Figures accompanying the speech
Thank you, Jason, for your kind introduction. I appreciate the opportunity to return to Harvard and teach the Ec10 class today. When I taught at Harvard, only the most gifted instructors and teaching fellows were allowed to teach and appear before students in this course. It seems today that standards may have slipped, but I am nevertheless honored to be here.
I will start by saying what I said at the beginning of every course I taught here and in my entire career as an academic economist. "It is a great time to be an economist!" Economics provides powerful tools for understanding the forces that affect your lives, especially in times of upheaval and change. This is another reason I am delighted to be part of this course that covers a broad range of economic thinking.
Today, I will focus my talk on three topics: the Federal Reserve's dual mandate goals for monetary policy, recent indicators of progress toward meeting those goals, and what we call the evolving "balance of risks," which means how the probabilities of missing one of those goals, compared to the other, change over time. My main message is that, following a period of unusually high inflation and rapid monetary-policy tightening, inflation has fallen considerably while the labor market has remained strong. As a result of these welcome developments, the risks to achieving our employment and inflation goals are moving into better balance. Nonetheless, fully restoring price stability may take a cautious approach to easing monetary policy over time.
Let me add some background here. Congress has given the Federal Reserve's monetary policymakers a mandate and the independence with which to pursue it. The Fed's modern statutory mandate, as described in the 1977 amendment to the Federal Reserve Act, is to promote maximum employment and stable prices. These goals are commonly referred to as the dual mandate. I will elaborate on the benefits of achieving these objectives, starting with maximum employment.