Welcome todays counsel on international economics. Im neil irwin at the New York Times and author of a new book called health when in a winner take world and i preside over todays discussion. Great honor to have Jerome H Powell with us today and the 16th person to chair the board of governors at the Federal Reserve system and joins us today for the World Economy and previously he was a fed governor that he worked in Bipartisan Policy Center and u. S. Treasury department and we begin with a few remarks by german powell. [applause] thank you, neil. Good afternoon. Its a pleasure to be here today so i will begin with a Progress Report on broad public review by the Federal Reserve colleagues and i are conducting of the strategy, tools and mediation practices we use to achieve the objectives congress has assigned to us by law i will discuss the outlook for the u. S. Economy and Monetary Policy and i look forward to our discussion that will follow. During our public review we are seeking perspectives from people across the nation and doing so through open Public Meetings that are live streamed on the internet. Let me share some of the thinking behind this review which is the first of its nature that we have undertaken. The fed is insulated from shortterm political pressures. What it is often referred to as our independence. Congress just to insulate the fed to say because it had seen the damage that often arises when policy bends to shortterm political interests. Central banks and major democracies around the world have similar independence. Along with this independence comes the obligation to explain clearly what we are doing and why we are doing it. So, the public and elected representatives can hold us accountable. Real credibility demands more of us than a clear explanation. We must listen to we must actively engage those who serve to understand how we can more effectively and faithfully use the powers they have entrusted to us. That is why we are formally and publicly opening our decisionmaking to suggestions, scrutiny and critique. With an implement low economy growing, inflation near are symmetric to present objective this is a good time to undertake such a review. Another factor motivating the review as the challenges of the Monetary Policy have changed in a fundamental way in recent years. Interest rates are lower than in the past and likely to remain so. The persistence of lower rates means that when the economy turns down Interest Rates will more likely fall close to zero. Or elb, as we call it. A committee to the elb sorry, it poses new problems to Central Banks and calls for new ideas. We hope to benefit from the best thinking on these issues. At the heart of our events which include town hall style meetin meetings. These meetings bring together wideranging perspective, interest and expertise and we also want to benefit from the insight of leading economic researchers and recently held a conference at the Federal Reserve bank of chicago the combined Research Presentations by top scholars with roundtable discussions among leaders of organizations that serve Union Workers below and moderate income communities, Small Businesses and people struggling to find work. We have been listening and what have we heard . Scholars at the chicago event offered a range of views on how well our Monetary Policy tools have effectively promoted our mandate. We learn more about cuttingedge ways to measure job conditions and heard the latest perspectives on what financial and trade links with the rest of the world mean for the conduct of Monetary Policy. We heard scholarly views on the interplay between Monetary Policy and Financial Stability and we heard a review of the clarity and the efficacy of our communications. Like many others at the conference i was particularly struck by two panels that included people who worked every day in low and middle income communities. We heard loud and clear was that at todays tight liquor markets in the benefits of this long recovery are narrating these communities to agree that is often felt for many years. We heard of companies, communities and schools working together to bring productive workers together and we heard employers working creatively to structure jobs so that employees can do those jobs while coping with the demands of family and life beyond the workplace. We heard many people who in the past have struggled to stay in the workforce are now getting an opportunity to add new and better chapters to their life stories. All of this underscores how important it is to sustain this expansion. The conference generated discussions and we heard were doing many things well and have much we can improve and there are different views about which is which. This agreement is no surprising nor unwelcome. The questions we are confronting about Monetary Policymaking medication particularly with the effective lower brown have grown in urgency over the past. Thats why its important that we actively seek opinions, ideas and critiques from people throughout the economy to refine our understanding of how best to use Monetary Policy powers the congress has granted to us. Beginning soon the Market Committee will devote time and regular meetings to assess lessons from these events supported by analysis from staff throughout the Federal Reserve system. We will publicly report the conclusions of our discussions likely during the first half of next year. In the meantime, anyone interested can learn more and find information on the Federal Reserve board. I may not turn from the longer term issues the focus of our review to the nearterm outlook for the economy and for Monetary Policy. So far this year the economy has performed reasonably well and solid fundamentals were supporting continued growth and strong operation keeping the employment rate near mr. Close. Although inflation has been running somewhat below are symmetric to present objective