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Jan. 14, 2026 01:37-02:44 - CSPAN
01:06:42
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john williams
44:10
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peniel joseph
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Speaker Time Text
Pivotal Events of 1963 00:02:45
unidentified
Most of the government expires on January 30th.
Watch live House coverage on C-SPAN.
On C-SPAN 2, UK Prime Minister Kier Starmer faces questions on domestic and foreign issues from members of the British Parliament at 7 a.m.
And later, the Senate gavels in.
They're expected to work on a war powers resolution to stop unauthorized military action against Venezuela.
And on C-SPAN 3, FCC Chair Brendan Carr and Commissioners Olivia Trustee and Anna Gomez will testify in an oversight hearing on Capitol Hill that starts at 1015 a.m. Eastern.
You can also watch live coverage on C-SPAN Now, our free mobile app, and c-span.org.
Sunday on C-SPAN's Q&A, University of Texas at Austin history professor Peniel Joseph shares his book Freedom Season and talks about the pivotal events of 1963 that impacted the civil rights movement in America.
That year marked the centenary of Lincoln's Emancipation Proclamation, the assassinations of President Kennedy and Mississippi civil rights activist Medgar Evers, and the bombing of the 16th Street Baptist Church in Birmingham, Alabama, which killed four little girls.
peniel joseph ▲ ● ▼
1963, I think, is the most pivotal year of the 1960s.
It's the year that gives us both triumphs and tragedies.
And it's really the year that makes the 1960s the 60s.
So it's civil rights insurgency, it's the Kennedy administration going back and forth with activists like Martin Luther King Jr. and others about what to do next.
We see a right-wing insurgency.
George Wallace becomes one of the pivotal figures of the year.
And people like William F. Buckley in the National Review are engaged in a war of ideas with people like James Baldwin, who becomes the best-selling author and really perhaps the most pivotal figure in the entire year.
So it's really an extraordinary year.
unidentified
Penil Joseph with his book, Freedom Season, Sunday night at 8 p.m. Eastern on C-SPAN's Q ⁇ A. You can listen to QA and all our podcasts on our free C-SPAN Now app.
We bring you into the chamber, onto the Senate floor, inside the hearing room, up to the mic, and to the desk in the Oval Office.
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Council On Foreign Relations Evening 00:02:55
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Next, a discussion on international economics with New York Federal Reserve Bank CEO John Williams.
He discussed inflation, tariffs, labor market indicators, and economic growth.
This was hosted by the Council on Foreign Relations.
Good evening, everyone.
That's better.
I'm delighted to welcome you all here for this special evening presentation.
We are welcoming to the Council on Foreign Relations John Williams, the President and Chief Executive Officer of the Federal Reserve Bank of New York.
This meeting is part of the C. Peter McCullough series on international economics.
I'm Abby Joseph Cohen, a proud member of the Council on Foreign Relations, also now professor of business at the Columbia Business School, and I will be presiding over today's discussion.
We're going to begin with President Williams speaking to us for a few minutes, and then I will come back up to the stage and he and I will engage in a conversation.
And then we'll follow that with QA from all of you.
I'd also like to mention that, in addition to the participants here in the room, we have a very large number of people who are participating remotely.
And so we don't see you, but we see you and welcome to you as well.
President Williams.
john williams ▲ ● ▼
All right.
Well, good evening, everyone, and Happy New Year to all.
So I always appreciate the opportunity to speak here at the Council on Foreign Relations, and I'm very much looking forward to a robust discussion this evening.
Now, you may have read that the words of the year for 2025 were phrases like rage bait, AI slop, and of course, 6-7.
I'd add a word of my own.
Back in December, I gave a speech titled Resilience.
Favorable Outlook for the Economy 00:11:19
john williams ▲ ● ▼
I said then that despite all of the uncertainty posed by trade policy and geopolitical events, the U.S. and global economies have shown considerable resilience, continued to grow, and were poised to gain steam in 2026.
And I'd like to pick up where I left off and talk about what I expect to see this year, both for the U.S. economy and for monetary policy.
Before I continue, allow me to give the standard Fed disclaimer that everything I say here today expresses my views alone and do not necessarily reflect those of the FOMC or others in the Federal Reserve system.
So let me begin by sharing a snapshot of the current state of the economy.
Now, while we haven't had the normal flow of official data in recent months due to the government shutdown, these data are now slowly coming in.
And many other alternative indicators have augmented the overall picture.
Based on the totality of this data, the economic outlook is favorable.
GDP growth looks to have been somewhat above 2% last year, and it will likely pick up some this year.
Although the labor market cooled over the past couple of years, I expect that we'll see it stabilize this year and then strengthen somewhat thereafter.
Inflation appears likely to peak sometime in the first half of this year as the full effects of the tariffs are felt, and then we'll be poised to move back toward the FOMC's 2% longer-run goal.
Now, since I mentioned often used words in 2025, allow me to dive further into the discussion of another word that defined the year, and that's tariffs.
As trade policy has evolved and details have become clearer in recent months, estimates of effective tariff rates today are considerably lower than they were back in last spring.
At the same time, the data are providing a clearer picture of the likely effects of tariffs on inflation.
So, based on granular analysis of the data in hand, we can draw a few conclusions.
First, the tariffs have been overwhelmingly borne by domestic businesses and consumers rather than by foreign producers.
Second, the tariffs have already meaningfully increased U.S. prices of U.S. import of imported goods, although the full effects have likely not yet been felt.
My current estimate is that the increase in tariffs to date have contributed about one-half of our percentage point to the current inflation rate of about two and three-quarters percent.
Tariffs aside, underlying inflation trends have been pretty favorable, and we're seeing no signs of broader inflationary pressures.
In particular, shelter inflation has continued to decline steadily, no significant supply chain bottlenecks have emerged, and measures of wage growth have moved to levels consistent with low inflation.
In addition, inflation expectations remain well anchored.
The New York Fed survey of consumer expectations shows that although short-term expectations have moved up somewhat, medium and longer-term expectations remain well within their pre-COVID ranges.
