US ECONOMICS

SOUTH AMERICA

U.S. Department of State. April 9, 2019. Secretary Pompeo Travels to Chile, Paraguay, and Peru To Strengthen Cooperation and Shared Prosperity in the Western Hemisphere, April 11-14, 2019. Fact Sheet. Washington, DC

“….We are tied together, the United States, Central America, South America. We are one region. There’s so much good that we can do when we work together. We can build our economies, create jobs and wealth…all across the region.” -- Secretary of State Michael R. Pompeo, in Panama, October 18, 2018.

Secretary Pompeo’s visit to Chile, Paraguay, and Peru strengthens and reinforces U.S. cooperation with several key democracies in the Western Hemisphere. The United States remains a steady and enduring partner in the Hemisphere and works with regional allies to advance prosperity, security, and freedom. Chile, Paraguay, and Peru shine as models for successful transitions from anti-democratic regimes to stable democracies, paving the way for increased prosperity and transparency for all people. Their vibrant economies and strong institutions stand in stark contrast to the brutally repressive dictatorships in Venezuela, Nicaragua, and Cuba.

Reinforcing our Strong Relationships:

• Chile is a regional leader with an open economy, robust democratic institutions, and a strong rule of law, making it one of the most prosperous countries in the region. Chile’s participation in the Visa Waiver Program, our security partnership, and our commercial relationship underscore the strong institutional and people-to-people ties that bind our two countries together.
• Paraguay will see the first visit by a U.S. Secretary of State since 1965, heralding a strengthening and reinforcement of our shared values and bilateral relationship. Paraguay and the United States share a deep partnership, and cooperate to combat transnational crime and terrorist financing in the Tri-Border Area. We applaud Paraguay for its strong commitment to increase transparency and fight corruption.
• Peru and the United States have maintained diplomatic relations since 1826. The United States supports a strong, sovereign Peru that upholds democratic institutions, both at home and beyond its borders. We work together to build Peru’s capacity to reduce the influence of transnational criminal organizations, and encourage greater investment opportunities for U.S. businesses.

Expanding Economic Prosperity:

• The U.S.-Chile Free Trade Agreement has nearly quadrupled bilateral trade since its inception in 2004. We now share a $27 billion trade relationship, focused on fuel, oil, civilian aircraft, machinery, seafood, grapes, and blueberries. The U.S. is the largest foreign investor in Chile, with interests ranging from financial and medical services to copper and lithium mining. The U.S.-Chile Council on Science, Technology and Innovation launched in March 2018.
• The bilateral energy investment framework linked to the America Crece initiative, launched in August 2018, will increase public-private engagement and facilitate and catalyze private-sector energy and infrastructure investments in Latin America and the Caribbean.
• In 2018, Paraguay exported $131 million in goods to the United States, with particularly strong trade in sugar, seeds, grains, machinery, and leather. At the same time, the U.S. enjoyed a $2.2 billion goods trade surplus with Paraguay. Potential areas of increased U.S. investment include infrastructure, construction, energy, and agribusiness.
• Economic and commercial ties between the U.S. and Peru deepened after the U.S.-Peru Trade Promotion Agreement (PTPA) went into effect in 2009. This agreement eliminates tariffs and removes barriers to U.S. services, provides a secure, predictable legal framework for investors, and strengthens protection for intellectual property, workers, and the environment. Since its start, total trade between the United States and Peru has risen from almost $9 billion to $17.5 billion in 2018.
• The United States works closely with all three countries to reinforce standards of good governance and transparency in foreign investment.

Safeguarding International Peace and Security:

• Robust U.S.-Chile military cooperation on disaster response, peacekeeping operations, and the promotion of the role of women in peace and security makes our countries, the region, and the world more secure. In 2017, Chile concluded a 13-year mission with MINUSTAH in Haiti, during which more than 12,000 men and women deployed. Chile has trained thousands of international students at its Joint Center for Peacekeeping Training, and remains the regional leader on Women, Peace and Security initiatives.
• Paraguay is working with the United States, and with Argentina and Brazil, to combat international criminal organizations in the Tri-Border Area (TBA) that raise funds for terrorist organizations through counterfeiting, contraband, and trade-based money laundering. The U.S. Treasury has sanctioned a number of individuals, front companies, and other TBA-based entities tied to Hizballah. The U.S. government helps Paraguay combat complex financial crimes, including terrorism finance.
• In Paraguay, through the United States Agency for International Development (USAID), the U.S. Government supports systems for reporting acts of corruption and accessing public information. The U.S. also helps provide internal control systems that help prevent and detect corruption.

