Fed's Jerome Powell discusses monetary policy at the Jackson Hole Economic Symposium
Notions, of what the new normal might bring were quite uncertain. Since then, our understanding, of the economy, has evolved, in ways that are central to monetary, policy. Of course the conduct of monetary, policy has also evolved. A key purpose of our review. Has been to take stock of the lessons learned over this period. And identify, any further changes in our monetary, policy framework, that could enhance, our ability to achieve. Our maximum, employment, price stability, goals, in the years ahead. Our evolving, understanding, of four, key economic, developments. Motivated, our review. First, assessments, of the potential, or longer run growth rate of the economy have declined. For example. Since january, 2012. The median estimate of potential, growth from fomc, participants. Has fallen from 2.5. To 1.8. Percent. Some slowing, growth relative to earlier decades, was to be expected. Reflecting, slowing population, growth, and the aging of the population. More troubling, has been the decline in productivity, growth. Which is the primary, driver, of improving living standards, over time. Second, the general level of interest rates has fallen, both here in the united states and around the world. Estimates, of the neutral federal funds rate, which is the rate consistent. With the economy, operating, at full strength and with stable inflation. Fallen substantially. In large part reflecting, a fall in the equilibrium. Real interest rate or our star. This rate is not affected by monetary policy but is instead driven by, fundamental, factors, in the economy. Including, demographics. And productivity. Growth. The same factors that drive potential, economic, growth. The median estimate, from fomc. Participants, of the neutral, funds rate, has fallen by nearly, half since early 2012. From, 4.25. Percent, to 2.5. Percent. This decline, in assessment, of the neutral federal funds rate has profound, implications, for monetary, policy. With interest rates generally, running, closer to their effective lower bound, even in good times. The fed has less scope to support the economy, during an economic, downturn, by simply cutting the federal funds rate. The result can be worse economic, outcomes. In terms of both employment, and price stability. With the costs of such outcomes, likely falling hardest. On those, least able to, bear. Third, and on a happier note the record long expansion, that ended, earlier this year, led to the best labor market we had seen in some time. The unemployment, rate hovered near 50-year, lows for roughly two years. Well below most estimates, of its sustainable, level. And the unemployment, rate captures, only part of the story. Having declined, significantly. In the five years following the crisis, the labor force participation. Rate flattened, out. And began rising. Even though the aging of the population. Suggested, keep falling.
For Individuals, in their prime working years the participation. Rate fully retraced, its post-crisis. Decline. Defying, earlier, assessments, that the global financial, crisis, might cause permanent, structural, damage to the labor market. Moreover. Moreover, as the long expansion, continued, the gains began to be shared more widely across society. The black, and hispanic, unemployment, rates reached record lows. And the differentials. Between these rates and the white unemployment, rate narrowed. To their lowest levels on record. As we heard repeatedly, in our fed listens events, the robust, job market was delivering. Life-changing. Gains for many individuals. Families and communities. Particularly. At the lower end of the income spectrum. In addition, many who had been left behind, for too long were finding jobs, benefiting, their families, and communities. And increasing, the productive capacity, of our economy. Before the pandemic. There was every reason to expect that these gains would continue. It is hard to overstate. The benefits, of a strong labor market. A key national, goal that will require, a range of policies. In addition to the support of monetary, policy. Fourth, the historically, strong labor market did not trigger, a significant, rise in inflation. Over the years. Forecasts, from fomc, participants. And private sector analysts. Routinely, showed a return to two percent inflation. But these forecasts, were never realized, on a sustained, basis. Inflation, forecasts, are typically, predicated. Once a natural rate of unemployment, or used star. And of how much upward pressure, arises, when the unemployment, rate falls, relative to, ustar. As the unemployment, rate moved lower and inflation, remained muted. Estimates, of ustar, were revised, down. For example, the median estimate from fomc, participants, declined, from 5.5. Percent in 2012. To 4.1, percent at present. The muted responsiveness. Of inflation to labor market tightness, which we refer to as the flattening of the phillips curve. Also contributed, to low inflation, outcomes. In addition. Longer term inflation, expectations. Which we have long, seen