lower income students access to internet the homework to just be homework. cox, connect to compete. >> cox support c-span a public service along with these other television providers, giving a roof -- you a front row seat to democracy. >> mary daly as president of the federal reserve bank of san francisco. she talks about whether the u.s. is heading towards a recession. she also discusses inflation and the overall state of the economy. d the overall state of the economy. >> good afternoon. thank you all for joining us. thanks to all of you to all of you tuning in for the live stream. thanks especially to mary daly, president of the federal or -- reserve bank in san francisco. we will discuss economic and policy issues for about half an hour and then we will turn to your questions. you are welcome to submit questions via email. you can find the spelling of the email address on the webpage for this event. you are welcome to submit questions via twitter. i will now introduce president daily. she became president and ceo of the federal reserve bank of san francisco in 2018. she began her career in 1996 as an economist. she went on to become the san francisco feds executive vice president of research. she held multiple leadership positions at the san francisco fed. she has served on numerous advisory boards, including for the social security administration, the institute of medicine and the library of congress. she has published widely on topics such as wage growth, income inequality and disability program policy. mary is a native of baldwin, missouri. i am a native of kansas, which i think makes us from the same hometown. thank you so much for being here. >> i am delighted to be here. thank you for having me. >> let's dive right in. why don't we open this by giving you the opportunity to briefly tell us, how do you think things are going with the economy right now? >> i think of it as a situation. yes, the economy has good momentum. yes, it looks like monetary policy is starting to have an effect. we feel a slow down coming in a way that would be predicted by us raising interest rates. we still have a long way to go because even though two months of cpi data has good news, we are far away from our goal. inflation takes a tremendous toll on people. it is a tax on everybody, but it hurts moderate income families the most. we are focused on bringing inflation down and getting back to 2% inflation on average. >> let's talk more about inflation and the federal reserve market meeting that just ended. the median inflation projection from the fed rose pretty significantly relative to the previous meeting. it rose to 3.5 percent in 2023, 2 .5% in 2024. that represents an increase of about 4/10 of a percentage point for next year. a pretty sizable increase. people have thought those projections were made prior to the release of the november cpi data. jerome powell made clear that was not the case. can you explain your thinking about this. has your concern about the longevity of inflation gotten worse over the last several months despite two good months of cpi data? >> that is a terrific question. we can break inflation, overall inflation, say core. you can separate core into three components. goods inflation, housing price inflation and core services excluding housing. you see the data coming in on the last two reports well. this is what we have been hoping for. there is a general consensus that this was going to happen, we just did not know one. goods price inflation is coming down. that is good news. it takes about a year to fully come down to historical values. we are looking at that coming down gradually over the course of next year. the same can be said of housing. house price inflation is coming down. it has yet to filter completely into rental price inflation, that takes about a year. once house prices start coming down, that takes about a year to fully make its way into that end we see full relief on that sector. then there's core services excluding housing and that's for things ranging from from haircuts to restaurants to you know just the basic retail that you do any services you can think of. and those numbers are still quite elevated relative to their historical values and that's where we know that it usually takes quite a bit longer for that kind of inflation to come down. a lot of that inflation is related to the labor market and the labor market remains quite out of balance we have too many jobs and too few workers. so that means that wage inflation is going to be above its long run sustainable average and we're going to have that passing through to prices and that's what we're working on right now is that's why my projection has gone up it's really coming out of that core services and relates fundamentally to this the ongoing strength in the labor market. >> so let me let me ask you more about that because i think i think that that kind of breakdown of inflation into those three components is very helpful but it also highlights a concern i have about the challenge facing the fed so i completely agree with you we're on a great trajectory for housing price inflation we've already seen that we're actually having negative growth month of a month in core goods inflation. of course services looks a little more troubling i that's the sector of the economy that's most exposed to the labor market most exposed to wages. tell me what you think about this my concern is that it will be relatively straightforward to get inflation to come down from you know say seven percent to four percent and that a lot of that work can be done through those first two sectors we talked about. but that when consumer price inflation really starts to bump into wage inflation right average wages have been growing at about five percent and we have you know one one and a half percent productivity growth and so when when the primary driver of inflation is wage inflation i worry that it will be hard for much harder for