Recession in an away of low rates and lowflation the topic is particularly salient since last week, following an 18month review of its Monetary Policy strategy. The federal open Market Committee will be a revised version of its longer run goals and Monetary Policy strategies. We are honored to have governor board of governor here to offer her thoughts on the topic. After we hear from her there, will be time for questions and answers from the audience and panels to convene our discuss with ben bernanke, janet 12k0 and two marketers there will be more on that later in the program. In terms of questions, if you would like to pose a question, you can do so at email at events brookings. Edu. Before we begin, let me provide a short introduction to governor brainerd who has had a long career of Public Service in ack deema. She took office as member of the feds board of governors in june, 2014. Before that, she served as undersecretary of the u. S. Departments of the treasury from 2010 to 2013 and counselor of the secretary of treasury in 2009. I had the opportunity to have walked with the governor both at the Federal Reserve and at the treasury and can say that we are lucky to have someone in these role who brings such remarkable intelligence and dedication to and i also cant resist from mentioning from 2001 to 2008, the governor was here at brookings where she was a Vice President and the founding director of the Global Economy and development program, a program dedicated to addressing Global Economic challenges that is still going on today. So with that short introduction and our appreciation, i will now turn the zoom mic over to brainard. Thank you very much, stephanie, for that very kind introduction. Its a pleasure to be at working with you and with david west. Its an honor to also be followed by ben bernanke and janet yellen who pioneered the original statement as well as Julie Coronado and roberto pearly. And its a real pleasure to discuss the new statements that as unanimously approved by the f1c last week. By alignment with the changes in the economy the new statement will strengthen our support for the economy. The new statement breaks important grounds and will serve the country well. As we respond to economic repercussion of covid19. There were three rhetted features of the economys new normal that calls for this reassessment. First, the equilibrium Interest Rate has fallen to low levels which implies a large decline in how much we can cut Interest Rates in order to support the economy. That was abundantly clear in march when we were able to cut the policy rate by only 1. 5 before hit the effective lower band in contrast to previous decades when the policy rates would have been cut by 4. 5 to 5 . The reduced scope to cut the Interest Rate could increase the frequency and duration of periods when the policy rate is pinned close to zero. Unemployment is elevated and the inflation is below target. This in return turn risks inflation and compresses the scope for cutting Interest Rate the risk is a downward spiral were the scope for cutting the rate gets compressed lower, the lower bound binds more frequently and it gets harder and harder to move Inflation Expectations and inflation back up to target. S weve seen, jurisdiction second, underlying trend inflation appear to be somewhat below the commeas 2 objective according to statistical filters. The near decade of inflation persistent ply shorter than 2 creates the risk that households and businesses could expect them to change their behavior in a way that fulfills that expectation. And that in turn will complicate the task of Monetary Policy. While its hard to measure Inflation Expectations with precision, some market base and survey base indicator show signs of a downward drift. It is important to ensure that longterm Inflation Expectations are bell well anchored at 2 to achieve our price stability goal. And finally the sensitivity of Price Inflation to labor market tightness is very low, relative to earlier decades. Thats what economists mean when they talk about a flat phillips curve. It has some important advantages that allows employment to continue expanding longer without generating inflationary pressures which provide job opportunities. So people that might not otherwise have had them but pit means its harder to achieve our 2 objective on this sustained basis. In response, the new statement on goals and strategy makes four important changes. First, the statement defines the statutory maximum level of employment as a broad base, an inclusive siff goal of the longer run normal rates. The presumption that accommodation should be reduced prethe tivoli when the rate nears the neutral rate in anticipation of inflation thats unlikely to material risize. Instead, the decisions will allow the labor market to continue healing after the unemployment reach the 5 median estimate of the neutral rate in the Fourth Quarter of 2015. T has recorded a decrease of 3. 5 on the black unemployment righting and 2 in the hispanic Unemployment Rate as well as an increase of nearly 3 in the Labor Force Participation rate of prime aged women. It created a conditions for the entry of americans into the labor force. Beyond that, it had the changes that we are making in the new statement then in placed several years, its likely that accommodation would have been reduced even later. And the gains would have been greater. The new commitment to defining maximum employment as a broad base and inclusive goal together with our continuing commitment to consider a wide range of indicators may be particularly significant for the grupets that are most vulnerable to unemployment fluctuation. So it suggests the greatest structural challenges in the labor market. We are likely to be the first to experience layoffs and the last to experiment employment games during