• USAID provides technical assistance to the Public Ministry to improve its capacity to investigate and prosecute financial crimes and improve coordination with the Judiciary.

• In Peru, the U.S. works closely with our counterparts to counter transnational criminal organizations, strengthen law enforcement cooperation and safeguard public integrity. In 2018, the Government of Peru removed an estimated 194 metric tons (MT) of export quality cocaine from the global supply and Peruvian police and armed forces interdicted 55.6 metric tons of narcotics. In 2017, the U.S. and Peru agreed to cooperate to reduce illegal mining through improved law enforcement capacity, protection of human health and the environment, increased supply chain transparency, and promotion of alternative economic development.

Promoting Democracy and Human Rights:

• As key members of the Lima Group, Chile, Paraguay and Peru recognize Juan Guaidó as Interim President of Venezuela and support democratic actors within Venezuela, exiled members of the opposition, and employ robust outreach calling on the international community to back the Venezuelan people’s push to restore democracy.
• Chile and Peru together have welcomed a million Venezuelan refugees and migrants. As of April 10, the State Department and USAID have provided $600,000 and $13 million respectively to support humanitarian assistance efforts in those countries.
• Chile and Colombia led the creation of PROSUR, a new regional integration forum that facilitates regional cooperation in areas such as infrastructure, health, energy, combatting transnational crime, and managing natural disasters. For the first time in five years, South American heads of state gathered in Chile on March 22 for PROSUR’s launch.
• Paraguay leads the defense of democracy by cutting all diplomatic ties with Venezuela, expelling the Maduro regime’s ambassador and calling out Nicolás Maduro for what he is -- a power-hungry tyrant.

U.S. Department of State. April 9, 2019. Briefing on Secretary Pompeo's Upcoming Trip to Santiago, Chile; Asuncion, Paraguay; Lima, Peru; and Cucuta, Colombia

MODERATOR: Good morning, everyone. Thank you for joining us for today’s on-background call for Secretary Pompeo’s upcoming trip to Santiago, Asuncion, Lima, and Cucuta. Joining us today for your situational awareness only and not for reporting is [Senior State Department Official]. For purposes of attribution, he must be referred to as a senior State Department official. Again, today’s call is on background and embargoed until the call’s completion, and then I’ll turn it over to [Senior State Department Official] for some opening remarks, and then he’d be happy to take some questions.

SENIOR STATE DEPARTMENT OFFICIAL: Thank you, and thanks everybody for joining the call. It’s a great opportunity for us to preview for you the Secretary’s trip down to Santiago, Chile; Asuncion, Paraguay; Lima, Peru; and Cucuta, Colombia April 11 to 14. And this is a trip that reaffirms our commitment to the Western Hemisphere. We’re showing up; we’re engaged. And we’re working with likeminded partners to promote economic opportunity and to promote security for citizens and to defend democracy. These are likeminded governments, and you’ve seen us in this area of the world and in the Western Hemisphere and elsewhere urge governments to pull their own weight. You’ve heard us talk about that with NATO partners and in East Asia.

Well, in the Western Hemisphere, these governments and others like them are stepping up. The Lima Group, the work we’ve done together in the Organization of American States – you may have seen the recent vote at the Inter-American Development Bank: two votes, one to seat a representative of the Guaido administration, and one to insist that that representative have the right to participate freely just like any other IDB member, and therefore that led to the cancellation of a meeting in Chengdu. The governments that the Secretary will be engaging with are run by pragmatic and dynamic leaders, and we’re really looking forward to this visit.

Now, this isn’t just a Western Hemisphere thing. This is part of our broader approach to the world, and if you take a step back and you think about the Indo-Pacific strategy of this administration, our Middle East Security Alliance, and the recent Warsaw Ministerial on Peace and Security in the Middle East, you’ll see strong through-lines across these initiatives of this administration.

Now, for the Western Hemisphere. We see this as a critical moment for Venezuela, for Nicaragua, and for Cuba. Our cooperation with likeminded nations, like the ones that the Secretary’s going to be visiting with, can help the citizens of less fortunate and less free societies in our hemisphere turn the tide towards democracy. This is something that we support, but this is something that is South American-led, that is regionally led, and we’re proud to stand with these governments.

