And low inflation. The topic is regularly salient since last week, following an 18month review of his Monetary Policy strategy, the fed released a revised revision of its goals and Monetary Policy strategy. We are honored to have governor Lael Brainard to hear her thoughts on the topic. After we hear from governor brainard, there will be time for questioning and answers from the audience, then we will convene a panel to discuss the new said framework with ben bernanke, janet yellen, and roberto poley of cornerstone , and Julia Coronado of the university of texas. If you would like to post a question to lael on the panel, you can do so by emailed brookings. Edu. Governor brainard has had a long career of Public Service and in academia. She took office as a member of the feds board of governors in june, 2014. Before that, she served as undersecretary of the u. S. Department of treasury from 20102013, and transferred to secretary of the treasury in 2009. I had the opportunity to have worked with governor bernard both of the Federal Reserve and the treasury and i can say we are lucky to have someone in this role, who brings such remarkable intelligence and dedication to her work. I also cannot resist mentioning 2008, governor brainard was here at brookings, where she was Vice President and founding director of the Global Economy and development program, dedicated to addressing Global Economic challenges, that is still going strong today. With that short introduction and our appreciation, i will now brainard. U, governor governor brainard thank you very much, stephanie for, that very kind introduction. It is a pleasure to be here with you and with david wessel. It is an honor to also be followed by ben bernanke and janet yellen who pioneered the original statement as well as Julia Coronado and roberto perli. It is a real pleasure to discuss the new statement that was unanimously approved by the fomc last week by bringing our long running goals and strategy. The new statement will strengthen our support for the economy. It breaks important ground and will serve the country well as we respond to economic repercussions of covid19. There were three related features of the economys new normal that called for this reassessment. First, the equilibrium Interest Rate has fallen to low , which caused a decline in how much we can cut Interest Rates. That was clear in march. We were able to cut the policy rate by 1. 5 Percentage Points before hitting the effective bound. In contrast to previous decades when the policy rate would have been cut by 4. 5 to 5 . Cutting the Interest Rates could increase the period when the zero, rate is close to unemployment is elevated, and inflation is below target. This in turn risks eroding Inflation Expectations and further compressing the scope for carting Interest Rates cutting Interest Rates. The risk is a downward spiral by andhe lower bound even frequently and it gets harder and harder to move Inflation Expectations and inflation back up to target. As we have seen in some foreign jurisdictions. Second, underlying trend inflation appears to be somewhat below the committees 2 objective. The near decade of inflation persistently short of 2 creates the risk that households and businesses could come to expect inflation to run persistently below target and change their behavior in a way that fulfills that expedition. That in turn greatly complicates Monetary Policy. While it is hard to measure Inflation Expectations, some marketbased indicators show drift. F a downward so it is critically important to ensure that longterm Inflation Expectations are well anchored at 2 to achieve our price stability goal. Finally, the sensitivity of Price Inflation to labor market tightness is vulnerable. That is what the economists mean when they talk about a flat phillips curve. It allows implement to continue expanding it allows employment to continue expanding, it also means it is harder to achieve our 2 inflation objective on a sustained basis. In response to the new statement on goals and strategies, it makes four important changes. First, the statement defines a statutory maximum level of unemployment as a broadbased and inclusive goal and eliminates the reference to a numerical estimate of the longer rate. Normal the presumption that accommodation should be reduced preemptively when the Unemployment Rate nears the neutral rate in anticipation of inflation that is unlikely to unwarranted loss of opport. The decision to allow the labor market to continue feeling after the unemployment reached the 5 median estimate of the neutral rate in the Fourth Quarter of 2015, it supported a further decrease of 3. 5 Percentage Points in the black and employment rate, and 2. 25 Percentage Points in the hispanic and implement rate, as well as an increase in three Percentage Points in Labor Force Participation rates of primeaged women. It also created the conditions for reentry of 3. 5 million prime aged americans into the labor force. The on that, the changes we are making in the new statement, had they been in place several years, it is likely that accommodation would have been produced even later, and the gains would have been greater. Venue commitment to defending maximum unemployment as a broadbased and x maximum employment as a broadbased goal may be particularly significant for the groups that are most vulnerable to employment fluctuations. As research and experience suggests, the groups that face the most structural challenges in the labor market, were likely to be the first to experience layoffs during the downturn, and allots to experience employment gains during recovery. S are morent rate cyclically sensitive for blacks whites. Anics than for it explains where little about the differentials. That was one of the Key Takeaways also from the fed listens sessions we held. For example, the chancellor of the city colleges of chicago described how last years tight labor market was finally giving his students who are largely black and hispanic, the opportunity to apply for jobs that would not have historically been open. Moreover, earnings from wages are particularly important for these groups who have large wealth gaps and derive a smaller share of their income from financial Asset Holdings or business ownership. Second, to address the downward bias to inflation associated with the proximity to the effective lower bound, this statement and ups a flexible inflation averaging strategy that seeks to achieve inflation that averages 2 over time. Flexible average inflation fait,ing, we call it is a consequenc consequential cn strategy. By seeking to limit inflation that averages 2 over time fait , means that appropriate Monetary Policy would achieve inflation moderately above 2 to ar a time to compensate for period such as the last several years, when it has been 2 . Istently below consistent with this, i would expect the committee to accommodate rather than offset monetary pressures above 2 . Flexible energyefficient targeting is a pragmatic way to implement a makeup strategy, which is essential to arrest any downward drift in inflation is petitions. While a formal average isicient target, ait rule appealing in theory, there are likely to be communications and implementation challenges in practice, relative to the mechanical nature of such rules. In contrast, fait, flexible average inflation targeting, is better suited for the highly uncertain and dynamic environment in which policymaking takes place. That said, i see the commitment to undertake a review of the strategy and goals and five years is a necessary complement to the flexibility embedded in that new inflation averaging strategy. Since fait is a new approach, it is pragmatic to review it after getting experience with it over five years, as well as to get some insight into an appropriate period. Third, the statement highlights an important change in the committee such a reaction where previously it set to mitigate deviations of employment and inflation from their targets in either direction, the committee will now seek to mitigate shortfalls of employment from the committees assessment of its maximum level. This change implies the committee effectively will minimize welfare costs of unemployment and not preemptively withdraw support based on a historically steeper phillips curve that is not currently in evidence, and inflation that is correspondingly much less likely to materialize at high levels. Consistent with this, the statement drops language about a balanced approach that might be interpreted as a calling for such preemptive withdrawal. Codifies thement key lesson from the Global Financial crisis, but financial that Financial Stability is necessary for the achievement of our statutory goals of maximum employment and flexibility. The changes in the macroeconomic environment that prompted our Monetary Policy review also have important implications for Financial Stability. Historically, with a steeper phillips curve, inflation tended to rise as the economy heated up, which would prompt the Federal Reserve to raise Interest Rates to restrictive levels, which would tighten financial conditions more broadly. In contrast, we didnt see that in the past few cycles. Financial imbalances were elevated at the outset of the downturn. In the meanwhile, the