Welcoming remarks and policy trade-offs of running a hot economy
San Francisco Fed President Mary C. Daly and Federal Reserve Vice Chair Richard Clarida welcome guests to Fed Listens San Francisco on September 26, 2019, followed by a presentation by Doug Elmendorf of the Harvard Kennedy School titled, “Policy Trade-Offs of Running a Hot Economy" (video, 1:17:39).
President Mary C. Daly:
I'm Mary Daly. I'm the President of the Federal Reserve Bank of San Francisco and my job this morning is to welcome you here, and say how privileged and honored we are to have you in the Federal Reserve Bank of San Francisco. So this is part of our listening tour. It's the Fed Listens event in the 12th District. We've had, this'll be the 11th of these events that have been held nationwide and part of the monetary policy framework review that the Federal Reserve System is taking up, and Vice Chair Clarida will tell you a lot more about that in a moment, but what I want to emphasize is that this is the 12th District's opportunity to really raise your hands, be a part of the dialogue, to help us better understand how to achieve and execute on our dual mandate goals of full employment and price stability.
Now, I've worked at the Fed 23 years this year, and we have never taken up such a sequence of events, and so I feel particularly proud. Everybody who knows me knows that I'm very proud to work at the Federal Reserve, but I'm especially proud that this is going on. When Chair Powell took his job, the very first move he made was to say that we were going to do events like this and we were going to solicit feedback from the communities we serve. So that's a really important thing.
And then Vice Chair Clarida took up that idea and he's been with his team executing this, intentionally and systematically, across the country. So it is a really important, we've had great discussions in the events we've had and I'm looking forward to a robust discussion today. We have a great program of speakers. I think you'll be very eager to hear from them, but also members of the audience are part of this event, participating, asking questions, raising your hands, making comments. I have the very, and probably most important job today, along with the Federal Reserve staff you see sitting over here, of listening. That's why we hold these events. So with that I'll turn it over to Sylvain Leduc, the Director of Research at the San Francisco Fed. He's going to talk about program logistics and interviews. Our very special guest, the Vice Chair.
Thank you, Mary. Good morning everyone. As you can imagine, we've been planning this conference from some time now, and so I'm really delighted today to see so many of you with us, for this event but this, we want the scope to be even bigger than this, and so I have to remind you that we are live-streaming this event on Facebook Live, and on Twitter, and we'll also be recording today's discussions. And so you can all have this material on our website, public website, shortly after the conference.
Throughout the day we have a bunch of Q&A sessions and so I would ask you to wait if you have a question for a microphone, because people that are following us on the livestream will not be able to hear your questions, otherwise. We have a bunch of volunteers around the room to help you out, if you have any questions. You can recognize them at their orange ribbon on their name tag. And so ask any questions you have. If you want to be escorted out of the building, please ask for their help. And so now it's really my privilege to be introducing the, our first speaker, the Vice Chair Clarida.
If you come from a background in economics like mine, it's very difficult to overstate the importance of the contribution of the Vice Chairs' on academic work, which has really shaped monetary policy-making here at the Federal Reserve, but in several other foreign central banks over the past 20 years or so. So Mr. Clarida was named Vice Chair of the Board of Governors of the Federal Reserve System a year ago, and I think he brings to our institution a breadth of experiences that is just outstanding. He was a member of the Council of Economic Advisers under President Reagan. He served as Assistant Secretary for Economic Policy at the Treasury Department, and more recently was a global adviser and managing director at PIMCO. And if this is not enough, on top of that, he's an accomplished musician with a recent record under his belt. And so on that note, please join me in welcoming Vice Chair Clarida. .
Vice Chair Clarida:
Well, thank you for that introduction, and I always appreciate the plug for the CD. It's on iTunes and Spotify. I got my first royalty check about a year ago, $92, so put it into the bank. But seriously, I'm delighted to be here at this Fed Listens event in San Francisco, on a very important topic, a hot economy, sustainability and trade offs. And as Mary mentioned, it's one of a series of Fed Listens events that we are doing this year to review our policy strategy tools, and communications practices.
Although I have more to say about the review in a moment. Let me state at the outset that we believe that our existing framework, in place since 2012, has served us well, and has enabled us to achieve and sustain our signed goals of maximum employment and price stability. However, we also believe that now is a good time to step back and assess whether and in what ways we can refine our strategy tools and communications practices to achieve and maintain our goals as robustly as possible.
With the US economy operating at or close to maximum employment and price stability, now is an especially opportune time to conduct the review. The unemployment rate is near a 50 year low, inflation is running close to our 2% objective, and with the review we hope to ensure that we are well positioned to continue to meet our statutory goals in coming years.
The US and foreign economies have changed in some important ways since the global financial crisis. Perhaps most important, neutral interest rates appear to a fallen in the US. A fall in neutral rates increases the likelihood that a central banks policy rate will hit the effective lower bound in a future downturn. That development in turn could make it more difficult during downturns for policy to support spending and employment, and keep inflation from falling far below our objective.
Another key development in recent decades is that price inflation appears to be less responsive to resource slack. That is, the short-run price Phillips curve, if not the wage Phillips curve appears to have flattened, implying a change in the dynamic relationship between inflation and employment. A flatter Phillips curve does permit the Fed to support employment more aggressively during downturns. However, a flatter Phillips curve also increases the cost of reversing unwelcome increases in longer run inflation expectations. Thus a flatter Phillips curve makes it all the more important that inflation expectations remain anchored at levels consistent with our 2% inflation objective. And let me emphasize that. Based upon the evidence I have reviewed, I myself judge that US inflation expectations do deside in a range that I consider consistent with our price stability mandate.
Talk now about the labor market, the topic of this conference for some time now. Price stability in the US has coincided with historically low unemployment rate. This low unemployment rate of 3.7%, most recently in August, has been interpreted by many as suggesting that the labor market is currently operating beyond full employment. However, we cannot directly observe the level of unemployment that is consistent with full employment and price stability, what we call u-star at the Fed. But u-star must be inferred from data via models.
I myself believed that the range of plausible estimates of u-star extends to 4% and below, and includes the current unemployment rate of 3.7%. As the unemployment rate has declined in recent years, labor force participation for prime age participants has increased significantly, with the August participation rate at a cycle high of 82.6%. Increased prime age participation has provided employers with additional labor resources and has been one factor along with a pickup in productivity in restraining inflationary pressures. Whether participation will continue to increase in a tight labor market remains to be seen, but I note that prime age participation still remains below levels seen in previous business cycle expansions.