as an important driver of actual inflation. And, global disinflationary. Pressures. May have been holding down inflation, more than was generally, anticipated. Other economies, have also struggled. To achieve their inflation, goals in recent decades. The persistent, undershoot, of inflation from our two percent, longer run objective, is cause for concern. Many find it under intuitive, that the fed would want to push inflation, up, after all low and stable inflation, is essential. For a well-functioning. Economy. And we are certainly, mindful, that higher prices or essential, items. Such as food, gasoline, and shelter. Add to the burdens faced by many families. Especially, those struggling with less jobs and incomes. However. Inflation, that is persistently. Too, low, can pose, serious, risk of the economy. Inflation, that runs below its desired, level can lead to an unwelcome, fault in longer term inflation expectations. Which in turn, can pull actual, inflation, even lower. Resulting, in an adverse, cycle, of ever lower inflation. And inflation, expectations. This dynamic, is a problem because, expected, inflation, feeds directly, into the general, level of interest rates. Well-anchored, inflation, expectations. Are critical, for giving the fed the latitude, to support employment, when necessary, without destabilizing. Inflation. But if inflation expectations. Fall below our two percent objective. Interest rates would decline, in tandem. In turn we would have less scope to cut interest rates to boost employment, during an economic, downturn. Further diminishing, our capacity, to stabilize, the economy through cutting interest rates. We have seen this adverse dynamic, play out in other major economies, around the world. And have learned. That once it sets in it can be very difficult to overcome. We want to do what we can to prevent such a dynamic, from happening. Here. We began our review with these, changes to the economy, in mind. The review had three pillars. A series of fed listens events held around the country. A flagship. Research, conference. And a series of committee discussions, supported, by rigorous staff analysis. As is appropriate, in our democratic, society. We have sought, extensive. Engagement with the public throughout the review. The fed listens events built on a long-standing. Practice, around the federal reserve, system of engaging. With, community. Groups. The 15, events involved, a wide range of participants. Workforce, development, groups, union members. Small business owners. Residents, of low and moderate income communities. Retirees. And others.
To Hear about how our policies affect people's daily lives and. Livelihoods. The stories, we heard at fed listens became a potent, vehicle for us to connect with the people, and communities, that our policies, are intended to benefit. One of the clear messages, we heard was that the strong labor market that prevailed, before the pandemic. Was generating. Employment, opportunities, for many americans. Who in the past, had not found jobs readily available. A clear takeaway, from these events, was. The importance of achieving, and sustaining, a strong, job market, particularly, for people from low and moderate income communities. The research conference, brought together some of the world's leading, academic, experts, stressed, topics, central to our review. And the presentations. And russ discussion, we engaged, in. Were an important, input to our review, process. Finally. The committee explored the range of issues that were brought to light during the course, of review, in five consecutive, meetings beginning in july, 2019. Analytical, staff work put together by teams across the federal reserve system. Provided, essential, background, for each of the committee's, discussions. Our plans to, conclude the review earlier this year, were, like so many things delayed by the arrival of the pandemic. When we resumed our discussions, last month we turned our attention, to distilling. The most important, lens of the review. In a revised, statement, under run goals and monetary policy, strategy. The federated, structure of the federal reserve. Reflected, in the fomc. Ensures, that we always, have a diverse, range of perspectives, on monetary, policy, and that is certainly the case today. Nonetheless. I am pleased to say that the revised, consensus, statement was adopted, today with the unanimous, support, of committee participants. Our new consensus, statement like its predecessor. Explains, how we interpret the mandate congress has given us and describes, the broad framework that we believe will best promote, our maximum, employment and price stability, goals. Before addressing the key changes in our statement let me highlight some errors, areas of continuity. We continue to believe that specifying. A numerical, goal for employment, is unwise. Because the, maximum, level of employment, is not directly measurable. And changes over time, reasons, unrelated, to monetary, policy. The significant, shifts, in estimates, of the actual rate of unemployment, over the past decade, reinforced, this