committee may have to sustain the federal funds rate below for much longer, in order to push inflation back to target sustainably, resulting in an expectation for a lower Interest Rate. To do so would increase risk appetite, a reach for yield behavior and incentives for leverage. Lower inflation can lead to more cyclical volatility in asset prices. That is why it is m vital to us Standard Financial tools as the first line of defense in order to allow Monetary Policy to remain focused on achieving maximum employment and 2 average inflation. The committees new statement puts us in a stronger position timelya full and recovery in employment and average inflation of 2 . Overall financial conditions are supportive. Encouragingly, the housing sector has rebounded from its initial decline, supported by historically low mortgage rates. And Consumer Spending has held up well, in part, reflecting earlier fiscal support. At the same time, the strong pace of improvement in employment in may and june, which was importantly driven by recall hiring out of temporary layoffs, appears to flow. Appears to have slowed. Front, despiten some bounce back in inflation july, remains weaker than precrisis and is likely to take some time to return closer to target. Looking ahead, the economy continues to face considerable uncertainty associated with covid19 and risks detailed further to the downside. The longer covidrelated uncertainty persists, the greater the risk of shuttered businesses and permanent layoffs in some sectors. Where the virus remains the most the magnitudeor, and timing of further fiscal support is a key factor for the outlook, as was true in the crisis. Ase of the fiscal support will remain essential to supporting many families and businesses. With recovery likely to face covidrelated headwinds for some time, in the coming months, it will important for policy to shift to accommodation. As we move to the next phase of Monetary Policy, we will be guided by the committees new goals in the strategy statement. It will be important to provide accommodations to achieve inflation that averages 2 over time following underperformance. The new consensus statement will frame the committees policy of deliberation. By expressinge appreciation for chair powell in vice chair clarida leading this review as well as important contributions by president williams and by mr. Mead, and others. Our deliberations were greatly enriched by engagement with Community Members at the fed listens events at every district in the country, as well as outstanding memos by staff and responses by outside experts. While the committee did not the and president of challenges of the covid19 pandemic when the review was launched, the new statement puts us in a stronger position to support the economy. Thank you. Thank you very much, governor brainard, for that very clear and distinct statement. Statement. Inct we have a number of reporters who have emailed questions and people, others watching have sent questions to events brookings. Edu. I will borrow from their questions. In some cases, paraphrasing them. Not sure i am going to tribute everything to everybody. To start off, you said something i think people may have missed because it went pretty quickly, about what difference it would have made had this statement in in place earlier. You said that it is likely accommodation would have been withdrawn later and gains in employment, particularly for minorities, would have been greater. The fed raised Interest Rates 10 20152018. It raised Interest Rates of full percentage point in 2018, dr. Times. Are you saying that had in 2018, four times. Are you saying that had the statement been in place, those rate increases would not have occurred . Ms. Brainard it is, i think, important to note that these are consequential changes to our strategy and goals. As previously, we were seeking to mitigate deviations in both employment and inflation, we are now very focused with regard to employment only on shortfalls, whereas previously we talked inut the goals unemployment a way that was roughly associated with the normal rate of unemployment. The statement longer references that, and talks about the broadbased and inclusive goal in a variety of indicators to assess this. And the statement also talks about a inflation goal that is defined in terms of average inflation at 2 over time, which means that inflation is likely to need to moderately exceed the 2 target for some time following a period when it has been below that target. Would havees materially changed the conversation among the committee , certainly, back in the early may be 1817, favored. I think there would have been a different concept of inflation and a sense that there was no need to preemptively withdraw or prepare to withdraw on the basis of inflationition materializing on the basis of this historical relationship. It would have been a recognition that there is a downward bias lowerated with that expec bound. I think it would change the way the committee delivered going forward. They would have changed deliberations earlier in the period had all these factors been well understood. Mr. Wessel just so i can iraphrase and make sure understand, so in the past when it looked like the Unemployment Rate was falling below the , the noninflationary rate, when it was getting close to that, that became an argument for raising rates. Similarly, when inflation began to get close to 2 , that became an argument for raising rates. In future deliberations, that will not be an argument easy to make even the new strategy . Governor brainard i think you summarized it much better than i could, david. [laughter] mr. Wessel i think you heard people say, this is great. Average inflation targeting, it means whatever the fed wants it to mean and no one else will know what they are talking about. There is no sense of how much you are interested in inflation going, there is no sense about over what time you will be averaging inflation. Why did you decide to make it so vague, and is this something that you think will be refined as statements come out about current policy . Governor brainard yes. Those are really good questions. Those are questions that you know from the minute the committee debated at length. We had some excellent staff papers and some excellent outside papers to help inform those deliberations. A kind of canonical tradeoff in Monetary Policy. The tradeoff between the mechanical, mathematical formula, and the ability to adapt to ongoing realities is a longstanding discussion in Monetary Policy. It seems important particularly important to err on the side of when we aret a time embarking on essentially a new approach. Inflationible average targeting as a pragmatic way to implement a makeup strategy. Role is formal ait appealing in theory, there are likely to be communications and implementation challenges in practice related to the mechanical nature of such rules. End we talked about those challenges. Fait is better suited for the whichcs context in policymaking takes place and it will allow for some burning overtime. I want to be clear, i find it very instructive to use formal rules as benchmarks to inform my thinking about the appropriate path of policy, and i will be looking at a variety of ways on thinking about this. But since fait is a new approach, it is pragmatic to review it after gaining some practical experience with it. Mind, one of the great values of the fiveyear review, which is kind of natural complement to the flexibility and the approach we are adept adopting. Mr. Wessel would it be correct for people to assume because of this statement that the Current Committee believes when there has been a persistent undershooting of inflation, as we have seen, that you are making a commitment not to raise rates until inflation has at least met or exceeded the 2 target . Governor brainard so, that is something i really cant speak or prejudge, how the committee might interpret that, individual members will think about it differently, that we have all said in that statement that it is likely that appropriate Monetary Policy would seek to have inflation moderately above target for some time, after a few period of being below it for some time. That to me is what the statement implies. In my own thinking, that will be an important consideration. Of course, we will be thinking at a whole variety of developments, including information on Inflation Expectations, but that is the simple meaning, or implication of that kind of approach. Mr. Wessel can you achieve the priceof unemployment and stability without substantial increase in fiscal stimulus . Governor brainard so, in terms of the particular circumstances that we are faced today, and i touched on this earlier, there is a lot of uncertainty. That continues to cloud the outlook, Downside Risks are Downside Risks are continued to be important. I have been pleased by some of the recent eta on Consumer Spending and, of course, it is very good to see people going back to work, but we dont know whether that pace of improvement on the labor market is going to be maintained at the same rate. It is very important to many households and businesses to have continued fiscal support, just as it was important to them in the early phase of this crisis. While the covid uncertainty