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tv   Former Fed Chairs Yellen Bernanke Others Discuss Inflation - Part 3  CSPAN  October 15, 2019 4:52pm-5:49pm EDT

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doing stuff and the fed is in the mix, no question, but it's really markets working for -- for low income people. you know, i guess from the evidence i've seen that you could go to $15 on a minimum wage which is something that's been proposed, but you would have to phase it in over a long period because there are places in the country where $15 an hour gets you to around the 40th percentile wage, but i think the research would support that idea. >> okay. i would have to end the panel now. thank you very much to our panelists. [ applause ]
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or conversation from the brookings institution on monetary policy and inflation continues. coming up, we'll hear from former fed chair ben bernanke and new york times columnist and author paul krugman. >> thank you all for continuing the conversation. it's almost hard to believe there's anything left to say after those panels. so i was going to propose that we do this whole thing in rap -- or maybe in finnish, but i thought that was a little unfair given that i haven't given the panel advanced warning of that. >> that's right. >> also, you wouldn't want to hear me. so i am joined here by olivia blanchard formerly of the international monetary fund and
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m.i.t. loretta midwe loretta mester, and ben bernanke, and our colleague gary brookings and paul krugman, the economist at the university of new york. columnist for "the new york times," krugman is the guy that makes all journalists nervous because he seems to be more productive than the rest of us and that's kind of frightening given that he does all of these other things on the side, but we can discuss that later. so i wanted to start by asking each of the panelists a bit of what they took away from the conversation we had this morning. i want to start with olivier who makes the observation in the slide that you see behind us about that's been made about how the wage phillips curve behaves perhaps as one might have expected, but prices aren't rising and so the question is what the hell is going on?
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>> okay. so i had prepared a slide in anticipation, and i think it has survived the proofioevious thre hours very well, and what implications it has and the diagram on the -- which side is it, and it started in familiar form and it is in the unemployment rate and the rate of inflation measured by the employment cost index and you can plot it in a scattered diagram, but it's there and it's consistent with everything we've heard. what people have put on the right-hand side typically is the phillips curve. what i've done instead is plugged the wage inflation using the employment cost index which is the blue line and the gdp price which for the purposes of
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thinking about mark-ups is clearly much better value than the cpi and this is what we produce and basically, it's visually striking which is that although we saw from the previous graph that the wage inflation was kind of okay. the philips curve was okay and there doesn't seem to be much of a violation with the gdp price deflator and the employment cost index and it's the disconnect. people have talked about the -- it's true. there's a lot of variation that -- that in the price index which is not coming from the cost index. these two dimensions. so starting there, my reactions today, so i think the first puzzle is the slope of a relation between wage inflation and unemployment and on this, i think, we're not clear as to where the slope has really declined or not. my sense from our own regressions is that it has, but
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somebody argued that if you do it right it has remained more or less the same. i think it has decreased. and with the explanation, i think, is a very plausible candidate and subject to the test that i suggested, and it seems to work. the other is that maybe there has been a change in the bargaining structure on wages and basically, we think of targeting the splitting the rents from the match. well, if the workers are already at the bottom end, there's nothing that could be done and if anyone was paid the minimum wage and there was no effect on unemployment and wages. i think that something like this is happening, but i don't think we solved that one and we need to do it. on the mark-up and the second graph, is it -- what is it? what's going on? >> i suspect measurement was a big part of it and the more you know about the gdp deflator the
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more you worry, but we've heard various explanations on pricing and some sectors really have to take the international prices given and therefore you will not see the kind of pass-through and that's not throughfold and we need to take the way it was down for labor and try to understand it. there's still work to be done. on the past implications which is the theme of the panel, this actually, and the stability of the wage phillips curve and the instability for the price phillips curve has a fairly big implication which hasn't been examined and it should have been in the context of thinking what the fed should do is have the price inflation target. it clearly is much more related to labor market development. so from just the point of view, it seems a better measure to
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look at, but from the nomative point of view and the mark-ups have distortions and it doesn't have a mock-up in it namely the wages and when you see wage inflation at 3% and you see productivity off at 1% then you're home. even if the gdp deflator in my case and the cpi and the core cpi moves around. so we had talked over dinner with janet and we said we would write a paper together. janet has been a bit busy, but i think that is still worth exploring. also, politically, actually, telling people that the fed cares about wages and has wage inflation as a target is probably a plus. >> does that mean you'll be tightening now because wages are rising? >> i would think it's more or less with employment and wage inflation is about free something and productivity is a