point. In addition we have not changed our view that a little run inflation rate of two percent. Is most consistent, with our mandate to, promote, both maximum, employment, and price stability. Finally. We continue to believe that monetary, policy must be forward-looking. Taking into account the expectations. Of households, and businesses. And the lags in monetary, policy's, effect on the economy. Thus. Our policy, actions, continue to depend on the economic, outlook. As well as the risks to the outlook. Including potential, risks to the financial, system that could give our goals. The key innovations, in our new consensus, statement reflect the changes in the economy, i described. Our new statement, explicitly. Acknowledges, the challenge, posed by the proximity, of interest rates to the effective lower bound. By reducing, our scope to support the economy by cutting interest rates, the lower bound, increases, downward, risks, to employment, and inflation. To counter these risks we are prepared to use our full range of tools to support the economy. With regard to the employment side of our mandate. Our revised, statement emphasizes, that maximum, employment, is a broad-based. And inclusive, goal. This change reflects, our appreciation. For the benefits of a strong labor market particularly, for many in low and moderate income communities. In addition, a revised, statement, says that our policy decision, will be informed, by our assessments, of the shortfalls. Of employment from its maximum, level. Other than by deviations. From its maximum level, as in our previous statement. This change made or subtle but it reflects, our view that a robust, job market, can be sustained, without causing an outbreak of inflation.
In Earlier decades, when the phillips curve was steeper, inflation, tended to rise noticeably, in response, to a strengthening, labor market. It was sometimes, appropriate, for that to tighten monetary, policy, as employment. Rose, toward its estimated, maximum, level. In order to stave off an unwelcome, rise in inflation. The change to, shortfalls. Clarifies. That going forward. Employment, can run at oracle time estimates of its maximum level without causing concern. Unless accompanied, by signs, of unwanted, increases, in inflation. Or the emergence, of other risks. That could impede the attainment, of our goals. Of course when employment, is below its maximum, level as is so clearly the case now. We will actively, seek to minimize, that shortfall, by using our tools to support economic, growth and job creation. We have also made important changes with regard to the price stability, side of our mandate. Our longer run goal continues, to be in an inflation, rate of two percent. Our statement, emphasizes, that our actions to achieve both sides of our dual mandate. Will be most effective, if longer term inflation, expectations. Remain, well anchored at two percent. However. If inflation, runs below two percent, following economic, downturns. But never moves above two percent, even when the economy, is strong. Then over time. Inflation, will average, less than two percent. Households, and businesses will come to expect, this result. Meaning. That inflation, expectations. Would tend to move below, our inflation, goal, and pull realize inflation, down. To prevent this outcome, and the adverse, dynamics, that could ensue. Our new statement, indicates. That we will seek to achieve, inflation, that averages, two percent, over, time. Therefore. Following, periods when inflation has running below two percent. Appropriate, monetary, policy, will likely, aim to achieve inflation, moderately, above two percent. For some time. In seeking to achieve inflation that average percent over time we are not tying ourselves, to a particular, mathematical, formula, that defines, the average. Thus our approach, approach, could be viewed. As a flexible, form, of average inflation, targeting. Our decisions about appropriate monetary, policy will continue to reflect, a broad array of considerations. And will not be dictated. By any formula. Of course. If excessive, inflationary, pressures, were to build. Or inflation, expectations. Were to ratchet above levels consistent with our goal. You would not hesitate, to act. The revisions to our statement, add up to a robust, updating, of our monetary, policy framework. To an extent, these revisions, reflect the way we have been conducting, policy in recent years. At the same time however there are some important, new features. Overall. Our new statement on longer run goals and monetary, policy strategy, conveys. Our continued, strong commitment, to achieving our goals. Given the difficult, challenges, presented by the proximity, of interest rates to the effective, lower event. In conducting, monetary policy we will remain, highly focused. On fostering, as strong a labor market as possible, for the benefit of all americans. And we will steadfastly. Seek to achieve a two percent inflation, rate over time. Our review has provided a platform, for productive, discussion, and engagement with the public we serve.