is the single most important uncertainty, fiscal is, in my mind, a very important factor. Mr. Wessel you dont want to put a number on that, do you . Ms. Brainard thank you. I will hand it to somebody who is actually working in that realm. Mr. Wessel you mentioned really elevating Financial Stability to a new prominence. In the feds longrun goals. Ive been around long enough to remember when asset prices were something somebody else should worry about and Alan Greenspan once said something about irrational exuberance, the market flinched for a bit, they ignored him, and that was the end of Financial Stability considerations. Ben bernanke he a new division established a new division at the fed, of course. After what we went through in 2008 and 2009. The new statement says that the committees policy decisions reflect its longer running goals, its mediumterm outlook, and assessment of the balance of risks, including risks to the Financial System that could impede the attainment of the committees goals. You referred to that a little in your remarks, but i want to give you a chance to expand on that. Two pieces. One is, right now do you think that the macro tools and regulators are doing enough to contain the risks of Financial Stability, given how low Interest Rates are and are likely to be . And secondly, are you suggesting that in the future the statement will give the fomc reason to raise Interest Rates if they think there is risk of financial instability . Ms. Brainard yes. Let me take those, maybe in reverse order. You are highlighting what is important and maybe is unlikely to receive as much attention. It is an important change that the new statement recognizes that Financial Stability is necessary to the achievement of maximum employment and price stability. It is an important recognition. In my mind, it is an evolution. It doesnt necessarily flow from those same changes in the macroeconomic environment. That combination of a low neutral rate, flat phillips curve, and low inflation can lead to more cyclical volatility and asset prices. We know that in the last few cycles setting aside, obviously covid is different that financial imbalances rather than goods and Services Inflation were notably elevated. So that possible long period where Market Participants could expect low for long Interest Rates along with high rates of resource utilization, those are circumstances in which you tend to see risk appetite, reach for yield behavior. Since the creation of the division of Financial Stability, we have put important changes in place. Imprtantly we do have the benefit of having developed a rigorous framework for monitoring the buildup of financial vulnerabilities, which nelly is familiar with. And was very important in designing. And that is shared with the board and the fomc on a quarterly basis and published semiannually in our Financial Stability report. It is going to be an important consideration. It will continue to be. I think the important additional consideration, to speak directly to your question, is it is very important to see the boards active deployment of macro prudential, as well as standard prudential tools, as a firstline of defense in order to allow Monetary Policy to do the work it needs to do. On achieving maximum average employment and 2 inflation. So with regard to where we are today, i think it is extremely important in the supervised banking sector. Those buffers that were built up since the financial crisis served us exceedingly well. Banks were able to continue lending. They were a source of strength. I dont think they should be paying out dividends. I think they should be hanging onto their buffers and continuing to lend. And of course, the important risks that need to continue to develop, macro prudential and prudential frameworks around are also in the nonbank areas. As we saw in this crisis. That macro prudential and prudential set of tools continue to be, in my view, the first line of defense. Mr. Wessel if the macro and prudential tools do not suffice or, as you have defended a number of times, the rest of the board has not been willing to raise the Counter Cyclical capital buffer. Should we anticipate a time where the fed will raise Interest Rates and give as a reason, the Financial Stability concerns as opposed to the more conventional inflation and unemployment concerns . Ms. Brainard i do believe that Financial Stability considerations, rising imbalances, have been and will continue to be important parts of our committee discussions. Again, have a session devoted to that every quarter. They come into all of our outlook discussions, our policy discussions. For me the hope is that we can rely on strong macro prudential and prudential tools to deal with those. I think we got a lot of authority under dodd frank and it is very important for us to use them. For precisely that reason. Mr. Wessel one of our colleagues asked if you can discuss any implications of the new framework on foreign demand for u. S. Securities and for Exchange Rates . Ms. Brainard i think that the transparency of our Monetary Policy framework and the very important evolution should continue to be critical pieces of some transparency and deep liquidity. And other characteristics of u. S. Financial markets that have been very important to Foreign Investors, i think it is also, you know, very important that the committee was prepared to act very forcefully, very quickly to deploy all of the tools when the covid19 crisis struck. As you know, not only did we engage in important intervention to restore smooth market functioning in our own markets, but we also worked with partners to reinstate swap facilities. We made those terms more attractive. And more suited to the current circumstances. We innovated. I think those actions, as well as the clarity and transparency around a framework are some of the Important Reasons that Foreign Investors continue to look to u. S. Financial markets as dependable and liquid. Mr. Wessel seems to me that i think governor clarita made this point yesterday, the decline in Interest Rates is global. The natural rate of interest decline is global. Presumably, that should mean that this should not put us out of whack with other companies. By signaling an easy Monetary Policy, are you putting the value of the dollar at risk here . Ms. Brainard i think that these trends that i talked about as motivating or framework, the low neutral rate, all of the research, and all of the experience suggests this is really a global phenomenon, particularly affecting many advanced economies. Many economies are grappling with inflation. Many economies also, the ones he might spend most time exchanging with, also see this phenomenon of a very flat phillips curve. In that sense, a lot of foreign Central Banks, as well as we hear in the u. S. , grappling with a similar set of challenges in coming up with different responses, but all motivated by the same forces. Mr. Wessel are you confident you have the monetary tools to achieve the goals that you have set forward in the statement . Ms. Brainard i would say that we have a robust set of tools. The statement does make a strong commitment to using all available tools. That is a hallmark of our response to covid to date. That said, of course the statement is focused on our longerterm goals and strategies. Forward guidance as well as asset purchases are extensively tested in the last crisis. They remain the core of our response. I think committee consistently concluded that negative Interest Rates do not have an attractive cost benefit in the u. S. Context. It is clear from the meeting that yield targeting is in the toolkit. There could be circumstances where it would be considered to reinforce Forward Guidance, akin to what the reserve bank of australia is doing. Were not thinking about deploying it now, but it is in the tool shed. Others believe it could have a place. Mr. Wessel this comes from a reporter. What ways would you suggest making Forward Guidance around Interest Rates more explicit in order to complicate complement, not complicate the changes in reaction function . Are you thinking about ways to use for guidance to make the framework more effective during this period where things are so unusual . Ms. Brainard as was in the minutes from the july meeting, we did have discussions about ways we might refine policy. Now that we have concluded the review, i would anticipate we would return to the discussion of appropriate auditory policy. It is consequential, and my mind, that the new consensus statement will frame our policy deliberations as Monetary Policy pivots to accommodation. The committees discussion of policy at the next meeting and beyond be framed by the goals and strategies in this statement. I would not prejudge the timing and nature of any conclusion, but as you know from the minutes, Forward Guidance has come up in our conversations. In some ways it is a natural way to extend the policy space. We gained experience with thresholdbased guidance under chair bernanke and chair yellen. It would be natural to discuss a set of possible ways of taking forward our statement. Again, i cant prejudge those discussions. Mr. Wessel do you personally see tweaking the Forward Guidance to be more specific or thresholdbased is a good idea . Ms. Brainard i can, we have had conversations about it. We have had conversations about Forward Guidance. In previous policy deliberations there were discussions that would be natural for us to turn back to them, now that we have that framing. So, it would be natural, in my mind, to do that. Mr. Wessel another Reporter Asks that mark given the f effort on Financial Stability, will this affect how you think about the Bank Scenario analyses you are going to carry out later this year . How do you see that going . Ms. Brainard i think the stress tests are very important. That was true. The last, nearly 10 years now it has been particularly important in helping my thinking in assessing adequacy of offers. For various scenarios going forward. I think they will be very important. In my thinking about how important it is to attain buffers in order to be able to provide credit to the economy. I dont see that changing. I see that as a continued part. Mr. Wessel there has been quite a bit of focus on issues of Racial Equity in the United States. Problems that, of the things have come to the fore. There are people asking, what can the fed do, what should the fed do what are the limits of your authority, what are not the limits of your authority in thinking about the inequities between black households and white households in terms of everything from employment to Household Wealth . You mention in your statement that one argument is that the longer you allow the economy to run, with low Unemployment Rates and you dont preemptively raise Interest Rates to prevent a decline in the Unemployment Rate that seems to have a favorable benefit on minorities. Is that the extent of what you think the fed can and should do in this regard . Ms. Brainard yeah, it is a really important question. I believe that within the four corners of the responsibilities given to us by congress, our work can and should help racial inequities. That is very clearly evident in our responsibility in fair lending, in the Community Reinvestment act, it is evident in our responsibility under the dodd frank act. It is important in our research and data collection. I will highlight the distributional financial accounts, which are probably the best Data Available on the distribution of wealth among different demographic groups. We have devoted a lot of time and attention to analyzing that data. Employment disparities across racial and ethnic groups. That has been important. Im happy to say we are reporting a Monetary Policy report. It is critical in assessing where the economy stands. It is also true that the research and experience that we have access to through our work, our staff work at the board, but also our outreach very important to our Extensive Development network suggests the groups that face the greatest structural challenges are also likely to be the first to experience layoffs during downturns and the last two experience gains during recovery. We see those patterns of greater cyclical sensitivity. That is also a key take away from the fed lessons sessions. I think a commitment to defining employment as a broadbased and inclusive goal, together with that commitment to address a wide range of indicators, i think those things together are consequential in this area. Mr. Wessel there are people in congress that think they should be added to the fed mandate. Do you think this is a good idea . Ms. Brainard i usually take very importantly the mandates we received from congress. It is important for congress to make those determinations. Mr. Wessel as you know, sometimes people argue, look, the fed doesnt want to admit it, but it is increasing inequality because all of this asset buying, quantitative easing, drives up the stock market. Most stock is held by wealthy people. The fed is increasing inequality and it does not acknowledge that. When people say that to you, what is your response . Ms. Brainard i think the changes in the statement are significant. I think it is important to take a little time to digest those. They have important implications for this issue in particular. They will enable the labor markets to heal over a much more sustained period. We know that a strong labor market is the most important factor that brings some of these structurallychallenged groups back into the labor force, back into good employment opportunities, and creates opportunity for advancement. We also know, related to what you have said, that wage earnings are going to be particularly important for those groups. Had we know that . This data that we made publicly available. I spent a lot of time on it. I think the statement is a big change. Mr. Wessel i think that what people sometimes say is, look, if the fed cannot cut Interest Rates below zero and it is going to have to rely on eyeing lots of bonds, that that will push up asset prices part of the design and that will and evidently make inequality worse. You dont look at it that way . Ms. Brainard i think our framework is very clear. Our goal is to eliminate shortfall from mass unemployment. Defined in broadbased and inclusive terms and to get inflation back to 2 on the average level. Those two things together themselves i think are the key goals. How we get there, you know, that is going to be determined on circumstances based on but the goals are very clear. Mr. Wessel i wonder if you could elaborate on how you see the economy right now. I recall that when you spoke about the economy in july we were, i think, a little more pessimistic than the consensus. Unfortunately for us, might have been right. I wish you had not been. As you point out, it is a bit confusing now. You see car sales have picked up. The Housing Market is benefiting from low mortgage rates. Consumer spending seems to have part or maintained itself. Is this just the tail end of the fiscal stimulus and we should anticipate things getting worse from here . How do we think about what is happening to Small Businesses and the one in 10 workers who are officially unemployed and those not working but not counted . Ms. Brainard those are the questions. You are right, relative to july, i have been encouraged by the strength of Consumer Spending. We sell robust spending in june and july. It is now well above precrisis levels. We saw the housing sector post a strong rebound. Supported by historically low mortgage rates. On business investment, surprised to the upside. And financial conditions remain very supportive. But, you know, after seeing that improvement in employment in may and june, labor market improvement appears to have been slowed according to some indicators. I will be watching that. Of course, inflation, despite that bounced back, remains weaker than precrisis. It is likely to take some time to return close to our target, let alone meet our goal. As i look forward, it is a period of unusually elevated levels of uncertainty related to the pandemic and, in my mind, was to the downside. I worry about the potential for permanent closures. And permanent layoffs. A kind of damage that will get the individual level, but also to the productive potential of our economy. The goal is a key factor in my outlook. It will remain important to many Small Businesses to many families. It is a mixed outlook. Better than it was, but with risk to the downside. Mr. Wessel i see. The government has done a number of things to support businesses to try and minimize the number they can wander altogether. There was, of course, the Paycheck Protection Program was aimed at the smallest businesses, which, whatever its flaws, i dont think we can blame the fed for those. With the bond buying you did for firms that are big enough to issue bonds in the public market. Then there is the main Street Lending program. Im curious what you think about what we have learned about the main Street Lending program and how you respond to people who say ms. Brainard we did extend ourselves. Most of our facilities have a big effect by, essentially, being backstopped. That is true across the board. Most of them see very little usage. So, as you look across the board at most of our programs, in one or two you might have seen a period of usage, but then it drops off as indicators returned to normal levels. I think main street is going to remain very important as an insurance policy. We dont know how much how the rest of the years going to go and we dont know how the economic repercussions are going to look in the Fourth Quarter. Having that insurance policy is very important. Banks have been very willing, until recently, to extend credit. For some businesses, Capital Markets have reopened. For those on the cusp between issuance and banks, they have done that. I wouldnt look at any one particular facility and make a judgment. It is far too early. I would look at the mentality and, you know, are there things i would do differently on each of them . Absolutely. We all individually have a sense of what we think would be appropriate, but that is ok. This is a partnership. I think standing up a facility to reach main street is a very important venture that the fed has done for the first time. Mr. Wessel and understand your point that many of these are facts. When you announced you were willing to buy Municipal Bonds or you provided municipal liquidity, one could see the markets heal. A number of