Abstract: Uncertainty Itself Is the New Certainty
"The balance of risks is changing." When Federal Reserve Chairman Jerome Powell made this statement at Jackson Hole, global financial markets instantly tightened their nerves. This was Powell's last appearance at this global central bank annual meeting during his tenure, and he faced the most complex policy environment. Inflation is rising again, job growth has sharply slowed, and the new government's tariff policies are driving up prices— the Federal Reserve is standing at an unprecedented crossroads.
The data is alarming; in July, job growth plummeted to an average of 35,000 per month, only one-fifth of the 2024 target; the core inflation rate climbed to 2.9%, far exceeding the Federal Reserve's 2% target; the effects of tariffs are beginning to show, with a 1.1% increase in commodity prices. Behind these numbers is a profound change occurring in the U.S. economy. More worryingly, Powell publicly acknowledged a "challenging situation" for the first time—upward inflation risks and downward employment risks.
This dual pressure has put traditional monetary policy tools in a dilemma—raising interest rates could further hurt employment, while lowering rates could push inflation higher. "We will never allow a one-time increase in price levels to evolve into a persistent inflation problem." Powell's statement is both a commitment to the market and an exposure of the Federal Reserve's inner anxiety.
For the cryptocurrency market, these macro signals are far more than background noise. Over the past two years, the price volatility of digital assets has been highly dependent on the tightening and loosening of U.S. dollar liquidity and the direction of U.S. Treasury yields. Powell's remark that "the balance of risks is changing" signifies that the liquidity environment on which the crypto market relies is entering a turning point. With limited room for interest rate hikes and the prospect of rate cuts facing inflation constraints, the market is beginning to realize that uncertainty itself is the new certainty.
In this speech, referred to as the "farewell address," Powell also announced a significant adjustment to the Federal Reserve's monetary policy framework—its first revision since 2020. The new framework emphasizes the "inclusiveness" of employment goals, providing greater flexibility for policy adjustments. However, the problem is that, in the face of the current complex situation, even the most flexible framework is unlikely to provide ready-made answers. For more speculative crypto assets, this means that fluctuations in market narratives and risk preferences will be more intense than ever.
Tariff clouds are reshaping the economic landscape of the United States. Powell admitted, "Significantly increased tariffs are reshaping the global trading system," and their impact on consumer prices is "now clearly visible." This is not only a description of economic reality but also a warning to policymakers: monetary policy must find a balance between political pressure and economic laws. For the crypto market, this is also a reminder—every swing in macro policy will quickly reflect in the capital flows and valuation logic of risk assets.
The market is holding its breath for the Federal Reserve's next move. Expectations for a rate cut in September remain strong, but Powell's speech indicates that this decision will be more difficult than ever. In the squeeze between inflation and employment, the Federal Reserve is searching for a path not previously taken; meanwhile, as global capital seeks hedges and safe havens, crypto assets may also be assigned a new role on this uncharted path.
Below is the full text of the speech:
This year, against the backdrop of widespread changes in economic policy, the U.S. economy has shown resilience. In terms of the Federal Reserve's dual mandate, the labor market remains close to full employment, and while inflation is still somewhat elevated, it has significantly retreated from its post-pandemic peak. At the same time, the balance of risks seems to be shifting.
In my remarks today, I will first discuss the current economic situation and the near-term outlook for monetary policy. Then, I will turn to the results of our second public assessment of the monetary policy framework reflected in the revised "Statement on Longer-Run Goals and Monetary Policy Strategy" that we are releasing today.
Current Economic Conditions and Recent Outlook
A year ago, when I stood at this podium, the economy was at a turning point. Our policy interest rate has been maintained at a level of 5.25% to 5.5% for over a year. This restrictive policy stance is appropriate, helping to reduce inflation and promote a sustainable balance between total demand and total supply. Inflation is very close to our target, and the labor market has cooled from its previously overheated state. The upward risks to inflation have diminished. However, the unemployment rate has risen by nearly a percentage point, a situation that has historically only occurred during recessions. In the subsequent three Federal Open Market Committee (FOMC) meetings, we recalibrated our policy stance, laying the groundwork for the labor market to maintain balance at levels close to full employment over the past year (Figure 1).
This year, the economy faces new challenges. The significantly increased tariffs among our trading partners are reshaping the global trading system. Tighter immigration policies have led to a sudden slowdown in labor growth. In the longer term, changes in tax, spending, and regulatory policies may also have significant impacts on economic growth and productivity. There is tremendous uncertainty about where all these policies will ultimately lead and what their lasting effects on the economy will be.