And most other measures of long-run inflation expectations tell the same story.
This is something that I watch closely because well-anchored expectations are critical to ensuring low and stable inflation.
When it comes to employment, the labor market continued to cool during 2025 with the labor demand not keeping up with supply.
Over the course of last year, the unemployment rate moved up and ended the year at 4.4 percent.
Other survey-based measures of the balance between demand and supply, including the conference board and the National Federation of Independent Business, as well as the New York SCE, also show increasing slack in the labor market.
Many of these labor market indicators are now at levels we saw in the years prior to the pandemic, a time when the labor market was not overheated and inflation was quite low.
And although the labor market has clearly cooled, I should emphasize this has been a gradual process without signs of a sharp rise in layoffs or other indications of rapid deterioration.
We are seeing broadly similar patterns of resilience in many economies around the world, which likewise have navigated the effects of U.S. trade policy uncertainty reasonably well.
Because most other countries have not instituted reciprocal tariffs, they have not experienced increased import prices in the same way as the U.S. With this in mind, I'll now explain how monetary policy is positioned for this year and beyond, and I'll share my outlook for the U.S. economy.
It's imperative that we restore inflation to the FOMC's 2% longer-run goal on a sustained basis.
It's equally important to do so without creating undue risks to the Federal Reserve's maximum employment goal.
In recent months, the downside risks to employment had increased as the labor market cooled, while the upside risks to inflation have lessened somewhat for the reasons I've already discussed.
The actions taken by the FOMC in the latter part of last year have brought these risks into better balance.
By reducing the target range for the Federal funds rate by a cumulative 75 basis points last year, the FOMC has moved the modestly restrictive stance of monetary policy closer to neutral.
Monetary policy is now well positioned to support the stabilization of the labor market and the return of inflation to the FOMC's longer-run goal of 2 percent.
My base case for the economic outlook is quite favorable.
Looking ahead, I expect tariffs will have a largely one-off effect on prices that will be fully realized this year.
As a result, I anticipate inflation will peak at around 2.45 to 3 percent sometime during the first half of the year before starting to fall back.
I expect inflation will be just under 2.5 percent for the year as a whole before reaching the FOMC's 2 percent target in 2027.
I expect the economy to grow above trend this year with real GDP growth between 2.5 and 2.4 percent.
This pickup from last year's pace is in part due to a first quarter rebound from the effects of the government shutdown, but it's also fueled by tailwinds from fiscal policy, favorable financial conditions, and increased investments in artificial intelligence.
With my forecast of above-trend growth, I expect the unemployment rate to stabilize this year and then to gradually come down over the next few years.
Of course, there's always uncertainty when looking to the future, so I'll remain data-dependent as the year takes shape.
As the December FOMC statement said, in considering the extent and timing of additional adjustments to the target range for the federal funds rate, the committee will carefully assess incoming data, the evolving, and the balance of risks.
Before I close, I'd like to briefly comment on the Fed's balance sheet.
The FOMC stopped reducing its holding of Treasury securities and agency debt and agency mortgage-backed securities at the start of December.
With the level bank reserves seemed to have reached ample levels, the FOMC decided at its December meeting to initiate reserve management purchases to maintain an ample supply of reserves on an ongoing basis.
This is the natural next step in the implementation of our ample reserves framework to ensure effective interest rate control, and it in no way reflects a shift in the stance of monetary policy.
With the steady decline in the level of reserves, we have observed upward pressure on repo rates at times in recent months.
And when this occurs, the Fed's standing repo operations can act as a shock absorber by capping pressures on money market rates resulting from strong liquidity demand or market stress.
I fully expect that standing repo operations will continue to be actively used in this way and function exactly as designed.
In fact, we just saw this in action over year-end with some of the usual market when some of the usual market pressures arose.
It's only January, so I won't speculate about the word of the year for 2026, but the resilience we have been seeing means the economy is poised for solid growth and a return to price stability.
That said, it's important not to forget another word frequently heard in 2025, uncertainty.
So in assessing the future path of monetary policy, my view as always will be based on the evolution of the totality of the data, the economic outlook, and the balance of risks to the achievement of our maximum employment and price stability goals.
unidentified
Thank you.
You don't want me to sit on that?
Thank you very much.
I thought that was a great summary of your views and of many of the issues that people want to discuss.
I'd like to begin with the usual.
This is a very knowledgeable crowd in the room and also online.
And I think that we all know what the usual disclaimers are.
You stated some yourself.
The views or your views, not necessarily those of everyone in the Federal Reserve System.
You're not going to tell us anything about your vote at the next FOMC meeting, are you?
john williams ▲ ● ▼
Nope.
No.
unidentified
Here?
john williams ▲ ● ▼
Not happening.
unidentified
But there's a third topic, and that is the elephant in the room, especially given the developments over the weekend having to do with the allegations that have been made against the Federal Reserve and Chair Powell in particular.
And if you wouldn't mind commenting on that and also give us your sense of what the impact of this might be on the important Fed independence in reality and also the perception.
john williams ▲ ● ▼
Well, thank you for the question.
Obviously, I can't speak to any investigations or anything like that, but I will say that I worked with Chairman Powell for over 13 years, and I've worked closely with him throughout that time.
And he, throughout that time, has been completely dedicated and committed to the Federal Reserve's mission to support the American people.
And throughout that time, he's proven himself to be a man of impeccable integrity and a man who has been calmly leading the Federal Reserve through times of heightened uncertainty and led us very effectively.
And I just wanted to share that perspective from my point of view.
One of the things that Chair Powell said in his remarks on SAT was he highlighted the importance of independence of SAT.
And I agree fully with that.
And I will add that history teaches us lessons about this, that when there's attempts to unduly influence monetary policies, when those are successful, those often lead to very unfortunate economic outcomes, including economic stability and high inflation.
Unusual Labor Market Trends 00:13:22
john williams ▲ ● ▼
For me, on your final question of how does it affect us, we have a big job.
Mentioned maximum employment or price stability, I mentioned my 100% of my focus and that of my followings, thinking about how do we best achieve maximum employment or price stability.