The Fed listens events, helped us connect with our core constituency. The american people. And hear directly, how their everyday, lives are affected policies. We believe that conducting, a review at regular intervals. Is a good institutional, practice. Providing, valuable, feedback, and enhancing, transparency. And accountability. And with the ever-changing, economy, future reviews will allow us to take a step back. Reflect, on what we've learned. And adapt, our practices, as we strive to achieve our dual mandate, goals. As our statement, indicates, we plan to undertake a thorough, public review of our monetary, policy, strategy, tools and communication. Practices. Roughly, every five years. Thank you very much. And thank you, chair powell. For your remarks. And also, for, engaging, in a follow-up, conversation. I actually believe, that that. Sorry i can hear i think i can hear you now susan. Okay. Thank you, very much chair powell. Uh both for your remarks, about, the, new consensus. Statement. And also. For engaging. In a follow-up, conversation. I believe, that this is actually the first time, that after, the chair's, remorse. At the. And so, i wanted to. Commend, for that as well. Uh why don't we just dig right in and i'd like to talk. About. Which is focused, on. The changes. In the. Inflation. Uh. Strategy, that you'll be following. So, uh, as you explained, to us the, inflation. Quantum, target, remained, at two percent. However, going, forward you could shift, to, a flexible. Average. Inflation, target. Strategy. And while there's a lot of discussion, in the academic, lecture. And policy, once. Or, well aware, of what an. Strategy, is like. I wonder if you'd say more about. How. To communicate. That to the public. To what extent is it going to seem like a real change. Well um. So the public communication, of it is is very important as you point, out and as i mentioned in my remarks. We're one of the fed listens events and many other engagements. That uh. People don't generally. Think about. Inflation. Moving up is a good thing. There is that the, the um. We're talking about uh inflation, moving. Moderately. Which is. The overshoots, will be moderate, which is to say not large and they will for some time which is to say not permanent, or, stained for very long. Periods, of time. So. I think it's very important that we get that message out it's also important that um. I think that people understand that there's this is not a formulaic. Approach, uh you know the committee will continue, to consider, all of the things that it typically, considers. In making monetary, policy. Uh but will aspire, to, have inflation. Um. Run above two percent. Uh. After periods in which it runs, for extended an extended period below two percent, so that we can average two percent so i think that that concept, should be well understood. And um. I think it's the appropriate, one i, began the review. We understood. That situation, we're in, calls for an exploration. Of makeup strategies, of various kinds and this seems to us to be the right makeup, strategy. Where you where, undershoots, of inflation, are not forgotten, but are made up but made up in a way that, that allows us to. Uh you know to continue consider, all the other things that come into monetary, policy. Often unexpectedly. Rather than trying to find uh. Follow a particular formula. Thank you, um. So. One way to think about that perhaps, is. The way that uh your colleague, rich flair, governor claret i have described, it, it's more of an evolution. Perhaps, than the revolution. So if, i could just um i think that's right. Go ahead. Uh if i could just push that a little bit further. And won't do the comments that you made about the framework. And. Um but we're so much focused, on a, really challenging, economic, situation. The crisis, that we're in at the moment. Are there changes in military, policy, that people should expect to see as a result, of some of these changes in the strategy, that you have. Um. So i guess i would, i would just um, set the state a little bit we we began the review. Uh. Uh in or we announced it probably that we were beginning a review, in early, 2019. So the, and and, we had planned to announce our conclusions, and indeed we're ready to announce our conclusions. In the april or june meeting. This year. So, most of the that was done and there was a lot of work done took place during, 2019. So the review, is meant to establish. Um. A framework, for monetary, policy that will guide, our.