Also, although the labor market is robust, there is no evidence that rising wages are putting upward pressure on price inflation. Wages today are increasing broadly in line with productivity growth and underlying inflation. Also of note in receiving less attention than it deserves is the material increase in labor sheriff national income that has occurred in recent years as the labor market has tightened. As I've written before, there is a cyclical regularity in US data that labor share does tend to rise as expansion endure, and the labor market tightens. In recent cycles, and so far in this cycle, this rise in labor share has not put upward pressure on price inflation.
The strong job gains in recent years have also delivered benefits to groups that have historically been disadvantaged in the labor market. For example, African Americans and Hispanics have experienced persistently higher unemployment rates than whites for many decades. However, those unemployment rate gaps have narrowed as the labor market has strengthened and as President Daly's research shows, there are some indication these groups especially benefit when the unemployment rate remains very low.
Likewise, the gaps between unemployment rates for less educated workers and their more educated counterparts appear to narrow as the labor market strengthens. Wage increases in the past couple of years have been strongest for less educated workers and for those at the lower end of the wage distribution.
Let me now talk about the scope of the review. The Federal Reserve Act assigns to the Fed the responsibility to conduct monetary policy to promote the goals of maximum employment, stable prices and moderate longterm interest rates. Our review this year takes the statutory mandate as given and also takes as given that an inflation at a rate of 2% is most consistent over the longer run with this Congressional mandate.
Our existing monetary policy strategy is laid out in the committee statement and longer run goals of monetary policy strategy. This was first adopted in January of 2012 and the statement indicates that the committee will seek to mitigate deviations of inflation from 2%, and deviations of employment from its maximum level. In so doing, the FOMC recognizes that these assessments of maximum employment are necessarily uncertain and subject to revision, as I mentioned earlier.
Now as a practical matter, our strategy shares many elements with a policy framework known as flexible inflation targeting. However, the Fed's mandate is much more explicit about the role of employment than most other flexible inflation targeting central banks, and our statement reflects this priority by stating that when the two sides of the mandate are in conflict, neither one takes precedent over the other.
The review of our current framework is wide ranging and we are not prejudging where it will take us but events of the past decade highlight three broad questions that we are seeking to answer with our review. The first question is, can the Federal Reserve best meet its objectives with its existing policy strategy, or should it consider strategies that aim to reversed past misses of its inflation objective?
Under our current approach, as well as the approaches of many central banks around the world, persistent inflation shortfalls of the target are treated as bygones. Central banks are generally believed to have effective tools for preventing inflation overshoots, but the effect of lower bound on rates can make persistent undershoots of inflation more of a challenge. In part because of this concern, some economists have advocated makeup strategies under which policymakers seek to undo past inflation deviations from target. These strategies include targeting average inflation and price level targeting. Other makeup strategies seek to reverse shortfalls and policy accommodation at the effective lower bound by keeping the policy rate lower for longer than would otherwise be the case.
In many theoretical models, these makeup strategies can lead to better average performance on both legs of the dual mandate. However, the success of makeup strategies relies on households and firms believing in advance that the makeup will in fact be delivered when the time comes. As is well known from the research literature, makeup strategies in the language of [Kidlynn 00:13:55] and Prescott are not time consistent because when the time comes to put inflation above 2%, condition or policy makers at that time may not desire to do so. Thus one of the most important questions we will seek to answer in our review is whether the Federal Reserve could in practice attain the benefits of makeup strategies that are possible in theoretical models.
The next question the review will consider is are existing policy tools adequate to achieve and maintain our employment and price stability objectives or should we expand the tool kit? The FOMCs primary policy tool is the target range for the federal funds rate. In December of 2008 the committee cut the target to just above zero, in response to financial turmoil and deteriorating economic conditions. Because the US economy required additional support after the ELB was reached. The committee deployed two additional tools in the years following the crisis, balance sheet policies and forward guidance. In addition to assessing the efficacy of these tools, the review will examine additional tools for easing policy when the ELB is binding. During the crisis and aftermath, the Fed did consider but ultimately found some of these tools that have been deployed by other central banks wanting in the US context, but the review will assess the case for these and other tools in light of more recent experience with using such tools in other countries.
The third question that the review will consider is how can the committee's communication of its policy framework and implementation be improved? Our communication practices have evolved considerably since 1994 when the FOMC first released a statement after a meeting. Over the past decade or so, the committee has enhanced its communication, both to promote public understanding and to foster democratic accountability, and these enhancements include the statement of longer run principals and plans, post-meeting press conferences and various statements about this strategy, quarterly summaries of individual FOMC projections in the summary of economic projections, and judgments on the uncertainty and balance of risk around these projections. As part of the review, we will assess the committee's current and past communication, and additional forms of communication that could be helpful.
Let me now talk briefly about the activities and timeline for the review. At our Fed Listens events, we are hearing from a broad range of interested individuals and groups, including business and labor leaders, community development professionals, and academics. At a research conference at the Federal Reserve Bank of Chicago in June, we heard from prominent academic economists as well as national and community leaders. One panel discussed providing a viable perspective on the labor market that could not otherwise be gleaned from statistics. And another panel discussion offered insights into how monetary policy levers affect individual communities credit availability, and small business. In addition to the Chicago conference, all 12 Reserve Banks as well as the Board of Governors have hosted, or will soon host, Fed Listens events.
Now this summer the committee began to assess what we have learned at these events and to receive briefings from system staff on topics that are relevant to the review. At our July meeting, the committee agreed that our current framework has served the committee well, and also noted that the committee's experience with forward guidance and asset purchases has improved its understanding of how these tools operate. And as a result, the committee could proceed more confidently in using these tools in a future downturn if circumstances warranted. However, we also judged the forward guidance and balance sheet tools while helpful did not fully eliminate the risk of returning to the ELB. If forward guidance or balance sheet actions proved to be insufficient in future episodes, the ELB constraint could impede the attainment of our dual mandate objectives.
At our July meeting, we also noted that the committee statement on longer run goals has been helpful in clarifying our approach to policy and we agreed that any changes we might make to our strategy would likely call for some modification of our consensus statement. We have much to discuss at upcoming meetings. I expect we will consider various topics such as alternative policy strategies, augmenting the toolkit and potential changes to communication practices. We will share our findings with the public when we have completed our review, likely during the first half of next year.
