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[applause] [background sounds]. >> good afternoon and is my great pleasure to welcome to the stage, governor brainard. and doctor brainard took office as the board of governors and federal reserve system on june 16th, 2014. prior to her appointment, the board served as undersecretary of the u.s. department of treasury for international affairs rated also an associate professor of applied economics in the mit school and had the privilege of knowing her since those days pretty and she received both in ms and economics from harvard

university as national science foundation scholar and please welcome governor brainard. [applause] >> personal thank you for the introduction. elaine, is a great honor to join the community of fellows and i want to thank the board of directors and connie and menu men well in particular. it is always nice to see you. and given the unprecedented nature of the pandemic shock, they should come as no surprise that there were recoveries not proceeding in a straight line. economy continues makeec welcome progress at the delta variant has been more destructive than i think the most people expected read the headlines from the delta are a reminder that the virus continues to pose downside risks. delta has disrupted both the

demand and supply side and many forecasters have downgraded consumer spending in the second half of the year. delta is limited the acceleration that had a been expected in services which had been expected off the drugged activity from the shift and fiscal support from being led to being a headwind.d. ... ... seem to be very sensitive to regional variations in vaccination rates recovered. delta has also prolonged of bottlenecks the single family

permits declined again in august despite very high, demand because of material constraints. i don't production was once again posited a number of north american plants in early september following covid induced shutdowns and semiconductor plans in places like malaysia and vietnam. industry context continuedra the unusual elasticity of global shipping chains such that a covid induceded foreclosure in china can ripple through and magnify backlogs. in recent months private sector forecasters have down projections by over one percentage point even with that downgrade from delta, i expect growth this year end next should be sufficient by the end of next year average annualal growth with the onset of the pandemic should exceed pre-pandemic trend growth. and deltas finally slowed

progress on employment. and since leisure and hospitality unexpectedly fell to zero in august following an average monthly pace of three and 75000 in the preceding three months. delta induced spending decline for travel, recreation and discretionary services that i mentioned earlier likely reduce the intensity with which employers search for workers. in fact we see the number of households in the current population survey saying they were unable to work because their employer closed or lost business due to covid picked up again in august after it had been falling significantly through july. as of the end of august, payroll employment remains over 5 million below pre-covered levels. and about eight and half million below where it would have been in the absence of covid. roughly one third of that gap is concentrated in the front line leisure and hospitality sector. while the headlighte unemployment rate in august

the unemployment rate adjusted for covid related nonparticipation remains elevated at 7.5%. the employment to population ratio for prime age workers remains about two and half percentage points below its pre-covid level. said the labor market is making progresss but at a slower pace than we had hoped earlier in the year. relative to december perils of closed nearly 50% of their gap to pre-covered levels. the prime level is close to 40% of its gap. labor force participation has shown little progress. some observers argue labor force participation hasn't moved permanently labor said the labor market is already tight. but the declining participation appears to reflect covid constraints that have been prolonged by delta rather than a permanent structural change in the

economy. so if you look for instance at the number of respondents to the census pulse survey indicating they were working either to being sick with covid are taking care of somebody who was sick with covid, that more than doubles between late july and early september. while i am hopeful for further improvements in the september employment report with the return to in-person education, even here the effects of delta have made themselves felt. last week there were just over 2000 school closures for covid across nearly 470 school districts and 39 states. while the disruptions at last just about six days on average , none the less the prospect of further unpredictable disruptions may well be delaying some parents return to work plans.. and of course, covid has reduced the availability of daycare, preschool and afterschool care further complicating that return to work decision. with a record high at job openings and an unemployment

rate, headlight unemployment rate just about 5%, that headline vacancy to unemployed ratio has risen above one vacancy per job seeker is not pre-pandemic levels. some people point to the ratios indicating we are close to full employment. but that headline ratio may not be as informative when there's substantial lag in participation. it's constructed to think about that. in 2019 -- 2019 when the vacancy to an employment ratio is very similar to where it is today. it was very stable throughout that period and prime age is less than half a percentage point. but underneath those numbers there is a 2 million increase in the prime age labor force was raise the ratio one and a half percentage points. as i think about what to take away for today, lacking participation is likely to be

particularly important currently due to covid constraints fears of contracting the virus. in caregiving responsibilities. these ba constraints have been prolonged by delta but they are not permanent and they are not structural. it's more informative to rely on a ratio job openings for jobseekers that adjust the unemployment rate for pandemic related nonparticipation. the pandemic adjusted ratio of job openings to jobseekers was only 0.85 in july that's nearly one third below thebo headline number is quite similar to what we saw in 2014. so that assertion that labor force participation has moved permanently lower as a result of a downturn is not new. in fact it's a regular feature of the early stages of recovery. but research demonstrates the labor force cycle lags that of the employment rate by some years.