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1-1 and that's consistent with the price level correctly measured for about two. yeah. i'm more on the hawkish side these days. >> oh, my goodness, than jared. >> lorena mester. i've noticed in a number of your presentations over the recent months you -- you have a lot of things and if it's the case that the non-monetary factors are holding back with measured inflation and there its that's a different implication for policy than if it's an aggregate demand shortfall. i'm sort of curious. what sense do you make of all of this evidence that you've heard this morning and what's driving inflation with the work we've done and the work you've done with the cleveland fed. what explanations have you bought, and h.l. menkin is from baltimore and he had a line that said for every problem, there is a simple, elegant solution
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that's wrong. i don't think there is a simple one-word answer in understanding dynamics and if you look at structural part of inflation that is related to the labor market and the acyclical part and the structural part and they're prices that usually move. >> with the tightness. >> and the acyclical are things like health care. >> health care which is the big part of it and other parts that aren't really related and the cyclical part is only 40%, right, of inflation now. and the idiosyncratic factors that affect the labor market and affect the inflation rates and it's not just the labor market and the tightness with the labor market, but if you do just look at the cyclical part it certainly is correlated with tightness in the labor market. so i believe there is still this
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relationship and that we can use it to help predict inflation. that said, you have to recognize that there are these acyclical factors affecting measured inflation, and so i think you want to be careful about sort of trying to explain everything that's going on in the labor market. so that means if you see a shot and it may take longer to get back to the inflation target that would otherwise with the communications point of view and you may want to be thinking about a range as opposed to a point target because you have these shots that will move inflation off of your target even if your trend inflation rate is moving up. so there are implications for how you think about how you communicate your target and i think the results we saw today with the inflation expectations are provocative and it makes you think about a different way of communicating and a different way of thinking about the
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interplay between inflation expectations and your target. so from my point of view, you may have shocks that move inflation off the trend and the trend underlying inflation rate will be to remind inflation expectations and so i agree with the remark that janet made in the beginning that the stability of inflation expectations is key to allow you to run your monetary policy. i think the results that talked about the amazon effect and the fact that pricing models are changing are very interesting because if it's true that prices are becoming more flexible, and if you think about the dsg model and it's because of sticky prices. if prices become less sticky because there's more frequent price changes, that means monetary policy is less effective or said differently,
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you have to move your rate more to have a similar effect. so again, right, these changes, these underlying structural changes are more important than just how do you measure inflation? they may actually change the transition mechanism of monetary policy. >> ben, are you confirmed that something's changed or with some accident of history we've had wise monetary policymakers as sylvana points out and everything is the same and the only thing that's change side the quality of monetary policy? [ laughter ] i think the most important factor over the long haul has been changing not wiser monetary policy and a monetary policy anchored on inflation expectations and if john watson and kim stock studied the dynamics of inflation showing the unobserved components model and the basic message was that
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30 or 40 years ago if there was a shot to inflation and the significant part of that shot was permanent and it would stay away from its initial point whereas since the '90s if there's a shot to inflation it's transitory and that goes back to the underlying level and inflation expectations have been well anchored and so shots to inflation tend to be transitory as long as the policy is consistent with that. that is, by the way, the policy and it's complimentary and inflation expectations are well anchored and they can relatively succeed in keeping them at target and vice versa, if policies are keeping inflation expectations and they tend to be well anchored and that explains the broad changes in the inflation process, and probably helps at least to a first instance explain their most recent behavior. part of the reason why inflation didn't fall so much in the recession was because inflation
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expectations were well anchored on the down side. they probably did fall some extent and we've seen some evidence that inflation expectation fell which is part of the reason that inflation has been slow to come up. having said that there are interesting points made today, for example, clearly, part of the reason that inflation has been slow to come up is that the fed underestimated how far the labor market could be pushed along with what eric talks about and you start and unemployment is lower than the fed thought a couple of weeks ago. some of the points that kristen made that kept inflation from falling so much after the panic and the transmission of the process. in any short period there will be a bunch of idiosyncratic and other, the change and the structure monetary policies and the most important thing and all of these other things obviously are relevant, too.