That's what I'm focused on, and that's what we'll convene.
unidentified
Great.
Thank you for your openness on that.
You know, so much of your written work and speeches over the last year have looked at things like independence, the importance of transparency, but also the consistent focus on the goals.
And I'd like to talk about the goals for a moment.
You addressed them briefly in your comments earlier, one goal being maximum employment, the other having to do with the long-term stable level of inflation.
Now, inflation was 2.4% in 2024.
And despite the fact that there have been declines in things like cost of shelter, despite the fact that there have been acceleration in wage gains, we find ourselves still at 2 3 quarters.
Comment a little bit more on that.
How much of that is related trade?
And do you feel comfortable with your forecast that 2027 is the year we do get back to 2 percent?
john williams ▲ ● ▼
Well, I am confident in one forecast.
We will bring inflation down to 2 percent on a sustained basis.
Now, when and how exactly that plays out will depend on economic conditions and things that happen.
So you're absolutely right.
In an earlier speech, I made the comment that inflation essentially stalled at this 2.4 percent.
That's where we were a year ago.
That's where we are today.
But then you have to look under the hood, and you have to focus on kind of all the components.
So if you look at that, I think what we're seeing is inflationary trends in terms of you mentioned the shelter.
Those have come down pretty clearly and decisively in the data.
We're seeing some.
unidentified
Except in New York.
john williams ▲ ● ▼
Except this is about inflation rates, not levels here.
But we're also seeing, I think, progress on non-housing services.
So when you look at the data, I think the story about why inflation hasn't been coming down is really in the imported goods and tariffs.
And as I mentioned, my preferred estimate is it's boosted inflation by about half a percentage point.
So that would put, you know, if I do some simple math, which, you know, don't do this at home, but that would suggest that inflation would probably be around 2.25%.
So I think the big part of the story is tariffs.
So from my perspective, we're not seeing any spillovers or second-round effects of these tariffs.
So far, they're showing up mostly in the imported goods.
They're not showing up in wages or other prices.
So my expectations is those are going to fully pass through over the next few months, next six months or so, and then this underlying inflation will kind of re-emerge.
Am I certain of that?
Because we both do economic forecasting.
Things can change.
But that's the way I see it right now.
And I do think if you ask the question, what are the signs that this is right?
I would say that mostly is by looking at inflation expectations, looking at wages, looking at these other indicators.
I think they're all consistent with inflation coming down.
And the reason I'm focused on tariffs is I think it's just an important part of the story.
But again, got to be data dependent.
We'll see how the data plays out.
So far, I feel pretty confident that this is what's been happening, and I'll just see if it continues.
unidentified
Let's look at the other part of the dual mandate, and that is labor.
The unemployment rate has held steady, but under the surface, there has been a real cooling.
You've described it as gradual cooling in terms of job creation.
Describe a little bit why we have this interesting new equilibrium in the labor markets, and also very importantly, where do we think job creation might come from over the next year?
john williams ▲ ● ▼
So I think this is a very unusual labor market.
It's mostly low hiring and low firing, if you will.
And you've heard there's a low churn labor market.
So in the low, I mean, we do have some factors that I think are holding these numbers down.
On the supply side, the lack of immigration or labor force growth means that we have fewer new people entering the labor force on that.
So that's one factor.
On the demand side, I think the big story of 2025 was uncertainty.
There was trade policy uncertainty.
There was more general uncertainty.
Businesses around this region, around the country, highlighted that the uncertainty meant let's hold off on some big decisions.
And some of those big decisions might be investments, they might be hiring people, and also might be letting people go because he's just saying let's be cautious and hold back.
So I think that was one of the factors in 2025.
The other factor I would say is we went through an incredible high amount of churn a couple years ago with lots of hiring, lots of people switching jobs.
We saw that in our organization, we saw it throughout the country.
I think one of the things that's happened is a little bit of an echo effect where a lot of people have kind of switched their jobs.
There's not as much activity going on in the labor market.
Fundamentally, I see demand was soft this year, this last year.
I do expect that to pick up somewhat, but I still think we're in a kind of this unusual labor market, which is one of relatively modest job growth, but at the same time, relatively modest supply.
One of the factors that definitely comes up a lot in the conversations, and we'll come back to this, is AI.
And to what extent is AI affecting businesses, decisions to hire, especially hire maybe new graduates.
And what we're seeing, at least in the data and in the surveys, is that this is clearly in the minds of businesses.
They're being cautious about hiring because maybe we don't want to hire people for certain roles that AI will be doing.
It's also, we're hearing that this isn't a source of layoffs yet.
So I think one of the big stories for this year, maybe next year, is how does AI change this or do we see more significant shifts in the labor demand from businesses because of that?
But right now, I feel like this has just been an unusual year of pretty low hiring and firing.
That's why we're not seeing, we're seeing this gradual change, but not anything abrupt.
unidentified
But it followed a period in which there was a lot of anticipatory hiring during COVID and as companies were thinking about what they might need for AI.
john williams ▲ ● ▼
Well, and I think, you know, this is one of the superpowers of the U.S. economy is an incredibly dynamic economy.
And we're a very innovative economy in the U.S.
And that's something that is always true.
But right now, we went through the COVID.
We went through very unusual periods.
Business has been adjusting.
If you look back at 2025, I think the remarkable kind of statement after the fact is that all the uncertainty, the geopolitical events, the trade policy don't leave such a, it doesn't leave a huge imprint at least on the economy.
It grew probably a little over 2%.
Unemployment went up somewhat, as I mentioned, but we're still moving forward.
unidentified
Something that you have spoken about and so many other members of the FOMC have focused on as well has to do with data dependency.
We want to know the facts before we make our decisions.
And clearly, this has been an awkward period when it comes to economic data.
It wasn't just the government shutdown that made it very difficult to get labor data or inflation data, CPI data simply not collected, and so on.
But we've gone through a multi-year situation where the funding going to our statistical agencies has really been kept very, very tight.
And as somebody who uses those data myself, one of my big concerns is this.