the fed to get from four to two than it would be to get from seven to four. and that you know and that in order to get from four to two that will require substantially larger increases in in interest rates that will require the unemployment rate to go higher than than the fed released in his projections after the last meeting. do you share my concern how do you how do you think about about about kind of breaking it up into those two parts getting from seven down to four or five and then getting from four or five down to two. >> sure and i let me say that i i use that same framework and so i agree that getting the the from seven to four is dependent on sectors like goods and housing that we already know how they react we know that supply chains were the barriers in goods and with some excess demand but a lot of it was supply chain and then housing is is very interest sensitive so it reacts strongly to changes in interest rates. the way i've said it to some who have asked me is that it becomes exponentially more challenging to get each percentage point decline after you get those two things out of there because it is more about inflation expectations it's more about the fact that you have you know wage inflation in part goes up because because the labor market is so strong. so i'd like to start instead of going how much pain will we have to go through i start this way i say if we have to get from four to two and a lot of that is core services why is core services rising. and i go back to non-inflation but to the real economy the labor market is out of balance. if you want a job it's easy to find one if you want a worker it's hard to find one. and that's causing of course employers to bid up wages but the the striking fact and i don't think everybody we don't you know regularly pay attention to this but it's really important to pay attention to is despite nominal wage growth rising rapidly real wages have been flat and in some cases falling depending on which group you're looking at. so for the average person out there working they're saying well i'm not even keeping up i'm on a treadmill that just keeps making me fall behind even though i'm getting good nominal wage gains and so the way to get those two things back in balance is to bring the labor market back in balance. so you'll see in the projections for the scp that the the unemployment rate for 2023 and 2023 4 went up the projections where it went up and you know some would push back on us and say they're just we can just reduce vacancies in the labor market and we can get there less costly . but i i just don't think so my own projection is is very similar to the scp median that we're going to have to go into the mid fours or even slightly higher on unemployment to get the sort of relief of the unemployment in the labor market we need to bring things back in balance. and the final thing i'll say about that is you know wage growth right now is four and a half to five depending on which series you're looking at and what what sector you're looking at and really we need it to be three and a half to four if we're going to be in that sustainable place but the wage growth itself is not the problem. the problem is the labor market is out of balance and that's causing the effects we see just like it caused you know things out of balance cause price inflation in the good sector of the housing sector. >> so let me let me ask you two kind of follow-ups about that i think that prior to the pandemic a number of economists question whether or not wage inflation actually fed through to price inflation anymore and the argument was that price inflation was really largely determined by inflation expectations of inflation expectations were very well anchored and that even though wages knocked up and down businesses didn't take that into account at least not as much as they did say in the 1970s. how do you think about the relationship between between wage and price inflation now i feel like now people are talking quite a bit about about the relationship between wages and prices without really explaining that shift in the way economists think about that relationship. >> sure well even when we were back in the time when people were talking about this flat phillips curve and the basic fundamental relationship between wages and prices had broken you know i was i would always say this well let's just forget about being economist and let's just use common sense or business sense. if you input costs rise you try to pass those on to your prices but then there are factors that prohibit you from doing that and i've called those wedges. there's a relationship between wages and prices that's fundamental right and employers it's wages are like another input cost it's the largest input cost that most employers face so is is the labor compensation so they want to pass it through but there were all kinds of things interrupting that process and one of those things was just just global competition just driving down the ability to pass things on because you'd be beaten out by a competitor. the gains were all coming out of efficiency and other things like that so that was a period when it was pretty fierce and you didn't see it much faster through now because of a variety of things most importantly the pandemic but also the war in ukraine you have supply constraints input costs are rising all over and importantly there's not that kind of competition to get things down all employers all firms are are trying to scramble for workers and you're seeing that translate into wage growth. the interesting thing you compared it to the 1970s is that in the 70s it was one for one. prices went up wages went up then prices went up wages went up so it was almost i mean the correlation there was like something at close to 80 percent correlation between wage growth and price growth. now you don't see that one for one because the labor market that's why real wages are falling because inflation