And low inflation. The topic is regularly salient since last week, following an 18month review of his Monetary Policy strategy, the fed released a revised revision of its goals and Monetary Policy strategy. We are honored to have governor Lael Brainard to hear her thoughts on the topic. After we hear from governor brainard, there will be time for questioning and answers from the audience, then we will convene a panel to discuss the new said framework with ben bernanke, janet yellen, and roberto poley of cornerstone , and Julia Coronado of the university of texas. If you would like to post a question to lael on the panel, you can do so by emailed brookings. Edu. Governor brainard has had a long career of Public Service and in academia. She took office as a member of the feds board of governors in june, 2014. Before that, she served as undersecretary of the u. S. Department of treasury from 20102013, and transferred to secretary of the treasury in 2009. I had the opportunity to have worked with governor bernard both of the Federal Reserve and the treasury and i can say we are lucky to have someone in this role, who brings such remarkable intelligence and dedication to her work. I also cannot resist mentioning 2008, governor brainard was here at brookings, where she was Vice President and founding director of the Global Economy and development program, dedicated to addressing Global Economic challenges, that is still going strong today. With that short introduction and our appreciation, i will now brainard. U, governor governor brainard thank you very much, stephanie for, that very kind introduction. It is a pleasure to be here with you and with david wessel. It is an honor to also be followed by ben bernanke and janet yellen who pioneered the original statement as well as Julia Coronado and roberto perli. It is a real pleasure to discuss the new statement that was unanimously approved by the fomc last week by bringing our long running goals and strategy. The new statement will strengthen our support for the economy. It breaks important ground and will serve the country well as we respond to economic repercussions of covid19. There were three related features of the economys new normal that called for this reassessment. First, the equilibrium Interest Rate has fallen to low , which caused a decline in how much we can cut Interest Rates. That was clear in march. We were able to cut the policy rate by 1. 5 Percentage Points before hitting the effective bound. In contrast to previous decades when the policy rate would have been cut by 4. 5 to 5 . Cutting the Interest Rates could increase the period when the zero, rate is close to unemployment is elevated, and inflation is below target. This in turn risks eroding Inflation Expectations and further compressing the scope for carting Interest Rates cutting Interest Rates. The risk is a downward spiral by andhe lower bound even frequently and it gets harder and harder to move Inflation Expectations and inflation back up to target. As we have seen in some foreign jurisdictions. Second, underlying trend inflation appears to be somewhat below the committees 2 objective. The near decade of inflation persistently short of 2 creates the risk that households and businesses could come to expect inflation to run persistently below target and change their behavior in a way that fulfills that expedition. That in turn greatly complicates Monetary Policy. While it is hard to measure Inflation Expectations, some marketbased indicators show drift. F a downward so it is critically important to ensure that longterm Inflation Expectations are well anchored at 2 to achieve our price stability goal. Finally, the sensitivity of Price Inflation to labor market tightness is vulnerable. That is what the economists mean when they talk about a flat phillips curve. It allows implement to continue expanding it allows employment to continue expanding, it also means it is harder to achieve our 2 inflation objective on a sustained basis. In response to the new statement on goals and strategies, it makes four important changes. First, the statement defines a statutory maximum level of unemployment as a broadbased and inclusive goal and eliminates the reference to a numerical estimate of the longer rate. Normal the presumption that accommodation should be reduced preemptively when the Unemployment Rate nears the neutral rate in anticipation of inflation that is unlikely to unwarranted loss of opport. The decision to allow the labor market to continue feeling after the unemployment reached the 5 median estimate of the neutral rate in the Fourth Quarter of 2015, it supported a further decrease of 3. 5 Percentage Points in the black and employment rate, and 2. 25 Percentage Points in the hispanic and implement rate, as well as an increase in three Percentage Points in Labor Force Participation rates of primeaged women. It also created the conditions for reentry of 3. 