We're seeing so many important structural changes in the economy.
I don't know how we can measure what's going on if we don't have the right people in place or the right statistical systems in place.
Would you like to comment on that?
john williams ▲ ● ▼
Well, I completely agree that our national data, whether it's the labor data, the GDP data, the price data, all the data that we live and breathe, are absolutely critically important.
They're not just critically important for policymakers like me who sit around and think about inflation and things, but for businesses, for financial markets, for regular people to understand what's happening.
And so one of the great things about the U.S. is we've had the gold standard of national income statistics, national labor and price and other statistics.
So these are things that we count on.
And absolutely, we need to have, as a country, the investments in that data to make sure that it's not only accurate and representative, but also is evolving as the economy is evolving.
I'm fully supportive of that.
I'm not going to get into what exactly does that mean for the government to do, but I think it's really one of these pure public goods, if you will.
It's something that we all share in the benefit our economy benefits from having really good data is something we count on.
Now, when we had the government shutdown, obviously we, and during COVID, too, at times, we were looking at a lot of private sector data, a lot of data from various providers or collectors of data, and we use that to augment the picture.
But again, the gold standard is official national.
unidentified
Dora.
One of the things that I suspect you're not asked about very much has to do with the other part of your job, which is the New York Federal Reserve District.
District 2 for the Federal Reserve System, which is New York, Jersey, and Connecticut and Puerto Rico and the Virgin Islands.
You gave a very interesting speech not that long ago in New Jersey when you referred to Jersey Strong and talking about the resilience of that state.
What do you see happening closer to home in New York?
john williams ▲ ● ▼
Well, I think, you know, obviously New York City was hit part of the hardest in the whole country by COVID.
And we saw employment collapse, we saw the number of people living in the city and in the broader region shrink dramatically.
We saw all those stories in the news about will New York ever be back, and especially with commercial real estate and all.
And I think that was always overblown.
But at the same time, people were hurting, people were leaving the area.
There were some fundamental questions.
I would say today when we look at the New York City, it has not only recovered all employment back to above where it was before the pandemic, we've seen the stabilization of commercial real estate.
We're seeing businesses come back into the city.
It's not the same.
It's not exactly the same as it was in 2019, but it's definitely remarkably strong and vibrant.
One of the things I'm struck by is that because many businesses and major employers have seen the value of working in person, we're seeing quite a shift back into bringing people back into New York City, working together, and that supports the local economy.
The other thing I would say is that what our local economy is is also changing.
Obviously, technology firms, technology businesses are playing a much bigger role as employers, as important parts of our economy.
So again, we've seen a rebound in New York, but also, I think, a kind of a reinvention of our economy.
Of course, financial services is really important.
Entertainment is really important.
A lot of those are.
But we're seeing, I think, maybe a diversification that is healthy.
Obviously, anyone who lives here is very focused on the local political issues or issues.
What I go back to is back in, when I look back before the pandemic, the big question in America around cities was everybody was leaving rural areas, small town areas, and coming to the gateway cities like New York, Chicago, and others.
And for what reasons?
Well, there's just things that you can't replace in other parts of the country that are here, whether in entertainment or culture and things.
That's just as true or more true today as it ever was.
So I'm very, very bullish on New York.
I also think that the dynamism story, like this issue about can we convert some of the office buildings into a residential.
Global Financial System Challenges 00:15:54
john williams ▲ ● ▼
A few years ago, they said that's really hard.
But what we're seeing people do is, yeah, we do hard.
We can do hard.
And we're seeing that happen at scale, which I think is important.
unidentified
So New York and the rest of the country has dealt with lots of hard things.
Global financial crisis, COVID, Ukraine, some of the other trade challenges now as well.
But there are a number of things that the Fed needs to deal with specifically.
Things that are hard to forecast, unexpected yet important.
One of the things that I'd like to ask you about is how you go about approaching the significant innovations in financial services, whether it is the use of cryptocurrencies, stablecoins, what's the right way to regulate all of that?
How do you deal with cybersecurity and cyber crime afflicting our financial systems?
john williams ▲ ● ▼
Yeah, so this was the two-hour part of the discussion.
So first of all, I think it's absolutely critical for us and institutions like us to have the expertise and understanding of what's happening in these areas.
And we've spent the last few years focused quite a bit on the broad category of digital assets, which includes crypto, stablecoins, tokenized assets, deposits, things like that, because these are right at the heart or adjacent to the heart of the financial system.
And if you think about what we do at the New York Fed, we implement monetary policy.
We carry out open market operations.
We're basically the execution arm of the FOMC.
And so to do that, it's absolutely critical that we are able to operate effectively in the core funding markets.
That's the treasury market, money markets, repo markets, and all the markets that are around that.
And we saw what happens in spring of 2020 when those markets are not working, what the implications for that are.
So when we think about digital assets broadly, stable coins, so what we are doing at the New York Fed and the Federal Reserve and our counterparts around the world, quite honestly, especially because of the Genius Act, is very focused on what are the use cases of these assets, how do we see them developing, who are the players, which market segments are they likely or potentially going to play a more important role.
And then how do we think about our own operations?
How do we think about our own responsibilities and how those may change over time?
Nothing's happened so far.
I mean, talking about thinking ahead.
But the important thing is to have that, build that expertise, connect, talk to people in the industry, and we have various advisory groups.
And I feel like between AI and stablecoins, we have had a lot of discussions around these topics.
But really to make sure we're thinking through the issues, thinking through how it could affect us, how it could affect liquidity in markets, how it could affect deposits at banks and things like that.
Right now, a lot of that is we're not sure.
And I think that's an important part of learning is to say we're going to have to see how that develops once the regs, especially around stablecoins, are finalized, see what that means.
The most important thing for us to do is to try to stay ahead and understand how things are happening.
So both if things go well and that market takes off, we're ready to operate.
But as we've also seen in times of crisis, when things in financial markets are not going well, that we have that expertise, we have the in-house knowledge and understanding of what we need to do at those times when the markets are dysfunctional or something like that.