In conclusion, the economy is constantly evolving, bringing with it new policy challenges and so it makes sense for us to remain open minded as we assess current practice and consider ideas that could potentially enhance our ability to deliver on the goals Congress has assigned to us. For this reason, my colleagues and I do not want to preempt or to predict our ultimate findings. What I can say is that any refinement, or more material changes to our framework, will be aimed solely at enhancing our ability to achieve and sustain our objectives in the world that we live in today. Thank you very much, and I very much look forward to the program that President Daly and her team have put together. Thank you.
Thank you very much for these remarks that help set the basis for this review, and for this event today. When, for the next session, when we were looking for a speaker, we wanted someone who could speak broadly about the issues and the trade-offs that policymakers are confronting with a hot economy. And so we wanted someone who had a deep understanding of the academic literature, but also someone who had practical hands on policy experience at a high level. And so we were very fortunate to have Doug Elmendorf with us today. He's currently Dean and Professor of Public Policy at the Harvard Kennedy School. Before that he worked at the Federal Reserve Board for a bit as Assistant Director in their Division of Research and Statistics. He serve as Deputy Assistant Secretary for Economic Policy at the Treasury Department, and between 2009 and 2015 he was the director of the Congressional Budget Office, which you would agree, would be eventful years to be Director at the time. And so please welcome Doug Elmendorf.
Thank you very much. I'm delighted to be here with all of you for this important conference. I'm especially pleased to have been invited by my friend Mary Daly. I've known Mary for a long time, and have always been impressed by her economic research, in part because of its high quality and in part because she insists on tackling questions that really matter to people's lives. And her commitment to doing high quality work on issues that can make the world better is one of the reasons we're so fortunate, that she is now ascended to such an important position in economic policymaking in this country. I'm also grateful to Rich Clarida, of course, for his academic contributions over many years and for his public service as the Vice Chair of the Federal Reserve Board today. And I'm so pleased that he's leading this effort by the Federal Reserve to listen across the country, to a lot of voices, in order to formulate the best possible framework for monetary policymaking in the future.
Today's conference on a hot economy addresses questions of fundamental importance in the late 1990s I had the opportunity, once, to be in the one of the cheap seats for an FOMC meeting, and I won't reveal any secrets, but I remember, clearly, one Federal Reserve Bank president saying, "In my district, everyone who wants a job has one, and some people who don't want a job have one anyway." And that's what I think we mean by a hot economy. An economy in which the demand for workers is strong enough with everyone who wants a job has one. And even some people who don't really want a job have had a job offer that is too good to resist. This is the way it felt in the United States in the late 1990s, perhaps the way it feels today. The question is what can we do to sustain that environment going forward?
As a synonym for hot economy I will talk a lot about a high pressure economy. You might think about the labor market as a pot of water bubbling vigorously. The United States is currently enjoying such an economy. As Rich said, the unemployment rate is under 4%, prime age workers are entering the labor force in larger numbers than they're leaving it, and strong demand for workers has pulled up wage growth to roughly it's fastest rate in a dozen years. So a high employment economy clearly has significant economic and social benefits. Unfortunately, getting and keeping a high pressure economy can also have significant costs. Understanding those benefits and costs is crucially important for policy makers and for concerned citizens. That's why we've gathered here today.
I've been asked to set the stage for the day's discussions and I'll do this in four steps. First, I want to briefly summarize the evidence about why high pressure economy is good. Second, I want to explain why textbook economics implies that the Federal Reserve can raise the economic pressure for a short period of time, but cannot keep pressure high on a sustained basis. And third, notwithstanding the textbooks, I will offer some hope that the Federal Reserve can keep economic pressure somewhat higher for a sustained period than we used to believe. And fourth, I want to speak briefly about what policy makers outside the Federal Reserve might to do to keep the economic pressure high.
Let me start with my first topic. Why is a high pressure economy good? The answer, simply put, is that a high pressure economy means strong demand for workers and thus that more people can have jobs, and people are paid more for the jobs they have. And those effects are especially strong as Rich noted for groups of people who have fared less well than others in economic terms over the past few decades. Let me elaborate. Jobs are important of course, for the income they provide. This is especially true because cash benefits from our government safety net programs for people who are not working are quite limited. But jobs are also important for the sense of purpose and identity and dignity that they offer. People want to do meaningful things with their lives and they want to contribute to their families and their communities. Working in a job is one of the foremost ways to achieve those goals.
A high pressure economy not only provides more job opportunities for people who are looking for work, it also pulls people into the labor force who have not been looking for work. And as Rich noted, more prime age people had been coming into the labor force over the last several years, and this effect is especially important because it seems to be persistent. Between 2008 and 2013, a high unemployment rate caused a significant number of people to leave the US labor force. Some have never returned to work and others have come back only gradually. In addition to increasing the availability of jobs and the number of people in jobs, a high pressure labor market also increases the compensation for jobs.
The share of our total national income going to labor has trended down markedly over the last 25 years, while the share going to capital has risen. This trend probably stems from multiple factors, but A high pressure labor market provides a countervailing force, as Rich has noted. In addition, because a high pressure economy makes it more difficult for firms to attract new workers, they tend to devote more attention to training their existing workers. And because people can move between jobs more easily in a high pressure economy, they tend to end up in positions for which their skills and interests are better matches, and thus they are probably more productive workers.
Crucially, the effects of a high pressure economy on jobs and compensation are especially strong for people who generally fare less well in our economy. For example, unemployment rates for black and Latin X workers are consistently higher than the unemployment rate for whites, but the gap is smaller when overall unemployment is low. Similarly, the unemployment rate for workers with less education is consistently higher than the rate for people with more education, but the gap is smaller when the overall unemployment rate is low. Moreover, a reduction in unemployment seems to be especially important for wage growth in the lower parts of the wage distribution.
These effects on groups of people who tend to do less well economically deserve particular attention in our policy discussions. Over the past several decades, and in contrast to some earlier periods in American history, a rising economic tide has not lifted all boats in a comparable way. Most Americans below the top part of the income distribution have benefited only a little from overall economic growth over the past few decades. Empowering those people to advance economically is both a moral and practical imperative. So our economic policies should be guided much more by what would boost the standard of living for lower and middle income Americans than by what would boost overall national output and income in my view. In sum, a high pressure economy brings important economic and social benefits.