recovery. Those are more cyclic tiff for plaques and hispanics than for whites and observeable characteristics explain very little for the differential. That was one of the Key Takeaways from the fed listen sessions we held. For example, the chancellor of the city colonials colleges of chicago described how last years tight labor market was given his students the opportunity to apprentice with local businesses and jobs that might not historically have an open. Moreover, earnings from wages are particularly important for these groups who have large and persistent wealth gaps and derived a smaller share of their income from financial asset incl asset holdings, his business ownership. To address the downward bias associated with the proximity to the effect of band, the stadium announced state announced an averaging strategy that seeks to achieve inflation that averages 2 over time. Flexible, average inflation targeting. It is a consequence will change in consequential change in strategy. By seeking to limit inflation meansverages 2 , fait that appropriate Monetary Policy would achieve inflation moderately above 2 to accommodate a period when it has been persistently below 2 . I would expect the committee to accommodate, rather than offset monetary pressures. Flexible average inflation targeting is a pragmatic way to implement a makeup strategy, which is essential to arrest any downward drift in expectation. Target,formal average in theory, appealing there are likely to be communications and implementation challenges in practice, relative to the mechanical nature of such rules. Betterrast, fait is suited for the highly uncertain and dynamic environment in which policymaking takes place. That said, i see the commitment to undertake a few of the new a review of the new strategy in roughly five goals as a necessary complement to the flexibility embedded in that strategy. Is a new approach, it is pragmatic to review it after gaining practical experience over five years, as well as to get insights into an appropriate makeup period. Third, the statement highlights an important change in the committees reaction function. Whereas previously its out to medicaid aviations of employment and inflation from either direction, the committee will seek to mitigate shortfalls of employment from the committee s assessment from its maximum level. This applies implies the committee will minimize welfare and not unemployment preemptively withdraw support based on a historically steeper phillips curve that does not anrently in evidence, inflation that is correspondingly much less likely to materialize at high levels. Theistent with this, statement dropped language about a balanced approach. Ast might be interpreted calling for preemptive withdrawal. The statement codifies the key lesson from the Global Financial crisis that Financial Stability is necessary for the achievement of our statutory goals of maximum employment and flexibility. The changes in the environment that prompted our review also have important implications for Financial Stability. Historically, they steeper phillips curve, inflation tended to arise as the economy heated up, which would prompt the Federal Reserve to raise Interest Rates, which would tighten financial conditions broadly. Not see thatwe did in the past few cycles. Financial imbalances, rather than inflation, were elevated at the outset of the downturn. The committee may have to sustain the federal funds rate below for much longer, in order to push inflation back to target sustainably. Is along with resource utilization can do so to increasing risk appetite, reach for yield behavior, and in sentence for leverage. Incentives for leverage. It can lead to more slick call cyclical volatility. Crucial to useis tools as the first line of defense. In order to remain focused on achieving maximum employment and a 2 average inflation. With these changes, the committees new statement with us in a stronger position for inporting a full recovery employment and average inflation of 2 . Overall financial conditions are supportive, encouragingly the housing sector has rebounded from its initial decline, supported by low Mortgage Rates. In Consumer Spending has held up well, in part reflecting fiscal support. At the same time, the pace of improvements in employment in may and june, which was driven by recall hiring out of temporary layoffs, appears to flow. Front ine inflation july, inflation remains weaker than precrisis and is likely to take some time to return closer to target. Looking ahead, the economy continues to base to face uncertainty. Covidrelated uncertainty persists, the greater the risk of shuttered shuttered, and businesses and permanent layoffs. While the virus remains the most important factor, timing of further fiscal support is a key first, as was true in the phase of the crisis. With the recovery likely to face headwinds, it will be important for Monetary Policy to shift to accommodation. As we move to the next phase of Monetary Policy, we will be guided by the committees new shout. It will be important to provide the accommodations to usher employment to its maximum and then she achieve inflation that averages 2 over time. The consensus statement will frame the committees policy of liberation. At me conclude by expressing appreciation for chair powell and vice chair clarinet in leading this review. As well as jeff, mark, and david. Our liberations were enriched by Engagement Community members in every district of the country, as well as outstanding memos by staff and responses by outside experts. While the committee did not anticipate the challenges of the covid19 pandemic, and the review was launched the new statement puts us in a stronger position to support the economy. Thank you. Thank you very much. Very clear and distinct statement. We have a number of reporters on the