Decisions, Foreseeable. Future it was meant to take into account. The learning. That we that we did. In watching a full business, cycle. Take place, after the global financial, crisis we, had seen a full bid cycle or close to it, and now we have indeed seen a business cycle so i think we thought it was time to update. So it wasn't, um, it wasn't, designed, to dictate, any particular. Future, decision, about. Interest rates or other monetary, policies, however. All of the things. We do, going forward, will be. Will reflect, the changes that we've made to the framework, so i i would think of it that way it doesn't dictate, particular. Outcomes, though. Uh. At particular, meetings or, that you know or the timing of those outcomes. Other than the the goals that we're seeking to achieve. Um so you uh mentioned, a bit, i'd like to hear a bit more about this. Um. The rationale, and you're thinking, for launching. This uh review, to begin, with. Um. You've mentioned, that it was. Of course 18 months ago so well before, the current. What the process, was and how it unfolded. Anything differently. Sure so the review is really. Part of a broader program. Broader, program. Of enhanced, transparency. And accountability. Really something the fed's been working on for 30 plus years now. You know today, surveys, show that. Public faith in large institutions. Around the world, is under pressure. And so i think institutions. Like the fed have to. Aggressively. Seek transparency. And accountability. To you know to preserve our democratic, legitimacy. And they're a bunch of things that we're doing the review was the center of that though. Um. So, other i thought other, central banks have done various forms of reviews. Uh. Not, all of them of their monetary, policy, but um some had and i thought this would be, something we could do we get great benefits. And and also be able to update our framework. Um, and the economic. Question we had to answer was how to adapt. Our framework, to, what we really had learned. Since the global financial, crisis during that long expansion.
As I mentioned we knew. That. You know that we were. Going to be closer to the effect of lower bound in all likelihood. And had to had to address that as i described in my remarks we didn't know how it would come out. Um i'm very happy with where it came out, i will if you'll forgive me or allow me just say for a second that, we were in the design, process, of this, uh when, uh vice chair rich clarida, arrived in the fall of 2018. And there were only three governors i think at the time, he had. He had the time. And really took this on and led it, and i we would not be sitting here today talking about this without his great, uh leadership, efforts in in in bringing this thing forward i'd also mention the other members, of the. In the subcommittee, on communications. Which uh which rich. Claire's. Governor brandt. Uh eric rosengren. And, ron and pretty much every member of the fomc, every participant. Can look at the document, and see their own views, and input reflected, so. Um. So i think in terms of i, mentioned, some of the things, uh i think there were. There were great, gains, in. Just in the process. Of engaging, with lawmakers. And engaging, with the general public. On these issues, and seeking, input, and and accountability, i think, that is a most welcome. Thing when you do that and i i. So i think even apart from the gains in the framework. Um. That was that was something i was quite struck by, the fed listens events. Were just, uh. Just really striking, if you i you were in chicago, i think that that. That conference, there were two panels, of people from low and modern income communities. Who spoke about. You know the economy, in their lives and it was just riveting, it was really that was the highlight of that conference, which, of course was shocked with you know, global monetary, policy experts but to hear. Them talking about what, a tight labor market, means. In their communities. Was something that none of us will forget, and i think we you know we knew that intellectually, but i think. Hearing it and hearing it a lot over the course of federalism, and then seeing. The sharing of the benefits, from of a labor market, that's tight. Um in the in the sort of, eighth and ninth years of the expansion, wages began to move up more for people at the lower end, we saw labor first participation. We saw. Uh employers. Um you know doing lots and lots of things to recruit, people who who might not have been recruited, earlier so. It's a it's a very virtuous, thing. And one that i i mentioned in my remarks. Will take support from congress, over time too it's, it's not just about monetary policy it's about. Education, it's about training about health care it's about all the things that enable people to. Get into the labor force and stay there and progress, in their careers through the labor force so. I think those are some of the things i take away from from the process. So i i mean as someone who did participate. In at least some pieces. Of, the process. Um i i will, uh, also. Comment, on, just how public, and already as you mentioned, is, not thought of as an institution. That really does reach out to the public. And engage in different ways. I wonder, i wonder if you say a bit more about, how, as. Regular, process. The. Influence. Of. Voices, from the public, actually does play a role, in terms, of, monetary, policy, decisions, and thinking because that's a topic i think is not at all well understood, by the public. Well we so we have through the reserve bank system. Uh we have um. A. You know unique, really, um, presence. In communities, around, around the united states. And we're present, in not just in the business, community but in educational. Medical. Uh we through our community affairs. Groups were present in neighborhoods. And. We, harvest, that information. And, it goes, into. A lot of what. You know fomc, participants, say it goes into the research, that we do goes into the data that we collect.
