Think it would take to have that become unstuck in increased productivity . Lael the questions is how much the question is how much, different types of firms and incentives to put their cash and capital to work. It is extremely important for the strength of Business Investment. For growth. That is on the short term part of the ledger. Medium to longterm for the productive potential of the u. S. Economy. It is certainly an area we have a lot of interest in. In terms of the tools we have, obviously, we have been very supportive i think in terms of the stance of Monetary Policy. It has been supportive of activity in the business sector and in the household sector. There are other policy considerations that may be relevant, but are well outside realm of our influence. The issue of Business Investment is an important one and trying to create the best possible environment for that investment to take place is really where we come into that equation. Yes. Third table back. I am bill courtney. The eurozone in japan appear to be over relied on Monetary Policy and underlying on structural economic reform. Is that risky . Will the eurozone and japan get of the political will for more gather the political will for more political reform . Lael obviously, we have a common interest, the meditates, japan, emerging markets and seeking a broad set of policies in each economic area to support global aggregate demand more broadly. In each economy, that would entail a different mix. Those every specific to the circumstances of the different economies. I do think that in todays circumstances where aggregate demand overall, in the world, seems to be quite weak and defficient. There is a case for greater fiscal support in some economies. So places like europe. To complement Monetary Policy and also there are plenty of potential for Infrastructure Investment and productive investment, that not only would boost shortterm demand, but also would boost the longterm supply and potential longterm supply potential. The mix is an important issue and will be specific to each economy. But our interest is to see that everybody is pulling in the same direction to try to live aggregate demand to try to lift aggregate demand. There is no good outcome where policies are shifting demand across borders. In the end, it will be selfdefeating. Yes, right here. Wait for the microphone. Teresa. I am just wondering if you look at the ratio of inventory to sales and it has been going up steadily the last 18 months and now reaching the peak of 2008. And whether that is a concern and whether you see that as a recessionary signal or not . Lael the board has credible economists who know more about the board has incredible economists. Inventories are critically important to the forecasting staff at the board and if you see weakness in the first quarter, how much is that . Is going to be remediated by a rebound in the first quarter. It is important and associated with the question of our usual forecast. It is an area of intense focus. I do not think i would take it a i would say it is a clean predictor. There are very few predictors. It is extremely important to try to understand when we do see weak quarters like we have to assess whether there may be some very important factors. That will abate in the following quarter. More broadly, i think we have seen some data on the first quarter, excuse me, second quarter. But i think it would be important to have additional data. Over here. I am nelson cunningham. It has been said in recent years that corporate profits were at an all time were a postwar high as a percentage of gdp, were Employee Compensation was at a postwar low. Are those measures in the same place today and how do you view what has higher than historically normal corporate profits, and historically lower Employee Compensation . Lael in fact, interestingly, we have started to see a bit of an upturn in the labor share. And as you pointed out, the labor share has fallen historically very low levels. We are at the beginning of the tentative signs of an upturn. Obviously, there is good news. For the domestic consumer good news from a consumer point of view in terms what we have seen in Distributive Trends over a substantial period of time. It is too little of a, sort of, trend in this direction so far to really make a very confusion to make very firm conclusions about we have seen so far. At the back of the room. Thank you. Howard. I was taken with your discussion of the neutral rate. You are suggesting that the rest of the world imposed an effective cap how far the fed may be able to go. I am wondering what happens on day two when you wake up and realize that 2 is about as good as you can get . When you have discussion of a higher inflation target or a hybridized policy where it includes other things than the Interest Rate . Lael i think, right now, it is a tentative observation. But it does appear that what we have seen in the estimates that had been a historically low neutral rate, which many have assumed was attributable to cyclical headwinds, but just by watching the evolution of the economy, that neutral rate may well be low, historically low for some time to come. If that is true, it does mean we are closer to neutral today than we thought we were. Which, in turn, could mean that the path a policy is likely to be more gradual, more shallow, over a somewhat longer period of time. That is attributable to a host of things. Some of that may reflect international factors. It also likely reflect some factors like the aging of our own work force. As i said earlier, too early to tell, but productivity could be a piece of that puzzle. In terms of what does it mean for policy, i think what seems to me to be this sort of most clearcut observation, is that we are going to want to engage in fairly cautious approach. Riskmanagement approach. I move