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>> paul, what sense do you make of all this? >> yeah. and we basically understand the economy a lot less well than we thought it did which has a huge bearing on policy. i actually wanted to say something about olivier's proposal because i -- i have thought something along the same lines and then kind of backed off it even though the economics seem to be totally right and here's the point. >> talking about targeting wagees. >> targeting wages. there's one thing, and nobody really talked about it here, but one huge success story for conventional monitory analysis has been the distinction between core and headline inflation ben remembers this better than i do, and we remember 2010, 2011 when headline inflation was going up
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mostly because of oil prices and the fed was saying calm down, it's core inflation that we should be looking at and was totally vindicated in that, but we are now seeing that there's some stuff going on even with the core inflation measuring, but if we think about conceptually what we mean by core, we mean stuff that is sticket and coreiest at the core is wage inflation, and it makes sense to say let's target inflation and we're trying to target the fed because we're saying wages are rising too fast. it will be disastrous. >> we are committed to make sure that wages increase no matter what at 3% a year. >> maybe. i think we've it's not just 40% of fin, but a large proportion just doesn't get messages that
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are complicated. >> your body language suggests that you're not ready to endorse the blanchard rule. >> i was just having the exactly same reaction that paul did. i wouldn't want to sit in front of congress to say we're concerned that wages are rising too quickly. that's -- that's a concern. i think it's a complicated question. i mean, there's elements of the price process which are independent of labor markets, and that they need to factor into the monetary policy, as well. >>. >> it seems at the same time that a long period of below target inflation in many countries around the world and we've seen the natural rate of interest that will prevail when all is calm when it's been pointed out that we don't know what it is, but there's certainly widespread consensus
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that it's fallen a lot and i'm sort of wondering, it seems to me -- two questions. one is are these things related and secondly, this is kind of challenging. how is it -- how should monetary approximately s policy think about a word when inflation for now seems to be persistently low and the natural rate of interest seems to have fallen and is also persistently low. >> i have -- as you might guess, a somewhat facetious answer to the most part. it looks like you star and our star, and it's things exist which we're not sure about that and both of them have fallen and why has the star gone down? the answer is we really don't know? we really don't know so the common factor is both ever them are caused by we really don't know. [ laughter ] >> i thought the catch-all answer is it has something to do with demography. that's the next thing, if i had to make up a story i would say
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demography. you can make a story look those lines and the fact that it is holding up better it makes it harder to tell the demographic story. if it was more just a more experienced, older workforce that should be showing up in the wage phillips curve which is the less dramatic part of the story, but i buy the demography on the stagnation story, and i think that's right, but whald take from it is the general policy lesson and it's quite possible there's a lot of slack in the advanced as a whole and at the same time there is very little monetary space in the world as a whole which should give us a lot of anxiety. we should be worrying a lot because if we're in this situation now when nothing really bad has happened lately, we are in big trouble if sooner or later something really bad will happen and the two factors together mean that we should be worrying a lot about what can we do to give us more space about
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policy response which will get us to some of the other questions that you gave us about inflation targeting and fiscal policy. >> can i go back to the all-star, youth star conundrum? i think it's a bit worse than we don't know. >> right. all right. because my explanation is the bargaining power workers it seems fundamentally, and that needs to be on the profit side and the risky are. so in that light, which is fair is even more of a puzzle. >> great. >> so loretta -- >> unfortunately, you have to make decisions without the information. >> we always have to make decisions. i guess i'm going to push back a little bit on the fact that we have all of the slack still out there is if you talk to firms and we had a panel that went yesterday at the cleveland fed.