Chile, Paraguay, Peru, and Colombia belong to that broad and growing regional consensus that says we must defend our values and disavow those who would deny their own citizens liberty. That’s why these governments have been doing and what they are doing and what they’re continuing to do: working on behalf of democratic reform in Venezuela from within the Lima Group and extending humanitarian assistance to Venezuelans now scattered across the region by Nicolas Maduro’s cruelty and his incompetence.

The U.S. will continue using the full force of diplomatic and economic pressure to make way for an inclusive democratic transition, including an end to Maduro’s repression and the release of the over 850 prisoners of conscience that he now holds. We’re not going to spare any effort as we continue to help all Venezuelans return their country to a stable, prosperous democracy, to stop the violence, the repression, and the economic and humanitarian crisis that plagues the nation and the region.

Chile, Paraguay, and Peru are excellent models of the kind of transition that Venezuela can achieve. Each of these societies has had to struggle at various times in its – their fairly recent history against dictatorship. Each of them has overcome those challenges, and they have become strong advocates of the kind of societies that they have built – democratic societies, prosperous societies, societies that defend human rights. And they have records to show that this is not only possible but is very much within the reach of the Venezuelan people.

So this trip’s an opportunity for us to highlight those issues, but also a chance to talk about other positive developments in the region. And so let me say a few words about our positive economic agenda in the hemisphere and about a number of initiatives that, frankly, leave us very excited – America Crece, for example, which is an innovative initiative designed to facilitate and catalyze private sector energy and infrastructure investments in Latin America and the Caribbean.

The U.S. BUILD Act is going to have huge implications for the region. In October, we launch our new International Development Finance Corporation, and that’s going to modernize our development finance capabilities, providing $60 billion in financing worldwide. In Santiago, we’re running a pilot program out of the U.S. embassy there called the Academy for Women Entrepreneurs, and that’s going to support the growth of women entrepreneurship in northern Chile, and that’s part of the White House’s Women’s Global Development and Prosperity Initiative, and we’re very proud of the way that that’s – pilot project has been standing up. 100,000 Strong in the Americas initiative and the Young Leaders of the Americas Initiative enhance workforce development and empower young business and social entrepreneurs across our hemisphere. They are vital and exciting exchanges.

So here’s our economic vision for the hemisphere: private sector-led engagement; trade based on fairness and market access with transparency and strong legal frameworks, particularly involving projects and investments in education and entrepreneurship that can benefit every member of society.

We well know that China doesn’t always follow these principles because China, frankly, does not share the region’s commitment to democratic values. And so the United States is not going to ignore unfair trading practices. They’re not going to ignore them in manufacturing, in trade investment, worker rights, or the protection of intellectual property. On this, we make the same arguments in the Americas that we make all around the world: Economic engagement in China should meet the same high standards – in terms of transparency, adherence to anticorruption standards, debt – excuse me – debt sustainability, labor rights and environmental best practices – that we’d expect of any other fair competitor in the world’s markets.

The Secretary’s trip is going to emphasize our commitment to remain the partner of choice in the Western Hemisphere for building peace and prosperity in a region that in recent decades has overwhelmingly embraced freedom and democracy. Just this week, we’ve had two other major trips to the region. Secretary of Commerce Ross and State Department Counselor Brechbuhl are in Mexico for the U.S.-Mexico CEO Dialogue to encourage greater trade and investment. And Deputy Secretary Sullivan will travel to Miami April 11-12 to participate in the U.S.-Caribbean resilience partnership ministerial to strengthen our ability to respond to disasters throughout the Caribbean.

If you look back over the last six to 12 months, you will note that the President, the Vice President, the Secretaries of Transportation, of Defense, of Health, of Energy, Secretary of the Treasury – all have traveled to the region; all are engaged. This is a crucial part of the world for the United States and for United States interests. These high-level trips show our commitment to the region. And the democratic consensus that exists in our hemisphere spans the region, and it does cast in stark relief the authoritarian outliers in the region – Venezuela, Nicaragua, Cuba – and those malign actors who prop them up.

Now to wrap up, I’ll give you a little rundown of the trip itinerary, and we’ll start with Chile.

