Lael Brainard: The disconnect between inflation and employment in the new normal

Speech by Ms Lael Brainard, Member of the Board of Governors of the Federal Reserve System, at the National Tax Association 49th Annual Spring Symposium "Certain Uncertainty: Tax Policy in Unsettled Times", Washington DC, 16 May 2019.

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

It is a pleasure to be here at the National Tax Association Annual Spring Symposium. Just as it may take the tax experts and practitioners here today some time to disentangle the longer-term implications of recent major changes to tax policy, so, too, we are in the process of analyzing the lessons for monetary policy of apparent post-crisis changes in the relationships among employment, inflation, and interest rates.

The Congress has assigned the Federal Reserve the job of using monetary policy to achieve maximum employment and price stability. Price stability means moderate and stable inflation, which the Federal Reserve has defined to be 2 percent inflation. Maximum employment is understood as the highest level of employment consistent with price stability. In the aftermath of the Great Recession, which had deep and persistent effects, it is important to understand whether there have been long-lasting changes in the relationships among employment, inflation, and interest rates in order to ensure our policy framework remains effective.

Employment and Inflation

This expansion will soon become the longest on record in the United States.