has been rising so rapidly that wages just can't haven't been keeping up with it and it's partly because of these other wedges as well that you know it's really hard for firms they're trying hard to find workers compensate them be in these conditions and factor out how much is persistent versus temporary those are challenging things and on the worker side you're getting great wage increases and you're falling behind. that's why inflation is such a toxic thing in an economy it permeates everybody's decision making and everybody's well-being and that you know if you want to ask why does the feds paying so much attention to inflation well one it's our job we've committed to do it but the second one is because inflation is toxic and we need to get it back down to two percent on average in order for the things that we're used to to permeate. >> let me ask you more about the labor market. i think the labor market is interesting in the sense that we don't really have a problem of excess employment right now employment is kind of roughly where it was prior to the pandemic lower than where it would have been under the pre-pandemic trend labor force participation rates are lower than they were prior to the pandemic the employment rate is lower than it was prior to the pandemic the employment rate for the demographic slice of workers who are too old to be in school but generally speaking too young to be retired has you know is kind of roughly in the same place that it was it's not significantly higher than it was and yet we're talking a lot about labor market being overheated which i agree that it is. chairman powell talked a little about missing workers in in in the press conference. can you say a little more about the supply and demand dynamics in the labor market and a little more about where the workers have gone. >> so it is you know this is something we have to pay a lot of attention to where the supply of workers the labor markets just like any other market and so there's demand for workers but the supply has been relatively sluggish to respond and so the question is why. there are many things you can point to and there's not one that's driving it all but let me go through the things that have been really important. the first one is i'm going to start with older workers who were probably going to retire so when covet hit they were probably within five years of retiring five to seven years of retiring they just retired and drove so we said that they pulled their retirements forward and they just retired during the pandemic and you know when you ask these workers why did you do that and surveys or when i have my meetings across i have nine states in the united states and so i spent a lot of time traveling through those states and asking people why did you leave the workforce. i mean you could get a good wage now if you went in they say well you know i was afraid for my health now i have i'm helping with the grandkids i moved back to where my children live so i can be helpful and you know even though schools are fully back in session and things are working there's still a lot of out of school days that we didn't have before because now when your kids sick that kid stays home and so that's disruptive for working parents so that's one of the things going on with older workers and then it's you know coming back into the labor market you're factoring in several things you're acting in how much wage growth am i getting well real wages have been flat to falling depending on who you are so that's not a big incentive and then of course you have these other things that are keeping you out. so that's one big group that we're missing in terms of they just didn't come back at the level that they had pre-pandemic. then on the prime age what we often call prime age although i dislike that term more and more the further i get from that group which is you know usually considered 25 to 54. so every year i inch past that i'm like i don't like that naming they mean convention but seriously that's the group where the bulk of your work life before you start to see retirements is in that age range and so we see that coming back to almost pre-pandemic levels but not quite and you would have thought that it would be growing more rapidly but that's where we've had a challenge for at least a decade is the prime age labor force participation in the united states has been behind other industrialized nations other industrialized competitors and that goes to a lot of things but something that's really been salient in the current recovery and expansion is child care. that there's just child care access because there's just fewer people providing it that is just lower than it was prior to the pandemic and now it's much more costly. so think of yourself you know think of you you're a lower moderate wage earner and you have two earners and now you've got flat real wages flat to maybe slightly rising slightly falling depending on where you are so that's not going to really be the incentive you have structural challenges with getting child care or it's really really expensive and then of course transportation costs have gone up to get to work so at the rate of return on that extra work isn't what it used to be and that's a factor holding holding the labor force the labor supply back as well so you know i go but come all the way back to that what do i say how do i think about it as a labor economist i say that if we can get inflation down which is the job then the real wage starts to be the incentive for people to come back in transportation costs start to fall child care costs start to fall but in the united states we have a a more challenging problem the fed can't do anything about we don't have any of these levers and that is we need more child care if we're going to have people fluently go back and forth into the labor force and and that's something we just don't have. that was we had a shortage before the pandemic and now