College Fed Challenge Winning Q&A 2020: Dartmouth

TL;DR

Economists discuss Federal Reserve policies, including the use of forward guidance and the new average inflation targeting approach, and the communication channels used to convey these decisions.

Transcript

JEAN DURR. So thank you, judges, again for your time. And if you can just introduce yourselves, that would be great. THOMAS WALSTRUM. Sure, I'll turn on my video. Hopefully, you can -- I can -- you can see me while I'm talking and introduce myself. Yeah. So I'm Tom Walstrum and I am an economist in the regional group at the Federal Reserve Bank of ... Read More

Key Insights

• ⚾ The FOMC has shifted its language to emphasize broad-based and inclusive employment goals to address the specific needs of underrepresented communities.
• 🫢 The Federal Reserve has a range of monetary policy tools at its disposal to address adverse shocks to the economy, such as quantitative easing, forward guidance, and liquidity facilities.
• ⏳ The new average inflation targeting approach provides flexibility to stimulate inflation and promote economic growth during times of low interest rates and economic downturns.

Questions & Answers

Q: Why did the Federal Open Market Committee (FOMC) change the language describing its maximum employment goal to "broad-based and inclusive"?

The change in language reflects the need to consider a broad range of indicators for a comprehensive understanding of the labor market. Studies have shown that when the unemployment rate falls below its estimated long-run level, there are significant employment gains for underrepresented communities.

Q: What are some monetary policy tools the FOMC could use to address additional adverse shocks to the economy?

In addition to the federal funds rate, the FOMC has employed unconventional tools such as quantitative easing, forward guidance, and liquidity facilities. These tools aim to make financial conditions more accommodative, backstop credit markets, and provide communication about future monetary policy.

Q: What are the benefits of the new average inflation targeting approach?

Average inflation targeting allows the Federal Reserve to let inflation moderately exceed the 2 percent target during times of low interest rates and economic downturns. This flexibility can stimulate demand, raise inflation expectations, and promote economic growth.

Q: What communication channels does the Federal Reserve use to convey its policy decisions and forward guidance?

The Federal Reserve uses press conferences by the Fed Chair, policy statements, and the Summary of Economic Projections to communicate its policy decisions and forward guidance. These channels provide transparency and allow for public understanding and engagement.

Summary & Key Takeaways

• The economists discuss their roles in tracking the Midwest economy and gathering information from business leaders in the region.

• They explain the changes made to the Federal Reserve's maximum employment goal, emphasizing the need for a comprehensive understanding of the labor market and the benefits of broad-based and inclusive employment strategies.

• The economists discuss various monetary policy tools used by the Federal Reserve, such as quantitative easing, forward guidance, and liquidity facilities, to address adverse shocks to the economy.