is expected it to pick up supported by solid growth and a strong job market. Along with the favorable picture weve been mindful of ongoing crosscurrents including trade developments and concerns about Global Growth. With the ceo met in may eight weeks ago tentative evidence suggested that these crosscurrents were moderating and saw no strong case for adjusting our policy since then the picture has changed and the crosscurrents have reemerged with apparent progress on trade turning to greater uncertainty and with incoming data breathing renewed concerns about strength of the global economy. Our context business and agricultural report heightened concerns over trade developments. These concerns may have contributed to the drop in Business Confidence in recent surveys and maybe starting to show through to income data. For example, the limited Available Evidence we have suggest it has slowed from the pace earlier this year. Against the backdrop of heightened uncertainties the baseline outlook like that of many other forecasters remain favorable with an implement remaining near mr. Close and inflation is expected to return to 2 over time and is a slower pace than we first off earlier this year. The risks to the favorable baseline outlook a period of growth. Last week my colleagues and i held a regular meeting to assess the Monetary Policy and we did not change the setting farming policy tool. But we did make significant changes to our policy statement and since the beginning of the year we have been taking patient stance to assessing the need 20 policy change. We now states the committee will closely monitor the indications of incoming information for the Economic Outlook and will act as appropriate to sustaining expansion with a strong labor market inflation near symmetric to present objective. The question my colleagues and i are grappling with is whether these uncertainties will continue to wait on the outlooks and thus call for additional policy accommodations. Many participants judge if the case for some more policy has strengthened. We are mindful that Monetary Policy should not overreact to any individual data point or shortterm swing in the senate. Doing so would risk adding more uncertainty to the outlook. We will closely monitor the applications of incoming information for Economic Outlook will act as appropriate to sustaining expansion. Thank you very much. [applause] sir, as you suggested this week in your press conference and again just now it looks like cutting Interest Rates in the coming months are a strong possibility but just six months ago you and your colleagues raised Interest Rates and were expecting to do so again in 2019 what changed in these six months . What do you know now that you do not know then . Neil, first of all, let me say thanks for being here and as you pointed out we had in meeting at a press Conference Last Week and the things i say about Monetary Policy here today are intended to be fully consistent what i delivered in that press conference. My colleagues today and i are tightly focused on setting of Monetary Policy and getting it set at the appropriate level to best fulfill our mandate objectives and you asked what changed but a lot has changed including for example estimates of Global Growth from 2019 and have come down substantially. In fact, quite a lot has changed since made one which is only eight weeks ago, as i mentioned. At the meeting that ended on mat meeting an excellent job report that friday and we were looking at what tentative signs of the crosscurrents were and there were tentative reports of progress toward reaching 83 deal with china and there was better data coming out of china the data coming out of europe. All of that changed to coming out of the meeting beginning with the news that the trade negotiations with china had moved away from agreement to greater confrontation. I think i would just say the colleagues and i still see a favorable outlook but we do see the rest of that outlook are mindful of those risks and prepared to use our policy tools to support activity as needed. One way of reading what happened with bond yields since december would be this the fed over tightened and you raise rates too much last year and is pulling on future growth expectations and did you make a mistake raising it four times 100 basis points last year . Again, ive i go back to may 1 and the committees looking at the performance of the economy in the first half of this year it would seem as a positive picture keeping with expectations and the Committee Looked carefully and thought our policy stance was accommodating or appropriate, excuse me, as of that date with me one. Coming out of the meeting theres a strong jobs report and it look like policy but things have changed since may 1 significantly in the global risk picture has changed in the last sixeight weeks and around trade of element and concerns about Global Growth. Again our focus is on the board to the windshield with the right setting of Monetary Policy Going Forward to achieve our goals. You emphasize a lot of the shifts in market and Economic Data have recently happened since made one and i gather the reason you do not cut rates last week is that you want to see confirmation of these triggers is what would have to happen to change her mind or change the direction you seem to be going . Were not looking at one particular thing but monitor the full range of development and Economic Data and Political Development in such and the question we will ask ourselves whether the uncertainties will continue to weigh on the outlo outlook. I think with reading Financial Market data that is always market data is always a challenge to know how to react and i think that is something that every central bank basis consistently. A lot of the movement in Economic Data has been subtle but ism and manufacturing indexes and how much you interpreted this as risk to the real