On April 12th, the Secretary will arrive in Santiago. Now, Chile is really an exemplar in the region. It’s achieved tremendous economic growth, and it’s done a really impressive job in reducing poverty, following that historic plebiscite 30 years ago that ushered in a peaceful return to democratic government. And today, Chile is one of the strongest democracies and one of the strongest economies in the region.

We have a longstanding friendship with Chile and the Chilean people, and that’s based on shared values, deep commitments to democratic governance, to human rights, the rule of law, and free, fair, and reciprocal trade. The Secretary in Santiago is going to meet with President Sebastian Pinera and Foreign Minister Ampuero to build on those strong bilateral economic ties that we’ve established, to build on partnerships in science and technology, security cooperation, including cybersecurity.

They’ll discuss our robust economic relationship underpinned by our free trade agreement with Chile that has helped drive economic prosperity in both countries, and they’re also going to talk, looking forward, to the APEC 2019. Chile is the host this year, and we share priorities in free, fair, and reciprocal trade. And that will be a – very much a part of the conversation as well.

We have signed an energy infrastructure America Crece agreement with the Chileans last year, and that is also going to be part of the agenda, along with the U.S.-Chile Council on Science, Technology, and Innovation.

Of course, we will talk about the challenges we face in the hemisphere, including the collapse of democracy in Venezuela and the challenges faced by the people of Nicaragua, and of course, Cuba. We have really very much admired the leadership President Pinera has shown within the Lima Group to keep pressure on Maduro and to support the Interim President of Venezuela Juan Guaido.

We also welcome President Pinera’s leadership in increasing regional integration through Prosur, which is a regional group that facilitates cooperation in areas such as infrastructure development, health, energy, combatting transnational crime, and managing natural disasters. It’s the kind of straightforward, practical, pragmatic approach to governance which we very much admire.

In Paraguay, the Secretary is going to travel to Asuncion and he will meet with President Abdo Benitez and Foreign Minister Castiglioni. Now, this is the first visit a Secretary of State has made to Paraguay in a while. In fact, it’s the first one since 1965. This administration is recognizing our deepening relationship with Paraguay and the tremendous potential we see as a partner, and the impressive transformation from dictatorship to thriving democracy that Paraguay has shown and which is an inspiration for everyone in the region.

The Secretary will discuss with them Paraguay’s strong commitment to increase transparency and to fight corruption, make Paraguay an even more attractive destination for regional and U.S. businesses and their efforts to reduce tax evasion. They’re also going to be taking the opportunity to discuss our cooperation to improve security in the region by combatting threats of terrorism, drug trafficking, and transnational crime in what is known as the tri-border area, the border region that Paraguay shares with Argentina and Brazil.

Paraguay has been a great leader as well in the Lima Group and on Venezuela, and it’s an opportunity to recognize that as well. We are pleased that Paraguay continues to strengthen its relationship with Taiwan, and the Secretary will reiterate our opposition to unilateral actions that would alter the status quo across the Taiwan Strait, including switching diplomatic recognition.

Later that day, the Secretary is going to travel up to Lima, and he will meet there with President Vizcarra and Foreign Minister Popolizio and reaffirm our close partnership with Peru. We work together on a broad range of issues, including transnational criminal organizations and narcotrafficking, illegal logging and mining, human trafficking, and counterfeit currency.

Vizcarra, President Vizcarra, has been out in front of the issue of corruption, and not only at home but in the leadership he showed in the most recent Summit of the Americas, and we look forward to continuing to work together on (inaudible) capacity building and regional anticorruption issues.

They have also been incredibly generous in how they have received over 700,000 Venezuelans in – migrants and refugees in their countries displaced by Mr. Maduro’s man-made humanitarian crisis. And it’s called the Lima Group for a reason, because they have been really a leading force in organizing efforts to confront both that humanitarian crisis and the causes of it.

The Secretary is going to wrap up with a dinner with American business leaders in Lima. Our trade arrangements with Peru have almost doubled the amount of trade between the two countries, and we look forward to doing even more.

The President – or the Secretary, rather, is going to wrap up, going to stop in Cucuta. And that’s the primary point of entry in Colombia for those forced to abandon Venezuela, and he is going to see some of the resources we’ve brought to bear there, and he’s going to meet with some of the organizations doing the hard work to provide assistance to the people who have been forced from their homes. And it’s a great opportunity to say thank you to the people and the Government of Colombia, who have received over $1.5 million Venezuelans expelled by Mr. Maduro’s misgovernment and incompetence.