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they routinely tell us and this has been going on for several years about the difficulty of finding workers, that they can hire. you push back on them and they say okay, are you raising wages? >> they'll say yes, but that's changing now. now they're basically saying that it's not really worth trying to hire the pool that's still out there because when they do bring them in they don't stay on staff more than a month. so i say do you know where they're going? they have no idea. it's not for other wages, but what is the response now? the response now is they'll start automating more and you've seen that in all these firms. so i think, you know, i would say that we have done a lot in terms of running policy much more accommodative than we would have in the past. partly that's because we brought down our estimates and, jarrod,
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if you -- if someone were going to say relative to the old view star we are running the economy very high and our policy is much more accommodative than it would be on an old traditional taylor rule. so in that sense, i think we've taken yn board some of the things that we talked about in terms of we had to re-think when we don't see wages going up and we have to re-think our policy rule and i think we've done that b ought some point there are unintended consequences of doing a policy like that, and so you may be ending up affecting long term employment growth because if you automate the firms your demand for labor is high. i'm very sympathetic to wanting to be at maximum employment. that's certainly our goal. it's policy with the monetary policy isn't really going to affect the overall labor market and the way that you want to. i think the things you pointed out in terms of the things that we talk about when we go out
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into the district, right? job programs. getting people the skill sets they need for running those robots that are coming into these plants. all of those things will have a much bigger impact in terms of welfare and getting people to work. there are a whole other set of issues of how to get people to work, which is another issue. transportation is an issue. there are a lot of structural things that have nothing to do with monetary approximately see. >> i don't understand the problem. so you run the economy hot. >> yeah. >> workers that we pull lots of workers into the labor market. wages start to rise. firms then start to automate and it increases the pace of productivity goals and you're worried there will be a shortage of jobs? >> there is a whole session am of the population that right now they don't have the skills. unless you're training them for modern jobs we're in trouble. we've had a shift in our district from manufacturing to
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other piptypes of jobs. there is a mismatch between the skills of people have that want to enter the labor market and they're doing something about that and it's going to be very hard to improve outcomes and that's one of the things that the fed listened with around the district. we heard time and time again. they're not that concerned about us hitting a 2% inflation target. they are much more concerned about -- am i going to be able to provide food on the table for my family, and so i think we had to think a little bit about what tools we use. >> right. >> for which problem you're trying to effect. >> can i steer back to the question about the challenging combination of low neutral rates and low inflation. who -- what is the right response of policymakers and does it matter where the starting point is? our inflation rate is getting close to 2%. japan, and their inflation expectations are still below 1%. what's the right answer?
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>> let me start by saying that the decline in our star is mostly understandable. i think demographics and global savings and technology, all those things that a lot of people talked about, i think they can explain most of what's going on. i'm more puzzled about the youth star decline than i am about the r star decline. i understand that, and something that's outside of monetary policy and it's constrained to monetary policy. i want to do a half empty, half full kind of response to your question. this is a correct point that historically the fed has cut the federal funds rate 5.5 percentage rates and now we have three percentage points of room. some work i'm doing and thinking about this. i think the appropriate use of forward guidance and quantitative easing and some of these tools and plus thinking about different frameworks for policy. i think altogether they add three percentage points of space and so my sense is that as long
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as nominal, neutral rates are, say 2.5 to 3, something like that, that the fed will be able to do most of what it could do at any point in terms of using traditional policy tools. >> to say we're basically out of space, in the united states it's wrong, then you are running into a much more difficult situation and then we'll talk alternatives with fiscal policy and sklg forra% of tools are effective and can comp cite for loss in all far. >> the 3% has been used and they could use better, number one, but number two, i'm just talking about the next recession and what the fed will be able to do
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starting from where it is. if there is a medium-sized recession. >> do you think three percentage points of unconventional monetary policy left? >> yeah. >> unused? >> yes. yes. >> are you saying that? >> i'm not saying -- i hate to say this more than anyone, but i'm a skeptic. the fact that we're still arguing about the effectiveness of qe after all these years is a persuasive evidence that the evidence isn't that persuasive, and so it seems dubious, and let's also say we shouldn't have too much of a parochial u.s. perspective here. the other large advanced economy, and the eurozone, how much room do you have for that and a very large part of the world is already in dire straits here and we have no idea about the size, the -- yes.