cautiously assessing the effects of any further moves as we go, rather than being tied to some preset course that might be derived from some previous tightening cycle that took place under very different circumstances. Yes, right here in the middle. Nancy chaplin. Hi. This you talk about balancing risks. You gave us a pretty good brief on the downside risks. The question is, do you see any upside risk . Looking at that, are you considering any issues in the financials after, including some signs lease of things in the real estate market, like House Flipping . People buying loans from the peertopeer lending with no credit process attached to them, issues to the amount of derivatives that the sec is being used, and retail mutual funds . What are you if you are looking at balancing risk, are there upside risks you worry about . Lael it is certainly a huge focus of our work at the board. To carefully, systematically,. Assess risks that might be building in the financial sector. We have a much more welldeveloped analytic framework, and a staff that is now dedicated to this in the wake of the crisis. We have additional tools that complement our Monetary Policy tools to the extent we do see building risks in certain sectors, we have a broader sense of tools that would allow us to at least, in part, preemptively, ideally address some of those risks without overly burdening Monetary Policy, which already has a pretty clear dual objective. With regard to the assessment of risks today, earlier we had called out concerns about leveraged lending and put out guidance there. We saw some dissipation and some correction in that to some degree. We have taken a look at cre and concentrations of cre and Bank Balance Sheets as a potential risk. In terms of the real estate market, it is hard to generalize because these are, to some degree, developments are very specific to different regions. We are very focused. There are some signs of a very extended subprime set of lending, but not to an extent. We are very, very focused on the potential for risks to build up in financial sectors do pose to pose risks more broadly. We are much more systematic about assessing those risks and trying to connect those risks to tools we have at our disposal to address them. In the back of the room in the center. I am michael. How concerned are you about asymmetric effects from the rise of the price of oil in the sense that it may nullify some games in Consumer Spending that we have seen in the past two years without boosting Business Investment because producers dont seem to be drilling more as a result . Lael i would say that i cant give you a very precise answer to that question. As oil prices decline, our previous historical experiences and the makro estimate you get from their did not prove to be bury good guys. We probably got more of a response in terms of deceleration in drilling and mining then we saw in previous estimates. These consumers respond over time. Consumers didnt respond as much as one might had predicted. Similarly, i dont feel the historically rooted estimates were accurate and thinking about the period in which the oil prices declined. Now that we have seen a bit of an increase and stabilization, i dont have a huge amount of confidence in how that is going to show up in consumers responding to higher prices at the pump, and seeing moderation on the consumption side versus finding more incentive to producers to the back and start investing at exploration and trying to expand capacity. It will be very hard to generalize. The other thing that is very important, our oil and gas sector has changed dramatically since some of those earlier estimates were put in place. And so, again, with the price point, i dont a few the have precise estimates. Certainly, it is a very important driver that we are looking at very closely. The table right in front of the microphone. Thank you. Rod. The question i have just goes to your sense in the fed team datadriven with the economy and the markets being somewhat sentiment driven. Is there a possibility that we could have a sentimentdriven recessionary trend . Lael a part of the data we look at relates to sentiment. [laughter] again, if we look at some of the most recent Consumer Sentiment indicators, they look resilient, which is reassuring. But, there are different lags in terms of how people respond to changes in their perceptions. We dont really know Going Forward whether consumers are going to continue to feel buoyant and see the kind of consumption numbers we saw in april carrying through further into the second quarter, which of course is a very important factor driving growth. But, it is an argument for being a little bit patient in terms of reading more signals on the economy, not just on actual spending, but on how those consumers and businesses are feeling about spending. It goes in the same direction, which is, we want to have greater confidence that growth rebound is really in place. This table. Yes. Thank you. Sheri stevens. I want to go back to the discussion of productivity. To me, that really seems to be a very, very significant concern. The one half percentage growth in productivity we had been 2009 isnt enough to have a very Dynamic Growth prospect, but you stated we dont know the reasons. If we dont know the reason, how could we effectively address it . Other than saying we need more Business Investment . Maybe that isnt an issue. Could you comment on this and what you think the spurt from the i. T. Revolution has run its course. And we dont have another positive stimulus inside. That is a definite concern. Lael there are a bunch of reasons that people are pointing to us possible explanations. I dont think any of them are definitively, in terms of evidence, are definitively known to be the answer. One of the reasons is that somehow early investment that had been made in