We Create. Collect a lot of unique data on. Um burst outcomes, among. Different groups and that kind of thing and all of that, goes into. Our, fomc, deliberations, in particular. It informs, our understanding, of what maximum, employment, really means, so we focus, on. At every fmc, meeting in every briefing. In pretty much all of my public remarks and my colleagues public remarks in the monetary policy report we will call out. Different. Uh for example. Unemployment. Rates and labor force uh results, for different. Ratios. Not just because it's the right thing to do really does inform, thinking about about maximum, employment. And um, so this is something that we're, very focused on these these disparities, are a long-standing. Feature of the american economy. And, and they really do. Hold us back, uh, you know as as raphael bostic, uh. So, pointed out so well recently, they weigh on the whole. Economy. And um. So all of that goes into our thinking, uh not in a mechanical, way but in our understanding. Of, what maximum employment, is and that's why, you did you saw when we, during 2019. When the unemployment, rate fell to three and a half percent, well below most estimates, of the sustainable, rate, that you know the natural rate of unemployment. You didn't see us raising rates or expressing, concern, you saw us you heard us celebrating, that and you actually saw us cutting rates. During 2019. Not because of that but but nonetheless, we weren't hesitant, to cut rates because of the very low level of unemployment. So, just to just to follow up on that uh a bit you have made some very, strong. Uh and very, clear statements. About, racial justice. And the challenges, of economic, disparities. Particularly. Related, to. Racial inequalities. And of course we know that. Many of those disparities. Are in, such, clear relief, in the current, context. And so, i'd like to ask you to say a bit more, having, explained, to us that the employment, mandate, will be, interpreted. In a broader, and more inclusive. Way. What else can the fed do, to, address, some of those. Those really important disparities. So. I would say as i mentioned these are long-running, features of our economy, which which. Which figure into our understanding, of the economy, and into our decisions. Um, and i would say also that. While they're long-standing. The pandemic. Has really, shown, that the effects of the pandemic, have fallen. To. A large extent not exclusively, but to a large extent. On people working in the service economy, in. Jobs. And these. Uh, relatively, low wage workers, and that's, been heavily, skewed, toward. Minorities. Women, low and moderate income, community, uh. So. You know what is the fed's what can the fed do so as i mentioned we do already. If you look if you look at the record, we're doing lots of research. Uh around these issues we're talking about it uh publicly, and we are, talking about these issues publicly and we're incorporating, into our thinking. Um i i think the the key. Thing though is that, the single most important thing we can do here. Is to support a strong labor market. And as i mentioned earlier that is something that, you know. We can do but that that is more of an, all governmental. Society. Uh project. That we could take on uh forcefully. It's it can't just be. The the way the fed, manages interest rates through the business cycle although. In other words it's not it to wait until the eighth and ninth year of the. Of the cycle to get those kinds of results, is you know we can do better than that but with other policies. Um. I think, uh so i think we're doing.