we have a severe shortage. >> let me ask you a little more about the about the outlook there's been a discrepancy i think between what the fed thinks the outlook looks like and what bond investors think the outlook looks like. bond investors for example are expecting much lower inflation than in the fed's recent projections. why do you think that discrepancy exists how do you how do you think about the outlook among among investors. >> to be honest with you i don't quite know why markets are so optimistic about inflation but you know i i speak of them as priced for perfection if the goods price inflation goes down exactly as we can project if the housing price or shelter price inflation goes down exactly as we think and the core services excluding housing is purely cyclical there's nothing persistent in there and it goes down as the economy slows then you could achieve what the markets have priced in but policy makers in particular we don't have the luxury of pricing for perfection because we have a price stability mandate. we have to imagine what the risk to inflation are and to me they still are on the upside for the reason we talked about just a moment ago you know the core services x housing is is largely a reflection of the labor market strength and right now the labor market is strong and i don't see a dramatic slowing in the labor market starting to take place. that means that wage growth will be above its long-run sustainable average of three and a half to four and we're going to find that that passes through to price inflation so for me i want to tell the american people this that we are resolute in bringing inflation down not just getting to that level where you said it's easy to get to four for instance and harder to get we're going to go until the job as well and truly done which is two percent on average inflation that means that i have a tighter path of policy a higher terminal rate or a higher peak rate for the funds rate i whole i haven't held longer than some of the bond investors would have predicted but that's what i think we're going to need to do at this point right now in order to bring price stability back to where and give that back to the american people. if the data come out better then of course policy will do as it's always done adjust but it is really important for us to continue to say that we don't see anything right now but hope in the inflation data. and i get confidence out of evidence not hope so i'm hopeful we're in a good track but i am i won't be confident until i see repeated evidence that inflation is truly back on a path for two percent in the coming couple of years. >> that's a good that's a good segue into a more explicit discussion of monetary policy and less about the economic outlook. let me let me begin with kind of a 30000 foot question we're doing this interview right now it'll be covered in the media when when other federal reserve bank presidents or or members of the board of governors give interviews that's covered in the media and the media has this kind of a hawk dove categorization and i wonder under you know where do you where do you think you fit do you think those categories are outmoded or or do you think of yourself as a as a hawk or or a dove. >> let me start this way we have 19 you know participants on the fmca and we have two labels so how likely is that going to be to be a good description of anyone really. i think that's a starting point that just doesn't make logical sense that we would be we'd be able to sort people camps. into a couple of camps. i also don't really love labels i've been i mean frankly i've been labeled my whole life you know first it's i'm a college i'm a high school dropout that i'm you know i'm a labor economist my gosh how can i do monetary policy you know there's there's a sense where we say labels and then we think we know what people are going to do. >> your apprentecessor janet yellen was a labor economist. >> yeah i know and so that's that gave me a lot of hope and here i am but seriously i mean i think labels the reason we don't want to use them is because they have grave shortcomings that mean that we're simplifying things beyond what is really important if we're going to get the information out so when i think of it i you know if you looked at the media coverage for instance before the fomc you would have thought that nobody agreed on anything that we were in these two opposing camps and then you get the summary of economic projections and you find out that all of us have individually come up with a policy path that has a pretty tight range you know if you if you really just look at it's four seven five to five two five and then you with 5.1 is the middle and then you think oh okay well that and what are they going to do in terms of cutting and everybody has rates holding for 23. and the reason for that is we're all committed to the same thing achieving our goals price stability full employment. right now it's clear full employment is being met where we're really off is price stability and so they were taking the policy remedies that restore the part of our mandate where we're missing so i guess what i would say to this is that that that that it's it's really you know people like to do that type of thing but it is not actually a good description of anyone. and the final thing i'll say there is the only we only use hawk dub in this very narrow set of what i call fed followers it america the average people i talk to the people out there in the community every day my business contacts that's not how they think of it they say only one thing right now when are you going to get inflation down and how hard is it going to be and so that's where my focus is. >> let me remind our audience please to send in questions to john.tooie at aei.org you can find that email address on the webpage for the event or to tweet them using the hashtag ask aei econ. more on more on monetary policy i saw a a column