Jerome H Powell: Monetary policy in the time of COVID

Speech (via webcast) by Mr Jerome H Powell, Chair of the Board of Governors of the Federal Reserve System, at the "Macroeconomic Policy in an Uneven Economy," economic policy symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, 27 August 2021.

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

Seventeen months have passed since the U.S. economy faced the full force of the COVID-19 pandemic. This shock led to an immediate and unprecedented decline as large parts of the economy were shuttered to contain the spread of the disease.

The path of recovery has been a difficult one, and a good place to begin is by thanking those on the front line fighting the pandemic: the essential workers who kept the economy going, those who have cared for others in need, and those in medical research, business, and government, who came together to discover, produce, and widely distribute effective vaccines in record time. We should also keep in our thoughts those who have lost their lives from COVID, as well as their loved ones.

Strong policy support has fueled a vigorous but uneven recovery-one that is, in many respects, historically anomalous. In a reversal of typical patterns in a downturn, aggregate personal income rose rather than fell, and households massively shifted their spending from services to manufactured goods. Booming demand for goods and the strength and speed of the reopening have led to shortages and bottlenecks, leaving the COVID-constrained supply side unable to keep up. The result has been elevated inflation in durable goods-a sector that has experienced an annual inflation rate well below zero over the past quarter century. Labor market conditions are improving but turbulent, and the pandemic continues to threaten not only health and life, but also economic activity. Many other advanced economies are experiencing similarly unusual conditions.