5 million prime aged americans into the labor force. The on that, the changes we are making in the new statement, had they been in place several years, it is likely that accommodation would have been produced even later, and the gains would have been greater. Venue commitment to defending maximum unemployment as a broadbased and x maximum employment as a broadbased goal may be particularly significant for the groups that are most vulnerable to employment fluctuations. As research and experience suggests, the groups that face the most structural challenges in the labor market, were likely to be the first to experience layoffs during the downturn, and allots to experience employment gains during recovery. S are morent rate cyclically sensitive for blacks whites. Anics than for it explains where little about the differentials. That was one of the Key Takeaways also from the fed listens sessions we held. For example, the chancellor of the city colleges of chicago described how last years tight labor market was finally giving his students who are largely black and hispanic, the opportunity to apply for jobs that would not have historically been open. Moreover, earnings from wages are particularly important for these groups who have large wealth gaps and derive a smaller share of their income from financial Asset Holdings or business ownership. Second, to address the downward bias to inflation associated with the proximity to the effective lower bound, this statement and ups a flexible inflation averaging strategy that seeks to achieve inflation that averages 2 over time. Flexible average inflation fait,ing, we call it is a consequenc consequential cn strategy. By seeking to limit inflation that averages 2 over time fait , means that appropriate Monetary Policy would achieve inflation moderately above 2 to ar a time to compensate for period such as the last several years, when it has been 2 . Istently below consistent with this, i would expect the committee to accommodate rather than offset monetary pressures above 2 . Flexible energyefficient targeting is a pragmatic way to implement a makeup strategy, which is essential to arrest any downward drift in inflation is petitions. While a formal average isicient target, ait rule appealing in theory, there are likely to be communications and implementation challenges in practice, relative to the mechanical nature of such rules. In contrast, fait, flexible average inflation targeting, is better suited for the highly uncertain and dynamic environment in which policymaking takes place. That said, i see the commitment to undertake a review of the strategy and goals and five years is a necessary complement to the flexibility embedded in that new inflation averaging strategy. Since fait is a new approach, it is pragmatic to review it after getting experience with it over five years, as well as to get some insight into an appropriate period. Third, the statement highlights an important change in the committee such a reaction where previously it set to mitigate deviations of employment and inflation from their targets in either direction, the committee will now seek to mitigate shortfalls of employment from the committees assessment of its maximum level. This change implies the committee effectively will minimize welfare costs of unemployment and not preemptively withdraw support based on a historically steeper phillips curve that is not currently in evidence, and inflation that is correspondingly much less likely to materialize at high levels. Consistent with this, the statement drops language about a balanced approach that might be interpreted as a calling for such preemptive withdrawal. Codifies thement key lesson from the Global Financial crisis, but financial that Financial Stability is necessary for the achievement of our statutory goals of maximum employment and flexibility. The changes in the macroeconomic environment that prompted our Monetary Policy review also have important implications for Financial Stability. Historically, with a steeper phillips curve, inflation tended to rise as the economy heated up, which would prompt the Federal Reserve to raise Interest Rates to restrictive levels, which would tighten financial conditions more broadly. In contrast, we didnt see that in the past few cycles. Financial imbalances were elevated at the outset of the downturn. In the meanwhile, the committee may have to sustain the federal funds rate below for much longer, in order to push inflation back to target sustainably, resulting in an expectation for a lower Interest Rate. To do so would increase risk appetite, a reach for yield behavior and incentives for leverage. Lower inflation can lead to more cyclical volatility in asset prices. That is why it is m vital to us Standard Financial tools as the first line of defense in order to allow Monetary Policy to remain focused on achieving maximum employment and 2 average inflation. The committees new statement puts us in a stronger position timelya full and recovery in employment and average inflation of 2 . Overall financial conditions are supportive. Encouragingly, the housing sector has rebounded from its initial decline, supported by historically low mortgage rates. And Consumer Spending has held up well, in part, reflecting earlier fiscal support. At the same time, the strong pace of improvement in employment in may and june, which was importantly driven by recall hiring out of temporary layoffs, appears to flow. Appears to have slowed. Front, despiten some bounce back in inflation july, remains weaker than precrisis and is likely to take some time to return closer to target. Looking ahead, the economy continues to face considerable uncertainty associated with covid19 and risks detailed further to the downside. The longer covidrelated uncertainty persists, the greater the risk of shuttered businesses and permanent layoffs in some sectors. Where the virus remains the most the magnitudeor, and timing of further fiscal support is a key factor for the outlook, as was true in the crisis. Ase of the fiscal support will remain essential to supporting many families and businesses. With recovery likely to face covidrelated headwinds for some time, in the coming months, it will important for policy to shift