The Outlook for the Economy and Monetary Policy

My thanks to the Hoover Institution for inviting me to speak on this esteemed panel. It’s great to be back at my alma mater. I am especially grateful that yesterday I was able to join the celebration in honor of John Taylor. When we experience uncertain economic times with a wide range of possible paths for the economy, simple policy rules provide a good starting point for assessing how monetary policy may wish to respond in different scenarios. The Cleveland Fed’s website has a section that looks at federal funds rate projections based on seven simple policy rules and multiple forecasts, including the rule that John Taylor published in the year I graduated from Stanford. I combine this information with a variety of economic and financial data, forecasts, and anecdotes from business and community contacts as I think about the appropriate path for monetary policy. Recently, the signals about the economy have been decidedly mixed. By many measures, the backward-looking data have been encouraging, but heightened uncertainty surrounding government policies is clouding the outlook and raising the risks of higher inflation, slower growth, and softening in the labor market. So let me briefly share my current view on finishing the job amid new challenges in the economy.