written by peter orzag that the obama administration official former cbo director and he when talking about monetary policy he said the following he said with antibiotics it's better to take all your medicine even if you're already feeling better after a couple of days with steroids when used in moderation they can reduce inflammation and control reactions but take too much or for too long and you can risk the whole immune system. do you think that interest rate increases are more like antibiotics r more like steroids. is there a real risk that that you know one extra dose of uh tightening can cause huge problems or instead should we think about uh monetary policy interest rate increases as something that just kind of gradually affects the economy and and and and and it takes a while to really to really understand what the effects are. >> i have a rule in my head to never use analogies about medical things because i'm not a doctor of medicine i'm a doctor of economics so i'm going to step outside of the medical metaphor and i'm going to go to how i think about that question which is a really good question. how i think about monetary policy is there's there is a risk always of doing too little and doing too much. what are the costs of doing too little. well the cost of doing too little is that inflation embeds itself in psychology and you end up in a situation where now inflation is high and it's very challenging to get it down we've experienced such an episode and done so in my lifetime. and then we had to have the voker disinflation which was the necessary reaction to that embedded psychology we do not want to repeat that i saw the cost personally that it took on people who went from having high inflation which made it hard to afford anything to now no jobs which made it hard to to buy in anything either and so that's something we absolutely want to avoid right now we we don't have inflation embedded in this psychology so we want to make sure that that does not happen. the cost of doing too much of course are also real those costs are you can throw the labor market if you overreact to the high inflation and you do too much you can throw the economy into a troubling and deep recession and then that's hard to come back from. the policy we've taken today in my judgment what we've done so far is not achieving either one of those things it's not doing too much it's not doing too little. so far what we've done and i would call this our first phase of tightening we have simply taken the accommodation we had offered during the pandemic out of the economy and got rates into modestly restrictive territory. this next phase of tightening phase two is more challenging we have to then figure out and we'll do that you know meeting by meeting with data dependence and looking at the risks what is the peak rate that would be sufficiently restricted to bring price stability back and then we'll be in that third phase days of tightening which is how long should we hold. all of those things together are how i think about doing monetary policy it's really a staged stage piece we finish phase one we're now in phase two eventually we'll get to phase three in 2023 and in all of those i'm weighing the cost of doing too little against the cost of doing too much. i guess i want to end this with this answer with this when we talk about the cost of doing too much we always talk about inflation expectations and psychology because those are real but something i'm hearing a lot lately from my contacts whether they're small businesses community members workers is there a real cost to high inflation right now it is not a pain-free situation americans everywhere are paying a tax with high inflation and those least able to bear it are paying an exceedingly large tax so it's about reducing that pain while we don't do unnecessary paying to the labor market but we don't see really close to that right now right now we have a labor market strong in inflation that's too high. >> how do how do you know when to stop do you do you stop do you wait for the unemployment rate to hit a certain level and that tells you to stop or do you think to yourself you know we've we've we've done a lot of tightening and we need to sit back and see whether the unemployment rate hits level that we deem too high. >> so here's how i think about it i think about it as we have to we put this in our fomc statement in the november meeting and we still have it still in there in december because this is how it works. we already have done a lot of tightening cumulative tightening and monetary policy so that's already in the the pipeline and we have more plans so that's in the pipeline then we understand that monetary policy acts with a lag. we don't know how long those lags are which is why the third part of that statement is so important that we put out which is we will continue to watch the evolution of the economic and financial data so we know there are lags which means we can't wait till inflation gets to two percent before we stop tightening and stop raising rates i mean that would be the kind of unforced air that causes over tightening we have to account for the lags but we don't know what they are looking ahead we have to watch the data to see where they are so it's really an experiential learning and looking at the whole dashboard of indicators. the ones i look at are not just the headline numbers for unemployment and inflation but what's going on in the labor market what do quits look like what does job finding look like what happens to vacancies are there help wanted signs just you know if you go out in your communities are the help wanted signs coming down and when you go to your favorite store they have the normal hours you expect because they have full amounts of workers that's a labor market sign on the inflation side you know do i see sales starting to re-emerge at at retail outlets do i see the price of things you know there's there's a