economy in the u. S. . That is the question. If you look at the u. S. Real economy data consumers are a solid and that makes a ton of sense. Low on appointment with high confidence reading still and wages moving up and surveys that show businesses think its hard to find good workers and that workers think jobs are plentiful. The time for consumers spending data but what happens is using weakness in manufacturing around the world and we can talk about that but thats overseen consistently around the world again were looking at the overall situation and wanting to see more frankly because some of these deponents happen in the second half of the intervening. And its important to not overreact in a short term to the things which may turn out to be temporary. On the data side theres a market side and longerterm mediumterm yields have fallen the last few weeks and theres always a tension for central banker and how much you dont want to overreact to the volatility in markets and dont want to under react and miss out on important Economic Outlook is changing so can you discuss the conceptual issue of how to avoid overacting or under reacting to markets moved and how that applies in the circumstance. That is not the question. How do have Monetary Policy is one that is Central Banks all the time. Anything that matters for the achievement can matter for us that is true of Financial Conditions and any other things and Financial Conditions are policies we work through and in addition i would tell you Financial Markets can be thought of as an aggregator of the views of Market Participants so you will learn a lot from listening to them but what we always say is we react to anyone financial or one thing but broad range of Financial Conditions and look for changes and look for shortterm changes. Of course, sometimes Financial Markets can be quite [inaudible] about involving and other times successfully optimistic and look through excessive exuberant and can ignore risks. We have to use judgment and experience in looking at Financial Markets of elements over time to decide what to react to but the principle we articulates were looking for changes in Financial Conditions that could affect the achievement of our dual mandate goal and those tend to be broad changes in Financial Conditions that are sustained for up time. And i think he was to agency because so much of what happened happened in a few weeks for the last meeting. I want to ask what word you use that normalization and seems like theres been a real desire to return to what more historically normal levels of Interest Rates and the Balance Sheets considering were in this world with a Central Banks [inaudible] what does normalization mean in a world where we seem to be trapped in this low rate, low inflation equilibrium from the world . Its clear and if for some time will be think of as a neutral suit has fallen significantly in the financial crisis as much as two or three Percentage Points so that would be the rate of interest pushing up or pushing down or restrain Economic Activity for support in a neutral rate and the federal open Market Committee range between two and half in the present and what that means by the way, that is true and seems to be true around the world and the forces that have been behind that involved demographics, lower productivity, aging population, demographic feature and things like that. It is likely that will stay with us over time. Invocations of that or the economy and for central banking are that it will take less policy space to cut so we would typically have cut over the course of a cutting cycle to battle a downturn 500 basis points or five full Percentage Points since world war ii. Its unlikely well have Something Like that in the current environment currently is only 2. 4 . Its a challenge and so that means we have to look at our toolkit and this is partly overdoing it with a review which includes things we did in the financial crisis for guidance and largescale asset purchases. We have the tools we need to carry out our mission for the benefit of the public but its a challenge faced by all Central Banks around the world and i would say a big part of that is keeping inflation up to 2 . Missing what happened in japan now in europe to an extent inflation goes down below 2 and that implies ultimately Interest Rates will be that much lower which means even less policy space so we have chosen to make a point of fighting to keep inflation at around 2 . Does the lack of policy space in europe and japan and other advanced markets affect your reaction function in your assessment of the global risk profile right now . Well, i think in world of lower Interest Rates the research seems to show and its fairly widely accepted that it is better act preemptively as a general matter are the most Central Banks would want to act preemptively and not letty downturn gap in the sense so the thought of being its not an ounce of prevention is a pound of cure. Thats in the thinking of central bankers around the world including, in our thinking. If you see a weakness its better to come in earlier rather than later just as a general principle. You noted before that the last two expansions in the u. S. Did not end because of inflation and fed tightening but because of financial bubbles popping so in light of that history i wonder how concerns over bubbles are being dealt with as the needs and what the interplay is as you see it clean Monetary Policy Financial Risks in particular you can speech a couple weeks ago on signs of a bubble with corporate debt markets and had concerns though not quite shouting from the rooftop concerns but what types of discussions on Financial Stability fitted to your construct of what the appropriate Monetary Policy . Let me say first if you think back the traditional earlier in our lifetime the traditional Business Cycle involved being economy over eating, inflation growing up and