So that's kind of core, that is very core to what we do at the New York Fed.
And it's, you know, we always have to, we always talk about this at the bank.
We have to do our best to anticipate future events, but most importantly, be able to act at that time with the tools that we have as needed.
And we saw that in the financial crisis, obviously, but also in spring of 2020.
unidentified
The supervision and regulation, critically important, but sort of like a big ho-hum to most people, including some people in this room.
I'm judging by facial expression.
Except soup and reg is something that is so essential.
How would you describe the international cooperation now on supervision and regulatory matters, particularly in an environment where some of the regulatories in the United States have been, shall we say, had their hands tied a little bit with reduced activity at the SEC in places?
john williams ▲ ● ▼
Well, you know, I do think that, first of all, I'm not going to speak to any regulatory issues specifically, but I will say there has continued to be actually strong engagement in the normal international forums around financial stability, around international forums, around bank regulation supervision.
So I think that's continued.
I mean, one thing that's clear is that there's a very strong focus in the U.S. on safety and sound of the banking system and about financial risk.
But I think that's a shared view internationally.
We want to have safe and sound banks.
We want to really make sure that financial risks and risk of the banks are managed.
I mean, I do think that one of the important issues that you're bringing up is we live, we live in a global economy, but also a global financial system.
And so regardless of different views around the world about what's the best way to regulate or the best way to supervise, we all know that we need to have, as well as we can, to have a level playing field and a playing field that makes sense, that's a good, the right playing field.
So that kind of effort to make sure that, you know, globally that we have a system that's supporting financial stability, I think is.
And we've accomplished it thus far with Thus far, but I'll leave that.
I just think that that's a, you know, this, it's just very important that we understand that, you know, we're all in this together.
unidentified
And the extra responsibilities on the United States, just given the dominance of our financials, well, yeah, I'll comment on that.
john williams ▲ ● ▼
I mean, one of the things that just, you know, there's just no question about this, that just, you know, that the dollar remains the reserve currency of the global economy.
The U.S. financial system, the U.S. economy is still unbelievably important to the global economy.
There's nobody questioning that.
Obviously, last year and now there's still debate about has that shifted at all, but really the facts are that our financial system, our economy, is really just incredibly important for the global economy.
unidentified
So I have one more bonus question before we turn it over to the people in the room or online.
And that has to do perhaps with just a listing of some of the structural issues that you're looking at.
You've mentioned AI as something that may affect not just the structure of the financial markets, but the structure of our economy.
What about demographics?
What about some of the other long-term issues?
john williams ▲ ● ▼
Yeah, so first of all, demographics is huge.
I mean, I could go on quite a bit, I won't.
But AI clearly is a big topic, both within our organization around the economy, understanding is this another huge wave of productivity or is this just a new version of the kind of technological changes we've been having for the past few decades?
Studying that, understanding that, understanding how we use the technology effectively and the work we do.
So that's a big one.
The stablecoin one is huge because I think that's very close to the core work we do.
On demographics, I remember visiting Japan, I think in 2012 or 13, and we were talking about the importance of demographics in Japan, in South Korea, a few other countries.
And just what I was struck by then was how people said this is a profound change in how your economy works, not just on the issue of funding retirements and pensions and things like that, but fundamentally how asset valuations and the labor shortages you can face and things like that.
And then what we've seen since then is just a realization that this is happening everywhere.
And there was a great presentation at the Jackson Hole Conference last summer that says it's not just Japan, China, Korea, it's not just Europe, it's the U.S., it's everywhere.
Its birth rates are coming down.
unidentified
China.
john williams ▲ ● ▼
Yeah, yeah, and China.
Well, and China's also shown that it's hard to shift back as they've gotten away from their one-child policy.
But the point, though, is that demographics affects not only kind of labor force, it affects supply and demand in multiple ways.
And in fact, there's been, I think, some really important research by Dario Nasimoglu and co-authors and others who have pointed out that demographics are a big driver of the need for robots, a big driver of the need for automation and for AI.
So we're seeing a connection here, not just between demographics and what happens in Japan, but basically demographics and what kind of technology we use.
And then what does that do to wages?
What does it do to the economy?
So I personally have come around to the view that I won't say it's everything, but demographics is a lot, both in terms of understanding longer-run growth, technology, and of course, can't have to say it because we're almost out of time, the natural rate of interest.
unidentified
Okay.
Would you like to speak more about the next word?
john williams ▲ ● ▼
We'll let other people ask.
unidentified
All right.
I think it's time for us to turn to all of you.
Somebody give me instructions about who's going to identify the questionnaire.
I am.
Oh, this gives me the power.
Excellent.
I see microphones on both sides.
So, sir, if you could please bring the microphone over here to the woman wearing the turquoise sweater.
I did this on the basis of who raised their hands.
Thank you so much for your wide-ranging comments.
I guess I'm going to touch on the last bit and ask you, so if we think about the unemployment rate, the NAIRU that the Fed likes to consider, and if demographics are in play, and we look at experience from Japan and elsewhere, the unemployment rate in some of these countries has dipped very low without seeing much wage pressure.
So what kind of research are you considering?
And what would it take for the Fed to change how it views what that NAIRU should be in a world where the demographics are evolving?
Thank you.
john williams ▲ ● ▼
So, you know, I think the biggest driver of demographics on the natural rate of unemployment or NAIRU or however you want to think about it is probably most, has most to do with, you know, the education kind of skills of the workforce.
I don't think the demographics is, I mean, it's affecting it kind of through that channel.
And my own view is, I'm just speaking for myself here, is that the biggest determinants of natural rates really have to do with the composition of the labor force in terms of education skills, age, things like that.
So I think those are important factors.
I try to seriously walk in the talk here about being data dependent being driven.
My views on maximum employment levels of unemployment being driven by the data.
Personally, I'm on the optimistic side.
I think that the natural rate of unemployment is a little bit below 4%.
So that's because of relatively positive demographics.
But again, you have to analyze this in the context of what we're seeing in the data.