particular place i go for services for my haircut they just keep crossing out the prices and writing in new ones and when i see that stop happening i'm like okay we're starting to get some relief on inflation so there's a lot of published data we can look at but this is where talking to people being out there it's really where the 12 reserve banks the region general feds people often agree why do we have those well here's a really important reason we have them we have people all over the nation in these 12 reserve banks talking to people who run businesses who have non-profits who are workers and unions and asking them what is it like out there how's it going what's happening and that gives us the forward-looking information we need to ensure that we do our best at not over tightening or under tightening. that's how i make my decision. >> let me ask you about one of those what are those indicators i've been really surprised by the durability of consumer spending my expectation was that uh following so i i think there's a lot to be said for this for this revenge spending way of thinking about this and i thought there would be a lot of revenge travel over the summer you know i'm going on that trip i don't care what the price of the airline ticket is or i don't care how expensive the hotels are i've been cooped up in my house for for years but then i expected in the fall going in to the winter that consumer spending would soften considerably and you know maybe it did last month retail sales that just came out yesterday looked uh softer than were expected but on the whole i've been surprised by by how consumer spending has has held up. this of course has a direct implication for consumer price inflation because when demand is growing faster than supply you see prices go up have you also been surprised about consumer spending what do you think accounts for its strength and durability and and how long do you expect this to last. >> well the resiliency of the american consumer all of us would be part of that has been surprising to me. and here's the things that were have surprised me well here's the things that i think relate to it. i understand the term revenge spending and things but i really think of it this way we have published data that says or survey data that says people aren't very optimistic or sentiment's down but you don't see it in actions. you see it in actions if people are buying things they're doing the things in their lives and and it really makes sense to me i mean we were hunkered down for a long time and it's not just frustrating you can't do what you want it actually takes you away from the things that make meaning in your life like seeing family or going on trips and and seeing places and and i see that momentum still there you know las vegas right now which is in my district and i recently visited it's booming people want to see each other people are coming from all over the country meet up they go and do these things that is just a sign to me that people really want to be with each other they want to partake in services they want to do things. you can't do them though if you don't have money. i really say it's a tale of two pandemics still we're starting to see the the people in the lower part of the income scale really feel the tax of inflation and so the spending is going to slow but but for people above the median there's really a lot of excess savings still available of people who didn't spend during the pandemic and now have excess money to spend freely on things and showing great interest in doing so so that is a strength that i you know it kind of surprised me how long the momentum would last when a slowing economy is clearly ahead and how much excess savings people had accumulated you know we have some information about that but it's not particularly great and we're starting to get more but that's something that's really surprised me on the strength. the other thing that is not surprising is if you just do a simple calculation on the strength of the labor market it would predict that consuming consumer spending would remain strong because one of the main things that would bridal consumer spending is a slowing labor market and we haven't seen that yet. so as we start to see the labor market slow down and get more imbalance i would expect then that to filter through to consumer spending especially when there's not that excess savings buffer uh being so high to to kind of propel it even when a slower labor market comes about so i'm looking for a slower slowdown in this in in 2023 as the labor market comes into balance but you know i've been i'm also recognized we've been waiting for that to happen for a while it hasn't happened yet so my confidence will rise when i see the evidence that it's occurring. >> a question that came in from uh chris ruger at the associated press uh he writes your colleague john williams at the new york fed says that the fed's benchmark rate needs to rise higher than the rate of inflation in order to get inflation under control do you agree and in what time frame do you think that needs to happen. >> i think that that's an easy thing to agree with so the question isn't is is not that really it's about uh what how do we calculate that right because people use different calculations so if you look at the scp let me just direct attention back to the summary of economic projections if you haven't already looked at it it's very scintillating it's available on the website of the board of governors and what you'll find is that the peak funds rate is about 5.1 in the meat for the median scp and the inflation rate at the end of 23 which is at the same time is 3.5 so that means that the the rate is above inflation and that's what restrictive policy looks like you you have a restrictive policy because the real rate of interest is above zero it's restraining the economy and the scp confirms that that's what the median scp participant sees >> let me let