So this is an opportunity to focus on positive engagement in the region and to demonstrate this government’s, this administration’s commitment to working with likeminded regional partners to achieve a more prosperous, secure, and democratic future. This is, frankly, in contrast with those nations who do not share such values, and who would support dictators like Mr. Maduro and unfair trade practices.

And with that, I’d be happy to take your questions.

OPERATOR: Ladies and gentlemen, if you’d like to ask a question, please press * then 1 on your touchtone phone. You will hear a tone indicating you have been placed in queue. You may remove yourself from queue at any time by pressing the # key. If you are using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, please press *1 at this time. And one moment, please, for your first question.

Your first question comes from the line of John Hudson from The Washington Post. Please, go ahead.

QUESTION: Hi, thanks for doing the call. I was just wondering if there are any specific asks when it comes to shoring up regional support when it comes to Venezuela and moving a step forward in terms of increasing pressure on the regime that the Secretary is going to be focused on. And then can you also explain a little bit more about the cybersecurity cooperation with Chile, what exactly you’re working on?

SENIOR STATE DEPARTMENT OFFICIAL: Let me take the cybersecurity first just because it’s a short – it’s a shorter question. We’ve been engaged in discussions with them over the last six to eight months because they’ve had some cybersecurity challenges that they’ve identified. We, as the two governments, signed a defense agreement some months back, and the two foreign ministries – the State Department and their foreign ministry have – we’ve worked closely in trying to build up a framework to help them just modernize their cybersecurity systems and to identify more effectively some of the risks that they might face, particularly in their financial sectors.

On the question of Venezuela, the main focus really is on how to expand the ability of the Guaido administration to establish its position in multilateral institutions to work together with the region’s governments – and the Lima Group has been great at this in recent months – in coordinating as effectively as possible their relief efforts, coordinating as closely as possible the increased pressure campaign of the region against the Maduro administration, and to make it clear that the fundamental challenge here is not some unwillingness to have a lack of dialogue, but rather the unwillingness of Mr. Maduro and those who support him to allow for free and fair elections, to release political prisoners, to allow for the active and unrestricted participation in public life and in political (inaudible) that every other citizen of South America enjoys.

MODERATOR: Next question, please.

OPERATOR: Your next question comes from the line of Lesley Wroughton from Reuters. Please, go ahead.

QUESTION: Yeah, hi. Yeah, good morning. You spoke about the expansion – or in the multilateral, getting Guaido’s representatives in the multilateral institutions, so you’ve got that in the IDB. What is – what are you preparing or what resolution is going to be voted on today by the OAS? And number two, you’ve got the IMF, World Bank meetings this week. What have you managed – as far as I understand that, their boards have not decided to take on the representatives. What are – what have your discussions been with those institutions?

SENIOR STATE DEPARTMENT OFFICIAL: Well, this – the governments we’re meeting with I think all share – and you can see this from the records that they’ve established in recent weeks and months – the – they all recognize the legitimate administration of Interim President Juan Guaido. They recognize that as the effective – as the actual government of Venezuela, and they’ve all supported these – the recognition of that government and that government’s control of Venezuela’s resources throughout the – in any international body, in any international institution. This is a step-by-step process. We’re going to continue talking to these governments about how to secure that recognition and support that they by right deserve, both at the OAS today, in the meetings we have with – this week in Washington and during the Secretary’s trip.

MODERATOR: Next question, please.

OPERATOR: Your next question comes from the line of Courtney McBride from The Wall Street Journal. Please, go ahead.

QUESTION: Thank you. Just a quick question on the Cucuta stop. You mentioned some of the groups that the Secretary is going to meet with. Is there any anticipated participation or visit from a member of the Guaido administration as part of that stop? And beyond these conversations, is there any other objective as part of that visit? Thanks.

SENIOR STATE DEPARTMENT OFFICIAL: I think the main initiative here or the main purpose of the trip is to simply demonstrate very clearly and to draw attention to very clearly what’s going on down there – the human want, the pressure placed on other governments, the externalities of this chaos and that has been imposed on Colombia and Peru and Ecuador and many other governments, and the generosity, frankly, with which they’ve been receiving these people. There will be opportunities to meet with Venezuelans who are working in Cucuta in support of their own government and their own people, and also with many of the non-governmental organizations.