We have some great labor economists, both at the Fed and in the academic world, and take all that evidence.
I think that the issue that I would raise on the demographics, though, is that you also want to think about this, not just in the U.S. context, which is your question, but also globally.
Because if the labor supply globally is changing, that's going to affect trade.
It's going to affect a lot of things.
So I try to always think about things.
unidentified
Thank you. Thank you very much.
Paul Sheetsamper Holdings.
Thanks very much for your presentation, John.
I want to ask you a question about the ample reserves framework.
Now, if you went back to the old days, and some of us are old enough to remember the pre-2008 period, before all the many rounds of quantitative easing and before the Fed acquired the ability to pay interest on reserves, the level of ample reserves was actually around about the level of required reserves.
I'm going to get a little bit nerdish here.
That was around about 40 billion or so.
Now we talk about ample reserves or reserve levels in the trillions of dollars.
So what I want to ask you is, could you just talk a little bit more about what you see as the reason for the fact that the Fed now judges it has to supply literally trillions of dollars of reserves to the banking system, whereas in the old days, it could actually get away with whatever the reserve requirement was.
What's changed?
And is the Fed essentially saying that it judges it could not continue to decrease the size of its balance sheet without seriously compromising its ability to maintain monetary control?
And if that is the case, what is driving that?
john williams ▲ ● ▼
So thanks for that question.
That works out question.
First of all, I mean, I think a key difference is what's the opportunity cost of holding reserves.
Back then in the scarce reserves pre-2008 period, reserves didn't pay interest.
So if the Fed funds rate was 5%, you were paying 5% to hold reserves.
So therefore, you were going to do your best to economize and hold reserves, you'd hold T-bills or other liquid assets.
So you're basically substituting from interest-bearing assets towards interest-bearing assets versus reserves.
You'd only hold the minimum reserve balances.
And so banks spend a lot of effort to minimize every day how much reserves they held.
And there's all the history to that.
It also meant that you can get stochastic, a lot of stochastic movements in the demand that the desk used to have to work very hard and try to forecast every day and do active market intervention every day.
I would say two things have changed fundamentally.
One is that you pay interest on reserves.
That is a good thing.
The reason is, is it basically means that the opportunity cost to holding a liquid asset at the Fed is essentially close to zero, not exactly zero, but it's low.
And that means that banks can optimally choose.
Do I want to hold my assets in reserves or in T-bills or other liquid assets and do that optimally rather than have this huge distortion, which is, you know, the Fed's reserves pay a massive penalty to hold those.
So I think it's actually leveling the playing field between different assets that you can hold.
And that also means that banks are not trying to struggle to somehow meet their needs on a day-to-day basis, but can hold the level of reserves and do that efficiently, effectively.
So I think there's a very good reason to be paying interest on reserves.
And that means, however, though, that the banks are sitting there saying, hey, the opportunity cost of holding reserves is relatively low.
And therefore, I actually think this is a great way to hold liquid assets and hold less T-bills and others.
Late 90s Economic Boom 00:15:15
john williams ▲ ● ▼
And then this system works very smoothly.
Reserves are great because you don't have to sell them in the market or trade them.
You just can use them to satisfy any payments needs, any of the liquid.
So to me, the old system had this artificial, very much against the Milton-Friedman principle that liquidity should be provided at zero opportunity cost.
That system was very distortionary and also was challenging to manage.
This system works, you know, is, I think, much more efficient and more effective.
And it is a demand-driven system, and the banks are choosing how much reserves to hold.
We're just trying to meet that demand.
So this is, you know, we've gotten away from, it's not like we're saying you've got to hold $3 trillion of reserves.
This is the level of demand they have given the relatively low cost.
So I think the system works extremely well.
I think it's efficient.
I also think that the volatility and other factors that affect the demand or the supply of reserves, like the Treasury's account and other things, also make trying to manage a scarce reserves system extremely challenging.
So again, I feel like it is different.
And I, too, Paul, am of an age that remember the old system.
And this system, I think, works much better.
unidentified
We have lots of questions in the room.
I just want to remind the people on Zoom that we can take your questions as well.
So let us know, please.
This gentleman here, please.
john williams ▲ ● ▼
Thank you, Dan Rosen, Rhodium Group.
Given the value of reducing uncertainty and your attestation to Chairman Powell's integrity, would you recommend he extend and continue to finish his term through past May to 2028?
I'm not going to comment on that, really.
I'll just leave that.
unidentified
Thank you.
Joe Grisparo, Royal Book of Canada.
Over the past couple of years, there's been a pretty big move in the broader financial market system.
We'll love to get your take on how that impacts your assessment of the systematic risk, whether it's hedge funds and the basis trade, non-bank institutions, and is the answer more data?
Thank you.
john williams ▲ ● ▼
The answer is always more data.
Come on, you know that.
Yeah, and one of the challenges, I mean, on that note, is, of course, for the hedge funds and the non-bank financial institutions in general, we don't have access to the same level of granular data.
That's just a reality, but we do do our very best to have the information.
That's always a con, you know, when you get away from the banking system, you always want to say more data.
You know, to me, this is obviously a topic that we, you know, hedge fund basis trade, those kind of things.
We watch it very closely.
My personal view is these are so critically important because this is the U.S. Treasury market.
The repo market is the funding, kind of the funding source for a lot of the U.S. Treasury market, especially now that U.S. debt issuance has been so high.
So it's an area that we're very focused on.
It's also a reason why having a very effective, kind of going back to Paul's question, having very effective control of short-term rates, including repo rates, and having stability in that is extremely helpful for financial stability.
It's not the goal.
The goal is interest rate control.
Let me try this again.
The goal, the purpose of this is interest rate control, carrying out the FOMC's actions.
But one of the positive effects, both of having ample reserves and also having a very strong arrangement or framework for money markets in terms of our various operations, is that it makes sure that these markets support well-functioning markets, which I think supports and reduces some of the risks that are out there.
unidentified
The next question will be from one of our remote participants.
This is exciting.
If they can identify themselves for us, please.
We'll take the next question from Valerie Grant.