me ask you uh a little bit about the interaction of fiscal and monetary policy. the first question i would i would ask is does the new congress matter to the fed the the congress that was just elected that will that will take office in january. >> you know we say this a lot but i want to unpack it a little bit that the fed is a is an independent central bank and that independence is predicated on us being apolitical we are not reactive to whatever party the elected officials come from because those are different kinds of decisions congress gave us our mandates gave us our responsibilities and then we execute them for the american people. that's the job that congress expects of us and that's the job we're up to. so the the answer to your question is it you know it isn't relevant for policy making for monetary policy making what the elected officials are going to do what who is in office at that point in time we of course watch how fiscal policy is moving forward because it affects the economy and that will help us understand how to adjust monetary policy to achieve our dual mandate goals but which parties in power in congress or whether congress is transitioning isn't really relevant for our policy making because congress depends on us to do our jobs for the american people with the goals that they gave us full employment price stability. >> a question from rich miller at bloomberg uh chair pyle has said it's likely that restoring price stability will require policy at a restrictive level for some time. over the last five over the last five interest rate cycles the average hole that peak rate was 11 months. is that a good way of thinking about what is meant by for some time. >> you know it's a that's a reasonable starting point we maybe have to do a little more because of the how long and you know it's been here for two years remember we haven't been in a situation like this in a long time. i would say we want we want to you could start with that and i think that's pretty consistent with what you see in the scp the summary of economic projections for the median we raise the rate in in 2023 and then hold it throughout 2023 we hit that peak rate and hold it there's no great cuts projected in that median forecast. that would be a reasonable starting point. the data will determine how we actually do it. that's the important thing to know is that these are projections the city right where we are today but we've repeatedly as a as a group and chair powell reiterated this i i will reiterate it from my own point of view that we have to be data dependent we can project but then we have to watch and if the data come in stronger than we've penciled in we'll have to respond more strongly. if the data come in you know if inflation falls back much more quickly than we've anticipated then we will respond. that's what nimble policy looks like but right now i sit here and i'm i think 11 months as a starting point is a reasonable starting point but i'm prepared to do more if more is required. >> i'm expecting a recession next year i wouldn't be shocked if we didn't have one but but my my baseline expectation is that there will be one. the fed does not expect uh there to be a recession but does expect there to be a considerable slowdown in economic growth. my guess is that if we were to have a recession next year or or a significant slowdown that uh given the composition of the congress we won't have a a big stimulus package. what are the implications of of that for the fed you you mentioned that the fed keeps an eye on on fiscal policy because that that that affects the economy if we have a slowdown congress doesn't do anything fiscal policy doesn't do anything uh does that have implications for how long the fed holds the funds rate at a high level. >> let me if i can i'll i'll unpack that a little bit so i can give an answer to each parts of those. the first piece is that you know i i'm i'm very much aligned with the median for the summary of economic projections the scp i expect a slowdown of the growth to be well below our trend rate that's going to feel like slow growth to people we are going to feel like we're in a sluggish economy and so i absolutely anticipate that. but when you think about how the the things in our economy respond that support people through these slower times a lot of that is already built in it's these automatic stabilizers that we have in place. when people lose their job they get unemployment insurance and that doesn't take a new act of congress that's just something built into the system and so it gives an automatic stabilization to to people who get become unemployed as the labor market slows. and then the important thing is getting inflation down quickly enough that we can have back on the path of trend growth so that those jobs come back rapidly. the other automatic stabilizers are things like the support system you know food stamps and other things that kick in when people fall below a certain income those things are all there without congress passing any new legislation and i think that's a recognition that there's going to be what we call you know normal kinds of of slowdowns ups and downs in the economy and hopefully very few of them will be like something we just experienced with a great recession that's a very unusual event we hadn't had anything that deep since the great depression. those are rare and deep events as opposed to the more typical recessions which last you know less than a year or a little over a year and these automatic stabilizers help people through them. all of this comes back to policy will be nimble we will adjust to the economy we have but what is top priority right now is bringing inflation back down to two percent on average because it's our goal of course and price stability is so important but also because it's already extracting attacks from americans and i'll say it again because it's so important especially those who are the least able to