state and local governments are able to borrow. The same goes for people i can borrow on Public Markets to Corporate Bond market. Im not see i see main street as that kind of backstop. I wonder on that facility if your preference would be to change the terms or not . Ms. Brainard i think, you know, in the report it as a backstop in the sense that we hear from a lot of banks that they still want to be making those. The businesses that they know well, they still have confidence and want to be making those loans. That is a good thing. In that sense, yes, i see it as a backstop. They have registered for the program it might have brought a few borrowers they know it is there if they dont want their Balance Sheet in that way. Now, is main street a little bit like, for the lower end, ppp . Yes, there is a grant element there. Which main street does not have. I think it is a good discussion to have going forward, whether it makes sense to provide some more credit risk taking their, under certain circumstances at the lower end, potentially. I think that is a good debate to be having. Mr. Wessel i see. Now, predicting the future is a very hazardous occupation. I dont think there are very new people although im sure there is someone out there who will email me who 18 months ago would have predicted where we would be today. In terms of how the damage that covid and the response has done to the economy and our difficulty in turning to normal. But that said, i am just curious, looking down the road, how long do you think it will be until we can say we have achieved your goals on price stability and employment . How long until we get back to the kind of full employment that we came close to before covid and we get inflation up to 2 on average . Is it two years . Four years . Six years . The rest of my life . My dad died at 98, so the rest of my life is a long time. Ms. Brainard [laughter] i was going to say i was going to say, hopefully a long time. I cant offer you a better forecast than anybody else. Probably worse. I will say, that is not how i think about policy. I think about some risks, some possible scenarios, the baseline looks a little better. But the risks do not. I continue to think that it is important for Monetary Policy to shift from stabilization to accommodation. We will have the first sec that i believe incorporates 2023 coming around the time of the fomc meeting. You will be able to see how the committee is thinking about that timeframe, in terms of its goal. Inflation has been persistently below target for onandoff, close to a decade now, with some exceptions. The passive guidance moves more slowly. The employment trajectory tends to improve more quickly and we have seen some really nice rehiring. Im continuing to hope that we will see this case of improvement on the labor market. I think it is important to stay the course on getting inflation to an average of 2 over time by seeing some overshooting. Mr. Wessel im trying to understand what it means to go from stabilization to accommodation. In some sense it seems like the fed pulled out the stops. Youve got Interest Rates at zero, you told us theyre going to remain there for a while. Youve bought a lot of bonds. What more could you do that would move from accommodate stabilization to accommodative, which implies pushing growth up . Ms. Brainard in my own thinking, it is really about the goals of our tools. And what we are orienting to. You are right that in the early months of covid, orchid functioning was extremely important focus of the design side of some of the things we have been doing. Now we have a very consequential statement that will help us both think about the goals, in terms of the way we defined maximum employment and inflation, and the reaction to get us from here to there. I think that reorientation is important. Mr. Wessel with that, we are out of time. I want to thank you and everybody who ask questions. I tried to ask all the ones posed. If i missed one or two, let me know and i will see if i can get the governor to answer them later. I think what we will do now is take a brief break and we will be back with our panel with ben bernanke, janet yellen, roberto perly and Julia Coronado. Thank you very much, governor. Ms. Brainard thank you. Mr. Wessel we are back. Im david wessel. We are now going to turn our conversation to thinking a little bit about how the implications of the feds new statement. I do want to thank our technical people for making this so seamless so far, knock on wood. We know that sometimes events can interfere. Hopefully that wont happen today. Our plan today is, im joined by ben bernanke and janet yellen, former chairs of the Federal Reserve and my colleagues at brookings. And roberto and julia, both of them have worked at the fed but are now in the private sector. Helping people understand what the fed is doing and giving the fed advice, whether it wants it or not. As our practice, i want to acknowledge that julia has been a supporter of the economic studies counsel at brookings. We are grateful for that. If you are online and want to pose a question on the chat or q a function, that is fine. If not, you can email brookings. Somebody will send it to me. With that, i would like to start, ben, with you if i might. You began the notion of having a longterm statement of policy. So im curious whether you think that this, with Interest Rates so close to zero and the fed cannot do a lot right now, but will this strategy increase the potency of policy and does it matter that they were so lacking in specifics about how much of a overshoot they will tolerate, how long they are going to average inflation, and what tools they will use to get there . Mr. Bernanke yeah, i think it will strengthen Monetary Policy. There is a lot of evidence that socalled makeup policies, where you makeup for a shortfall like overshooting creates a longer dynamic. Markets expect everything to stay easier longer. That adds accommodation, even while rates remain at zero. The simple twist of fate which is the new policy is very similar to something i proposed called the temporary price double target. Which had the idea of trying to average inflation over a period of time. I did some work with Michael Kylie of the fed, we looked at a policy that averaged looking back year. So that if inflation was below target for year, kept it above target long enough to get actuate two year average. We found that made some difference, even if in our simulations, even if only markets and not the general public understood what this was about. Lower for longer policies are effective. I am sure janet will talk about this, she has advocated this as well. It is one way to get around the zero lower bound. By having an upper i. S. On inflation when you are away from zero, you hope to keep Inflation Expectations anchored around 2 , which gives more space in the long run. The simulations assume Inflation Expectations were anchored. That is not always true. This will help do that. In principle this approach will create a little bit more inflation and give a lot of more space to policy. It is true that the way this has been laid out, it is not explicit. They dont talk about what the period for averaging is, of how quickly you get there and so on. I would point out that the statement that they have agreed upon is it is a constitutional statement. It lays out general principles, does not give specific amerco quantities. There are numerical quantities. There are things that can help us understand better. Number one, i expect the fed will come out with explicit lower guidance that will tie the policy either to time or the state of the economy, perhaps at the level of inflation. That will give us some sense of how they envision meeting this standard. The other quantitative criteria one of the reasons for doing this is to keep expectations close to 2 . We dont have precise measures of expectations, but i would think that monitoring Inflation Expectations, making sure that they are close to 2 , is a constraint that will quantitatively help us assess whether they are meeting this goal. I dont have much to say about tools. They have reaffirmed quantitative easing in Forward Guidance. They talked about other things like yield caps and negative rates. The basic principle of central banking is, you dont speculate about things until you are ready to use them. Particularly about you, i wouldnt take the mixed message as ruling this out. Its something they might want to do in the future. There are tools that would be helpful to reach this target in the longer term. I should end by saying that we are in a very special circumstance that the covid19 recession is different in many ways from a standard recession. And i dont think i dont think it is inconsistent with things ive sat in the past i dont think Monetary Policy is the tool that is going to get us out of this recession. Number one by far is going to be the Public Health situation and getting that under control. Fiscal policy also has a big role to play. Monetary policy can be helpful, but given this set of circumstances, it is not going to be the most important player in getting us back to full employment. Mr. Wessel as i recall in your address and the work he did with kylie and robert, he said the fed has sufficient tools provided that the eight of interest was somewhat higher than we leave it is today. Mr. Bernanke thats not quite true. And the feds official official in the projections that has the natural rate of interest around 2. 