the similarities and differences. I will say one more thing, which is we we go to Basel as I mentioned five times a year, your long way from home and there usually is we're there for four or five nights and there usually one or two nights off, so we go looking for someone to have dinner with and very frequently we wind up with the Bank of Canada delegation for who are really good and very funny and a lot of fun together. So we have a very close relationship with the bank and great respect for that institution, as I'll have a little more to say. But lately, one of the things I'll point out though, about our relationship is we did do as Randy pointed out our first monetary policy first review of our monetary policy framework, really ever and we looked around and Canada also does regularly I think it's every four years. In any case, we we really looked to the Canadian model and other models of how to do that. We talked to people at the Bank of Canada about how their regular framework review went, so we really benefited for that.

Powell: So um, you know, our economies, our financial markets, solver institutions are deeply intertwined. And when you when there is a situation where there's serious stress, you need to get a global perspective. You need to get perspective around the world. And you need you have to do that very quickly. And we of course, can move effects quickly and effectively on the domestic front. But what the thing that you you figure out in those times is that all the time you spent at Basel and at the g7 G 20 meetings, you know, your colleagues you know, and trust and respect their judgment. And you don't have to go through that that phase of gaining trust in people you understand you understand each other, you speak the same language. So there's a lot of communication, the level of communication is pretty high anyway, but during crises, it goes, it goes very high. You're constantly talking to I'm constantly talking to other central bankers around the world and also political leaders in our government. And that sort of thing. So that happens a lot. The sense of what you're doing, again, is mostly sharing information about what to do there may be a proposal that people are looking at and you're talking about that so it's, it's it's very useful. I say. One thing to point out is, it's less about coordination than it is about about talking and understanding it for one reason, or at least it was during the pandemic, and that was because almost every country's interest rates were very close to zero when the pandemic hit, and so there wasn't space. There wasn't policy space for most economies, or central banks to do a big coordinated rate cut. We did cut very quickly to zero, but we were I think we were higher than almost any other nation in terms of where our policy rate was. But anyway, there's there's a lot of communication and those those relationships that you built up really do help at that point. In terms of what we've, you asked about learning, what have we learned? You know, I think that the pandemic is going to teach a whole lot of lessons over time. I still think it's too early to say what they are with confidence and I'll point out look at the pandemic has surprised us over and over again, most recently by in the United States, the remarkably strong performance of the economy at a time when virtually all economists were expecting a recession. So I think if you'd asked for the lessons of the pandemic a year and a half ago you'd get a very different answer. Now, I think in I think in a year or so we'll have a lot more answers. It's just it is a unique set of circumstances and we're still learning I think, but we will try to learn those lessons. Different point I would say about the bank stresses another crisis, at least here in the States. I do think we we can have learned the lessons of the stress of early last spring. And I would point to a couple things that we embrace pretty forthrightly. One was that supervision was not tightly focused on the right things was not proactive enough. Was not forceful enough. And we've taken steps to remedy that. I also think there will be some regulatory initiatives for banks of that size and with those characteristics in time. So I do think those those are lessons that that we that we have learned

Powell: So I'll start by saying that each central bank serves a domestic mandate, which is in the case of Fed is using our tools to achieve maximum employment and price stability for the benefit of the people we serve. So it's a domestic mandate, but in the case of the United States, we fully realize and appreciate that our decisions can take effects on not just on Canada but on Mexico but on countries around the world. And that's all the more so because the dollar is the reserve principle reserve currency which strengthens the transmission of our policy through the global economy. So we also know that those effects on global demand from our policy changes can have an effect on the United States as well that can rebound to the United States. So we're very, very aware of all of that. And for one thing we tried, we tried to be very transparent and predictable, given the flow, given the flow of data and events that you have to move quickly sometimes but we do realize we have a special obligation to be predictable and transparent. And that benefits us in doing that as well. So international spillovers of course are an important consideration. We do track that. Ultimately, though, we think over time, the most important thing we can do to support the global economy is to deliver on our mandate of price stability and maximum employment here in the United

Powell: Specifically, specifically on inflation, I do think this is different. This is not simply the more standard case of overheated demand, which has been the typical thing in the post war era for for the US economy and other major Western economies. There are similarities and differences and I would characterize it that this way that the inflation that arose suddenly really in in the early part of 2021, as economies reopened resulted both from constrained supply and also elevated and re channeled demand from services to goods. So if you remember and you will, I'm sure will unexpected widespread shortages and supply chain failures on a scale not seen in recent memory. In the US. Several million people had left the labor labor force creating a severe labor shortage that was more fully felt once the economy reopened, leading to a huge spike in wages and but also in the ratio of job openings to unemployed workers. So very unusual situation. Households had elevated levels of savings and demand was very, very strong as well. So we thought this was different as we thought, have thought since since we've understood the situation, that restoring price stability would require both the unwinding of the pandemic related distortions to both supply and demand, as well as the effects of tight monetary policy on demand, which would give the supply side time and space to recover. And we think today that we're seeing those two things working together to bring that and about. And you saw that I think in 2020, which was really in a large way a supply side story. What happened was the supply side really recovered in 2023. We thought that it would recover in 2021 and 2022. I was beginning to lose hope. And then in 2023, you saw the shortages and the issues with with with trade pipelines. Not fully resolved, but largely the result you saw the labor US labor force shortage alleviated by both higher participation among people who had dropped out of the workforce but also from immigration. So that was the year of the supply side recovery. And you saw the core inflation rates dropped by two full percentage points in the face of very strong growth. So that can only be explained by the enormous increase in potential output supply side increase over that year. So that's how I would say it's different this time.