bear it. >> chairman powell said that uh the fomc will only cut the funds rate when it's confident that inflation is moving down in a sustained way. what what do you uh what do you think would constitute inflation moving down in a sustained way. >> i'll just let me speak for myself here in no way the committee but what i'm looking for is continued progress on goods inflation and as you and i talked about goods inflation you know once it starts and the supply is barring any you know additional disruption in supply chains you'd expect this to just you know come down gradually but completely then there's the housing price inflation again with a tighter interest rate environment you would expect that to to go as it is so i'm really looking for movement in core services absent housing excluding housing. which to me means that the first thing i would see is a labor market that's coming back into balance you know jobs available workers who want jobs are coming back in alignment i'd like to see that then i'll see that show through to core services excluding housing and that will be the third piece of this inflation puzzle but what i what i really do need to see is is that because that's how we're going to get back to two percent. if we simply had goods price inflation and housing price inflation return to those historical norms but services including housing were still high we wouldn't get back to two percent so we've got to see progress there to be confident that we can start reducing the the policy rate i think if i may michael it's really important to to remind people too that when as inflation comes down a given policy rate is more restrictive in real terms. you know the real rate of restrictiveness is the the nominal rate minus inflation so as inflation falls policy becomes more restrictive so we have to balance that as well. >> let me let me ask you a final question it doesn't get a lot of attention but that i think is uh very important certainly over over the longer term fomc participants are asked for all sorts of things and they come out with the dot plots and all the things we've been talking about one of those is the long run neutral rate. the median rate was unchanged in the projections from the last meeting but three participants raised their estimate of the longer run neutral rate. this rate has all sorts of uh implications uh for whether the economy will return quote unquote to normal after the pandemic and the kind of surge of fiscal monetary policy support and and all the issues that have affected supply chains and economic supply will the world look the same on the other side of that as it did in 2019 that rate is influenced by by massive global forces related to demographics related to economic growth in developing nations related to the balance between global savings and global investment opportunities how do you think about the long run neutral rate. >> first i i think of that as one of the top questions we have to grapple with in the coming year because you know as we come out of the pandemic we're back to thinking about the longer runs we call them the star variables right the fundamental factors that guide how we think about the economy. you know the piece that you said in your list is really how i think of it there's a global savings supply and a global investment opportunity demand and those things come together to determine the neutral rate of interest that that thing that clears that market. we have to go back in and ask ourselves do the factors that affected that and push the neutral rate of interest down after the great recession it was all in trained population growth as you said demographics slower productivity growth all over uh that really had this factor going down so our star moved to something like 0.5 off of its historical norm of of closer to two. you're kind of you're out you have to go back in and ask are those factors still there and what kind of force are they putting on global savings and uh demand for investments. the answer is not known right now we have to i mean i've seen studies here and there but we have to do a full port press for researchers policy makers etc really asking those questions again and i'm going to remain open-minded to whether it's gone up or gone down the reason i haven't moved mine is that we are in a point now where there's so many cyclical forces that you it's hard to separate the cyclical forces from the more persistent ones that will ultimately determine global savings and and global demand for investment but i think that's the 2023 issue. we should come out of next year knowing whether you know having a much more clear understanding of whether those the pandemic change things more than just temporarily and i'm sure it did the matter the question at hand is by how much. >> let me thank everyone uh for tuning in uh for this conversation let me thank everyone who will watch the video of this later on and let me think especially mary daly mary thank you so much for being with us today thank you for your leadership and and thank you for your service during such an important time in national and global >> c-span's washington journal, every day we take your calls live on the news of the day and we discussed policy issues that impact you. coming up saturday morning, we will look at the russia-ukraine conflict and focus on the weapons provided by the u.s. and nato allies, with the senator of strategic and international studies. in our spotlight on podcast, anthony davies and james harrigan talk about their podcasts words and numbers. and economic news of the day. watch washington journal live at 7:00 eastern saturday morning on c-span or on our free mobile video app. join the discussion with your phone calls, facebook comments and tweets. >> on monday the january 6 committee holds its final public hearing on the attathe u.s. capitol. watch liag beginning at 1:00 p.m. n on-span. 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