to accommodation. As we move to the next phase of Monetary Policy, we will be guided by the committees new goals in the strategy statement. It will be important to provide accommodations to achieve inflation that averages 2 over time following underperformance. The new consensus statement will frame the committees policy of deliberation. By expressinge appreciation for chair powell in vice chair clarida leading this review as well as important contributions by president williams and by mr. Mead, and others. Our deliberations were greatly enriched by engagement with Community Members at the fed listens events at every district in the country, as well as outstanding memos by staff and responses by outside experts. While the committee did not the and president of challenges of the covid19 pandemic when the review was launched, the new statement puts us in a stronger position to support the economy. Thank you. Thank you very much, governor brainard, for that very clear and distinct statement. Statement. Inct we have a number of reporters who have emailed questions and people, others watching have sent questions to events brookings. Edu. I will borrow from their questions. In some cases, paraphrasing them. Not sure i am going to tribute everything to everybody. To start off, you said something i think people may have missed because it went pretty quickly, about what difference it would have made had this statement in in place earlier. You said that it is likely accommodation would have been withdrawn later and gains in employment, particularly for minorities, would have been greater. The fed raised Interest Rates 10 20152018. It raised Interest Rates of full percentage point in 2018, dr. Times. Are you saying that had in 2018, four times. Are you saying that had the statement been in place, those rate increases would not have occurred . Ms. Brainard it is, i think, important to note that these are consequential changes to our strategy and goals. As previously, we were seeking to mitigate deviations in both employment and inflation, we are now very focused with regard to employment only on shortfalls, whereas previously we talked inut the goals unemployment a way that was roughly associated with the normal rate of unemployment. The statement longer references that, and talks about the broadbased and inclusive goal in a variety of indicators to assess this. And the statement also talks about a inflation goal that is defined in terms of average inflation at 2 over time, which means that inflation is likely to need to moderately exceed the 2 target for some time following a period when it has been below that target. Would havees materially changed the conversation among the committee , certainly, back in the early may be 1817, favored. I think there would have been a different concept of inflation and a sense that there was no need to preemptively withdraw or prepare to withdraw on the basis of inflationition materializing on the basis of this historical relationship. It would have been a recognition that there is a downward bias lowerated with that expec bound. I think it would change the way the committee delivered going forward. They would have changed deliberations earlier in the period had all these factors been well understood. Mr. Wessel just so i can iraphrase and make sure understand, so in the past when it looked like the Unemployment Rate was falling below the , the noninflationary rate, when it was getting close to that, that became an argument for raising rates. Similarly, when inflation began to get close to 2 , that became an argument for raising rates. In future deliberations, that will not be an argument easy to make even the new strategy . Governor brainard i think you summarized it much better than i could, david. [laughter] 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. There is no sense of how much you are interested in inflation going, there is no sense about over what time you will be averaging inflation. Why did you decide to make it so vague, and is this something that you think will be refined as statements come out about current policy . Governor brainard yes. Those are really good questions. Those are questions that you know from the minute the committee debated at length. We had some excellent staff papers and some excellent outside papers to help inform those deliberations. A kind of canonical tradeoff in Monetary Policy. The tradeoff between the mechanical, mathematical formula, and the ability to adapt to ongoing realities is a longstanding discussion in Monetary Policy. It seems important particularly important to err on the side of when we aret a time embarking on essentially a new approach. Inflationible average targeting as a pragmatic way to implement a makeup strategy. Role is formal ait appealing in theory, there are likely to be communications and implementation challenges in practice related to the mechanical nature of such rules. End we talked about those challenges. Fait is better suited for the whichcs context in policymaking takes place and it will allow for some burning overtime. I want to be clear, i find it very instructive to use formal rules as benchmarks to inform my thinking about the appropriate path of policy, and i will be looking at a variety of ways on thinking about this. But since fait is a new approach, it is pragmatic to review it after gaining some practical experience with it. Mind, one of the great values of the fiveyear review, which is kind of natural complement to the flexibility and the approach we are adept 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