Those Things that we can do i think we're a lot of them we're doing and we'll keep them and keep looking for new ways it is important to point out though. Our, interest rate, uh policies, and our other policies, affect, all americans, and are for the benefit of all americans, they're just, in that sense blunt tools. And. There are better tools for. For. Dealing, directly. With distributional. Issues and those are the tools. That are held in our system of government, by by elected officials. And and the people who are appointed an executive branch. Who work for an elected official. So. It is as i said it needs to be an all of government all of society, kind of thing we'll keep doing what we can do but i i wouldn't um. I i, i we we. We really need it to be broader, than just the fed and i i think we're we're sort of doing the things that we think we can do now and we'll keep doing them. So, it certainly, does, kind of um, it have to be a broader. Effort. Um, in that context i wanted to just ask you a bit. About, some of the. The special, programs, the facilities, to try to. Get funds, out into the community. In particular. In places, and for groups that are really struggling. As you know the fed has come under some criticism. That, some of the facilities, are not. Reaching, some of the groups that are the hardest hit for example. Minority, businesses, are often often described, and i wonder if you'd say, some, a bit more, about, whether there, are additional, things that the fed could be doing perhaps in partnership, with, others, in that. Context. So. We we did. A lot of on the main street facility we did a great deal outreach, to. Uh community. Uh development, financial institutions. And minority. Uh depository. Institutions. And, other organizations. That represent. Those constituencies. And so we're doing everything we can to reach those constituencies. Remember this is a very broad program. Designed, to make loans, so these are these are loans that we can make we can't make, grants, the way effectively, the ppp, program, does. That's really fiscal policy, what we're doing is we're making loans, and the law requires us to have a reasonable expectation, that the loans will be repaid. A bank has to keep a five percent, uh piece of that loan. So. We are working to reach, uh you know smaller and medium-sized, businesses, through that. But i do think you know. There is. This is a unique, exercise, for us we've never done, anything, like that lending to, uh businesses. I would say we've never done it but we've never tried to reach out broadly like this particularly to smaller institutions. We're really not. The ideal. We're and we're doing it uh we've, we've put, more effort and work into the main street facility than everything else, we've done. It's very, challenging exercise, we're making progress, there i think we're um, we're getting uh more and more signed up more and more loans getting made. Uh cdfis, and smaller community banks are in fact active.
But It's going to take, more than that it's going to take, um. You know, more. Um. More direct, aid i think to smaller businesses. And i i think that that's that's an area where fiscal policy. Can really do, things that it's very hard for us to do and in fact the p program. Has been doing. So i would look to um i would look to. The policy, for for help there. Yeah and so clearly it has to be a partnership, to have the kind of broad impact, um, that you know that we would hope to see. I, do want to talk, a bit about, um. The current crisis, compared, to other crises, that the that the fed has grappled, with, um and in particular. One of the one of the questions that i get asked, is, to what extent. From the perspective, of monetary, policy. Is grappling, with a. Major recession, that's caused by a pandemic, any different, from. Grappling, with one that is caused by a financial, crisis, as we saw, uh back in. 2008-2009. Be very interested in your thoughts about about. That difference. Yeah so there it's a very very differentiation. The two episodes, and i think that i, i think uh so far the two. Beginnings, of recovery. And and that recovery, are quite different. This crisis, did not originate, in the financial, system or from an asset bubble or from an imbalance, or anything like that. Um, and all of those. Were features, of, the you know the housing bubble, and housing crisis, and, and you know the financial crisis. That was the heart of of the global financial, crisis and it was it was global in that sense, this really was a natural. Disaster. That hit an economy, that was doing well. With a banking system that was well capitalized. And and highly liquid, and, and understood its risks pretty well. Um, and, has actually been a, source, of strength, so that's that's very different, although we have seen lines emerge, in the broad financial system in the capital markets for example. Under great stress we've seen, something, and no doubt we'll come back and look at those when, when it's time to do that. I mean what what happened here was. Essentially, people around the world. Sometimes, required by their government sometimes on their own withdrew. From certain kinds of economic, activity, to protect themselves from the pandemic. All around the world there's no precedent for that there's no playbook, for that. So, our response, was actually quite different from what it was in the um. In the financial, crisis, so we immediately, cut rates to zero we we raised, uh, our asset purchases. Essentially, without limit to support market function. Um, we weren't we weren't trying to stimulate, the economy, in the sense that the economy, was partially, shut down, the idea was not to stimulate, people to go out to spend it was to, provide, a little bit of comfort. To assure that that, credit was flowing to households, and businesses, and then when the expansion, came. To support, that recovery, and expansion. With monetary, policy, so. Very very different, uh also, you know this this business of lending, to. Non-financial. Corporates, and uh and also to um. State and local government. Unique, and that was because the intermediation, process simply stopped.
