Ball's Interview at the 2021 Wall Street Journal Jobs Summit

Power is interviewed at the Wall Street Jobs Summit, the following is a verbatim transcript of the key issues.

Two goals of the FED

At first I wanted to ask. The progress on vaccines since last December has coincided with the many stimulus bills passed by the government. Do these give you any expectations or prospects for the current market or labor market?

To answer this question, I want to start by reiterating the two major tasks that Congress has given us—full employment and price stability. The Federal Reserve (Fed) also has a way to keep working toward this goal. Before the outbreak of pneumonia, we were very close to meeting the goals of both missions, when the unemployment rate was a 50-year low, wages were rising, and the inflation rate was slightly below the desired target of 2%.

Since the outbreak of pneumonia in March last year, the economy has taken a sharp downturn. However, since May, the United States has tried to gradually regain its track from the plague. But our progress slowed down during the winter, when jobs shrank to 29,000 a month. This is still a long way from our desired goal of full employment and inflation of 2%.

And like you mentioned the progress of the vaccine. The increase in the number of infected people is gradually slowing down, which also leads us to expect that employment opportunities will increase in the coming months. It will take large numbers of people to get back to their jobs before the economy recovers. We are now missing 100,000,000 more jobs, and most of those jobs lost because of the pandemic are in the mass service sector.

Also the section on inflation. The Fed wants inflation to remain stable at 2% over the long term. We expect to stay at this level and do everything possible to keep him at this level. This is what we want to achieve.

The inflation rate is now slightly below 2%, because the deflation caused by the epidemic in March and April last year will not be included in the calculation of the annual range, and the inflation rate will also be expected to rise due to the base effect in the next two months. Phenomenon. This phenomenon will put pressure on asset prices, but what we really want to find out is how big this phenomenon will be and whether it will have a far-reaching impact.

In my opinion this will be a one-time phenomenon, as the Fed will do everything in its power to keep long-term inflation at 2%.

recovery in employment

May I ask that the vaccine is currently being administered in the United States, and the data also show that the epidemic is gradually slowing down. Do you think this means that a recovery in U.S. employment is just around the corner and sooner than you expected?

Of course we hope this happens as soon as possible. But when you refer to the "employment rate," know that it doesn't include everyone who no longer works. "Unemployment" refers to people who have been looking for work for the past four weeks. Other unemployed people are not counted in the labor force.

I think we're a few years away from returning to full employment. It has also taken years after disasters in the past. And it all depends on when the economy will recover, and with what strength. And the signs of a recovery I think we can actually observe, like rising wages. According to the current statistical report, there are indeed such signs of recovery.

We will be stricter on the definition of full employment. The United States will also try its best to make everyone reach the expected level as soon as possible.

Do you think there is a way for us to meet the standards you just mentioned this year?

I think it should be unlikely to reach this year.

Inflation worries

The US passed the $900,000,000,000 (nine hundred billion) bailout bill last Christmas, and another $1.9 trillion bailout bill is preparing to be voted on by Congress. Because of these relationships, the market is expecting higher inflation in the future, and with it, higher bond yields. Do you think the market is wrong? (Is the market wrong)

Whether the market is wrong I think is a difficult question to answer. But you're right, bond yields do go up, but you know it's not just the bills it's just one of many factors.

The Fed will continue to monitor the various levels of the market and try to achieve our desired goals. We hope that market conditions reflect the vision of our goals. And in this consideration, I think the market anomalies or continued deflation will cause our concern.

The Fed's recent monetary policy

(Bauer responds in more detail to the question just now)

Let me explain the framework I just mentioned. This framework is outcome-oriented, not based on any date, and we're not saying that the Fed's policy will continue for the next 18 or 24 months. The Fed's operations are based on whether or not the desired phenomenon is observed in the market.

Our bond-buying program will continue for now, which is what we're doing, and will continue to do until we see an improvement in the situation (meaning deflationary relief and recovery). What I am referring to will not be based on expected conditions, but actual observed market conditions. For now, I think we'll see the progress we expect in the market soon.

Regarding interest rates, if interest rates are to be adjusted upwards from zero, we need to see the labor market return to the path to full employment. We hope to see inflation at 2%.

I think to sum up the above, we still have a long way to go from the recovery of the economy.

Finally I want to make one more statement. We believe that short-term increases in inflation will not affect long-term goals, so I expect we will be patient and not intervene in the market.

U.S. Treasury yields rise

Is the current increase in US bond yields in line with the expectations in the Fed policy framework you just mentioned?

I don't want to comment on any interest rate levels. The current framework hopes to keep inflation at 2% or slightly above 2%. That means we don't move interest rates lightly just because we see a strengthening job market.

On the bond market, I'll reiterate -- we're worried about an anomaly in the market or continued deflation.

Impact on the labor market

I think the conversation we just had was too abstract for the average person. Could you please explain a little bit about how the above will affect the public and workers?

This is a good question.

When I first took the Fed job, there was low unemployment and high inflation. And when the market continues to grow, inflation naturally rises with it. That's when the Fed will try to take some money out of the market by raising rates.

However, recently, the Fed's interest rate control on inflation has gradually declined. Therefore, our new framework will not see adjusting interest rates as a direct way to reduce inflation. We will achieve the desired goal by monitoring more conditions.

We're all about getting the labor market back on track and keeping inflation at 2%. The mechanics behind inflation allow us to do this, but only if inflation is expected to be sustained at 2%.

Economists worry about the Fed's view

Economists like Larry Summers and Olivier Blanchard have questioned what you just mentioned about the Fed's ability to maintain "high employment and low inflation". Is this concern justified?

People who are new to the labor market today are not experiencing the conditions of high inflation in the past. The primary impact of inflation is on those with fixed and low incomes. I'm sure that's a situation that no one wants to see.

I would also say that the Fed will remember the hard lessons of past history, why it happened, and how to avoid history from repeating itself. The Fed didn't step in when it was time to intervene when inflation was continuing to expand, but that's a far cry from what's happening now. The current inflation rate is just below 2 at 1.5%. And you must also take into account the short-term high inflation brought about by the economic recovery. Such a phenomenon would be a one-off and not an indicator of continued inflation in the future.

I think it's very constructive that people have such concerns. But I think in the next year maybe asset prices will rise but not continuously. I don't think an inflation rate just above 2% will affect the long-term inflation rate that is expected to be at 2%. Moreover, for several major developed economies in the world, inflation is in a sluggish state.

part of the outlook

It has also been a year since the outbreak of pneumonia. What lessons do you think I can learn from this economic crisis?

I think we can see the lessons we learned in the "last" economy being quickly reflected in this one. The Fed will cut interest rates quickly, and the relief bill will pass.

I think we can learn two things: react quickly to the situation, and continue to react until everything improves. You can see that it took a while for the bailout bill in the last crisis to pass, which led to our very slow recovery. That's why this time around, the Fed moved quickly and Congress passed the bill quickly.

In contrast to our pessimism about the economic outlook a year ago when the epidemic broke out, I think it is now clearer than expected. We have not made it, and we are still a long way from recovery.

The next article will cover the Fed and why Ball has repeatedly emphasized that Fed regulation remains the same for now.

Original link: eopXD