It comes on Palm Sunday, the visit. It’s kind of a notable date in the calendar in – all throughout the Western Hemisphere and in Latin America, and it’s an opportunity to focus on the sacrifices that people are making to help their neighbors.

MODERATOR: Final question, please.

OPERATOR: Your final question comes from the line of Franco Ordonez from McClatchy. Please, go ahead.

QUESTION: Thanks so much for doing this. I wanted to ask you, in addition to providing kind of awareness of the want that is happening, what more can these countries, the likeminded countries, do? They have legal limitations to do their own sanctions. They’ve said they – their – that, in many cases, they can’t do the same kind of thing that the United States can do. So beyond rhetoric, what concrete actions can these countries take to put more pressure on the Maduro government?

SENIOR STATE DEPARTMENT OFFICIAL: Hey, Franco. It’s not a question of means. We recognize that every government, every sovereign government, has its own mechanisms and its own legal frameworks for pursuing objectives. It’s about ends, each of them, and I think you can see this particularly, for example, in how they’ve responded with sometimes very different legal frameworks to the health crisis that has accompanied the collapse of the Venezuelan health system and people becoming, through no fault of their own, the disease vectors because their health has collapsed under the stress of hunger and poor public health frameworks. And governments with very different approaches have all worked together to figure out the mechanisms to achieve the ends of heading off health – public health crises and caring for people who are sick and in need.

The same kinds of principles go in the financial pressures and the other mechanisms. We each participate in different institutional fora around the world – multilateral, bilateral compacts from the OAS to Mercosur to Prosur, and the goal here, I think, is to focus on the objectives of how to increase that pressure and to work through with the governments how they can increase – they can use the mechanisms at their disposal both domestically and in the institutions to which they belong in order to meet the challenge.

MODERATOR: Thank you all for joining today. This concludes today’s on-background briefing. The embargo is lifted and thank you to our senior State Department official for participating.

SECURITY

U.S. Department of State. April 9, 2019. U.S. Department of State Announces Updates to Safety and Security Messaging for U.S. Travelers

Washington, DC - On April 9, 2019, the Department of State introduced a new risk indicator to our public Travel Advisories in order to communicate more clearly to U.S. citizens the risks of kidnapping and hostage taking by criminal and terrorist actors around the world. The new “K” indicator is part of our ongoing commitment to provide clear and comprehensive travel safety information to U.S. citizens so they can make informed travel decisions.

The Department issues Travel Advisories for every country around the world, offering standardized levels of advice based on established risk indicators such as crime, terrorism, civil unrest, natural disasters, health, and other potential risks. The Travel Advisories for 35 countries have been updated to include a “K” indicator for the risk of kidnapping and/or hostage taking: Afghanistan, Algeria, Angola, Bangladesh, Burkina Faso, Cameroon, Central African Republic, Colombia, Democratic Republic of the Congo, Ethiopia, Haiti, Iran, Iraq, Kenya, Lebanon, Libya, Malaysia, Mali, Mexico, Niger, Nigeria, Pakistan, Papua New Guinea, Philippines, Russian Federation, Somalia, South Sudan, Sudan, Syria, Trinidad and Tobago, Turkey, Uganda, Ukraine (in Russian-controlled eastern Ukraine), Venezuela, and Yemen. See the full Travel Advisories for more details: https://travel.state.gov/content/travel/en/traveladvisories/traveladvisories.html.

The U.S. Department of State has no greater responsibility than the safety and welfare of Americans overseas. The Bureau of Consular Affairs works closely with the Office of the Special Presidential Envoy for Hostage Affairs and the entire U.S. interagency to serve and protect Americans overseas and to prevent and resolve cases of kidnapping and hostage taking. We will continue to update our public information as part of our ongoing commitment to serve U.S. citizens as they travel abroad.

