Good morning, everyone. I am pleased to be here today. My primary area of research has been monetary policy under uncertainty, and after 30 years in central banking, I can say with certainty that uncertainty is the only certainty in monetary policy.
Today, I will discuss the economy and monetary policy within a changing and uncertain context. I will address global inflationary trends, inflation expectations, and how the Federal Reserve is working to achieve its dual mandate of maximum employment and price stability.
Before proceeding, I must clarify that the views expressed today are mine alone and do not necessarily reflect those of the Federal Open Market Committee (FOMC) or others in the Federal Reserve System.
The U.S. economy entered the new year on firm footing. GDP and job growth have been solid, driven by robust gains in the labor force and productivity. Labor market indicators, including the unemployment rate, have stabilized, with supply and demand broadly in balance. The disinflationary process has continued on a bumpy path toward the FOMC’s inflation goal of 2 percent over the longer run.
Recent data are sending mixed signals. Measures of policy uncertainty have increased sharply in recent months. This is also seen in responses that explicitly ask about uncertainty in the New York Fed’s Survey of Consumer Expectations (SCE). And my business and financial market contacts highlight the role of greater uncertainty, especially around trade policy, in making it more difficult to plan investments and hiring.
Navigating uncertainty during periods of large changes will be a recurring theme in my remarks today. I will delve into two topics that are important to understanding inflation in the current macroeconomic environment.
Global inflation trends show that our economies are interconnected, and developments in one part of the world can have effects that ricochet across the globe. Economists at the New York Fed have developed a statistical model, called Global Multivariate Core Trend Inflation (Global MCT), to measure and better understand the behavior of the persistent components of global inflation.
This analysis uncovers very strong common components of inflation, with global factors explaining an overwhelming share of the persistent movements in inflation rates across the economies in the sample, except for Japan’s. Supply shocks were the primary driver of the rise and subsequent decline in global inflation trends over the past several years.
When inflation is a global phenomenon, what can individual central banks do to control it? Global MCT provides a useful lens to analyze this question. Based on an estimated vector autoregressive model that includes Global MCT, U.S. monetary policy shocks have economically and statistically significant effects on both the global inflation trend and the core goods global inflation trend.
Turning to inflation expectations, well-anchored inflation expectations are paramount for ensuring price stability, especially during times of turbulence and uncertainty. In the past two months, we have seen clear signs of a broad-based increase in short-term inflation expectations, but most indicators point to continued well-anchored medium- and longer-term expectations.
At its meeting on Wednesday, the FOMC decided to leave the target range for the federal funds rate unchanged at 4-1/4 to 4-1/2 percent. The Committee noted that uncertainty around the economic outlook has increased, and it is attentive to risks to both sides of its mandate. The Committee reaffirmed its strong commitment to supporting maximum employment and returning inflation to its 2 percent objective.
In conclusion, the current modestly restrictive stance of monetary policy is entirely appropriate given the solid labor market and inflation still running somewhat above our 2 percent goal. Whatever the economy has in store for us, I am committed to supporting maximum employment and returning inflation to our 2 percent objective.
— news from Federal Reserve Bank of New York