Changes in trade and immigration policies are simultaneously affecting both demand and supply. In this environment, distinguishing between cyclical developments and trend (or structural) developments is difficult. This distinction is crucial because monetary policy can strive to stabilize cyclical fluctuations but is powerless to change structural changes.
The labor market is a good example. The employment report released earlier this month showed that job growth averaged only 35,000 per month over the past three months, down from 168,000 per month during 2024 (Figure 2). This slowdown is much greater than the assessment just a month ago, as the early data for May and June were significantly revised down. However, this does not seem to have led to the kind of significant slack in the labor market that we wish to avoid. Although the unemployment rate rose slightly in July, it remains at a historically low level of 4.2% and has been relatively stable over the past year. Other indicators of labor market conditions have also changed little or only softened moderately, including the ratio of quits, layoffs, job vacancies to unemployed persons, and nominal wage growth. Both labor supply and demand have softened, significantly reducing the "breakeven" job creation rate needed to keep the unemployment rate stable. In fact, with a sharp decline in immigration numbers, labor growth has significantly slowed this year, and the labor force participation rate has also declined in recent months.
Overall, while the labor market appears to be in a balanced state, this is a peculiar balance resulting from significant slowdowns in both labor supply and demand. This unusual situation suggests that the downside risks to employment are rising. If these risks materialize, they could quickly manifest in the form of a sharp increase in layoffs and a rising unemployment rate.
Meanwhile, GDP growth in the first half of this year has significantly slowed to a level of 1.2%, about half of the 2.5% growth rate expected for 2024 (Figure 3). The slowdown in growth primarily reflects a deceleration in consumer spending. Like the labor market, part of the slowdown in GDP may reflect a slowdown in supply or potential output growth.
Turning to inflation, higher tariffs have begun to push up prices for certain categories of goods. Estimates based on the latest available data show that overall PCE prices rose by 2.6% in the 12 months ending in July. Excluding the volatile food and energy categories, core PCE prices rose by 2.9%, higher than a year ago. Within core inflation, prices for goods rose by 1.1% over the past 12 months, a significant shift compared to the moderate decline expected during 2024. In contrast, housing services inflation remains on a downward trend, while the level of non-housing services inflation remains slightly above the level historically consistent with 2% inflation (Figure 4).
The impact of tariffs on consumer prices is now clearly visible. We expect these effects to accumulate over the next few months, but the timing and magnitude are highly uncertain. For monetary policy, the important question is whether these price increases could materially increase the risk of persistent inflation problems. A reasonable baseline scenario is that their impact will be relatively short-lived—that is, a one-time change in price levels. Of course, "one-time" does not mean "one and done." Tariff increases take time to transmit through the entire supply chain and distribution network. Additionally, tariff rates are still changing, which may prolong the adjustment process.
However, the price pressures brought about by tariffs could also trigger more persistent inflation dynamics, which is a risk that needs to be assessed and managed. One possibility is that workers, facing declining real incomes due to rising prices, may demand and receive higher wage requests from employers, leading to adverse wage-price dynamics. Given that the labor market is not particularly tight and faces increasing downside risks, this outcome seems less likely to occur.
Another possibility is that inflation expectations may rise, driving actual inflation upward. Inflation has been above our target for more than four consecutive years and remains a prominent concern for households and businesses. However, based on market-based and survey-based indicators, long-term inflation expectations seem to remain well anchored and consistent with our 2% long-term inflation target.
Of course, we cannot take for granted that inflation expectations will remain stable. Whatever happens, we will not allow a one-time increase in price levels to evolve into a persistent inflation problem.
Overall, what does this imply for monetary policy? In the short term, inflation risks are tilted to the upside, while employment risks are tilted to the downside—this is a challenging situation. When our goals are in such tension, our framework requires us to balance both aspects of our dual mandate. Our policy interest rate is now nearly 100 basis points closer to neutral than it was a year ago, and the stability of the unemployment rate and other labor market indicators allows us to proceed cautiously when considering changes to our policy stance. Nevertheless, in a restrictive policy environment, the baseline outlook and the changing balance of risks may require us to adjust our policy stance.
Monetary policy does not have a predetermined path. Members of the Federal Open Market Committee will make these decisions solely based on their assessments of the data and its implications for the economic outlook and the balance of risks. We will never deviate from this approach.
