Ourobjectivehasbeentorestorepricestabilitywhilemaintaining a stronglabormarket, avoidingthesharpincreasesinunemploymentthatcharacterizedearlierdisinflationaryepisodeswheninflationexpectationswerelesswell-anchored.
Whilethetaskisnotcomplete, wehavemade a gooddealofprogresstowardthatoutcome.
Today, I willbeginbyaddressingthecurrenteconomicsituationandthepathaheadformonetarypolicy.
I willthenturnto a discussionofeconomiceventssincethepandemicarrived, exploringwhyinflationrosetolevelsnotseenin a generation, andwhyithasfallensomuchwhileunemploymenthasremainedlow.
Theunemploymentratebegantoriseover a yearagoandisnowat 4.3 percent, stilllowbyhistoricalstandards, butalmost a fullpercentagepointaboveitslevelinearly 2023.
After a historicallydeepbutbriefrecession, inmid-2020, theeconomybegantogrowagain.
Andastherisksof a severeextendeddownturnrecededandastheeconomyreopened, wefacedtheriskofreplayingthepainfullyslowrecoverythatfollowedtheglobalfinancialcrisis.
Mycolleaguesand I judgedattheoutsetthatthesepandemic-relatedfactorswouldnotbepersistentandthusthatthesuddenriseininflationwaslikelytopassthroughfairlyquicklywithouttheneedfor a monetarypolicyresponse.
Inshort, thattheinflationwouldbetransitory.
Standardthinkinghaslongbeenthataslongasinflationexpectationsremainwell-anchored, itcanbeappropriateforcentralbankstolookthrough a temporaryriseininflation.
Inflationroseandbroadenedoutfromgoodstoservices, anditbecameclearthathighinflationwasnottransitoryandthatitwouldrequire a strongresponseifinflationexpectationsweretoremainwell-anchored.
The 4.5 percentagepointdeclineininflationfromitspeaktwoyearsagohasoccurredin a contextoflowunemployment, a welcomeandhistoricallyunusualresult.
So, howdidinflationfallwithout a sharpriseinunemploymentaboveitsestimatednaturalrate?
Pandemic-relateddistortionstosupplyanddemand, aswellassevereshockstoenergyandcommoditymarkets, wereimportantdriversofhighinflation, andtheirreversalhasbeen a keypartofthestoryofitsdecline.
Theunwindingofthesefactorstookmuchlongerthanexpected, butultimatelyplayed a largeroleinthesubsequentdisinflation.
Ourrestrictivemonetarypolicycontributedto a moderationinaggregatedemand, whichcombinedwithimprovementsinaggregatesupplytoreduceinflationarypressureswhileallowinggrowthtocontinueat a healthypace.
Aslabordemandalsomoderated, thehistoricallyhighlevelofvacanciesrelativetounemploymenthasnormalizedprimarilythrough a declineinvacancies.
Withoutsizableanddisruptivelayoffs, bringingthelabormarketto a statewhereitisnolonger a sourceofinflationarypressures.
A wordonthecriticalimportanceofinflationexpectations.
Whileresearchersdifferintheirapproachesandtosomeextentintheirconclusions, a consensusseemstobeemerging, which I seeasattributingmostoftheriseininflationtothiscollision.
Alltold, thehealingfrompandemicdistortions, oureffortstomoderateaggregatedemand, andtheanchoringofexpectationshaveworkedtogethertoputinflationonwhatincreasinglyappearstobe a sustainablepathtoour 2% objective.
Ourstatementonlonger-rungoalsandmonetarypolicystrategyemphasizesourcommitmenttoreviewingourprinciplesandmakingappropriateadjustmentsthrough a thoroughpublicrevieweveryfiveyears.
Thelimitsofourknowledge, soclearlyevidentduringthepandemic, demandhumilityand a questioningspiritfocusedonlearninglessonsfromthepastandapplyingthemflexiblytoourcurrentchallenges.
Thankyou.
Allright, goodmorning.
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