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550 basis points has been the historic cut, but that was way inadequate in the last recession we have. we don't think we're going have another shock, 2008-style shock because we didn't think that one was coming either. so i think that we still have a very fundamental problem with just not -- we don't know that we don't have enough policy room under existing rules and there seems to be a substantial probability that we don't have enough policy room, and that ought to worry us a lot. >> and what about europe and japan? they don't have the luxury we have, right? >> particularly, japan and this goes to inflation expectations and being anchored, et cetera. >> one of the reasons to be aggressive with these policies is that inflation expectations get anchored in a low level you're in serious trouble and it is quite different from the u.s.
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situation fundamentally because of where inflation expectations are and they're too low and not like japan and there's a probability that it will emerge from their current situation and achieve a more normal stance, but i don't disagree with paul that europe and japan are much more difficult states than the federal reserve, number one. having recently been with the evidence on qe that we're still effective and if you look at the research that the evidence is very strong that it is effective. >> right. >> olivier, i thought you were going to propose a higher inflation target and you completely threw me off my game about targeting wages. have you surrendered on the idea that 2% inflation was too low? >> never. there is a timing issue. i think it is still a reasonable
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proposal with the solution and that should be discussed as such and announcing that has zero credibility and i think it would help and it's probably not the time, but if you invite me in a few years. >> can i comment on that? because we have research coming out of the cleveland fed that's pertinent to this. so it's the argument that you raise to get more space seems to be very salient, and the pricing and there's evidence that suggests higher inflation means firms change their prices more often and it goes back to my original point which means that monetary policy will have to act even more aggressively to have the same impact. so you don't get as much space as you might think in terms of what you move the -- within a model. >> suppose prices are adjusted very fast that in principle
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things would be better and there would be less need for monetary policy. >> once you got to a downturn, in order to be able to get 2 percentage point of space, right? you would have to be more aggressive on your policy actions, so it's not -- it's the transmission mechanism. >> the recession according to the laws we have the recession would be less bad because prices would adjust factor. it's on the u.s., i think. we can compromise that. >> can i just say that i'll disagree with olivier that maybe this is not the time to talk about it, and bootstrapping, the announcement that i probably set this thing back by many decades by saying to be responsible 20 years ago, and there's absolutely zero evidence that that works. but i think if we're thinking about laying the individual groundwork for what happens the next time things go really wrong
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it might be a good idea to keep alive the 2% inflation target which has a very peculiar history which is based on on just happenstance and it turned out to be entirely wrong was not a good idea, and that comes the next global slump, and we suddenly have a fiscally profitable germany and president bernie sanders and the united states and all of this stuff and we have a chance to have a combined fiscal monetary, and stopping that it would be a good idea to have out there. >> let me ask you about another thing people talk about. some people basically say, yeah, we don't have much inflation, but -- and it's terrific to enjoy the fruits of the labor market and we're sowing the
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seeds of the next disaster by not taking into account the stability risk by running low interest rates for sich a long time. is that something to worry about or is that something that people worry about that have nothing to worry about something else? >> so what i think what we've learned over the past several years is we do have to take financial stability concerns into account when we're thinking about monetary policy and that's not to say to add it as a third mandate and it is something that you have to take into account and if you're running very low interest rates that you may be creating financial imbalances that come back to haunt you in the future. so i think you have to sort of understand that those kind of effects can occur, and in fact, when she was at the board she developed the whole structure to examine those kind of imbalances
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and actually monitor them. >> how much of a worry would you say that is today? >> i mean, there are some issues in terms of non-financial debt levels being high and commercial real estate pricing being high, but you know, i think we're at moderate levels that we can handle them and it is something that you have to think about partly because in theory, we'd like to use macro credential tools to worry about financial imbalances and monetary policies to focus on the goal, but in reality, you know, that's a hard thing to do because we don't really have any macro potential tools. >> and the fed recently did a tabletop exercise where we ran scenarios with the financial stability within the fed and the conference of presidents did this. we have a working paper out in the cleveland fed website that sort of talks about the results of those and that tabletop and it really is clear that when you get into a situation where
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financial instability issues come to play, we don't have many tools that we can use to address them. >> there was some discussion earlier today about the importance of communications in setting inflation expectations and you know, michael webber made the case that you really do have to worry about household and firm inflation expectations and the participant investors is inadequate and he pointed out which we simply know that it's hard to communicate this stuff and even in the top iq distribution. >> why are you pointing at me? [ laughter ] >> you're in the top -- at least the top. does the fed -- do central banks have the ability to adjust for consumer inflaigz expectations by influencing the markets which are influenced by the fed?