Hi, good evening.
This is Valerie Grant, and I'm a portfolio manager with Newveen.
I would like for you to comment on, I guess, the basis for the Fed's 2% target for inflation.
I know that housing is a very critical component of the overall rate of inflation, and I'm wondering if the Fed is sensitive to the actual underlying components, or is it the target overall?
And how realistic really is it to get to that 2% target?
Thank you.
john williams ▲ ● ▼
So let me start with the final part.
It is totally realistic.
I do, you know, I have a forecast of inflation getting to 2% by next year, but definitely I expect inflation to be much closer by the end of the year than we are today.
And I think we've seen that progress.
We've gone from 7.25% inflation to 5% to 4% to 3% to 2.3 quarters.
Then we'll get down to the rest.
In terms of housing inflation, this is one of the oldest questions and kind of the statistics.
The way the U.S. statistics is done makes sense to me.
It's based on rents, the rents you pay, because that's the cost of housing.
If you own the house, you compute an owner's equivalent rent.
The problem with using house prices, the price you would buy a house, is that's a financial transaction.
That would be like including a stock price or a bond price.
So the way we do it is to have, we use the Personal Consumption Expenditures Index, which is the broadest index for consumer spending.
It includes health care, education, housing, and everything.
And I think that makes the most sense.
Again, though, I would emphasize what's important so much is not which index you're using, is that we bring inflation down to a well-understood level, which we've said is 2% on the PCA index, and that we do that on a sustained, ongoing basis.
So to me, you know, some of the technical differences between some of the different approaches perhaps don't matter as much as basically keeping well-anchored inflation expectations.
And it's been the thing that I think has helped us in central banks around the world over the last few years.
We all faced high inflation.
But the vast majority of countries never saw longer-run inflation expectations.
unidentified
Gentleman in the blue sweater.
Amar Birek, Columbia University, also admire an old friend of Paul Volcker, who I'm going to channel a bit.
The question I'm going to ask is what gives the Federal Reserve the legal or moral authority to set a 2% inflation target?
The enabling legislation, which I have read, speaks of price stability, not inflation stability.
2% inflation is ipso facto inconsistent with price stability.
Just in case there's any ambiguity, the enabling legislation says your target should be zero.
How do you, where does the right to go from zero to two percent come from?
Let me raise this to constitutional levels, to the constitutional matters.
I know they're unfashionable these days, but the Constitution reserves the right to tax to Congress.
And 2% inflation is a tax.
It's a regressive tax.
Furthermore, it's a tax which people in this room, 2% doesn't really harm, but people living from paycheck to paycheck, 2% is an onerous tax.
And establishing, as Paul Volka pointed out, 2% over 20 years halves your purchasing power.
What gives the Federal Reserve the right to set, not as a limit, again, as Paul pointed out, but as a target, 2%?
john williams ▲ ● ▼
So I'm not a lawyer.
I'm an economist.
It was a decision I made early in life, and I've never looked back.
The serious question, I'm going to give a serious answer, obviously.
I completely understand where you're coming from.
Congress, as you fully know, since you've obviously studied this very carefully, gave us three goals.
They gave us the goal of price stability, maximum employment, and low long-term interest rates.
So let's set the third aside.
Okay.
But my answer to you, and this is, you know, I was part of the FOMC, so I can speak to the discussions we had in 2011 that led to the 2% inflation target under Chairman Bernanke and Vice Chair Yellen at the time.
It was really the answer is how do we achieve both maximum employment and price stability on an ongoing basis?
So the point was if we had inflation too low, say we had an inflation target that was zero, there's always a measurement issue there, but let's just again set that aside.
If we set inflation target too low or near zero, we would run into the problem, we'd be at the zero lower bound a lot.
It would be very difficult to maintain maximum employment.
So there's a trade-off at very low levels of interest rate, I'm sorry, inflation rates with achieving maximum employment on a sustained basis.
Obviously, if you have inflation too high, there's a huge cost to society.
I completely agree.
But there is, we were given two goals, not one goal.
And there was a realization, in our view, that there is a trade-off in the long run between having inflation too low and having maximum employment on a sustained basis.
So as we explained at the time, we saw 2%, again, on a measured 2% on PC measured basis, is low.
Maximum employment goal was defined as we've stated in our most recent long-run goals in Monetary Policy Strategy, is consistent with achieving the 2% inflation.
So that is the logic of that we were given two goals and we had to find an answer to both of them that was consistent.
Now, as you pointed out, is it say in the law that the Federal Reserve can say 2% as a target?
But that's the way we've operated.
And of course, Congress has never changed that in terms of the Federal Reserve Act in now 13 years.
But it really, the driving force is we have the two goals, and we want to be able to achieve both of them.
And saying the inflation goes too low would harm them.
unidentified
In the back here?
Andrew Waters, the Morgan Stanley.
Thank you, President Williams.
I have a question about productivity.
In the late 1990s, the Federal Reserve was able to keep interest rates lower than it otherwise would have because of productivity gains.
Excuse me.
Some of your colleagues in the FOMC have drawn parallels between today and the late 90s.
Do you agree with those parallels or do you see important differences?
john williams ▲ ● ▼
Thank you.
We had talked about this very topic before this event.
So I think there's some parallels and there's some things that aren't.
And I was at the Fed during this period, and of course there was a famous debate between Fianna Ellen and Alan Greenspan and others.
This has been well documented around these issues.
A very substantive debate.
It's, I think, a great moment in Fed history about grappling a changing economy.
What do you conclude from that?
So I think on one side, let me take the similarities.
I think there clearly are productivity growth has been good the past five years, 2%, that's good.
It's better than before.
It's not spectacular, but it's good.
There are reasons with AI to think that we might have high productivity growth, good productivity growth for next so many years.
We would just stipulate that as a possibility.
So if you ask me, what does that mean for monetary policy?
All else equal.
It does mean downward pressure on inflation because costs are coming down because productivity is higher.
Assuming the wages don't immediately accelerate up, that you get a little bit of a positive supply shock.