so it is important to consider thindicators beyond that headline and employment rate when assessing progress for maximum employment as participation gains may come quite late for some groups in particular. so for all of these reasons i see no reason employment should not reach levels as strongerer or stronger than we saw before the pandemic. so,ce let me turn next to price stability. inflation is currently elevated for this is creating challenges for consumers and for businesses. but, the high inflation reading from the spring and early summer were disproportionately driven by a few sectors experiencing specific identifiable supply bottlenecks. in may and june new and used vehicle prices accounted for half of the outside monthly increases in core cpi for those categories became less contributor's in july and the august their joint contribution declined to essentially zero.

i am closely monitoring incoming data for any indications that the breath of inflation pressures might be rising. twenty-four months core pc inflation one approaches smoothing through some of the individual disruptions associated with covid. it's estimated 2.5% in august. another approach that 2.0% in july. so the currently elevated inflation appears to be driven by covid related disruption. as with covid related subside most forecasters expect inflation to move back down to 2% long run objective on its own. that is a sense in which high inflation is likely to be transitory. in that regard, the august

monthly cpi reading was the first month with the notablebl retrenchment among covid sensitive categories like hotels and rental cars. so, i do expect inflation to accelerate and pre-covered dynamics to return when covered disruption dissipates. but with delta disrupting the rotation from goods to services and prolonging supply bottleneck it's uncertain how fast inflation will decelerate over this year end into next year. so i am monitoring carefully a few upside risks. first of all rents and owners equivalent rent both rose in a fairly moderate zero-point to august, and housing services moved up e more substantially than expected this could have upward pressure on inflation but secondly risk goods prices may not decelerate and return to the t pre-covid trends as is widely expected. and third, of course, we are

all watching foror any signs that wage gains are feeding into higher inflation more broadly. but the evidence so far aligns its in-line with productivity and the labor share of income remains relatively low. finally, and vigilant for any signs the current high level of inflation might push longer inflation expectation above levels consistentt with the 2% target market based members of inflationch compensation such as the tips five-year, five-year forward measures suggest those inflations are in fact well anchored. survey -based measures also suggest longer run inflation expectations remain well anchored. recent analysis of the survey of consumer expectations concludes that in august 2021, consumers five-year head inflation expectations were as well anchored as they were two years ago before the start of the pandemic. and of course the longer run measure in the michigan survey and the federal reserve board staff common index of

inflation expectations similarly. so, what do these developments imply for the path ahead? one clear lesson is we need to be humble about our ability to correctly anticipate future economic conditions given the unpredictability of the virus. while inflation has been well above target for the past six months, affecting both consumers and businesses previously spent a quarter-century below 2%. there are good reasons to expect that because underlying structural factors like a flat curve, low equilibrium in the underlying inflation are unlikely to have changed we will see a return to pre-coded inflation dynamics. so it's important to remember playbook following a period of

moderate overshooting is well known and is proven effective, experienced suggest it's very difficult to guide inflation up to target from below. in addition we had expected a smooth rotation from during a complete reopening in the fall. but of course that too is been said partly as a result employment gains flatlined and august and the leisure and most of those losses are concentrated. it may be weaker and b less informative than i had hoped. it's a bit short of the mark of what i consider progress but if progress continues as i hope it may soon meet that mark. once covid restates receipt i see no reason the labor market

should not be as strong or stronger than it was pre-pandemic. i would emphasize note signal about the timing of liftoff commuting from any decision that may come when announcing a slow it of asset purchases. the employment is has sets a much higher bar for the liftoff of the policy rate in slowing the pace of asset purchases. in implementing policy step-by-step we have to remain faithful to thefa new framework and attentive to changing conditions to ensure there is sufficient momentum when the fiscal tailwinds shift to headwind so with that i want to wrap up and have a discussion. cracks cracks with goods

