Jerome H Powell: Monetary policy - normalization and the road ahead

Speech by Mr Jerome H Powell, Chairman of the Board of Governors of the Federal Reserve System, at the 2019 SIEPR Economic Summit, Stanford Institute of Economic Policy Research, Stanford, California, 8 March 2019.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Thank you for the opportunity to speak here today at the Stanford Institute for Economic Policy Research, a place dedicated to scholarship supporting policies to better peoples' lives. As today is International Women's Day, I would like to preface my remarks by commending the American Economic Association for highlighting the diversity challenges of the economics profession and charting a way forward. Diversity is also a priority at the Fed: I want the Fed to be known within the economics profession as a great place for women, minorities, and others of diverse backgrounds to be respected, listened to, and happy.

Just over 10 years ago, the Federal Open Market Committee (FOMC, or the Committee) lowered the federal funds rate close to zero, which we refer to as the effective lower bound, or ELB. Unable to lower rates further, the Committee turned to two novel tools to promote the recovery. The first was forward guidance, which is communication about the future path of interest rates. The second was large-scale purchases of longer-term securities, which became known as quantitative easing, or QE. There is a range of views, but most studies have found that these tools provided significant support for the recovery. From the outset, the Committee viewed them as extraordinary measures to be unwound, or "normalized," when conditions ultimately warranted.

Today I will explore some important features of normalization and then turn to what comes after. In some ways, we are returning to the pre-crisis normal. In other ways, things will be different.