MONETARY POLICY

FED. April 09, 2019. Speech. The Federal Reserve's Review of Its Monetary Policy Strategy, Tools, and Communication Practices. Vice Chair Richard H. Clarida. At the "Fed Listens: Distributional Consequences of the Cycle and Monetary Policy" Conference hosted by the Opportunity and Inclusive Growth Institute, Federal Reserve Bank of Minneapolis, Minneapolis, Minnesota

I am pleased to attend this Fed Listens event on the distributional consequences of the business cycle and monetary policy. The Opportunity and Inclusive Growth Institute at the Federal Reserve Bank of Minneapolis is a natural venue for discussing this topic in the context of the broad review of our monetary policy framework that we are undertaking this year.1 In our review, we are examining the policy strategy, tools, and communication practices that the Federal Open Market Committee (FOMC) uses to pursue the Fed's dual-mandate goals of maximum employment and price stability. I will speak this evening about the motivation for and scope of our review. We are bringing open minds to it and are seeking perspectives from a broad range of interested individuals and groups, such as the panel of researchers we heard from this afternoon and the community leaders we will hear from tomorrow. To us, it simply seems like good institutional practice to engage broadly with the public in this review as part of a comprehensive approach to enhanced transparency and accountability.2

Motivation for the Review

The Federal Reserve has been charged by the Congress with a dual mandate to achieve maximum employment and price stability, and this review will take this mandate as given. Moreover, the review will take as given that a 2 percent rate of inflation in the price index for personal consumption expenditures (PCE) is the operational goal most consistent with our price stability mandate. While we believe that our existing framework for conducting monetary policy has served the public well, the purpose of this review is to evaluate and assess ways in which our existing framework might be improved so that we can best achieve our dual mandate objectives on a sustained basis. That said, based on the experience of other central banks that have undertaken similar reviews, our review is more likely to produce evolution, not a revolution, in the way that we conduct monetary policy.

With the U.S. economy operating at or close to our maximum-employment and price-stability goals, now is an especially opportune time to conduct this review. The unemployment rate is at a 50-year low, and inflation is running close to our 2 percent objective. We want to ensure that we are well positioned to continue to meet our statutory goals in coming years. In addition, the Federal Reserve used new policy tools and enhanced its communication practices in response to the Global Financial Crisis and the Great Recession, and the review will evaluate these changes. Furthermore, the U.S. and foreign economies have evolved significantly since the experience that informed much of the pre-crisis approach.

Perhaps most significantly, neutral interest rates appear to have fallen in the United States and abroad.3 Moreover, this global decline in r* is widely expected to persist for years. The decline in neutral policy rates likely reflects several factors, including aging populations, changes in risk-taking behavior, and a slowdown in technology growth. These factors' contributions are highly uncertain, but, irrespective of their precise role, the policy implications of the decline in neutral rates are important. All else being equal, a fall in neutral rates increases the likelihood that a central bank's policy rate will reach its effective lower bound (ELB) in future economic downturns. That development, in turn, could make it more difficult during downturns for monetary policy to support household spending, business investment, and employment, and keep inflation from falling too low.4

Another key development in recent decades is that inflation appears less responsive to resource slack. That is, the short-run Phillips curve appears to have flattened, implying a change in the dynamic relationship between inflation and employment.5 A flatter Phillips curve is, in a sense, a proverbial double-edged sword. It permits the Federal Reserve to support employment more aggressively during downturns‑‑as was the case during and after the Great Recession--because a sustained inflation breakout is less likely when the Phillips curve is flatter.6 However, a flatter Phillips curve also increases the cost, in terms of economic output, of reversing unwelcome increases in longer-run inflation expectations. Thus, a flatter Phillips curve makes it all the more important that longer-run inflation expectations remain anchored at levels consistent with our 2 percent inflation objective.7

Finally, the strengthening of the labor market in recent years has highlighted the challenges of assessing the proximity of the labor market to the full employment leg of the Federal Reserve's dual mandate. The unemployment rate, which stood at 3.8 percent in March, has been interpreted by many observers as suggesting that the labor market is currently operating beyond full employment. However, the level of the unemployment rate that is consistent with full employment is not directly observable and thus must be estimated. The range of plausible estimates likely extends at least as low as the current level of the unemployment rate. For example, in the February Blue Chip economic outlook survey, the average estimate of the natural rate of unemployment for the bottom 10 respondents was 3.9 percent, as compared with 4.7 percent for the highest 10 respondents.8

The decline in the unemployment rate in recent years has been accompanied by an increase in labor force participation, with especially pronounced gains for individuals in their prime working years.9 These increases in participation have provided employers with a significant source of additional labor input and may be one factor restraining inflationary pressures. As with the unemployment rate, whether participation will continue to increase in a tight labor market remains uncertain.