Information Technology has now been fully diffused and run its course. Others are looking at the question of measurement error. We had good work at the fed that looks at this question of whether it is possible we are not capturing productivity gains because of the way we measure services in particular. But of course, the question is, whether that same measurement error would be equally applicable to earlier episodes. Not clear there are other questions or explanations that it takes a while for potentially productivity enhancing investments to diffuse. If you look at Artificial Intelligence today, or maybe robotics, genetics, things are quite promising, but really havent been diffused to any great degree. Maybe the will see a pickup. I dont know the answer. I dont have a strong view one way or the other. It is obviously so critically important in terms of driving potential, that we need to understand it, and investment is a big piece of it, education is an important piece. Having a very vibrant environment for innovation to take place, but to diffuse investment is very important. It is something that is very important to our work. Again, our tools in this area are limited to the ones that support a productive environment for investments. Yes, in the back, liam the back. Thank you. I just wonder, what is the china factor . There is talk about this rumor on Bloomberg News talking about strategic backlog. The offices in beijing were asked about flat Interest Rate hike issue. Central banks and china denied it. Chinas economy might be a factor . What you think about that . Lael what i can say is in in assessing Monetary Policy for the u. S. We have a very clear objective function, which is established in law by congress. Which is domestic focus. Full employment and price stability, which has been interpreted as 2 inflation. That is our focus. Then, of course, because we are so tightly integrated into the world, you know, the dollar is viewed as a reserve currency. We have some of the most liquid Financial Markets in the world. But of course, we are tightly linked on the trade side. How our policy cap benefit patients of our policy path are then affecting financial conditions, and of course, importantly True Exchange rate channels through a very important feedback, we have come back around in effect, u. S. Domestic conditions. In the past year, china has figured prominently in terms of global risks and Global Financial conditions as china has managed challenges on the domestic front. So, those kinds of considerations naturally have to be taken into account when we think about risk to the outlook, they naturally will effect policy deliberations and the path the policy. That is the way in which risks emanating from china, and of course, china was the really predominant source of Global Investment growth for several years following recovery. And that was a very important source of demand and growth for emerging market linked to china both through commodity exports and supply chains. We have seen that as china is attempting to rebalance its growth plan, relying less on investment, less more on domestic demand. That is rippled through supply chains and other emerging markets and through commodity markets. Those things do matter for our domestic objective back in the u. S. All right, a question here. You touched on fiscal policy in europe and in asia. I was wondering if you might want to touch on fiscal policy in the u. S. And how that might be complicating your efforts. Mr. Cunningham with the question about the labor force. Lael in the u. S. , we are differently situated than many of our foreign partners in the sense that we have been recovering. We have made quite a lot of progress on employment, the labor market has come a long way. We have seen some signs of slowing in the last few months. A little less progress, but nonetheless, we have also seen core inflation around 1. 6 , which is below our objective. But, we are seeing progress. We are differently situated relative to some of the other economies, particularly japan and the euro area. We are in a period, in particular, it may be that the neutral rate is low for some period of time, or in a period where there are reasons to want aggregate demand. There may be a case to be made for Infrastructure Investment complementing the goals we are to retrieve and Monetary Policy. But, again, those questions about really needing to bolster aggregate demand or even more important in other parts of the world where they have a bigger challenge. I am afraid we have run out of time. I hope you will join me in thanking dr. Brainard for not only a wonderful presentation, but comprehensive responses to a variety of actions. Variety of questions. Thank you so much for taking the time to be with us. [applause] citizens have got to feel that their vote matters. That their voice patters. And whether they can not spare a a personnt to help running for office or whether they can write a big check, they have concerns and their struggles will be listening to and followed up on. Wisconsin senator Tammy Baldwin talks about her career in Public Service and wisconsin medical history. Changeelped shepherd the noteby senators were appointed by the legislatures but demanded elections. I dont know if it was the first to come but the idea that it would not be the party bosses who made the decision on whom the nominees would be in smokefilled back rooms but rather the people who were going in free chance to vote and fair elections. 8 00 p. M. Night at eastern on cspans q a. Next, republican president ial candidate donald trump at a Campaign Rally in california. Efforts toussion on combat isis and al qaeda. After that, former officials from the fda and the department of health and Human Services talk about Food Production and safety. 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