fed tightening it but that will happen in quite some time in the last couple of Business Cycles going back it was the financial crisis before that was the. Com bubble bursting and before that it was the s l crisis so it has not been a crisis of traditional tightening cycle. The question is how to incorporate these Financial Stability vulnerabilities into Monetary Policy. Monetary policy already has two goals today, maximum employment and stable crisis and ideally it would not have to also serve a third but it would be better if there were tools that could address the third goal which is Financial Stability but without Financial Stability will not have Macro Economic stability. So, i think in most in my business think that the tools for Financial Stability are separate from those of Monetary Policy, separate of Interest Rates and that would be things like higher capital standards, our liquidity standards, stress test, resolution planning all the things you want to strengthen and improve the resilience of the Financial System last crisis and im happy to report that the levels of capital liquidity in the understanding of risks being run by higher than they were before the crisis and no question in my mind that the Banking System the Financial System is much more resilient than it was. I think we try hard to look at that as the principal tool to deal with Financial Stability risks as opposed to using Monetary Policy. What does that imply as you potentially cut rates in the near future . Your colleague has suggested the easier Monetary Policy should, more cautious purgatory policy around the things like Capital Buffers and do you agree . If you move forward does that mean you need to apply that your tighter on the Financial Recovery site . There could welcome a time when we would deploy Something Like the capital countersink a bubble but let me come back to that. First i want to say we approach Financial Stability completely differently than we did in the precrisis world. Before the crisis it was more there is an emergency and you get the Team Together we fight this but now we have a framework for assessing Financial Stability vulnerabilities on an ongoing basis and we publish it so everyone can see it and hold us accountable and the quarterly briefings on this by fcc and we monitor financial considerations of what happens with leverage was having with funding conditions and all the things that we reach a judgment about the level of vulnerabilities in the economy and tell the public but that judgment is. Now our judgment is that on balance the Financial Vulnerability are at a moderate level which is not to say nonexistent but just there at a normal level in all these vulnerabilities. I would say as i said at the beginning i would not hesitate to deploy a countercyclical buffer if the test was met under our framework which is vulnerabilities are elevated so that is how we think of it then. Us talk about the trade wars and escalation of tariffs in the last few months and this seems to have weighed under decision last week and im struck that these models the opponents had for how tariffs and trade wars affect the economy may have been off as we see these go into effect but you think tariffs, higher taxes on imports and that raises prices and its inflationary but were seen counter attacks and Commodity Prices dropped and a strong dollar so how is you sit around the fed trying to figure out how this will ripple through the economy what do you see what does it look like in your model especially as inflationary and deflationary how does that net out as you analyze the situation . Standard thinking on tariffs is that to the extent that tariffs wind up being paid by the consumer that it represents a onetime increase in the price level and that as long as Inflation Expectations remain anchored it shouldnt mean higher inflation Going Forward but rather eight onetime increase in the price level. In fact, what you ask for probably how do tariffs figure into our thinking about the economy and the amount of tariffs that are in place right now is not large enough to represent a major itself just from a quantitative standpoint but that is not the point. The concern is more around the loss of confidence or Financial Market reactions really, those are the bigger factors that can affect Economic Activity. What we are hearing from our context in business and agriculture around the country we collect the thinking of thousands and thousands of people every cycle and it gets accumulated into something called the beige book and the reserve Bank President talk about it but we been hearing quite a bit about concerns about trade, uncertainty around trade all through the course of the last year and a half in those concerns heightened quite substantially as a blast beige book. The number of mentions of trade concerns doubled in the last beige book the one for this meeting. That is clearly something on peoples minds and as i mentioned and the effects are not so much i would say the actual chemical effects on demand that what we have seen so far is meaningful but not large and i think theres discussion of much greater tariffs and that is where the uncertainty is an concerns are on the part of business. Your opening remarks you mentioned the fetters of her Monetary Policy for mark and what it will be the wave of operating Going Forward and not the question you are trying to weigh as you speak. I do want to challenge you a little on this. Seems like you are committed to the target as a framework and are considering adaptations to try to make sure you hit that target on a consistent way and is this just tinkering . Is there case for something more radical for exploring the options that people are looking at around getting away from the entire concepts and nominal growth target or higher inflation target and newer ideas around targeting gross labor income is something that is not the existing