Mary Daly, Speech: Calibrating Policy in an Uncertain Time

Q&A Segment —

Inflation

“In March, which was the last time we did that, you saw inflation in that number, the median inflation forecast still being above 3%, which is my own forecast. It’ll be a little bit above three.”

Fed Funds

“Now that that job is done, that phase one is complete, now we can take smaller steps and you’ve seen us do that, moving to 50 then to 25. We’re at a point now… Again, I’ll direct you to the summary of economic projections. We’re at a point now where we don’t expect right now in our projections, the median, we don’t expect to continue to raise rates up every meeting. There is a sense where we’ll get it up to a level and then we’ll wait.”

Monetary Policy Lags

“We came out of the pandemic extremely strong as a nation, and you have this momentum, and then you have lags in monetary policy that take some time and the estimates range from 12 months to 18 months.”

“That seems reasonable. Probably is a little shorter than that, but I’m not really certain. But we’re starting to see… We started raising rates last year in March. We’ve did our forward guidance, and you’re seeing now 12 months later, the effects starting to come through.”

Recession

“It means slowing the economy back to a more sustainable pace. It’s going to feel different than it did last year, but my modal outlook is we don’t have a recession, but we do have a substantial slowdown, and we transition to a place where we have something closer to 2% inflation over time.”

Speech Segment —

Fed Funds

“How much credit tightening will ultimately occur is not yet known. What we do know is that tighter credit conditions translate into less spending and investment by households and businesses, resulting in a slower pace of economic growth. So we will need to monitor this impact carefully as we determine our own policy path.”

“Looking ahead, there are good reasons to think that policy may have to tighten more to bring inflation down. But there are also good reasons to think that the economy may continue to slow, even without additional policy adjustments.”

So, we will need to make decisions calibrated by data. Not just last week’s data or last month’s data, but all the data. Looking back and looking ahead as we navigate the uncertainty that surrounds us.