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>> first, i'm very happy about the desire of the fed and other central banks to do more outreach and to talk to the broader public. the fed listens, searries. these are important institutions and they need to be accountable and transparent and they need the public to understand what they're doing. there are limitations to that, obviously, but i think it's very important to try to communicate broadly. from a technical perspective, i think you do get a significant way there as long as the markets understand your goals and maybe some of the pricing executives and people that are in charge of the pricing setting, and the federal reserve's model has two settings and it has a setting called model consistent expectations where everybody is assumed to know what the fed's target is and behaves accordingly and model consistent asset pricing is the second setting whereby only the bond
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market understands what you're doing and it turns out that you get two-quarters of the way to the second scenario. i'm sure it's the case that the large segment of the population doesn't know what the federal reserve is much less what it's targeting. i think the fed and other central banks would be well served to increase literacy about these thing, but i don't think that even some of these policies and we'll be talking about price level targeting and the types of policies that rely to some extent on forward-looking behavior and i think that simulations and other analysis suggest that you get a good bit of benefit even the minority of the population understands what you're trying to do. >> on demand. monetary policy works on exchange right. and if you can get to the minds of the people that set mortgage
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rates and exchange rates, that's all that matters. >> i wouldn't go quite that far. >> but what matters is the expectations, affirms to a large extent and it's criminal that we don't have a good survey. >> it's criminal? >> yes. that's absolutely needed because when we look at household, the expectations play a minor role in the determination of wages. the determination of wages and it's for firms and it's the department and we should have the survey of hr department and inflation expectations and this is a really important, and valuable to know, as far as i can tell, there is none in the u.s. and the new zealand example which i think was referred to by this morning is not very convincing. i'm sure the people in the hr department are more careful than the households. >> i wonder if before we turn to the audience if paul, ben and
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olivier can give loretta some advice. not about what to do with interest rate, but although that's always welcome. i'm sure that loretta needs more opinions on what to do with interest rate, but the fed is involved in this re-think of its monetary policy framework, and it has already ruled out olivier's raise the inflation target option, but briefly, what is it that you think, given all of the things we talked about today what's happened with inflation and what we understand and what we don't understand, and what is the right thing to do with the framework to put us in a better place than we are today. do you want to start, paul? >> no. i have to admit i'm a little bit baffled. it feels to me that the various things that our understanding seems to suggest that something is possible out of some
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combination of politics? some constraints and raising inflation targets, and extremely persuasive, but apparently off the table. wage targeting, and i would say it's off the table. so i'm not at all sure. i'm not sure what the answer is. i'm supposed to be saying something helpful and sometimes we talk to developing options and that would be impossible and there turns out to be no space. >> we could be there. ben? >> so the federal reserve is talking about the so-called approach and the idea being that if you fall short of inflation and your target for a period of time as you have recently, there would be some compensation for that and the debate about that has turned on technicalities and i think they're relatively simple variance of that and it could be qualitatively, and the
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technical variance, and i have price level targeting, whereby it's the zero lower bound and you compensate to some extent and the version of that which seems to work pretty well is the temporary price level target with the one-year lookback and in other words, you only keep rates to until you've established over a year that you can hit the target. and what you can explain that qualitatively, when we're leaving with zero lower bound we want to be sure that you establish the bank which is robustly converging to the target. we don't want to start the process of normalizing rates until we have clearly established that we can meet the target. that, over a year, that would be a fairly simple explanation. it would be one that would have most of the benefit because the bond market would appreciate that the fed would be very slow beginning to raise rates from a lower balance situation and it doesn't involve complex price