inflations talk about the stock market and real estate prices during the pandemic. and a number of commentators whether they are fundamental. does the fed consider inflation in his decisions about normalizing monetary policy? cracks have a pretty well defined that we are targeting inew at mullen monetary policyfr framework. outside of our monetary policy framework we have a parallel process that monitors for imbalances.ancial and in that work which we review every quarter every six

months or so we do work very carefully asset valuation may be stretched look for other channels that might lead to vulnerability. those reports have been showing in fact asset valuation are in fact stretched it has been somewhat elevated. that said though, the framework makes clear we have other tools than the first lines of defense. there circumstances with the evaluations were being stretched with other vulnerabilities that's a good environment to think about

turning on the countercyclical buffer which i tend to favor. monetary policy as an effective tool in that regard. that's why were active in our tools. >> thank you. central-bank digital currencies are big topic. china and sweden are actively moving towards developing there's formally exploring the merits of a digital year old. can you tell us where the federal reserve stands in considering the u.s. dollar and what your sites are on the individual dollar? >> it's a really big topic. and it has become much more kind of salient in recent months in part because as we saw during the pandemic there was a continued acceleration of the move to contactless

digital payment. that becomes more and more the path of the future as a fully digital payments. it is also the case that in the pandemic we saw how important it was to get payments to households. and itne turned out nearly 6% of american households that don't have bank accounts work hard to get those payments to them. that is the second motivating kind of consideration i think has been more pronounced during the pandemic. but perhaps the most important recent development has been the proliferation of digital assets, crypto currencies that are called stable coins which arel intended to reference some kind of traditional asset class. and in some cases u.s. currency. i thinkn they bring, if they are widely adopted associate with fragmentation of the

payment system, potentially associated with risks of one. they are not fully regulated in a systematic and uniform way. and so the importance of making sure that consumers continue to have direct access to a safetr form of central-bank currency has really risen on that radar screen. the final thing i would say, as you mentioned, iff other major jurisdictions are introducing for purposes not only of domestic payments but international payments, it is just very hard for me too imagine that the u.s., given the status of the dollar as the dominant currency in international payments would not come toco the table in that circumstance with a similar kind of an offering. >> trust fund stable coins.

the economist a week ago talked about that aso part of a broader movement for decentralized finance. finance happening outside of the banking system. can you tell us a little bit more on your thoughts of the merits and risks of that? >> that term covers a huge diversity of efforts that are underway. some of them may in fact provide value and be very important innovation. but, it also includes a number of activities that have no regulation around them. or you are seeing a much more engagement by not just retail investors but also institutional investors, with some lack of clarity about what kinds of safeguards might backac those. if you look at the area of crypto are crypto assets isge

generally, seen explosive growth in that area. there is increased interest in terms of bringing those into the court financial system. these are assets that do not have intrinsic value and may be subject to risks that are different. then traditional assets. i think is very important there's the regulatory framework has to catch up to that. and then again that broad class they get special attention because someof of them have characteristics that really lend themselves to run like behavior in particular the promise of instant one-for-one redemption backed by assets that are far left liquid in some cases. and potentially much less

certain than traditional money market funds even. there is a set of additional concerns that if those become very prominent in payments he could see some consumer risks as well as investor risks. >> another question that's at the top of everyone's mind is that limits. in 2013 the last time it got so close. so, can you tell us what tools the fed would have to support the economy and financial markets in the unfortunate but real possibility the debt ceiling is not raised before treasury runs out of the measure? >> thisth is really not an issue it's a question but congress knowsha what needs to do for its done it before. eddie's to step up, has responsibilities. i think the american people have had enough drama over the last two years.

i think it's really important to just move forward. get this resolved and there are a lotpo of really important things we need to get done for the health of the economy. >> thank you. okay now i'm just completely lost our fancy asset. in the room to take the opportunity to ask governor brader questions. and we have one. this is going toec be very technical question. mentioned base effects and measurements of consumer legislation, especially in comparing the better baseline than 2020. do you see base effects since september customer.br >> i think a base effects at least in our calculations are very dominant in this first spring months.