5 . My conclusion was that with Interest Rates between 2 and 3 that the tools we have can get is pretty much back to where we were before the constraint was binding. That is a different situation from now, what you can think about now is for the time being the fact that people are not spending because they are staying home means that the is curve has been pushed down. The neutral rate is lower than normal. So, my results from the lecture may apply in the longerterm, but right now i think that Monetary Policy doesnt have by itself the power to overcome the effects of the virus. Mr. Wessel thank you. Janet yellen, governor brainard talked about how this new statement would have changed policy in the recent past, including the years during which you were fed chairman. Im curious whether you see at the same way . Would it have made a difference if this had been the fed statement when you work raising Interest Rates in 2017 2018 . Ms. Yellen i think it wouldve made a small difference. I dont think it wouldve made a huge difference. Our forecast at the time we began to raise rates was that inflation was going back to 2 over the next year or two. The Unemployment Rate had already declined to levels i believe we thought were normal in the longer run. So, we envisioned the economy, frankly, as expanding beyond the natural rate of unemployment. As expanding beyond the natural rate of unemployment. We wanted to be somewhat preemptive. We saw us having our foot firmly on the gas pedal as things were getting back to normal with respect to inflation. We thought it appropriate to take our foot off the gas pedal. It is by no means the case to slam on the brakes. Another 50 point increase in 2016 that was certainly not enough to halt the expansion and even with the later increases that chair powell had, the markets continued to improve. I think it is fair to say if our goal had been to overshoot 2 inflation, perhaps it would have been a little longer to start the process of raising Interest Rates. There is some truth this might have made a difference, but i do not think it would have made an extreme difference. Mr. Wessel my question is based on transcripts that people that want to raise Interest Rates in the past have said, look, my projection of inflation is that we are heading over 2 if we do not tighten looking at the data on unemployment and the use that as an argument for tightening policies. Do you think this will weaken the argument . Ms. Yellen i think it will weaken the argument because the statement is very clear. The committees objective now after a long period is to allow an overshoot to encourage an overshoot over time so that over 2 inflation is achieved. I think the argument is to look outside the labor market and will be headed to two thirds quickly. We have to take a preemptive approach. The statement is pretty clear that the committee intends to take to overshoot 2 inflation, but also to take a less preemptive approach to look less at the tightness of the labor market as something that is a reasonable forecaster of where inflation is heading. It embraces the idea that with the flat phillips curve and with a great deal of uncertainty about what the natural rate of unemployment is, they should not begin to tighten policy just based on the fact that unemployment is low. They actually need to see something happening with respect to inflation moving up before acting and with that in the statement, i think it will make some difference in terms of suppressing the arguments. Mr. Wessel before i turn to roberta and julia, you are both former professors. Mr. Bernanke incomplete. Ms. Yellen i agree that it is incomplete. Id say in terms of a constitutional document setting goals and objectives, i give it an a. I think they came to an excellent conclusion. They ran an excellent process. They still need to translate this into something more operational. They need Forward Guidance about passive rates. One thing i would point to that impressed me that i think is important is they did obtain unanimous support in this committee. For what is a very significant revision of the feds strategy with respect to Monetary Policy. And when you think about what they are saying they intend to do, they are saying that they intend many years from now when the labor market is strong and inflation is moving up, to allow it to overshoot 2 . That they want it to overshoot 2 . It is entirely possible when that time comes. When the pandemic is long in the past and the Unemployment Rate has drifted to very low levels, with inflation at 2 , much of the participants will wonder, are they going to renege, did they mean they are going to keep Interest Rates that low to have an overshoot . So credibility is important. You could say, why not promise now . And the truth is, with the committee there will be new members who certainly have the option of making up their minds when they are appointed what they want, and even participants who are part of the process now. You cannot bond their future decisions. The closest the fomc can come to making commitments is to put that statement out and say they have very broadbased support. I think that was true of the original version of this statement that we adopted in 2012, it was all but unanimous support, and it plays an Important Role in the communication and creates credibility and the commitment. So that is important. Substantively, the major things they did, recognizing explicitly in the statement that we are in a new world with low value at the neutral real rate, that that would be dangerous and have to be countered to a makeup strategy. The change in the wording of the objective. I like the shift from looking at unemployment at maximum levels to shortfalls. That means as far as they are concerned, they will lower the levels of unemployment. For the economy, for lower income groups, and we need to see something on the inflation side to interfere with that process. All of that are good changes in the statement. I give it an a so far. Mr. Bernanke what i meant by incomplete, i need to see more action. Im a little more confident than janet is about credibility. I think the fed is credible, but there such thing as institutional reputation. You want to make promises. I think that the credibility is a little less of an issue than some people think. Mr. Wessel roberto, is the market convinced that inflation is heading to 2. 25 and we have solved the problem . Mr. Perli no. That is a problem. I think with the fed did look, i agree with both debbie and janet. It comes down to how creative you are, so lets give them an a. What they did was necessary. Absolutely necessary. Yesterday, i think we saw the latest estimates coming out, plunged predictably. If you look at the Inflation Expectation and go a little bit beyond, you see that those dropped 40 basis points back in the winter and spring when covid first head. They have not recovered. They have not recovered the result, if you believe those estimates. The destination, the ultimate destination is the same place that japan has been and where europe has been for several years. So what is next . I think they deserve praise, anything you want, because this is the most important issue we can think of. I think from the point of view of succeeding, i think what they have not done is they have not told people exactly how they plan to achieve this higher inflation. What we know is that rates are going to stay low for a long time and Forward Guidance has not been shaped yet, but they pick it will break soon, but those are the main tools that affect in the past. Taken out of the great recession, i think in a very good way, so i think the market can be a little bit forgiven for now until the fed articulates a full plan for how to get there. Mr. Wessel julia, how do you see it . Glass half full, glass halfempty . Ms. Coronado first, i am going to register for professor yellens class. I want to highlight that one of the things that i think the f1c did that is so important as they updated how the economy works. To officially acknowledge that the neutral rate is lower, that that has implications for the conduct of policy, but the phillips curve is flatter, and that Financial Stability is a more structural part of the world that we live in and that the labor market is more elastic than they previously believed it to be. All of these are really important and i will say but in the last cycle, there was sometimes a disconnect and how the fed talked about its forecast inflations and how the Market Participants did. To update that sort of official investment of how the economy functions in this world and commit to reevaluating that every five years, i think that adds to the feds credibility. That may not be something that we see right away today, but over time, i think that would be a more dynamic reaction function that is flexible to the facts on the ground and i think that will lead to better policy outcomes that could affect expectations over the cycle. Not immediately, because there is something missing on the inflation target. But i will also add that it is not