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level target and things of that sort. that's just an example. i think the makeup approximatpo approach can be done with the target and simply defining what it means to hit the target and hitting the target momentarily is not enough. we want to establish that we are sustainably at the target and simply doing that would have some of the makeup qualities that these optimal, and theoretical approaches have and would not involve any major change. i don't think it would create any particular scrutiny or confusion and that would be my suggestion. >> olivier? >> so i think that we've -- here in europe we've married it, and so in that world, monetary policy is going to be the
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constraint. we see it in japan. we see it in new york, and i suspect it's the second order relative to the size of the task and so maybe you're going to predict what i'm going to say, but not fiscal policy. it seems to me that fiscal policy in the same context is needed. it's cheap. >> because rates are so low. >> yes, the rates of that is very low and it could be used infinitely better and in the u.s. there is no doubt that our president and our congress will use it, probably not right, but they'll use it, but in europe the issue is to convince the governments to do it. but it seems to me the solution is not to try to do some more twist on money which i think we have to, but not hope that that's going to be the solution. the solution is to have a more
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fiscal policy. >> do you want to weigh in on this? >> just the way that you think about inflation expectations meaning to be well anchored and allow monetary policy to counteract negative shots and for the fiscal policy on a sustainable path and then you would be able to use it in the way that we'd like to be able to use it as counter -- i think the same issue. just like we need to make sure that we're running monetary policy anchored so it allows us to use monetary policy more effectively. i think the same thing with the fiscal side and so we are in a dilemma here. >> we have time for some questions. again, raise your hand. stand up and tell us who you are and be as brief as possible. there's one here or -- yeah. i'm going to take three and then
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we'll see where we go. >> so this is for the whole panel. >> tell us who you are? >> grace cool. this is for the whole panel. do you see a future of a much more coordinated monetary and fiscal approximately see, and what would the monetary policy be like in that region? thank you. >> thank you. over here? instead of targeting -- sorry. jared. instead of targeting wage growth, how about targeting labor share and when you have unit labor costs rising and that are to rebalance factor shares that get whacked in a downturn as we've seen. >> behind you. >> thanks very much. matias and i teach political economy across the street. my question, i guess, is for the current and former bankers, mainly. i can't think of a decade where central bankers have been so
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attacked by politicians by mark carney and brexiteers and our current central banker by the president and mario draghi and german politicians and is there something that i worry about that this is going to get worse and is there something that will go away when we get back to more normal times of monetary policy and is it affecting how people think about the credibility and the need for central bank independence? >> thank you. >> let's start with the coordination of fiscal monetary policy. is that likely and what does it look like? >> i learned from krugman. as long as the inflaition target is credible then you might as well do the of coursal policy and have the monetary policy to be supportive in some way. >> yeah. there's -- the 4% inflation
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target although that's me, too. y is we have a fiscal expansion to get you to that point and which is ratified by monetary. that doesn't seem to be on the table anywhere, and then if we talk about actual coordination that might happen, i actually worry a lot about who is coordinating with whom? so i would be perfectly happy with mario draggy getting to set fiscal policy and i'm not happy with the german government setting ecb policy. >> olivier? >> yeah. i think the coordination, and within the country and fiscal and money that could be done very simple coordination. you do something and you tell the fiscal authority and react do it and outdo the output. i don't think it implies more than just that.