framework so how are you open to something other than playing from the edges of the existent to present an heretical should we be in this world we talked about with low sustained Interest Rates. Its too early to prejudge what the outcome will be but we are still in the relatively early stages of this. Again, to go through what i went through were having a series of events, Public Events around the country streamed on the internet really meet with all kinds of constituencies that we serve to hear what they think about the job we are doing and then have this academic progress at the bank of chicago putting that altogether and begin shortly a series of fnc meetings where we will discuss all the issues that are on the table and ways in which we can improve our framework in this is always a good thing to do but particularly now with the effective lower problems and their close to the effective lower bound. In terms of the specific you asked about we said we werent going to look at simply raising the inflation target and there are a couple reasons for that. 2 has become the global norm among Central Banks and i think there is value in low and stable inflation and some would question whether significantly higher 2 would meet statutory definition of price stability and think their credibility issues Central Banks around the world are fighting hard to get close to there to present objective from below and were doing it better than most but just saying were going for adult higher target im not sure how credible that would be. The top bank of japan to Something Like that a few years ago and it didnt work. What were really looking at is not so much within the target as looking at framework changes that will make that target more credible and allow us to symmetrically achieve 2 inflation so Inflation Expectations will be well and truly incurred at 2 in the strategy you mentioned the strategies but theres a category of Monetary Policy strategy called makeup strategies and the thinking behind this is really clever. Rather than letting bygones be bygones if you have a short fall in inflation during a downturn you would promise to make up for that by inflation a bit above your 2 target free time. And the public knowing you do that after the week. You would run the economy to be strong and keep Interest Rates low so that inflation would overshoot knowing that its coming and bring forward their consumption spending and act on that knowledge. In a model this works very well and this is a very strong that is where im going. The world is not a model and the real world works differently than models, not withstanding that it is an interesting insight and we are looking for all those ideas and all those makeup ideas to try to find a credible practical actionable sort of framework that would the public would understand and would act on to some extent. That is something were looking at very carefully. Put that in light of what we seen measures of inflation and petitions about surveys and bond break evens and fallen the last few weeks what is that tell us about where peoples heads are right now and as you try to anchor those expectations something does not seem to be working right now. Well, we think that Inflation Expectations are anchored near 2 and i think earlier in the year let me take a step back. Inflation ran pretty close to her to present objective and then dropped in the First Quarter of this year by a few tenths of a percentage point. It was probably the thinking on the committee that that would be a temporary phenomenon and i would say the latest data show a couple of things. It undershoot, if you will, looks like it might be more persistent and we hope thats not a good thing. My inflation to be well and truly at 2 and not post you to present but the marketbased measures of Inflation Expectations will be called break evens dropped sharply during the last intervening. As the longerterm rates from numeral dropped so do break evens for inflation and thats just a marketbased measure of what markets are saying inflation will be Going Forward and we do follow Financial Markets very closely and take the thing seriously and call that out in our statement and i was a people in the federal open Market Committee are concerned that its another argument brinkley for providing policy accommodation. Were policy combination of lower Interest Rates would support Economic Activity which would put more pressure on inflation and i would say its an argument for lower Interest Rates. Five the book on the micra question of how to navigate a career in the winner take all economy a world where superstar firms made industries wonder if we talk about the macro question raised by that trend and theres arguments that the rise of [inaudible] is a factor in the problems we see in the labor market with low wage growth, low labor share of National Income and low worker Bargaining Power first of all you by the series and see Corporate Power is a factor in a low wage growth and weve seen it does this phenomenon affect how you do your job in setting the tray policy . This whole very interesting Area Research was the topic of the jackson hole conference last year which is our annual system and it touches on these issues. What we have observed is that the level of concentration across a broad range of industries in our economy is increasing and that is if you take the top ten firms in a given industry the amount of that industry they control has increased over time so youre saying measures of concentration increasing over time but at the same time you are saying low productivity in your scene rising inequality and your scene wages not move up as fast as they are too given the things we know about the current state of the economy. Question is the first thing somehow related to the second thing so there were a couple of things identified connections between it and now papers pushing back on that. We