just about inflation. I think we are already seeing the fruit of this policy review. We had already gotten a lot of the early kind of hints and guidelines of where we were going on this, and here i am going to highlight as a tool and the understanding of the tools and how to deploy them has already borne fruit in the covid recession. For example, one of the things that chair powell and governor brainard had already highlighted in speeches before this recession was that they are more comfortable with proximity to the zero value of the now conventional, the Balance Sheet policy is now a standard part of the toolkit. Not something to put on the shelf and break glass only if needed, but that it will likely be deployed in the next recession and that it should work in conjunction with Interest Rates and Forward Guidance in a harmonious way, not kind of this start and stop pattern that we have seen before. And that we should go early and aggressive, and that is exactly what they did when the crisis hit. And what they effectively achieved is they presented an economic crisis and a Health Crisis that was global in significance and scope from becoming a financial crisis. I think it is not an insignificant achievement in stabilizing labor markets, although i think appreciation of tesla anymore than you can, but the fact that markets are functioning, credit is flowing, the fed is deploying these tools. Learning the lessons of the past is already making it will lead to a better outcome. Again, as roberto highlighted, the fed cannot fix everything, but it can prevent worse scenarios from taking hold and they have certainly done that. Mr. Wessel ben, it is jarring to find ourselves in a position where Central Banks around the world are doing everything that they can to raise inflation. And it does not seem to be working very well, or not as well as they have liked. So how do we explain that . What has changed in the world that has made it so hard for something for so long, we have tried to do the opposite . Mr. Bernanke the change is the motivated change in the statement it is structural. First of all, the lower level of natural Interest Rates, which is partly due to low real rates and low inflation in a self reinforcing way. In the United States, we have the advantage we talk about this, but we kept it pretty close to 2 . And Inflation Expectations are a little bit higher in europe and especially japan, but we also know that if expectations get to a very low rate below target, close to zero in japan, that that is very hard to break. So these circumstances make it difficult. It could be that you need fiscal policy or other policies as a transition to get you to a point where Inflation Expectation and what about the Financial Stability consequences are running low Interest Rates and driving up prices . I do worry about the Financial Stability implications in a longterm environment of low rate. There is connection, we have to pound that has have low rates now for decades and i do not think you are seeing any real Financial Stability problems, but in the United States, the period of low rates, which was intended to support Housing Demand touched off a bubble in housing prices, which began to lead a life of its own as lower rates begin to rise. We had significant asset bubbles that led to a financial crisis. We have, even through this recovery, seems some areas that are bubbling also, not the same as the Housing Market. Corporate borrowing, you see a huge deterioration and standards. Group growth, borrowing in commercial real estate. I think you have to worry about behavior and touching on asset bubbles in this world. We had something on that in the original consensus statement for 2012. Emphasized Financial Stability considerations before. But as others have said, it is certainly not the desire to be using Monetary Policy to address global and Financial Stability concerns. If they get out of control, it could cause a financial crisis that undermines the attainment of all of the feds goals. Ideally, you would use macro provincial tools and regulation, but the truth is that in the United States, we do not have many of them. There are countercyclical Capital Buffers that apply only to the largest banks, the stress test, potentially could lead to the building up of Capital Buffers. But this only applies the largest banks, not to shadow banks. I think there is a lack of macro provincial tools especially, if we think we will be in this environment, it seems likely that there will be low Interest Rates as far as the eye can see. Roberto, where do you come down . Do you think we are creating an asset bubble here . I think it is probably not the right time to be thinking about Financial Stability when you are in the midst of the crisis. You have to resolve it anyway you can. You use all the tools that you can. I think there has been a terrific job in terms of the time limits, absolutely terrific. Some of the consequences are still worth thinking about. For example, the turning point in the market was not when the fed brought started buying massive amount of treasures. They said they were ready to buy tribunes of Corporate Bonds, also across the financial sector, so that was really resonated with markets. They said, if things go wrong, we will take this off your hands. The consequences of this number one, the Financial Market and the stock market are increasingly dependent on fed policy, and number two, talking about inequality, the policy is probably incentivized on inequality as well. Not the right time today to start addressing this problem, but at some point we need to talk about it because we always say, ok, when the crisis is over we will think about it, and we never do. It is something important to worry about after this is over. When you look at the outlook right now, are you concerned about the risks to the downside . And the limits as to what the fed can do and the policy . Absolutely. I think what we have done is allow this virus to community spread, eradicating it is no longer an option and we have to live in a socially distanced world. What we are seeing in Company Reports and some of the moderation in the labor market and the nature of layoffs that we are seeing, we are seeing a more normal recessionary dynamic to cold. Originally, without this would be temporary. We go back to normal. We open everything back up. And we are just really careful. That wreaks havoc on Small Businesses, anybody in the Leisure Hospitality or travel industry. It changes the way we do business. These are deep, structural changes. We are just starting to see that really manifest itself in Business Planning and hiring and investments. There are always winners and losers, but it does mean displacement and change. We have to reallocate across employers and sectors or regions, and that is a friction that we have to resolve. That quick back to normal scenario does not look possible. Meanwhile, one worry i have Monetary Policy is they have been so effective in shortcircuiting the transmission of these real shocks in the market. Markets used to serve as one signal to fiscal policy makers. I almost worry that fiscal policy makers have become too complacent because markets are so well supported. It is huge. We are looking at a huge pullback in income and support for Small Businesses, and it will have consequences. But it will show up with a lag and we do not have perfect indicators for this. Yes, i am absolutely worried about those things. By the way, we have not even mentioned the idea of a second wave in the fall, which many epidemiologists say we should anticipate. That means that would lead us to hunker down and limit activities, and makes it harder for the economy to recover. I concur with the governors outlook, and it is a little bit jarring against that backdrop. Ben, there are a couple questions. One question is, shouldnt the fed raise Interest Rates and lower them in bad times . Shouldnt they be preemptive . If the recession had been more from financial excess than too much inflation, arent we risking the same mistake now . Are we going to regret it on the road . The idea to raise rates so that you can cut them does not make logical sense. It means that you should hit yourself on the head with a hammer so that you can feel better when you stop. Raising rates too soon is not going to help you in the long run, so you need to adjust rates in a way that is consistent in moving towards your goals in a consistent way. Business cycles are asymmetrical and that justifies some of the asymmetry also in policy response. On the Financial Stability question, i have all people should recognize that Financial Stability is critical to the economy. The United States is not always done enough. I think we should do more. I am concerned about the idea of using Monetary Policy, not for any religious reason, but basically that the connections while certainly there, are so uncertain that you risk significantly slowing the economy to really unclear benefits. There are so many counterexamples, like when janet mentioned Interest Rates in japan being close to zero without any effect, and it is very hard to find examples globally. I am sure someone will come up with one, but it is very hard to find examples where policy has actively deviated from goals and