Mary Daly, Speech: Forward-Looking Policy in a Real-Time World
Q&A Segment
Inflation
Monetary Policy Lags: “So on the long and variable lags, we use that terminology, long and variable lags, because that’s what policy is. You put it in the pipeline, and then it used to take a while for it even to trickle through to all financial markets. And then it would take a while for it to move its way through the economy. And you add all that up, and when I was coming up in macro, it could be up to two years before these things could work themselves through, 12 months to two years.”
Fed Funds
“Inflation’s still high. The labor market’s still very strong. We’re adding far more jobs per month than we can possibly sustain, just to get the unemployment rate constant. And so that’s where you have to think about continuous tightening.”
Jobs
“But I’m using that same rigor of analysis and applying it again and again, month after month, to the survey data to why people aren’t coming back to work, to what they’re thinking of. And I just don’t see the recovery in labor supply that we have seen in previous expansions. So if you ask, “Why not,” here’s my leading things. Well, first of all, a lot of the loss of workers comes in the 55-plus group. And it’s not just about retirements, it’s about people not even coming back.”
Speech Segment
Inflation
“Overall inflation remains well above target and contributions from each of the components of inflation—goods, housing, and other services—remain well above their historical trend (Figure 2). Moreover, the incoming data have been bumpy. The recent PCE reading is a good example. After months of decline, headline and core inflation both ticked up in January on a 12-month basis, and the monthly inflation rate rose at its fastest pace in seven months. This suggests that the disinflation momentum we need is far from certain.”
Fed Funds
“Putting all of this together, it’s clear there is more work to do. In order to put this episode of high inflation behind us, further policy tightening, maintained for a longer time, will likely be necessary.”
Inflation Expectations
“Finally,—and this is at the forefront of my mind as a policymaker—there is the possibility that inflation expectations could change. To date, these expectations—especially in the longer run—have remained stable and well anchored near the Fed’s 2 percent goal.20 In other words, so far, inflation psychology has not shifted and public faith in the Fed’s ability to achieve its price stability mandate remains intact. But the longer inflation remains high, the more likely it is to undermine confidence. And once high inflation becomes embedded in public psychology, it is very hard to change.”