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greenspan is an example of that, coordination, across policies and across policies that have had a much more difficult issue in the eurozone and there again, if the eurozone goes for resession, the uncoordinated fiscal response would be too weak because when belgium expands it doesn't get much of a reward. so there is a need of coordination and whether it happens or not, it should. it probably will not would be my answer. >> loretta, you know, when the question was asked about central bankers being attacked which is true, paul volker would storm into the room saying you guys don't know what that is. >> sorry. >> i think there is an attack on central banks around the world and of course, on other institutions, as well and i think he was wondering how do you cope with that as a central banker who doesn't seem like an
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evil purpo evil person, at least from my conversation. >> thanks. i'll take that. i feel like i'm privileged to work at the federal reserve and i feel it's a very honorable institution and i've worked with people like ben and i can tell you everyone is sort of focused on making sure that our policy is the best we can to hit our goals. you know, there will be challenges thrown in your face. one of them may be the criticisms we've getting in this environment, but it's part of the job that you guys have to stick to the knitting and make sure that you're doing the approximately see the best you can, and there is no simple answer on policy. that's why you see sort of the discussions that we're having in terms of what's the way to go about doing it and what's the right policy? >> so you have to, you know, deal with that. i do have concern that we get this question all of the time
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and if you have been in fomc meetings, these considerations never enter the room in terms of the policy setting, but the fact that we're getting asked these questions do make you take into account that there are people who may not know yet, that these considerations are not affecting our policy. so i do have concerns about that, so. -- >> jared's question about targeting share instead of -- >> i think it's a very different animal. i was targeting nominal wage growths. it is much more valuable, so i will not touch it. >> remind you that there is a -- one of bernanke's great lines in the transcripts is when the bureau of economic analysis revises gdp growth for a number of years, bernanke says if they can revise gdp retroactively, can we do the same thing with interest rates? [ laughter ] i'll take two more. bernie in the back and this gentleman over here and then we'll have to call it a day.
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>> bert, banking consultant. it was a reference to fiscal policy and the coordination with monetary policy. how realistic is that in the united states today given the very substantial deficits that we're running and a rapidly rising ratio of federal debt to gdp. another way to put it is fiscal policy a response to the downturn and off the table given how significant the federal deficit is during a full ofment economy? >> thanks. >> there's a gentleman there. thank you. >> ubs. you mentioned an inflation band. how wide would that band have to be, and the standard dove yagz and you see it roughly 0.4 a year and katia showed in her charts that corp you see over the last 20 years we're currently running 1-8. is monetary policy precise enough to be able to push up inflation a quarter percentage
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point. >> okay. why don't you take that one? >> i'm just saying as a communication device, we know inflation will vary for various reason, and i think as a communication device having a band makes sense. it allows you to allow you to have some scope and to run inflation a bit higher in the band during good times and when you go lower and go sort of into getting closer to the bound and you know inflation is below 2%. >> like one percentage point? >> it could be. that's not a bad target and just thinking about how you'd want to run sort of higher than normal times and more downturns. >> relevant to the coordination. i forgot to mention one place where you've had coordination and monetary policy is japan. in some respects their outimcome has been disappointing and one thing that's certainly not been a problem is people losing
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confidence in the ability of the japanese government to repay its debt and japan is far deeper in debt and has long-term demographics of the united states and the notion that the united states is anywhere close to olivier has documented this a lot, the idea that we're anywhere close to the limit of fiscal policy seems to be utterly at odds with all of the evidence. >> you agree with that? >> yeah. there's no justification for doing something crazy. [ laughter ] >> good to know. this could go on for a long time and i do want to thank all of the presenters because we had a good group of people and i want to thank my colleagues who helped organize this and thank you for the quick questions and if you could do me a favor, there are papers in the back of the room and we'd appreciate that and please join me in thanking everyone. [ applause ]
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u.s. special representative for iran, brian hook will testify tomorrow about u.s. policy toward iran. we'll have live coverage from the senate foreign relations committee beginning at 10:00 a.m. eastern here on c-span3. coming up thursday, president trump holds a campaign rally in dallas. that will be live at 8:00 p.m. eastern on c-span with this reminder that you can watch all of our coverage online at or listen with the free c-span radio app. >> sunday night on "q and a," american university distinguished professor of history, allen outlooks back at policies on managing immigration. >> i would argue that the current wave of nativism of anti-immigrant sentiment, of
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xenophobia is not different from what we've seen in the past and while it seems to us to be peppered with acts of violence and verocity, there have been other acts of violence and anti-immigrant riots in the period before the civil war and anti-immigrant riots in the 1880s. there have been a lot of moments in american history when the anti-immigrant sentiment has been translated into true ugliness. >> watch sunday night at 8:00 p.m. eastern on c-span's q and a. >> fbi director christopher wray spoke at the justice department summit to catch online sexual predators. director wray discussed encrypted technology on child exploit ai exploitation and sexual abuse. [ applause ]


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