Christopher J Waller: Reflections on monetary policy in 2021

Speech by Mr Christopher J Waller, Member of the Board of Governors of the Federal Reserve System, at the 2022 Hoover Institution Monetary Conference, Stanford, California, 6 May 2022.

Central bank speech  | 
09 May 2022

Accompanying slides can be found on the Federal Reserve System's website

I want to thank the organizers for inviting me to speak here today. The discussion has focused on the following question: "How did the Fed get so far behind the curve?" My response is to relate how my view of the economy changed over the course of 2021 and how that evolving view shaped my policy position. When thinking about this question, there are three points that need to be considered. First, the Fed was not alone in underestimating the strength of inflation that revealed itself in late 2021. Second, to determine whether the Fed was behind the curve, one must take a position on the evolving health of the labor market during 2021. Finally, setting policy in real time can create what appear to be policy errors after the fact due to data revisions.

Let me start by reminding everyone of two immutable facts about setting monetary policy in the United States. First, we have a dual mandate from the Congress: maximum employment and price stability. Whether you believe this is the appropriate mandate or not, it is the law of the land, and it is our job to pursue both objectives. Second, policy is set by a large committee of up to 12 voting members and a total of 19 participants in our discussions. This structure brings a wide range of views to the table and a diverse set of opinions on how to interpret incoming economic data and how best to respond. We need to reconcile those views and reach a consensus that we believe will move the economy toward our mandate. This process may lead to more gradual changes in policy as members have to compromise in order to reach a consensus.