Michael S Barr: Monetary policy and financial stability

Speech by Mr Michael S Barr, Vice Chair for Supervision of the Board of Governors of the Federal Reserve System, at the Forecasters Club of New York, New York City, 2 October 2023. 

The views expressed in this speech are those of the speaker and not the view of the BIS.

Thank you for the opportunity to speak to you. I would like to talk with you today about the intersection of my two roles at the Federal Reserve as the Vice Chair for Supervision at the Federal Reserve Board and as a member of the Federal Open Market Committee (FOMC). In particular, I'll focus on the interaction of monetary policy and financial stability policy.

Views on Monetary Policy and Current Conditions

First, my views on current monetary policy.

I am squarely focused on our dual mandate to promote maximum employment and stable prices for the American people. I strongly agree with the point that Chair Powell has made often, which is that without price stability, the economy does not work for anyone. Price stability is crucial to achieving a sustained period of strong labor market conditions that benefit all.

I joined the FOMC last year at a time when the headline CPI inflation was peaking at about 9 percent, and we had begun our policy response. There has been a lot of progress since tightening the stance of policy began last year. In August, the 12-month change in CPI inflation was about 3-3/4 percent. The Committee has raised the federal funds rate 5-1/4 percentage points while also reducing the Fed's securities holdings by about $1 trillion. Our strong measures have ensured that inflation expectations remain well anchored.

While inflation has been moderating, incoming data on economic activity have shown considerably more resilience than I had expected. We are being helped by improvements in supply. I now see a higher probability than I did previously of the U.S. economy achieving a return to price stability without the degree of job losses that have typically accompanied significant monetary policy tightening cycles. However, the historical record cautions that this outcome could be quite difficult to achieve.