we were seeing prices that were coming off the year earlier, the most severe part of the pandemic. now of course, we do not know where some are likely to go. in some cases now you have had prices have one time increases. whether those come backed out a little bit, this time next year. that one time price increase holds and the normal inflation process takes over from there. i think those are some of the things that are not easy to predict. but, what does seem very important to me is where we have seen the large majority of those upside surprises has been in a handful of sectors

where the constraints and pricing distortions are very clearly and identifiably connected to disruptions withh covid. so again there is good reason to expect those two dissipates. that is the sense i'm thinking about transitory i don't know they don't fully know when the pandemic is going to fully reseed. those seem to be driving the outside increases. >> how are you thinking aboutt the potential growth rate post pandemic, whatever that means. do you see it having change upward or downward as a result of this disruption?

>> i think they are to have a variety of different estimates. you know it is possible that we will see some productivity associateded with some of the shifts we have seen during the pandemic. those are probably an acceleration of existing trendsce that certainly remote work is likely to be more widespread i think on an ongoing basis. a shift to contactless approaches to certain businesses may be a long-lasting trend as well. so perhaps we will see some productivity increases there. too not know what is going to happen on some of the fiscal issues being rated, the infrastructure and changes that lead to greater labor for supply overtime.

those two could also result in an improvement to productivity. at this juncture i think it's aa little too early since we are still seeing the effects of the delta variant and it's unclear where the pandemic is headed. >> put in the paper a couple weeks ago about the impact of the pandemic on labor force participation of women especially women with young children in the length of child care which you touched on earlier. what are your thoughts on how women's labor force participation in the long run may have been affected by the pandemic? has it peaked or where is it going? >> there i think we just see and survey evidence, we have seen in research those additional caregiving responsibilities really have disproportionately affected parents. disproportionately affected mothers. disproportionately affected mothers with young children and inspte particular minority

mothers with young children. and so,er those seem to be again very tightly connected to covid caregiving responsibilities. certainly there is broad-based return to school they may not last it may cause you to postpone my children my children mapping virtual school again for a week here or there. and childcare i don't expect those to be permanent changes but they have been long-lasting.

i believe they are having material effects on labor force participation appearance. >> we have a question on tapering from the audience. can you speak more to whatse risks generate looking at the housing sector and how tapering might affect housing prices? >> in general there's been a real mismatch there between stronger demand, demand that may had been supported by obviously poor financial conditions but also. [inaudible] associate withh fiscal support. people have been able to accumulate savings that they have engaged less of discretionary services and of gotten more support. they also may be looking for different kinds of housing as a result of the pandemic. so demandd is very strong. supply constraints also very

strong. we've seen material shortages and they have been associated with lumber prices. but we've also seen it with certain metals prices. in some have been constraining construction and purchases. in terms of the connection to our policy framework, i think what we have seen is accommodated policy does have effects on affordability of housing. certainly is a boost to the housing sector. but it does not have differential impacts that are specific to the actual composition of our purchases. so i would not expect to see any differential impacts as our policyck continues. >> let's come back to labor market because we had more questions about that. you talked about prime age labor force participation. and then another issue that

keeps coming up is to what extent labor force participation has persistently dropped for adults over 55. whether that is some combination of short-term issues with fears of covid or early retirement. so, tell us your thoughts with labor participation and different ages with the labor market. >> as i was emphasizing earlier, i think it's a very early- days to start concluding there has been a structural shift in the desire and necessity for prime age americans participating in the labor force and working. i think a delta has been a really important of the constraints we have seen earlier associated with the virus despite widespread

vaccinations. an participation generally lacks in severe recessions. we've seen that, we certainly saw that the last cycle. there's no reason to expect it to beti any different this time around. it is not like by weeks or months it can lag by years. so again, i am a little bit confounded by stories that would suggest we are in very tight labor markets akin toak what we saw pre-covid. and, i would think as we look out across the likely evolution of the labor force, supply will probably see people coming back in, only for some when the labor market does have an extended recovery. in terms of early retirement for some people that maype in fact be a slight acceleration by a year or two of plans that