line who have emailed questions and people others watching ken send questions. Quite a few of them have already. Im going to borrow from their questions, in some cases, paraphrasing them. Im not sure im going to attribute everything. Somethingff, he said people may have missed. What difference would have made had the statement and place earlier . Said its accommodation would have been withdrawn later and gains in employment would have been greater. So, the fed raised interest 20152016,mes over 2017. Are you saying that had the statement been in place, those rate increases would not have occurred . Is, i think, it important to note that these are consequential changes to our strategy and goals. Whereas previously we were deviationsmitigate of both employment and inflation, we are now very focused with regard to employment only on shortfalls. Whereas previously we talked employment ins on a way that was roughly associated with the normal rate of unemployment, the statement no longer references that it talks about the broad and inclusive goal in a variety of indicators to assess this. The statement also talks about the inflation goals goal that is defined in terms of average inflation at 2 over time, which likelyhat inflation is need to moderately seed exceed the 2 target for some period when it has been below that target. Those changes would have materially changed conversation among the committee, certainly , 2016, the early 2015 may be into 2018 period. Athink there would have been different concept of inflation and a sense that there was no need to preemptively withdraw or prepare to withdraw on the basis of an expectation of inflation to realizing on the basis of historical relationships. There would have been a recognition that there is a downward bias associated with that effective lower bound. I think these are consequential changes. They will change the way the committee deliberates. They would have changed the liberation earlier in the period, had all of these factors been well understood mr. Wessel just so i can paraphrase, in the past, when it looked like the Unemployment Rate was falling , then thenormal rate noninflationary rate, when it was getting close to that, that became an argument for raising rates. When inflation began to get close to 2 , that became an argument for raising rates. In a future deliberation, that will not be an argument easy to make my given the new strategy . I think you summarized it much better than i could, david. I think you and mr. Wessel i think you heard people say, this is great. Average inflation targeting, it means whatever the fed wants it to mean and no one else will know what they are talking about. It was no sense of how much above 2 you are interested in inflation going. There is no sense over what time you will be averaging inflation. Why did you decide to make it so vague and, is this something you think will be refined as statements come out about current policy . Ms. Brainard yes. Those are really good questions. Those are questions that you know from the minute the committee debated at length. Excellent staff papers and some excellent outside papers to help inform this deliberation. Is a kind of, this canonical tradeoff in Monetary Policy, right . Ae tradeoff between mathematical formula and the ability to adapt to ongoing realities is a longstanding discussion in Monetary Policy. Seems important, particularly important, to air on the side of pragmatism at a time when we are embarking on what is essentially a new approach. Flexible average inflation targeting as a pragmatic way to implement a strategy. Appealing,mal ait is there are likely to be communications and implementation challenges in crack this related to the mechanical nature of such rules. It is better suited for the context in which policymaking takes place. It will allow for some burning overtime. I do want to be clear i find it instructive to use formal rules as benchmarks to inform my thinking on policy. I will be looking at a variety of ways of thinking about this. Since fait is a new approach, it is pragmatic to review it after gaining practical experience with it. That is one of the great values of the fiveyear review, which is a natural complement to the flexibility in the approach we are adopting. Mr. Wessel would it be correct for people to assume because of this statement that the Current Committee believes when there has been a persistent undershooting of inflation, as we have seen, that you are making a commitment not to raise rates until inflation has at least met or exceeded the 2 target . So, that is speaking i really cant or prejudge how the committee might interpret that. Individual members will think about it differently. We have all said in that statement that it is likely appropriate Monetary Policy inflation to have moderately above target for some time after a period of being below it for some time. That is what that statement implies. In my own thinking, that will be an important consideration. We will be looking at a whole variety of developments, including information on Inflation Expectations, that is the simple meaning, i think, or implication of that kind of approach. Mr. Wessel can you achieve the full employment and price stability without substantial increase in fiscal stimulus . In terms of the particular circumstances that we face today and i touched on this earlier there was a lot of uncertainty. That continues to cloud the outlook, Downside Risks are continued to be important. I have been pleased by some of the recent eta on consumer isnding and, of course, it very good to see people going back to work, but we dont know whether that pace of improvement on the labor market is going to be maintained at the same rate. To manyry important households and businesses to have continued the support, just as it was important to them and make