The Financial. System. It was of such a flight to safety when the pandemic, really hit. That, um. That. Credit intermediation, between savers and borrowers, just essentially, stopped and we had to step in as a backstop. For the municipal, market, for the corporate markets, and for and and have been doing so for, smaller, businesses. And we did so around the world for dollar funding markets now that was similar to during the financial crisis so, it's it's very different but i would say this though, we. You know, so we had the deepest, quarter, loss, in gdp, that we've ever had but remember the economy was strong back in february, so. There's a lot of strength, in the economy. In the recovery, in may and june. Came sooner and was stronger than expected so that there's still a healthy economy, under here. Except for this area that's been directly, affected, by covid, so, as if we can keep the disease under control. The rest of the economy, can recover, fairly quickly. The problem, this time is that there's a particular. Part of the economy. Uh which involves. Getting people together. And feeding them flying them around the country. Having them sleep in hotels. Entertaining, them, that part of the economy. Will find it very difficult to recover. That's a lot of workers, that's, millions, of people whose, jobs are. They're really going to struggle to find work and we need to stay with those people we need to support them, and help them get back into their, working, lives, stay in their homes, congress has done a lot on that we've, a lot and we'll keep doing what we can, but i do think it's um, that that's going to be the. I think we will get through this period. Maybe with some starts and stops, with reasonable, growth but, ultimately, we're looking at a long tail of probably a couple of years at least of people, of relatively, high employment as people who. Worked in those industries. Will struggle to find work and again. We need to support them. Yeah so, kind of very different trajectory. As you've described. So in that context. Do you see uh enroll, for the fed in terms of, some of, those financial, institutions. That really do community, development. You know we're, um. We're very. Highly engaged, with the with the cdfis, the community development, financial, institutions. Um and those of them that are banks. You know are taking part in our programs, now, they took part in the ppp, liquidity, facility, so uh we strongly support them. Engage, with them and the same is true of mdis. Um. We um. It's. You know i think. That isn't where the that isn't where the liquidity, shortage is that isn't where the uh. The the big problems in the economy, are really in, actually, in the um. You know the service sector and the manufacturing, sector it's in the real economy this time the last crisis, was really around the financial, system. And big credit losses. Here we've got highly capitalized, institutions. And, but and we have we have credit problems in the real economy. And we have, uh you know. We have a different situation, this time. Thank you. So we are almost, out of time, unfortunately. And uh i thought what i would do for just our last uh, minute or two. Was to cycle back to the review, this very public review, of the, monetary, policy, framework, and ask if you had any. Dif, additional. Thoughts or perhaps the next steps. That you expect the fed to take in terms, of. Moving forward, with, the changes that you've described, for us. Well, first of all i'm, i'm. Very pleased with how this worked out again i think it's a productive, wasn't the standpoint, of. Of just public engagement. And that's that's, that's always a good thing for an institution, like the fed, particularly, the fed. Uh which has this precious degree of independence, and i think that puts a burden on us to seek accountability. Not just, go through the motions but really actively, engage, and, explain, ourselves, as clearly as possible, to the public. And the public's elected representatives, so i think the review has helped on that, i think um. In that sense it's been a success, i think really. Um, the changes to our framework.
Time Is going to tell uh and. What we do going forward is really going to. Decide. The the effectiveness. Of of the changes we've made. Uh i'm. I i'm, i think it's a very promising, set of changes to deal with what is a reality, of a quite difficult. Uh macroeconomic. Context, of low interest rates, low inflation. Relatively, low productivity. Slow growth and those kinds of things, in a flat phillips curve you you have to put all that together, and see that you know you we've really got to work to find, every. Every fi every, scrap, of leverage. That in in, helping stabilize, the economy which is our role so, time will tell. And our actions ultimately, tell. But i'm very pleased with you and so grateful to be part of such a great organization, where, we've really used every part of the organization. To advance, this uh. This project, and i'm, i'm, really about to be to be part of this. Thank you very much chair powell, uh, it was really, a pleasure, both to speak with you this, uh well this morning here. But also, i'd like to congratulate. You and the federal reserve, team thoughtful. And and publicly. And.