And that takes me the second part of my remarks. Why is it difficult for the Federal Reserve to keep economic pressure high? The answer, simply put, if the Federal Reserve used expansionary monetary policy to keep economic pressure high, the inflation rate might keep rising and rising. Rising inflation is the principal danger of a sustained high pressure economy. Let me explain. Any market oriented economy has someone employment because people who enter the labor force or leave a job do not find a new job immediately. How long those people are unemployed depends on multiple factors. One of those factors is the strength of demand for goods and services, which the Federal Reserve can effect through monetary policy. The key point for today's discussion is that the amount of unemployment affects inflation. When unemployment is high, businesses do not need to try hard to attract workers, so they tend to increase wages slowly. By the wages increasing slowly, the cost of production increase slowly and prices generally increase slowly, so there was little inflation.
By contrast, when unemployment is low, businesses need to compete intensely for workers, so they tend to increase wages rapidly. If wages rise more rapidly than workers' productivity, then the costs of production increase and those cost increases are generally passed through to price increases which represent inflation. Therefore, if the Federal Reserve used expansionary monetary policy to keep the demand for workers strong and the unemployment rate very low, the resulting upward pressure on wages would generate higher inflation. And that's not all. Inflation depends not only on the pressure businesses feel from their costs, but also on businesses expectations of future inflation. If a business manager thinks that his or her competitors will be raising their prices, he or she will feel more able to raise the prices at his or her business.
And how do people form expectations of future inflation? Well, as a starting point, and we'll complicate this shortly, but as a starting point, we might presume that expected inflation would equal the inflation that people have experienced recently. Therefore, if the Federal Reserve used expansionary monetary policy to keep the demand for workers strong and the unemployment rate very low, the upward pressure on wages would generate higher inflation, and higher inflation would feed into expectations of future inflation which would generate still higher inflation. Indeed, the evidence available a number of years ago implied that if the Federal Reserve kept unemployment very low, inflation would keep rising indefinitely. That possibility may seem remote to some people here today because the Federal Reserve has successfully avoided high inflation for the past three decades, but such an inflationary spiral is possible and it would be very damaging to the economy and would need to be stopped.
In order to bring inflation back down again, the Federal Reserve would need to make the unemployment rate unusually high for a while so that the cost pressures and expectations setting process would run in reverse. That is the Fed would need to produce a low pressure economy to offset the inflationary effects of the initial high pressure economy. And in contrast to that disruptive back and forth, if the Federal Reserve instead excepted an unemployment rate that was not so low, then the growth in wages would tend to be in line with a growth of productivity, costs of production would not increase, and the inflationary spiral would not start and would not need to be reversed. The economy would never get as hot as in the first scenario, but neither would it need to get as cold.
The logic I've just described has been a central pillar of economics textbooks and monetary policymaking in the United States and many other countries for decades. The relationship between unemployment and inflation that I have described is known as the Phillips curve after AW Phillips, an economist in New Zealand who did early empirical research on this subject. The idea that inflation will continue to rise as long as unemployment remains below a key level is known as the accelerationist Phillips curve, and that key level of unemployment is known as the non-accelerating inflation rate of unemployment, or NAIRU. Sometimes almost equivalently, economists talk about the natural rate of unemployment. Thus, in the jargon of my profession, if the economy has an accelerationist Phillips curve, the Federal Reserve cannot keep the young employment rate persistently below the NAIRU without seeing an inflationary spiral develop. The Federal Reserve can crank up economic pressure for a while, but then inflation would rise. And to bring inflation back down, the Federal Reserve would need to drop the pressure in the economy below its starting point.
That logic may sound like game over for the Federal Reserve to create a sustained high pressure economy. However, reality may be somewhat different from the economic conditions I've just described, so perhaps the game is not quite over. And the third section of my remarks is how might the Federal Reserve sustain a high pressure economy, despite the textbook analysis I just offered? The answer is simply put, the relationship between unemployment and inflation has changed from what is described in most textbooks, and our current economic conditions are different from the starting point in most textbook analyses. Therefore, I think the Federal Reserve now has an opportunity to experiment with sustaining a higher pressure economy than we would have thought before. That experiment would have real risks though, and the Federal Reserve would need to proceed carefully and be prepared to stop if things go badly. Let me explain.
According to the most recent evidence, the Phillips curve has evolved from the traditional textbook version that I started with. Contrary to some commentary on the right and left of American politics, the Phillips curve has not disappeared, and suggestions that it can or should be ignored in monetary policymaking are not supported by the evidence, but the evidence does show that the Phillips curve has changed. One change, noted by Rich, is that lower unemployment now raises inflation by less than it did before. When one focuses on the direct effect and does not include a possible inflationary spiral, price inflation just seems less sensitive to labor market pressure. The other change and in some ways more important change is that inflationary spirals do not appear to work the way they did before because expected inflation does not track actual inflation as closely as it used to. That is movements in actual inflation change expected inflation by much less than one for one. To put these changes in the jargon of the economics profession, the Phillips curve appears to have become flatter and no longer accelerationist.
As a result, it appears that the Federal Reserve could keep unemployment low without launching an inflationary spiral. Rather, if the Fed kept unemployment low for a sustained period, inflation would rise, but it would not keep rising. Indeed, according to an estimated Phillips curve in a recent paper by economists at the Federal Reserve Board, it appears that the Fed could keep unemployment a full percentage point below the NAIRU for an indefinite period and ultimately raised inflation by only one quarter percentage point. Now I want to emphasize the word appears, which I have used in every one of the preceding half dozen sentences. Expected inflation has been less sensitive to actual inflation, at least in part because the Federal Reserve has demonstrated a commitment to keeping inflation low.
In economist jargon, that commitment has anchored inflation expectations. If the Federal Reserve weakened that commitment by trying to keep unemployment below the level we have viewed as sustainable and allowing inflation to rise, expectations might become unanchored again and an inflationary spiral might reemerge. Moreover, if inflation remained fairly insensitive to unemployment, then unwinding such an inflationary spiral would require high unemployment for a lengthy period, as Rich noted.
Unfortunately, economists simply do not know how the Phillips curve would evolve if the Federal Reserve tried to keep unemployment very low for a sustained period now. This uncertainty is one of many that the Federal Reserve faces, and as with the other sources of uncertainty, this one presents significant risks of making monetary policy too expansionary or not expansionary enough. In my judgment, a reasonable balancing of risks suggests that the Federal Reserve should try to keep the unemployment rate below the estimated NAIRU unless and until inflation rises substantially above 2%. That approach would have a number of advantages.