That's the story of the late 90s, and you can let the economy go.
I think the late 90s had another story going on at the same time that wasn't discussed quite as much at the time, but since then we've realized was very important, and that was globalization.
The 90s were a period in the 2000s, were a period of a lot of downward pressure and costs from globalization.
So I think it wasn't just productivity.
I'm a believer in the productivity story of the 90s that was real.
But I think there were other factors that were helping keep inflation low that were also contributing to the ability to run low interest rates without creating inflation.
So we had a great labor market back then, unemployment, relatively low unemployment, solid growth, and low inflation.
So I think that the productivity is, I love positive productivity shocks and supply shocks from my seat.
So I think one of the differences the globalization might cut the other way a bit.
Some of the global factors might be a little bit more inflationary.
And I think the other issue that is different from the 90s is a lot of the productivity growth that we are seeing in the 90s was U.S. production of high-tech goods.
Today, a lot of the high-tech goods, I think semiconductors, you think of it, you know, the chips that are being made in Taiwan and around the world, a lot of the production of high-tech goods has moved abroad.
A lot of the design and value add and creation of things is in the U.S.
So how that plays out in terms of jobs, the economy, I think is somewhat different than it was in the 90s when the companies like Intel and Dell and everything were building, were actually producing a lot of the tech stuff.
So Bob Gordon wrote at this time, one of the leading experts on productivity, the 90s had two kicks to productivity, the use of computers and the production of computers.
Now I think we're probably going to get more of it from the use of AI, less from the production.
Although, that's just a couple comments.
To me, though, it's just something I think is an important factor.
I think the parallels are not complete.
unidentified
If I can interject just one related point, we just discussed before the importance of data.
We didn't know in the 1990s what was going on because it took two or three years for the data to actually catch up because the initial reports on things like GDP basically understated the amount of growth in the economy.
Why?
Because statistics are based upon sampling techniques and we were sampling the wrong companies, sampling the companies that were part of the old portion of the economy, not the newer portion, the faster growing portion.
john williams ▲ ● ▼
Well, and to add to that was the kind of the realization that we really had to think about quality adjustments to this.
You know, Bob Gordon wrote about this, but obviously when we came to high-tech, the measurement is not just measuring widgets, it's measuring the quality and the computing power.
I mean, we learned a lot from that.
unidentified
Sure.
Another question in the bath, please.
Thank you, President Williams, Jessica Kwatchi, Wall Street Journal.
With the recent DOJ investigation into Fed Chair Powell, could any feelings of uncertainty from households to the Fed Reserve change behaviors in ways that actually worsen inflation?
Markets And Central Bank Independence 00:04:58
unidentified
And if so, how does the Fed stick to its dual mandate while addressing a potential loss of public confidence?
john williams ▲ ● ▼
Well, I think the best, you know, this is my answer any day of my career.
The best way to maintain public confidence in what we do is to do our jobs well.
And that would be true of any situation.
And when inflation was really low in the 2000s, when inflation was very high just a few years ago, any period of time, our job, and this is what I'm focused on, it's what we're all focused on, is achieving as best we can maximum employment price stability.
I think if we deliver that low inflation and we deliver it consistently, that's the best thing we can do to maintain that credibility and the public's understanding of what we're doing.
I think the striking thing is, we run a survey of the New York Fed called the Survey of Consumer Expectations.
This is regular people, as is households.
Inflation expectations have throughout this period, I think, behaved remarkably well.
And I think part of that is, I go back to Chair Powell's speech at Jackson Hole a few years ago when his speech I think was named Restoring Price Stability.
The fact is when inflation got high, we understood it was high.
We needed to give back.
Price stability is absolutely essential.
It's a bedrock of our economy.
It's a bedrock of economic stability financially.
And that's the mission we've been on ever since.
unidentified
We have time for one more question.
Is there one online?
Okay, so the last one in the room.
Please.
Thanks very much.
Krishna Guhar with EverCore Partners.
John, in recent many months, but in particular in the last 24 hours or so, concerns have been raised about threats to Fed independence now, including from Chair Powell explicitly in his Sunday statement.
And yet markets seem to have taken this, broadly speaking, pretty well in their stride, not just today, but over many months.
Inflation compensation, inflation break-evens, and so forth, very well contained at levels broadly consistent with the Fed's target.
And wider asset markets haven't shown the kind of responses that would be consistent in a textbook sense with a serious threat to the central bank's independence.
So how do you interpret that?
Is it that the market is saying Fed independence doesn't really matter?
Is it the market saying it's a practical matter, there is no threat to Fed independence, and this is all overstated.
Is the market just not able to price this sort of thing in advance until it really happens in the final moment?
Or is it something else?
john williams ▲ ● ▼
Yeah.
That seemed getting dangerously close to a leading question, Krista.
But, you know, I think that I think the third answer is the one that I would go to.
I think I'm not going to comment the markets right or wrong, but it's how do you price a kind of an event that's very uncertain?
We've seen a number of statements, not just around Fed independence, but also around trade policy and other things.
And I think that markets are obviously analyzing, considering that data, but it's not obvious what the outcome will be.
And when the outcomes become maybe more clear what the probabilities are or something, I think the markets will react.
I do think Fed personally, no surprise here, Fed independence and central bank independence is extraordinarily important.
It's something I do care deeply about.
My interpretation, the markets, is that they're not sure what's going to happen and what that means, and they'll react, I think, whenever more information comes out.
But that's my own interpretation.
I don't know if it's right or wrong, but I think we've seen this pattern for now the past, where we, January, last eight months or so.
There's a lot of news that happens, and the markets seem to kind of wait to find out what really is happening rather than just initial reports.
unidentified
I think that's an excellent point for us to close our session.
I want to thank all of you here, everyone who's on Zoom, but a special thank you to President Williams, who has done yet another outstanding job of educating us, informing us, and keeping us smiling.
Thank you.
C-SPAN's Washington Journal, our live forum inviting you to discuss the latest issues in government, politics, and public policy from Washington, D.C. to across the country.
Elections Looming 00:01:54
unidentified
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