Evolution of the Monetary Policy Framework
Turning to my second topic, our monetary policy framework is built on the unchanging mission granted to us by Congress to promote maximum employment and stable prices for the American people. We remain fully committed to fulfilling our statutory mission, and the revisions to our framework will support this mission under a wide range of economic conditions. Our revised "Statement on Longer-Run Goals and Monetary Policy Strategy," which we refer to as the consensus statement, describes how we pursue our dual mandate goals. It is designed to provide the public with a clear understanding of how we think about monetary policy, which is essential for transparency and accountability, as well as for making monetary policy more effective.
The changes we made in this assessment are a natural evolution, rooted in our deepening understanding of the economy. We continue to develop on the basis of the initial consensus statement passed under Chairman Ben Bernanke in 2012. The revised statement today is the result of our second public assessment of our framework, which we conduct every five years. This year's assessment included three elements: the "Fed Listens" events held at Reserve Banks nationwide, a flagship research conference, and discussions and deliberations by decision-makers supported by staff analysis at a series of FOMC meetings.
During this year's assessment, a key objective was to ensure that our framework is applicable under a wide range of economic conditions. At the same time, the framework needs to evolve with changes in the economic structure and our understanding of these changes. The challenges posed by the Great Depression are different from those during the Great Inflation and the Great Moderation, which in turn differ from the challenges we face today.
In the last assessment, we were living in a new normal characterized by interest rates close to the effective lower bound (ELB), accompanied by low growth, low inflation, and a very flat Phillips curve—indicating that inflation was unresponsive to slack in the economy. For me, a statistic that captures the characteristics of that era is that our policy interest rate remained at the effective lower bound for as long as seven years following the outbreak of the global financial crisis (GFC) at the end of 2008. Many of you present will remember the painful stagnation and extremely slow recovery of that time. It seemed highly likely that even if the economy experienced a mild recession, our policy interest rate would quickly return to the effective lower bound and could remain there for a long time. At that point, inflation and inflation expectations could decline in a weak economy, pushing up real interest rates while nominal rates were pinned near zero. Higher real rates would further dampen job growth and exacerbate downward pressure on inflation and inflation expectations, leading to an adverse dynamic.
The economic conditions that pushed the policy rate to the effective lower bound and drove the 2020 framework changes were thought to be rooted in slowly changing global factors that would persist for a long time—if not for the pandemic, they likely would have. The 2020 consensus statement included several characteristics to address the increasingly prominent risks associated with the effective lower bound over the past two decades. We emphasized the importance of anchoring long-term inflation expectations to support our dual mandate of price stability and maximum employment. Drawing on a wealth of literature on strategies to mitigate risks associated with the effective lower bound, we adopted a flexible form of average inflation targeting—a "makeup" strategy to ensure that inflation expectations remain well anchored even under the constraints of the effective lower bound. Specifically, we indicated that after periods of inflation persistently below 2%, appropriate monetary policy might aim for inflation moderately above 2% for some time.
As a result, the reopening in the post-pandemic period did not bring low inflation and an effective lower bound, but rather the highest inflation in 40 years for global economies. Like most other central banks and private sector analysts, we believed until the end of 2021 that inflation would dissipate relatively quickly without a significant tightening of our policy stance (Figure 5). When it became clear that this was not the case, we responded forcefully, raising our policy rate by 5.25 percentage points over 16 months. This action, combined with the easing of supply disruptions during the pandemic, brought inflation closer to our target without the painful rise in unemployment that typically accompanies the fight against high inflation.
Elements of the Revised Consensus Statement
This year's assessment considered the evolution of economic conditions over the past five years. During this period, we have seen that inflation can change rapidly in the face of significant shocks. Additionally, current interest rate levels are much higher than those during the period between the global financial crisis and the pandemic. With inflation above target, our policy rate is restrictive—what I would consider moderately restrictive. We cannot determine where interest rates will stabilize in the long term, but the neutral level may now be higher than in the 2010s, reflecting changes in productivity, demographics, fiscal policy, and other factors affecting the balance of savings and investment (Figure 6). During the assessment period, we discussed how the 2020 statement's focus on the effective lower bound might complicate our communication regarding responses to high inflation. We concluded that an emphasis on a set of overly specific economic conditions may have led to some confusion, and thus we made several important modifications to the consensus statement to reflect this insight.
First, we removed language indicating that the effective lower bound is a defining feature of the economic landscape. Instead, we noted that our "monetary policy strategy aims to promote maximum employment and stable prices under a wide range of economic conditions." The difficulties of operating near the effective lower bound remain a potential concern, but they are not our primary focus. The revised statement reaffirms that the Committee is prepared to use its full range of tools to achieve its maximum employment and price stability goals, particularly when the federal funds rate is constrained by the effective lower bound.