For one, it would sustain a high pressure economy for at least a while with all the advantages I've described earlier. For another, we would learn how low the NAIRU really is. The unemployment rate has been below previous estimates of the NAIRU for almost three years now, and wage growth has never been rapid during this time. It may already have leveled off, which suggests that the NAIRU may be a good deal lower than we used to think. Yet another advantage of this approach is that inflation would probably rise a little, and that would be good. Federal Reserve Chairman Jay Powell has explained that the Federal Reserve views it's an inflation target of 2% symmetrically, not wanting inflation to be below 2% anymore, than wanting to have inflation to be above 2%. And some leading economists outside the Federal Reserve System have argued for raising the inflation target to give the Federal Reserve more room to maneuver in future downturns. Yet inflation as measured by the PCE price index, the Fed's preferred measure, has been below 2% for almost all of the past decade and remains there today. So some increase in inflation is desirable.
So those are advantages in my proposed approach, but there are disadvantages as well. The chief disadvantage is the risk that expected inflation would become unanchored and that we would end up with an inflationary spiral. I think that risk is very limited as long as the Federal Reserve stated clearly that it would act to restrain inflation if inflation moved substantially above 2%. The risk would be limited in part because expectations seem quite well anchored today. In the latest estimates of the Phillips curve, expected inflation is far from being equal to past inflation and expected inflation seems not to have changed very much over the past decade, even though actual inflation has been below the Federal Reserve's target for essentially all of that time. Moreover, economic conditions were quite different when inflation expectations became unanchored in the 1970s. Inflation was much higher then, so it was far more salient in people's decision making, and the Federal Reserve did not take strong action to stop the run up in inflation.
Nevertheless, some observers worry that trying to keep the unemployment rate below the estimated NAIRU would reflect hubris about the power of monetary policy and forgetfulness of past mistakes. Such worry should be taken seriously. The Federal Reserve cannot cure every economic ill, and letting inflation rise so much in the 1970s was a costly mistake. But the Federal Reserve can err not only through excess confidence, but also through excess doubt. Doubt about the Federal Reserve's the ability to fight the great depression of the 1930s weakened the monetary policy response, and doubt about the Federal Reserve's ability to end the great inflation of the 1970s delayed the response then.
Moreover, one of the great successes of monetary policy, combating the financial crisis and the great recession, came from the courage to act, to quote the title of former Federal Reserve Chairman Ben Bernanke's memoir. Moreover, justice policymakers might make the mistake of forgetting the past. They also might make the mistake of putting too much weight on particular past periods. Views of economic policy formed in an era when inflation was too high might give that experience undue emphasis in our current era when inflation has mostly been too low.
All that said, I do not think we should leave the task of sustaining a high pressure economy entirely in the hands of the Federal Reserve. And that brings me to the fourth and final part of my remarks. What can policy makers outside the Federal Reserve do to create a sustained high pressure economy? The answer, simply put, other policymakers in the federal government and in state and local governments have a number of tools for strengthening the demand for workers, and their tools have some advantages over the principal tool available to the Federal Reserve. Therefore, those other policymakers should focus their attention on boosting labor market pressure as well. Let me explain briefly.
I noted earlier that how long people remain without work depends on multiple factors. Only one of those factors is the strength of demand for goods and services, which the Federal Reserve can effect through monetary policy. But there are many other factors as well, including education, job training, job placement mechanisms, public jobs programs, the locations of jobs and housing, transportation infrastructure, healthcare, addiction programs, the criminal justice system, and more, everything that helps or hinders the connection of potentially productive workers to work that needs to be done.
Those factors are affected in turn by a range of economic and social policies, and therefore can be changed by concerted policy actions. Indeed, when monetary policy makers worry that they are being an expected unrealistically to solve all our economic ills, they sometimes draw attention to these other sorts of policies. I drew part of the list I just read from a speech by Ben Bernanke shortly after he stepped down as Chairman of the Federal Reserve. One advantage of these other tools over the Federal Reserve's use of expansionary monetary policy is that using many of the other tools would not increase inflationary pressure. Inflationary pressure is increased when businesses are competing intensely for workers and driving up wages. Many of the other tools I listed would increase the number of workers with the needed capabilities in the appropriate places, and that increase in supply would not generate inflationary pressure.
Another advantage of these other tools over Federal Reserve policy is that they can be targeted at different regions and at workers with different characteristics. Pressure in the labor market can be measured on average across the entire country, but actually it varies by worker or potential worker. The unemployment rate differs significantly across states and between people of different races and with different amounts of formal education and so on. We should really be aiming to raise the labor market pressure for each worker. The Federal Reserve is not well positioned to do that. Monetary policy does have different effects in different places, but those differences stem primarily from differences in the structure of economic activity.
Places where production is concentrated in goods and services for which demand is interest sensitive will tend to experience stronger effects from changes in monetary policy. But that distribution of effects is not under the control of the Federal Reserve, and the effects of monetary policy on workers with different characteristics is also not something the Federal Reserve can control. In sum, The Federal Reserve can affect the national average amount of labor market pressure, but other policies controlled by other policy makers can affect the pressure for workers in different situations, and that is important.
Let me conclude. I made four points. First, we want a high pressure economy because then more people can have jobs and people will be paid more for those jobs. And those effects are especially strong for groups of people who have been fairing less well than others in economic terms. Second, given traditional estimates of the relationship between unemployment and inflation and the dynamics of inflation, if the Federal Reserve used expansionary monetary policy to boost economic pressure persistently, the inflation rate might keep rising and rising.
But third, the relationship between unemployment and inflation and the dynamics of inflation have changed giving the Federal Reserve an opportunity to experiment with sustaining a high pressure economy. In my judgment, the Federal Reserve should undertake that experiment but should proceed carefully and be prepared to stop if things go badly and inflation picks up substantially. And forth, other policy makers in the federal government and policymakers in state and local governments have other and in some ways better tools for strengthening the demand for workers, and they should use those tools as well.
I hope this has been a helpful introduction to the topics of today's conference. Thank you for your attention. I appreciate being here. Thank you.
So we have a fair amount of time for questions. So we'll open it up if you have any comments or questions from the floor. Maybe I'll start. I'll open it up. So you talked a lot about one of the risk of running a hard economy being the anchoring of inflation expectation and rising inflation. Many people nowadays are emphasizing also financial stability risk. And I was wondering if you could talk a little bit about that, the risk of keeping interest rates lower for longer and what can trigger a financial stability risk.