successfully related a Financial Stability problem. The fed to pop bubbles, but they tend to overshoot. In principle, yes, obviously very important to deal with Financial Stability risk. It is imperfect. The macro prevention tools are imperfect, but it is worth knowing that we have made progress relative to 2007 and we take it much more seriously. We have to keep pushing. People like janet and i need to let policymakers know that it is about have incredible importance. We need to think about what can be done to make markets less dangerous to the economy. I agree that Financial Stability is a central issue. I am skeptical that market policy can be used in a consistent and effective way to deal with these problems, and like ms. Brainard said other tools that are more focused on the problem at hand. Youve been sitting on a committee that has been advising the governor of california. There is a question about how worried you are about state governments and their solvency and ability to provide Public Services given where we are in i believe it is a budget shortfall this year. We have been very much hoping for some support from the federal government that would avoid very drastic cuts to Public Services and cuts in employment. Some basic state workers. I believe the center for Budget Priorities is that the state shortfall i am not worried about municipal debt or state debt because these states all have to balance their budgets and theyre all slashing spending in order to do that. I think the economy adds concerns to what julia described. We are seeing the cut off at the 600 a week in supplementary insurance benefits. That substantial cut in personal income, i think it amounts to Something Like 16 billion a week. We are going to pretty soon almost all of that we have spent, we are going to see cutbacks in spending that we can the economy that weekend the aken the economy. And state and local governments will more we will see cuts in state and local spending. Roberto, one of the things we see in congress i used to think that we had to worry about the federal debt. No one seems to be worried about it, even the bond market. Why is not . Is this one of those blatant worries that Interest Rates will go up and we will have to panic and do something about it . Look at japan. I think the way we look at it is that today is the reason that the government has to issue this. The situation is bad. Loss because of covid19, because of the shutdown. That is a situation of lower Interest Rates, not higher Interest Rates. In the longer term as well. So i do not particularly think that this is the time to worry about the debt. I am not surprised that market rates will behind sprite of the larger issue will be higher in spite of the larger issue. This is the time to borrow. In the future, we may see rates spiking, but at this point, there probably problems to worry about. What would make you happy if the fed did it in the next six to nine months . What do you think that they have to do specifically . I think i would like to see more of a tackling of the tools and the integration and focus of Interest Rates to see that how they transmit and interact. I think this is an emerging area for the fed, and the statement still says, our primary tool is Interest Rates. But is it . It is quite a Balance Sheet policy that has been central to their current cycle and will continue to be. I would like to see more of a thinking through communication of how those things set together, where they trade off, and some more concrete guidance. I feel like in terms of thinking about how the fed is going to clarify its statement on Interest Rate policy and bond purchases, the bond purchases are going to be far more significant for markets than saying were going to be at zero until inflation is 2 . How long are you going to be what are your metrics of success . I think that is going to be something we will be watching very closely. So that is a primary thing. I found governor brainards discussion i completely concur there central and we have to think about how we address it. When governor brainard talked about extending supervisory and regulatory tools that can be brought there, i think this is going to be a really important obviously that gets political and we have to interact with the political environment, but i think that there are things that can be done that give the fed better leverage to pull because i think that they did strengthen. Governor brainard talked in length about these concerns. They are very important. There essential to the business cycle. Fed needs more tools on that front to address those, and i would like to see an exploration of what those tools will look like. Ben, when you adopted the inflation target, the fed was not in the usual it was not innovating as much as adopting what other people had done. I think there is a sense that the fed has done Something Big by switching i am not sure, it seems rather awkward, but i wonder whether you think this is globally significant . As i said earlier, this is a contingent policy. It has to do with the war with where the world is today. The world is in a situation where neutral Interest Rates are very low. Expectations because of history are very are below target. This is probably a better structure or response than the bygones be bygones approach, which was characterizing the inflation target. I was being facetious when i said and complete. When i said incomplete. I think it is good work. It is a positive step. But if the world changes in unexpected way, this may not be the option anymore. For now, i think it is an improvement. I agree with julia. They have to work harder to see how the different tools coordinate with each other. How they are going to think about Financial Stability, how they are going to add firepower and other dimensions. I do think that going towards policies that create a better environment and trying to assure that inflation stays close to 2 , those two things are meaningful improvements and, while again, Monetary Policy is not going to cure coronavirus, this will set them up to be more effective in the world that we have going forward. People have been talking about how critical the Public Health situation is. I think there are possibilities where vaccines and other things could bring this to an end in the next year or two, and in that case, i think we could see more rapid recovery and those tools will become more relevant at that stage than they might be today. Weve been talking about Interest Rates, Forward Guidance, the curve control, is that it . Other things the fed could be doing were not talking about . In the end, they all do the same thing. They make them even lower for a longer time. It is necessary, but there is a reason to do this. The fed will tousle businesses to borrow today instead of tomorrow the fed wants Small Businesses to borrow today instead of tomorrow. The concern that i have is this is maybe a little less powerful. Something different maybe don e. The things that they did a bite of the coronavirus is going to territory they have not touched before, like Corporate Bond bu ying, or at least promising to buy assets. That kind of policy after all, what the fed did is took money and confiscate it and leveraged it for the purpose. The cannot be used as of today, but maybe there are ways to explore further interaction between the fed and the government. We are exploring interactions because Interest Rates are not rising because the fed is buying a lot. I think we are going in the direction of more integrated policy and coordinated policy between fed and congress and other branches of government. Of course, it is fraught with issues. Independence and other things need to be talked about. I think it is for those other possibilities. The way the law is today, that cannot be done. Other interactions are plausible without changing the lock. That scare you or make sincere sense to you . It would require congressional reconsideration. This is something that most Central Banks actually have. A broader range of assets. I do think in a situation we are in now, fiscal policy is necessary and plays an Important Role. I think there is more the fed can do. I would explore the tool kit, but we need fiscal policy. Ben, last word. Do you think the fed should be innovating different tools . I think it is good to be creative. Corporate rates dont go to zero. I am not necessarily demanding these things, but i think given the environment and there are the issues that roberto raises about independence, so i am not endorsing any particular tool, but i think given the Research Resources that they should be thinking about alternative ways to provide stimulus if the fiscal authorities are not able to do their part, so to speak. Creativity is one thing, but Central Banks are serving as the. Institutions. So there has to be a balance between those two instincts. One thing. I agree with everything he said. Most of what i know, i learned from you. I think that was very interesting. I want to pick up on one thing before we close. Your outlook was slightly more positive than other people. You seem to be confident well find some medical solution. Am i misreading you . I think you are. I do not follow the data because i do not
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