Jerome H Powell: Thoughts on the normalization of monetary policy

Speech by Mr Jerome H Powell, Member of the Board of Governors of the Federal Reserve System, at the Economic Club of New York, New York City, 1 June 2017.

Accompanying figures can be found on the Federal Reserve System’s website at the end of the speech: Figures (PDF).

Thank you for the opportunity to speak here at the Economic Club of New York. Today I will discuss the ongoing progress of our economy and the prospects for returning both the federal funds rate and the size of the Fed’s balance sheet to more normal levels. As always, the views I express here are mine and not necessarily those of the Federal Open Market Committee (FOMC).

Economic Developments

The Federal Reserve is committed to fulfilling our statutory mandate of stable prices and maximum employment. To begin with the labor market, many indicators suggest that the economy is close to full employment. In April, the unemployment rate was 4.4 percent, a level not reached since May 2007 and below most current estimates of the natural rate of unemployment (figure 1). Estimates of the natural rate are inherently uncertain, but other labor market measures are also near their pre-crisis levels, including a broader measure of labor market underutilization that includes those who would like to work but have not recently looked for a job and those working part time who want full-time work. The labor force participation rate, which had declined sharply after the crisis, has now been roughly stable for 3-1/2 years, which represents an improvement against its estimated downward trend (figure 2). Participation is now close to estimates of its trend level.