Yes, I'm happy to talk about that. In fact, I had a paragraph to that effect that I crossed out on the plane because I worried about the remarks for getting too long, and that will teach me to cross out remarks. I think people have been raising very legitimate concerns about the consequences of low interest rates for financial risk taking and other aspects of the economy. I take those concerns seriously. In my assessment, but I can't prove this, those risks are less consequential than the benefits of a stronger economy. That assessment comes partly from the confidence that the Federal Reserve and other regulators of the financial system can limit risk taking in the financial sector in ways that would prevent a recurrence of the financial crash of a dozen years ago. This is an ongoing debate about the extent to which the Federal Reserve should adjust its principle policy leavers to try to reduce financial risks.
My sense is that the fancier regulatory process is better designed to address those risks, and that in its setting of the federal funds rate and in the forward guidance and purchases of assets and so on, the Federal Reserve should focus on overall economic conditions. I would also add that I think the low level of interest rates and the various consequences of that are a strong argument for more expansionary fiscal policy. Notwithstanding the current high level of federal debt, which I've spent the greater part of my career talking about and worrying about privately and publicly, but there is a very, very important signal about the desirability of expansionary versus contractionary fiscal policy in the level of interest rates.
And people who focus just on the high level of debt as a deterrent to doing expansionary policy are missing at least half of the story, which is the very low level of interest rates. And I think, and I've argued publicly, that we should not be reducing budget deficits at this time. For example, because I think we need the positive fiscal stimulus of the deficits we have to keep the economy moving and to keep interest rates off of the effective lower bound.
Other questions? Yes, sir.
Sort of tied to that, I wonder if you could comment of the size and sort of your assessment of the implications of the size of the Fed balance sheet debt.
I'm not concerned about the size of the Federal Reserve balance sheet, although I may be the 35th most knowledgeable person in this room on that topic. I think the size of the balance sheet is in my mind a technical factor in studying monetary policy that I am happy to leave to the technical experts. A long time ago, 20 some years ago, I was one of those people at the Federal Reserve Board who worked on federal open market operations, thought about the Federal Reserve's buying and selling of securities. And at the time of course we had no vision of the large scale asset purchases, the quantitative easing the Federal Reserve was undertaking. But I really do view that as a technical matter. Naturally, if the Federal Reserve's purchases of securities got so large relative to the total outstanding securities in the markets in which they are dealing, that could distort those markets.
But for better and for worse, we have a lot of treasury debt in the world today. There's plenty of debt held outside the Federal Reserve System. So I don't see that sort of potential distortion to that market as being a real distortion today. And I think we can become too concerned about the mechanics of Federal Reserve policy. People at the Federal Reserve should be very concerned about those mechanics. But I think for most of us who are watching from at least a step or two removed, we should be engaging with the Federal Reserve about the benefits and costs of more stimulative versus more contractionary policies, but should leave the specifics of the balance sheet, paying interest on reserves, other factors like that, we think we should mostly lead to the Federal Reserve's experts.
Lorraine Ruckstuhl from Barclays Capital. I wanted to go back to the financial stability concerns and risks that were raised earlier.
With the financial stability concerns and risks that were raised earlier. So the fed has a dual mandate. It has an oversight over financial stability but only one tool, pretty much, interest rates. What are your thoughts about adding more things to the toolkit of the Federal Reserve? Would macro-prudential kind of tools similar to what the bank of England is doing in the UK be feasible within the system of the Federal Reserve?
My understanding is the Federal Reserve currently has a number of regulatory tools. I would, in general, be a supporter of giving the Federal Reserve additional tools, although I don't know the specifics enough to know just what items I would pick off a list.
I think it's very important for the Federal Reserve to work with other financial regulators in this country and around the world to limit risk-taking to manageable levels, and that generally requires more restrictions than financial institutions can do individually. Any one institution that holds itself back from activity can be at a competitive disadvantage. Only through concerted action by regulators can the playing field be leveled with with low enough risk? I think that's very important.
My sense of the trade-off here is that if one decides to keep interest rates higher through less expansionary monetary policy in order to limit risk, that is just a very blunt way of reducing risk-taking and one would have to keep interest rates a good deal higher to really pull that risk under control, and to do that, you're giving up a lot of jobs, a lot of income that I think has very great social and economic consequences.
I mean, we're seeing, in this country and in many others, that people who are left behind by economic growth, which is a significant share of the population in this country and others are not very happy about that. They shouldn't be very happy about that, and their unhappiness is having very large effects on the cohesiveness of our societies, on the politics in our countries. That's why I say that it is a practical imperative, as well as a moral imperative that that we who have a chance to influence policymaking focused on the effects of policies on the large number of people who are not finding globalization that much fun, who in many cases have communities that have really been hollowed out by economic changes.
I'm not suggesting that we should try to take all the dynamism out of our economy. That would be a very damaging path in the long term, but I do think we need to find ways to buffer the consequences of our economic dynamism for the people who are being hurt. A starting point for that is to try to create jobs at least in the aggregate and then try to find ways to people to those jobs.
In the end, I come out where I was before the financial crisis, in which as either I'm mad and putting my head in the sand or is a wise assessment and people will have to form their own. My sense though is that we really need good financial regulation, but should use the blunt tool of how stimulative or contractionary is monetary policy to address overall economic conditions and not financial market imbalances. I'll take one over here and come back.
Thank you. These have been just very interesting remarks. What a good way to start the day. My name is Heather Boushey. I'm with the Washington Center for Equitable Growth.
You talked near the end of your remarks, just riffing off this last answer, you talked about that monetary policy isn't the only tool in the toolbox we have to run a hot economy. Then, you said that you were okay with increasing deficits or debt in order to do expansionary fiscal policy. Could you spend a couple of moments talking about whether or not you see opportunities to do expansionary fiscal policy without actually increasing the deficit or debt, ways that we could actually finance this in real time that would be effective and expansionary as well and pay for it basically?
Well, so there are some different aspects here. I mean, I think there are ways to increase the demand for goods and services that do not depend on running bigger deficits and debt. Sometimes, those ways feel to me to be too clever by half. Japan has faced this as you know. Japan has a lot of government debt, has had weak economic growth, at least in part because of weak demand, and people had ideas of, I won't get this quite right, but you raise one tax and cut another tax in a clever way done on a blackboard in an economics classroom would increase demand. You could do versions of that in this country. I'm not against those things, but I think their efficacy relies often on pretty fine aspects of economic behavior in which I'm a little distrustful that we economists know enough about about the responses to get that right in a powerful way.