dont know the answer and its something that definitely is under active study something to look at carefully. It is completed. An example is a lot of consolidation the concentration that happened the biggest area in the economy is the retailers in the wholesale distributors who serve them. That was a tremendous a lot of momandpop stores went out of business with the bigbox stores and find that you had the distributors which were small local distributors coming together as well thats a classic example of much higher concentration but it was associated with higher productivity and higher wages so the connection is not clean or obvious but clear that the two things are happening at the same time. I would also point out that there are any factors all over the world weeding on inflation and wage growth and weighing of productivity and the question is is this concentration is it also contributing and i dont rule it out all but its not easy to pin these things down but something we are aware of. One last big picture question before we turn to your questions but this has been a remarkable time for local governance and the financial crisis and its aftermath in the world Central Banks to the dominant role in the World Economy now or in an era where the Central Banks are durabilitys and a decade of low rates and longer than that in japan but there will be a change of leadership with the bank of england and the disruptions were seen in the economic order are not in your bill has to do with trade wars or brexit or the things that are affecting the outlook so i guess my question is given these shifts were now for the Central Banks and what now for the World Economy . What you say what the role of the fed will be in your successors role will be in this economic era taking shape and how to say it is different from what were coming out of. I guess there are a lot of ways to go with that but i will start with how we would react in a crisis. What we can do in a crisis. First thing is our liquidity portability for socalled lender of last resort to solving institutions provide liquidity to institutions and we can still do that and have those powers and would use them. The second thing is Monetary Policy. Will we be able to react dark Monetary Policy to support demand and the answer is yes. Subject to what i said earlier rates will be lower and fewer rate cuts available which only means one of the reasons were looking for strategies to strengthen our toolkit and we have to rely on the tools we use during the financial crisis. The other thing we have done and will continue to do is build a more resilient Financial System and weve done all of that and were not going to get away from that job and make sure the Financial System is more resilient because what happened in the financial crisis is the Financial System was not really enough to handle economic shock that it should have been short enough to deal with and wasnt and that is what ultimately led to much of the damage so were not looking to make that mistake again. Those are the things we can do and will do but i would also say that the more important things about our economy are not really think the central bank can do and we need to focus on it as a country so thinking about the potential growth or potential growth and that goes to the skills and aptitudes of the workforce and goes to policies that will get people into the labor force and keep them there and goes to policies that will lead to investment in technological advance and support productivity growth and also policies that will give everyone a chance to share in our prosperity. These are more important issues than the one we at the fed deal with but not confined to us but there issues that the legislator in the public need to understand and deal with. Thank you. This time i like to invite members to join the conversation with their questions and a reminder that the meeting is on record as the cameras in the back were not clear enough but please wait for the microphone and speak directly into it and please stand, state your affiliation and limit yourself to one question try to keep it concise and left start over he here. Hello, Lou Alexander and obviously one of the questions they are trying to think through is the pace of any changes in policy and there are good reasons why you lower rates faster than you raise rates and i wonder if you talk about that but obviously one of the characteristics of the forecast that we caught from the Committee Last week was there seem to be a pretty significant division between roughly half the committee that seems convinced that they should be lowering rates and the other half is not yet fully convinced but i want to know how you think those sets of arguments are largely to affect your disk decisions Going Forward . Lou, i think so much has gone to depend on incoming data and course of events here in the near term. Its the committee has not focused on those specific issues yet and will very much be driven by the involving risk picture and incoming data and is all i can say. Thank you for your service to you for doing this today. Do you treat u. S. Dollar as an endogenous variable in u. S. Financial conditions or [inaudible] variable . Well, we take the level of the u. S. Dollar in our [inaudible] as another Financial Condition. We model the effects of Monetary Policy on the real economy and range of Financial Conditions and the dollar is one of many Financial Conditions that adjust. I think maybe your question is do we target the dollar and the answer is we do not. The Treasury Department and the ministration is responsible for Exchange Rate policy. It do not comment on the level of the dollar and dont forget the level of the dollar and target domestic economic and Financial Conditions as other Central Banks do. [inaudible] a lot of economists come to the view that there needs to be a much greater role relatively from fiscal policy