are going to retire anyway. those are likely to be permanent. but that would not cause a permanent change in my views about labor force participation. because those retirements are being pulled by year two. >> we have another question on currency. we have a question about -- can you give some guidance on timeline for consideration in what might happen along the way? >> so, we are currently engaged in developing a report that will be soon, shared and intended really to gather public input on this issue about essential bankut digital currency in the u.s. context. now, a lot of our. central banks have done similar things in their jurisdictions. i think it is vital for us and

solicited a broad range of views what the possible benefits and risks associated with introducingin central-bank digital dollar might look like. so that paper will be a very important milestone for us. our colleagues at the federal reserve bank of boston are also engaged i in research on the core processing technologies for central-bank digital currency and look at questions. they'll be able to share some of the early research before too long as well. so, ire think that is also in parallel and important track so we understand what digital currency would look like from a technological perspective. >> i need that a lot of thinking about the relationship between digital payment and financial inclusion. can you share some of your thoughts about that? >> so, one of the things we are doing right now across the

reserve system is working to build a new instant payment system that all banks would have access too. which would allow banks of all sizes and all parts of the country to provide for their customers instant payments. instant payments tend to be really important for cash constraint individuals. cash constraint businesses. that ability to track cash flows in and out on an instantaneous basis might help folks who would prioritize which bills to pay when have much better insights into and control of their household finances. so from a financial inclusion perspective we think digitalization of payments, real-time payments in particulare could make a material difference. as i noted earlier, for those common households that are really balancing their cash flows most carefully they may

be the ones who don't currently have bank accounts for a variety of reasons. and it's hard to reach in crisis moments. hence offer all of those reasons as we think about real-time payments, digital payments, we want to make sure he do so in part through digital inclusion lands. >> another question, has the size of the balance sheet as it'sd gone through continued crises limited capacity for future downturn? >> yes. i think what we have learned and what other central banks around the world advanced economies, central banks have learned that in an environment for the mutual interest rate is low, there is simply less room in our conventional toolkit to cut the policy rate when there is a shock to the economy. particularly when there's a big shock to the economy.

sort toolkit has simply expanded. so when the policy rate is essentially coming to its effective lower bound we transition much more smoothly to use of asset purchases as supplemental which provides accommodation by pushing out. that's proven to be quite effective. it's also proven to be quite effective we are able to see the balance sheet roll off given that we should see growth over the next few years. >> you been very involved with financial regulation, what are some things she would like to

see considered for additional regulation measures? >> i think the biggest areas that are kind of new, or the whole crypto arena. we've already talked about that i think it's really important to have all of the regulators come together whether the current regulatory guardrails are adequate. whether they need to be moved in order to s better safeguard and investors in this case. .10 the working group is working on reports in that regard. i think that is essential. another new area is the area of climate related financial risk. it's an area where the largest banks are internationally active are already being supervised and other

jurisdictions to make sure they are measuring, monitoring and managing risks. the u.s.rea where has been behind and we need to catch up because of course we know the nature of climate change is such that could be pose significant risks both in terms of sudden change of crisis into the financial system more generally. that's a second important area. and the bread-and-butter is to make sure our core financial institutions are sufficiently well-capitalized and managing their liquidity. and so in thatre guard making sure the trusts are very strong and don't get whittled down over time is important to making sure banks to build countercyclical is important. there is a pretty good management under their pre- >> thank you.

in current institutional question from the audience can you comment on fed independence in light of some political attacks previously and will leave it there pre- [laughter] >> of course we have a very important, accountable relationship to congress into the american public. i think it is really important spthe fundamental principle for the federal reserve is transparency and accountability to the american public in carrying out the very important missions that congress has entrusted to us within that we are subject to a live oversight. an important oversight by congress. we are audited and we do have accountability. there is one narrow area where

people talk about independence. that is really just in the judgments that are made about specifically how to deliver on congresses flexibility and maximum employment. it's well understood why that one narrow area, the financial system and the economy working americans in particular benefit from the federal reserve being able to carry out its narrow responsibilities with the ability to interpret the data as best we can to deliver on that. >> i want to thank you for joiningth us today. for the issues in every macro and taking questions from this audience a. let's all please get.

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