I think you can do small amounts of tweaking that we're pretty sure we're going in the right direction, but to have the kind of oomph—that's a technical economics term—to have the oomph that I think we need in some cases, I'm skeptical that we can do that through these sort of clever offsetting sorts of policies. Maybe I'm lacking creativity, and I'd be happy to be contradicted now or later in the discussion about that, so I've tried to focus on the point that there are reasonable times to increase deficits in debt. The very least now, I would not try to reduce deficits. I said this in the spring at a conference at Brookings, and I wrote in the Washington Post a few weeks ago that policy makers should believe they have the capacity to use fiscal policy to fight the next recession.
I think comments to the contrary, as I suggested earlier focus too much on the high level of debt without understanding the implications of the low level of interest rates. I do believe that the prevailing low level of interest rates in this country and around the world represent a sea change for fiscal policymaking. That's a quotation from a paper I wrote with Louise Sheiner, a good friend at the Brookings institution. Interest rates in this country have been, government interest rates have been trending down for my entire working lifetime. They are much lower than they were 20, 30 years ago. That's not unique to this country. It's happened around the world. What that shows is that there are a lot of people who are eager to supply governments with money relative to the demand, and the right response to those low interest rates then, is to do more public investment and to run larger deficits and accumulate more debt than you would otherwise.
That doesn't mean you can have debt grow relative to GDP forever. Ultimately we will in this country, and other countries will, need to change policies to limit the rise of debt relative to GDP, but that is not an urgent challenge now, it turns out, and again I say this to somebody who's been talking about the importance and the urgency of that, of reducing federal debt for many years, but conditions have changed in a fundamental way, and we should take that seriously on board. So it's a skepticism that these tweaks will really work and a conviction based on the evidence that we can run larger deficits now is why I focused on that part of the equation, but I don't mean to rule out anything in the first category.
We have more time for question, David. That's okay. We have time. Okay.
Hi. David White, SAG-AFTRA, Screen Actors Guild, American Federation of Television and Radio Artists.
I love California.
Yes. Really appreciated your comments and your focus on pragmatism.
I too am going to ask you to be clever, which you are very cleverly dodging, but I'm going to see if we can get something because your mind seems to be geared towards finding clever solutions.
So I take the high pressure economy and the unmitigated unqualified positives, wage growth and pulling more people into the labor force. Great. But let's take San Francisco as an extreme example that is, in fact, happening all over the country, which is the result of the high pressure economy, and I'm going to use the term result even though my concern is that this is built into the DNA of a high pressure economy. We keep talking about it as high pressure economy is good, but the consequences need to be responded to through fiscal policy, when in fact, I'm wondering if there are some negative built into high pressure economy in the first place.
In San Francisco, high pressure economy does bring more people into the workforce, does increase wages, but the result is housing prices go up, rental prices go up, people have to live outside, childcare goes up, healthcare goes up, et cetera. And so the natural, not just impact, it's built into the high pressure economy that people's lives are actually, even with some improved wages and even people with jobs, their life isn't necessarily getting better. So when we talk about high pressure economy, when we talk about a hot economy, when we talk about wage growth, we talk about that as a good.
Then, we sort of let it lay without talking about something that's directly connected to it, which is the deepening of inequality, the increase of the size, scope, bargaining leverage of the companies that benefit from this and the disproportionate flow of the benefits of that high pressure economy to one portion of our citizenry and the folks who are in fact working, and so if you think about the toolkit of the Federal Reserve broadly. So in addition to interest rates and what we do through asset purchases, we also convene. We also give guidance. We also help policymakers understand something that clearly at a federal level, and in many cases at the state and local level, there are some things that appear to be broken in their ability to actually pull together common responses to these problems.
Is there another way that we can think about and talk about a high pressure economy that gives guidance to the practical impact of continuing with any economy that not only deepens this for those of us here, but it actually is now flowing generationally and may deepen this long-term if we're not careful?
That's a great set of points. I did not have a paragraph about that, but I should have. Two quick answers. One is that a high pressure economy is not sufficient to make everybody's lives better, and I should be more careful about that, but I think it is a very, very important ingredient. That's what I focused on in my remarks. What we need in addition to a high pressure economy is other sensible policies, and you are wrestling very much here in California, but also to other parts of the country with how to manage land use and transportation infrastructure and other factors that determine whether people can afford to live in the places where they can get the jobs that the high pressure economy is creating, and so this is a piece of the overall social economic puzzle. It's not the whole puzzle.
I think that the other thing I would just say is that part of the benefit of creating pressure, not through monetary policy but through dis-aggregated policies across different States, is that more can be done in places where economic pressure is lower than places where economic pressure is already high. So given the unemployment rate in Boston where I live, we don't need more overall stimulus. We have other sorts of challenges, but other parts of the country just don't have enough jobs. They have people there. The cost of living is low. What they need is a little more pressure in the labor market. So the concerns you raise, I think accentuate my last point about the importance of creating pressure, not just in this national average sense, but in a more targeted way.
We have some questions over here.
Hi, I'm Martha Olney from UC Berkeley. I've done some work on the rise of services as opposed to goods and how that affects the recoveries from recessions.
In the context today, I want to get us to think about goods versus services. One of the striking facts is in 1950 there were 20 million goods-producing jobs in the United States, about 20 million service-producing jobs, and today there's about 20 million goods-producing jobs and about 120 million service-providing jobs. I wonder if we're thinking about how the move towards services, how the rise of services impacts the flattening of the Phillips Curve, impacts the effects on wages and of wages in terms of price setting. I think it's a piece that macro economists don't look at very much and I think we're missing a really important piece.
I think all I can really do there is to agree. I mean, I'd love to learn more about this, and I will say in some of the recent discussions about the Phillips Curve and how it has changed, there have been more been more efforts to analyze the effects of labor markets on inflation using microeconomic data as well as macroeconomic data. So the traditional way to do this is the A.W. Phillips way. You use overall unemployment and inflation and you run some regressions on those data. More of the research has used data on individual workers and their losing jobs and finding jobs and their pay and so on, but I think that's moving a little in the direction that you suggest, but I agree that much more movement in that direction, much more attempt to understand the foundations of these aggregate relationships would be very, very useful.