when Monetary Policy is constrained by the effect of lower bound. How do you assess those arguments and how, if at all, would you take those into account in the context of your review . We also take fiscal policy and i would Second Thought that fiscal policy is so powerful and particularly significant downturn can have great power and its not good to have Monetary Policy be the main game in town or level or only game in town. I would like to see fiscal policy to be there at least significant downturns to help us support demand when we need it. Thank you, german power. Going into the most recent f1 c meeting Financial Conditions were already supportive of the outlook and following that meeting they have eased further. I wonder if you could comment on how you take that into account that the reflexivity between the feds medication and Market Expectations of Financial Decisions are easier because of the market is expecting a rate cut to be delivered as early as the july meeting you take into account what impact that would have on the outlook if you were to not deliver the cut that the market expects and those Financial Conditions then reverse course. Thank you. So, we are not looking at shortterm movements and Financial Conditions were trying to provoke shortterm conditions but were looking at maximum employment, stable prices, state of the economy and picture of risks all around the world and trying to set our policy so that in the mediumterm is well set to further those objectives. Understand our policy works through Financial Conditions but were not in the business of working with shortterm movements and Financial Conditions. We have to look through that and look to the underlying economy for our main guidance. Thank you for a fascinating discussion and your service. I work at a think tank called [inaudible] and we spoke about policies and Financial Stability and the financial crisis [inaudible] to feel like a blessing because the Balance Sheet is larger . We are looking at the broad range of tools that we use in the financial crisis and tools that other Central Banks use but we didnt and tools no one uses and in fact those would be the make whole strategies. The quantitative easing with most of the Research Shows that it did have an effect and essentially driving down term premiums and longterm bond rates and that supports Economic Activity through the fairly well understood channels. Policy spaces there are to be used and the principal stool are still Interest Rates tool and thats what we will use and to the extent we have to resort to other tools that will depend on the situation and what the right tool is for that particular situation. Hello, my name is alex and thank you for speaking with us. Its been a great discussion so far. My question is going back to these open sessions that even having given changes in the economy whether in terms of the tech sector or what have you is the fed adjusting what data it looks at indicting the decisionmaking and needs to talk about that it would be interesting. Thank you. Yes, so, is a big industry out there that uses big data to try to assess nearterm movements and Financial Markets. That is not what we do. Thats not really what we are into. Or what is of interest to us. We have been working with big data and the companies that are active in the academics that are working with us with the purpose of better understanding current position of the economy and therefore what we may expect. Theres a great deal you can do with more timely information with lots of timely data about Consumer Spending so i think were close to the frontier and its very much early days on working with big data but with a sense of how do we understand the Current Situation and the economy in your future. Its quite different from the investors doing with big data but its an area of real interest for us and put significant resources into it. It seems odd to me that the ceo of walmart knows what yesterday sales were but take six weeks to get a retail sales report to the country. We are talking to some of the big retailers and Credit Card Companies about getting more current data and payroll Data Companies so there may be gains there but the thing is its hard to measure gdp. So many judgment calls you have to make and trying to measure economic output and nonmarket and not easy to measure gdp accurately. Thats a lot of progress to be made there. German power, thank you. The shadow Banking Sector has grown exponentially through the last crisis and its unrelated and we are seeing Technology Driving innovation so how do you think that will factor into your Risk Assessment for the economy on a Going Forward basis and you think there will be regulatory treatises in those areas conne connect. I will start with labor and go back to shadow banking more generally. Labor is the new thing looking at it very carefully and i will go i think what i said to the press conference which is that given the possible scale of it i think our expectations from a Consumer Protection standpoint and from a military standpoint are going to be very high. Authority for overseeing [inaudible] will be in a number of places but the big picture is we will look really carefully edit and i would want to echo that. In terms of the shadow banking more generally it most other welloff democracies have almost all intermediation happening in the Banking System and small Capital Markets but we have very large and vibrant Capital Markets and thats a positive feature of our financial landscape but the banks that are highly related and have specific Capital Requirements Capital Markets are less potentially related and in a sense its a good thing because theres room for funding earlystage companies that might have no prospects or aspects of having the next drug that cures an important disease. Its a feature of our system as well as presenting significant challenges. After the financial