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- Well, I think what our new framework is going to do
is it's going to make it more likely
that people at the margins of society
can participate in our labor market.
We're not going to preemptively
start raising interest rates
when we see unemployment getting extremely low,
unless we see signs of inflation.
And I think what that will do is mean that the economy
will have some extended stimulus
and that will allow more people to get jobs
for a much longer period of time.
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By the Federal Reserve Act,
The Federal Reserve has two mandates.
One is stable prices,
to make sure that the price level
does not fluctuate too wildly.
And the other is maximum employment,
to try to make sure that the economy
is operating as robustly and as large as possible.
We work to try to manage that
through an interest rate policy,
as well as other tools that we have at our disposal.
The Phillips Curve is the relationship between
employment and the level of prices.
So what the Phillips Curve says is that,
as we get employment and labor markets
that are tighter and tighter,
inflation will get more and more intense.
And so as you get closer and closer
to full employment levels,
you should see according to the curve
spikes in inflation that could move the economy
into a much less stable position
when it comes to the price level.
So what the Phillips Curve tells us about employment
is that as levels of employment go up,
as you get to labor markets that are tighter and tighter
that's going to put pressure on wages,
firms are going to have to compete more to get workers,
and that will translate into higher prices for final goods.
High inflation in the 1970s
was really detrimental to the economy.
- The tyranny of double digit inflation
is our common enemy in 1974.
- The experience in the seventies
certainly was a a marker
and it allowed The Fed to really reflect
and come to a conclusion that they didn't want to have that
ever happen again.
And so there is a propensity and has been a propensity
to proactively prevent
inflation from spiking to very high levels.
When people say the Phillips Curve has flattened,
what they mean is that
we're not seeing the same type of response
in the price level to very high levels of employment
that we used to.
So that sensitivity to tight labor markets
is not triggering inflation in the marketplace.
And to that extent, what it means is that
if you drew that curve out,
it would show a much flatter relationship.
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What we see in terms of our general employment levels
in this many of the national statistics
are really averages of a number of different relationships.
And so we actually try to dive more deeply into that
and see how different segments of the economy are performing
and how workers from different experiences and backgrounds
are experiencing the economy.
The data has been pretty clear on this for quite some time
that the employment for minorities has lagged
that for the general population.
And if you look at unemployment rates,
I think the basic rule has been that
unemployment rates for African Americans
has been about twice that for the general population.
Well, the natural rate of unemployment is basically
the level of unemployment that you would see
if everyone who wanted a job could have one
and it was not going to trigger inflation.
My estimate of the natural rate of employment
has really changed over my entire career.
When I started in my role here,
the estimate was more in the four and a half percent range.
I've really perceived that the
natural rate has fallen even further,
somewhere south of 4%, maybe in the 3.7 to 3.8% level.
And that's really informed how I've thought about
what appropriate policy should look like.
Well, I think we've learned a lot
over the last seven or eight years
since the great financial crisis,
and all of the signals that we've learned
have suggested that we can be a bit more patient
in increasing rates and responding
to very tight labor markets.
So I think moving forward,
what we will expect
and what I expect we'll see from the committee
is a willingness to keep rates lower for longer,
and really wait for signs of inflation,
before moving to a more proactive policy approach.
The higher inflation is a challenge for people
that have constrained incomes and constrained wealth.
And this is one of the reasons why
as we think about what appropriate policy is
we keep those people in mind and make sure that
we are doing all we can
to understand the challenges that they face.
But one thing I would say is that,
if we're going to have an economy that works for all people
monetary policy is just going to be one tool for that.
We're going need investments on the fiscal side,
as well as in state and local governments
to make sure that there's an infrastructure,
so that people can get the skills
that allow them to have higher wages
so they can manage and prosper
in an economy that's growing robustly.
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