Second, we returned to the framework of flexible inflation targeting and eliminated the "makeup" strategy. It has proven irrelevant to intentionally allow inflation to moderately overshoot. The inflation that arrived in the months following our announcement of the 2020 consensus statement was neither intentional nor moderate, as I publicly acknowledged in 2021.
Well-anchored inflation expectations are crucial for successfully reducing inflation without causing a sharp rise in unemployment. Anchored expectations can help bring inflation back to target when adverse shocks push it higher and limit deflation risks during economic weakness. Moreover, they allow monetary policy to support maximum employment during economic downturns without compromising price stability. Our revised statement emphasizes our commitment to taking strong actions to ensure that long-term inflation expectations remain well anchored to benefit both aspects of our dual mandate. The statement also notes that "price stability is the foundation of a sound and stable economy and supports the well-being of all Americans." This theme was powerfully and clearly reflected in our "Fed Listens" events. The past five years have painfully reminded us of the difficulties brought by high inflation, particularly for those least able to bear the higher costs of necessities.
Third, our 2020 statement indicated that we would focus on mitigating "shortfalls" from maximum employment rather than "deviations." The use of the term "shortfalls" reflects the insight that our real-time assessment of the natural rate of unemployment—i.e., "maximum employment"—is highly uncertain. In the later stages of the recovery from the global financial crisis, employment was above mainstream estimates of its sustainable level for a long time, while inflation remained persistently below our 2% target. In the absence of inflationary pressures, there may be no need to tighten policy solely based on uncertain real-time estimates of the natural rate of unemployment.
We still hold this view, but our use of the term "shortfalls" has not always been interpreted as intended, leading to communication challenges. In particular, the use of the term "shortfalls" was not meant to commit to permanently forgoing preemptive action or ignoring tight labor market conditions. Therefore, we removed the term "shortfalls" from the statement. Instead, the revised document now more accurately states that "the Committee recognizes that employment may sometimes be above real-time assessments of maximum employment without necessarily posing a risk to price stability." Of course, if tight labor market conditions or other factors pose risks to price stability, preemptive action may be necessary.
The revised statement also notes that maximum employment is "the highest level of employment that can be sustained in the context of price stability." This focus on promoting a strong labor market emphasizes the principle that "sustaining maximum employment can provide broad-based economic opportunities and benefits for all Americans." The feedback we received during our "Fed Listens" events reinforced the value of a strong labor market for American families, employers, and communities.
Fourth, consistent with the removal of the term "shortfalls," we made modifications to clarify our approach during periods when our employment and inflation goals are not complementary. In these cases, we will take a balanced approach to promote them. The revised statement is now more consistent with the original wording from 2012. We will consider the degree of deviation from our goals and the potentially different time spans for each goal to return to levels consistent with our dual mandate. These principles guide our policy decisions today, just as they did during the 2022-24 period, when deviations from our 2% inflation target were the overriding concern.
In addition to these changes, there is significant continuity with past statements. The document continues to explain how we interpret the mission granted to us by Congress and describes the policy framework we believe will best promote maximum employment and price stability. We continue to believe that monetary policy must be forward-looking and consider the lags in its effects on the economy. Therefore, our policy actions depend on the economic outlook and the balance of risks facing that outlook. We continue to believe that setting a numerical target for employment is unwise, as the level of maximum employment cannot be directly measured and will vary over time for reasons unrelated to monetary policy.
We also continue to believe that a long-term inflation rate of 2% best aligns with our dual mandate goals. We believe that our commitment to this target is a key factor in helping to keep long-term inflation expectations well anchored. Experience shows that a 2% inflation rate is low enough to ensure that inflation does not become a concern in household and business decision-making while also providing some flexibility for central banks to implement accommodative policies during economic downturns.
Finally, the revised consensus statement retains our commitment to conducting a public assessment approximately every five years. There is nothing magical about the five-year rhythm. This frequency allows decision-makers to reassess the structural features of the economy and engage with the public, practitioners, and scholars about the performance of our framework. It is also consistent with the practices of several global peers.
Conclusion
In closing, I want to thank Chair Schmid and all the staff who work hard to hold this outstanding event every year. Including several online appearances during the pandemic, this is my eighth time having the honor of speaking at this podium. Each year, this seminar provides an opportunity for the leaders of the Federal Reserve to hear the thoughts of top economic thinkers and focus on the challenges we face. More than forty years ago, it was wise for the Kansas City Fed to attract Chairman Volcker to this national park, and I am proud to be part of this tradition.
免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。