crisis we looked at many of the things that broke the financial crisis were Financial Markets things like the Tri Party Repo system and like money market funds and things like that. We sort of systematically have gone through after the crisis looked at places where systemically it could be important if they go wrong in the Capital Markets and tried to address those as best we can. We monitor it for the Financial Stability Oversight Council is the place where all the relators get together and things fall between a bunch of different regulators in place where that would be sorted out but it would pose a challenge in a positive feature of our system. Hello, allison. We have a president who seems quite comfortable talking publicly about the fed and i was just wondering what you think about this . [laughter] well, as i mentioned i think the independence of the fed from direct political direction is direct political control is an important institutional feature that has served the country, economy and American People well and also the same probably similar protections that other advanced economies in Central Banks have. I think we have long experienced that when you see Central Banks lacking those protections you see bad things happening and that includes, by the way our experience here in the united states. I do think thats important and at the fed we are a strictly nonpolitical agency and we are doing our best to serve all americans with our tools and understand you have a very important job and desire to play no role in bigger political issues just to carry out that important role. We are human and make mistakes and i hope not frequently but we will make mistakes that will make mistakes of integrity or character. Right behind you. Thank you, dan, [inaudible] group. If u. S. Capital markets were used as a political lever with that have an effect on their role in resilience the way you see it connect. Im sorry i didnt follow your questions. Theres been talk about constraining capital for political purposes to exert pressure on other nations and with that have an effect on their resilience in your equation connect. That would be beyond the scope of might responsibly number not want to comment on that particular hypothetical. I have two questions related to the yield curve. Currently as we know it have a slightly inverted curve and id like to know your views on how you take that into account in your assessment of the situation and secondly, the ten year historically have traded about two, to have Percentage Points for inflation is fairly flat what you think is the right spread of our inflation for the ten year . [laughter] we do look at the yield curve and various measures of the yield curve and there are many different measures something that we look at but one Financial Condition among many that we look at and its not theres no one thing in a broad Financial Market that we see as the dominant thing to look at and one thing that tells us what will happen but its one of the many things. Believe me we are well aware of it and know the history of it and it is something that we monitor. In terms of the ten year i will have to pass on what i think the equilibrium price would be but things. J. P. Morgan. As part of the review given that you mentioned the neutral Interest Rate has gone down substantially since the financial crisis are you considering that may be the target inflation rate no longer be to present but might have to be a different level . We made a decision not to look at raising the target as such but rather to look at keeping and making the 2 target as credible as we can and that is how weve looked at it. We did not make a decision at the beginning not to look at but raising the target for reason i mentioned. My name is nancy lieberman. You addressed so many different factors in what goes into your thinking on setting rates and on the economy but the one thing you have not spoken about was addressed and maybe because you dont think of it but im sure you do is the over 16 trilliondollar National Debt and how does that factor into your thinking when the next downturn comes when weve got this unprecedented amount of debt hanging out there how will it affect policy . Well, i think it is widely understood that the u. S. Federal budget is not on a sustainable path and i think its a good time to be working on that when the economy is strong. But that fiscal sustainability is a longerterm problem but not a problem associated with the Business Cycle, for example. It does not really feature in Monetary Policy and its not something we think about in setting Monetary Policy. Our focus is tightly right now im doing will begin to sustain this expansion and benefits of this expansion are between groups that have not been reached in a very long time. On a planet is the. 6 and has not been there since i got my drivers license and i did 69. Thats a really good thing so that is what our focus is and also keeping the job market strong inflation at 2 . Fiscal sustainability is not our job and does not actually play thats bigger role at this point in our thinking. Last one over here. Thank you for your service. Are there tools that are not available to the fed that are available to other Central Banks or that are described in the literature that you would like to see made available to the Federal Reserve . In Monetary Policy, no. I think we have the tools we need in tools that are quite similar to those of other major Central Banks. Other Central Banks have things like [inaudible] control of the Payment System but thats the sense of your question so its not so much that we dont have particular powers but just that having low Interest Rates really challenge the existing toolkit of Central Banks and there are no obvious, easy answers where they give us a new tool. Im a white male and i am prejudice and the reason is th
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