Hi, I'm Sheila Harris from Arizona. One of the factors that affects our labor market economy is immigration policies and enforcement. Could you speak a little bit about that and border states perhaps and what some of the challenges that affect what you're talking about here? Because I see a lot of people such as David indicated that are not going to be able to participate. Yet, we need them to keep our economy going because we have many service sector jobs in our community.
Yes. Well, obviously, you've raised a very complicated set of issues. Let me just address the narrowest connection to my remarks. If we have people in the economy, for people in our country who are not eligible to work because of restrictions, legal restrictions or social restrictions on their ability to work, then that will be another, an obstacle to the Federal Reserve's and other policymakers ability to create high pressure for them. There may be other other workers who may benefit, maybe may benefit, because those workers are not eligible to enter the pool of workers.
There's literature in economics about the extent to which immigration has affected the wages of US workers. In general, the results of that large body of research are that there don't seem to be very large effects of immigrants on the wages of US workers.
It doesn't mean that there aren't some effects in some cases though, but I think the principle fact is just you have a set of people who would like to work, who could contribute productively, who are not allowed perhaps to work, and monetary policy can't do anything about that. Nor can any other policy really except the change in the policy that allows them to work. Now, I would just end by noting that we adopt laws and policies for a variety of reasons, and some of those are to increase economic wellbeing and some of the reasons are are very non-economic, so decisions about immigration policy and about the treatment of legal and unauthorized immigrants, I think justifiably stem from a number of considerations of which the economics will be only one.
President Mary C. Daly:
Thank you. Could you comment on the impact of demographics on the availability of workers? And I'm thinking specifically with the aging population and the wave of retirements that are coming. Will we really have an adequate supply of workers to balance the economic needs? I guess the related question that it's not just the adequate supply, but then it gets into the skill level, but mostly the impact of demographics and aging if you could speak to that for a moment.
Right. As we all know, a larger share of our population will be retired relative to those who are working than we've seen in the past. This is very important for economic conditions. In general, having a larger share of population in retirement means that everybody who's working needs to be more productive, or they'll need to share the fruits of their labors more broadly, or some combination of those of those effects. Economists have been predicting for a long time that the retirement of the Baby Boom generation, with only slower population growth behind them, is going to dampen the growth of our labor supply.
When I was the Director of the Congressional Budget Office, we would show that over the past several decades, the labor force in this country had grown by about one and a half percent per year, and going forward, the labor force would grow by about half a percent per year. That's essentially why people talk about sustainable economic growth in the United States now being around 2% rather than around the 3% that we've got used to in the '70s, '80s, and '90s, and that's partly about retirement. It's partly about women's labor force participation. That has a fundamental effect on the economy.
One of the effects is it's probably holding down interest rates because, in fact, if you have fewer new workers coming into the labor force every year, then the demand for capital investment to equip those workers will be lower. That's part of why the demand for investment for vulnerable funds is down relative to supply, which is part of why interest rates are low. It affects the level of consumption we can sustain. It affects the level of interest rates, but remember what will be most important over the next few decades is the growth in terms of our aggregate output in income is the growth of productivity per worker.
We're going to have a slow growth of the labor force. We can affect that growth. It's not a given constant. It's affected by policies, but it will in any case be lower than it was before, but the fundamental uncertainty is how fast productivity growth will be. If productivity grows more rapidly, on average then we can be much better off economically in the future than we were before despite the slow growth of the labor force, but productivity growth has to stay up there, and then, we have to think about not just the aggregate income, the total size of the pie, but the distribution of that pie. You're welcome.
We can take one more or so.
Thank you for your remarks. Very interesting. I want to get back to the question about monetary policy now being asked to do more than it possibly can. You've been discussing most recently all the issues over which monetary policy really hasn't any impact. How do we get the message across that interest rates or changed interest rates, or monetary policy is the answer to everything? And so the discussion is not where it needs to be, which is on the fiscal side of things. How can we better let people know that we're doing as well as we can, but there are limits here?
That's a great question. I wish I had a better answer. I mean, I think it's very hard, and even today, the main, what I was asked to speak to is really what can monetary policy do. It is the job of people at the Federal Reserve System and observers like myself to try to figure out all the things monetary policy can do, but at the same time we should be always trying to remind people that the Federal Reserve's powers are limited. I think there's a little bit of desperation in this, which is that the Federal Reserve is an active economic policymaker, full of smart and concerned people who are doing their level best to draw on evidence in order to make the US economy stronger for all of us.
That's a pretty strong statement that's hard to make about a lot of other economic policy makers who are tangled up in their own feet. I worked for six years very directly for the US Congress. Doug Holtz-Eakin, who will be up here shortly, was CBO Director before me. I have a lot of respect for many individual members of the US Congress, but somehow the whole is much less than the sum of the parts, and so people are frustrated. I'm frustrated. Many members of Congress are frustrated, and a lot of their constituents are frustrated that they are not able to make more effective policies on our behalf.
I think at state and local government levels, there's a variation in effectiveness in different places. I think in many areas there is more policy innovation, more policy development in state and local governments than in the federal government at this point.
Again, we shouldn't presume all of these issues are for the federal government to solve. A lot of these issues. housing, land use policy, housing, transportation, many issues, education, that are really more fundamentally for state and local governments to solve. So it shouldn't all be be put on on people in Washington or in the Federal Reserve System across the country. For a lot of people across the country who can play some role, we need to hold all of them accountable. I talk, as the Dean of the Kennedy school of Government, about the crisis of have lost confidence in our leaders and in the economic and political and social systems of which we're a part. I think addressing that loss of confidence by being effective is very important.
Political scientists talk about, and I'm not a political scientist, so I'm a little out on the end of the branch here, talk about different kinds of legitimacy that leaders can have. One kind of legitimacy is a process legitimacy. So you became a leader through a process that we respect, so there was voting and the person who got the most votes won the office. That's a process legitimacy. Another form of legitimacy is output legitimacy, which is not about how you got into your job, but whether you're delivering the goods. So is the trash getting picked up? Are the school's working well? Are the streets safe? Are there jobs? Can you afford housing? Those kinds of questions.
I think we have in this country and a number of other countries, a crisis of that legitimacy because people don't see their chosen leaders being effective at addressing the things they need. I think in that context, people will tend to turn to organizations that are functioning effectively, and the Federal Reserve is one of those organizations. So part of this, I think, has to be just building up other sorts of other places in which effective policy is being made, but I also think that people like me and others should be emphasizing the limitations of what we can expect from even a very, very well run central bank.