"Fed Listens", How Does Monetary Policy Affect Your Community? "Our goal is to keep inflation around 2 percent over time"

Some Issues to Explore
Given the new normal of low equilibrium interest rates and low sensitivity of inflation to slack, it is prudent to assess how well various approaches worked both here and around the world, with a view to identifying the best ways to promote the goals the Congress assigned to us. As such, we will be looking widely at our tools and strategies, assessing not just the various approaches that were undertaken, but also approaches that have been proposed but not tried.

One of those is the idea that the Federal Reserve should explicitly promise to "make up" for the fact that interest rates can't be cut as much as during past recessions. The Federal Reserve could hold interest rates lower after a recession is over, perhaps by promising not to raise interest rates until inflation or the unemployment rate have reached a particular level.

A related idea is average inflation targeting, meaning the Fed would aim to achieve its inflation objective on average over a longer period of time — perhaps over the business cycle. So if inflation fell short during a recession, the Federal Reserve would aim at inflation above target during the recovery and expansion. This approach would also have aspects of a make-up policy, as policy would likely be kept easier — that is, more accommodative — than otherwise during the period where inflation is above target.

While such approaches sound quite appealing on their face, they have not yet been implemented in practice. There is some skepticism that a central bank would in fact prove able to support above-target inflation over a sustained period without becoming concerned that inflation might accelerate and inflation expectations might rise too high.

Another idea I would like to hear more about involves targeting the yield on specific securities so that once the short-term interest rates we traditionally target have hit zero, we might turn to targeting slightly longer-term interest rates — initially one-year interest rates, for example, and if more stimulus is needed, perhaps moving out the curve to two-year rates. Under this policy, the Federal Reserve would stand ready to use its balance sheet to hit the targeted interest rate, but unlike the asset purchases that were undertaken in the recent recession, there would be no specific commitments with regard to purchases of Treasury securities. Similar to make-up policies, such an approach could help communicate publicly how long the Federal Reserve is planning to keep rates low.

I should emphasize that these are just a few ideas; there may be other good ideas, and part of the process we are engaged in involves looking around for other ideas. Most, if not all, of the ideas have both advantages and disadvantages, and we will have to consider them carefully as our review progresses. Of course, we may find that the preferred approach is modest enhancements to the tools that proved their worth during the crisis.

Listening
Now, how does today's event fit into all of this? Just as the Federal Reserve Bank of Richmond is sponsoring today's event with representatives of its local community, so too are other Reserve Banks sponsoring similar events. We are making sure to hear from people across the country. We will also hold a national-level conference in Chicago in June (itals ours). And, in addition to presentations from prominent outside experts, we made sure to add panels to hear from community organizations, training institutions, and other groups that can give us insights on how monetary policy is affecting Main Street.

Since I arrived at the Fed, I have put a premium on visiting communities all over the country to get a direct sense of how they are experiencing the economy. In fact, my first such visit was in this District with community development staff from the Federal Reserve Bank of Richmond. Due to the wisdom of the Fed's original architects, the Federal Reserve System derives tremendous value from interacting with communities from all around the country. In 2015, we created a Community Advisory Council at the Federal Reserve Board, where we hear from a broad variety of community groups and others. And many of the regional Federal Reserve Banks have similar councils, including the Richmond Fed's Community Investment Council.

In our review this year, we are listening broadly and are seeking perspectives at the community level. So today we want to hear from you. How is your community experiencing today's economy? Is everyone who wants a job able to get one? Can they get the necessary training? Are businesses finding it relatively easy to hire the workers they need? What about inflation and pricing power? And what about the availability and cost of credit—whether it be to start or expand a small business, buy a car to get to work, or invest in owning a home or getting a degree? I look forward to hearing your views on these and other questions.

1. I am grateful to John Roberts of the Federal Reserve Board for his assistance in preparing this text. These remarks represent my own views, which do not necessarily represent those of the Federal Reserve Board or the Federal Open Market Committee. Return to text

2. Janet L. Yellen, "Revolution and Evolution in Central Bank Communications," remarks at the Haas School of Business, University of California, Berkeley, Berkeley, California, November 13, 2012. Richard H. Clarida, "The Federal Reserve's Review of Its Monetary Policy Strategy, Tools, and Communication Practices," remarks at the 2019 U.S. Monetary Policy Forum, sponsored by the Initiative on Global Markets at the University of Chicago Booth School of Business, New York, New York, February 22, 2019. Jerome H. Powell, "Monetary Policy: Normalization and the Road Ahead," remarks at the 2019 SIEPR Economic Summit, Stanford Institute of Economic Policy Research, Stanford, California, March 8, 2019. Return to text

3. Lael Brainard, "The "New Normal" and What It Means for Monetary Policy," remarks at the Chicago Council on Global Affairs, Chicago, Illinois, September 12, 2016. Return to text

Fed Listens Events

The Federal Reserve System will sponsor a research conference on June 4-5, 2019, at the Federal Reserve Bank of Chicago, with speakers and panelists from outside the System. The sessions will include overviews by academic experts of themes that are central to the review, including the FOMC’s monetary policy since the financial crisis, assessments of the maximum sustainable level of employment, alternative policy frameworks and strategies to achieve the dual mandate, policy tools, global considerations, financial stability considerations, and central bank communications. Other sessions will feature panels of community leaders who will share their perspectives on the labor market and the effects of interest rates on their constituencies. The conference will be live-streamed. The conference presentations will be posted at a later date. Attendance is by invitation only.

Other Fed Listens Events
February 25
Community Listening Session
Federal Reserve Bank of Dallas
Summary of Community Listening Session

April 9-10
Fed Listens: Distributional Consequences of the Cycle and Monetary Policy
Federal Reserve Bank of Minneapolis
Summary of Fed Listens Session

May 8
Community Listening Session
Federal Reserve Bank of Richmond

May 13
New England Perspectives on Fed Policymaking: A Fed Listens Conference
Federal Reserve Bank of Boston

May 17
Fed Listens: Education, Employment, and Monetary Policy in the Third District
Federal Reserve Bank of Philadelphia

May 20
Fed Listens Roundtable Discussion
Federal Reserve Bank of New York