The strong job gains of recent years also has delivered benefits to groups that have historically been disadvantaged in the labor market. For example, African Americans and Hispanics have experienced persistently higher unemployment rates than whites for many decades.10 However, those unemployment rate gaps have narrowed as the labor market has strengthened, and there is some indication of an extra benefit to these groups as the unemployment rate moves into very low territory.11 Likewise, although unemployment rates for less-educated workers are persistently higher than they are for their more-educated counterparts, such gaps appear to narrow as the labor market strengthens.12 And wage increases in the past couple of years have been strongest for less-educated workers and for those at the lower end of the wage distribution.13

Scope of the Review

Our existing monetary policy strategy is laid out in the Committee's Statement on Longer-Run Goals and Monetary Policy Strategy.14 First adopted in January 2012, the statement has been reaffirmed at the start of each subsequent year, including earlier this year with unanimous support from all 17 FOMC participants. The statement indicates that the Committee seeks to mitigate deviations of inflation from 2 percent and deviations of employment from assessments of its maximum level. In doing so, the FOMC recognizes that these assessments of maximum employment are necessarily uncertain and subject to revision. According to the Federal Reserve Act, the employment objective is on an equal footing with the inflation objective.

As a practical matter, our current strategy shares many elements with the policy framework known in the research literature as "flexible inflation targeting."15 However, the Fed's mandate is much more explicit about the role of employment than those of most flexible inflation-targeting central banks, and our statement reflects this by stating that when the two sides of the mandate are in conflict, neither one takes precedent over the other. We believe this transparency about the balanced approach the FOMC takes has served us well over the past decade when high unemployment called for extraordinary policies that entailed some risk of inflation.

The review of our current framework will be wide ranging, and we will not prejudge where it will take us, but events of the past decade highlight three broad questions.

Three Questions

The first question is, "Can the Federal Reserve best meet its statutory objectives with its existing monetary policy strategy, or should it consider strategies that aim to reverse past misses of the inflation objective?"

Under our current approach as well as that of many central banks around the world, the persistent shortfalls of inflation from 2 percent that many advanced economies have experienced over most of the past decade are treated as "bygones." This means that policy today is not adjusted to offset past inflation shortfalls with future overshoots of the inflation target (nor do persistent overshoots of inflation trigger policies that aim to undershoot the inflation target). Central banks are generally believed to have effective tools for preventing persistent inflation overshoots, but the effective lower bound on interest rates makes persistent undershoots more likely. Persistent inflation shortfalls carry the risk that longer-term inflation expectations become poorly anchored or become anchored below the stated inflation goal.16

In part because of that concern, some economists have advocated "makeup" strategies under which policymakers seek to undo, in part or in whole, past inflation deviations from target. Such strategies include targeting average inflation over a multiyear period and price-level targeting, in which policymakers seek to stabilize the price level around a constant growth path.17 These strategies could be implemented either permanently or as a temporary response to extraordinary circumstances. For example, the central bank could commit, at the time when the policy rate reaches the ELB, to maintain the policy rate at this level until inflation over the ELB period has, on average, run at the target rate.18 Other makeup strategies seek to reverse shortfalls in policy accommodation at the ELB by keeping the policy rate lower for longer than otherwise would be the case.19 In many models that incorporate the ELB, these makeup strategies lead to better average performance on both legs of the dual mandate and thereby, viewed over time, provide no conflict between the dual-mandate goals.20

The benefits of the makeup strategies rest heavily on households and firms believing in advance that the makeup will, in fact, be delivered when the time comes--for example, that a persistent inflation shortfall will be met by future inflation above 2 percent. As is well known from the research literature, makeup strategies, in general, are not time consistent because when the time comes to push inflation above 2 percent, conditions at that time will not warrant doing so. Because of this time inconsistency, the public would have to see a makeup strategy as a credible commitment for it to be successful. That important real-world consideration is often neglected in the academic literature, in which central bank "commitment devices" are simply assumed to exist and be instantly credible on decree. Thus, one of the most challenging questions is whether central banks could, in practice, attain the benefits of makeup strategies that are possible in models.

The next question the review will consider is, "Are the existing monetary policy tools adequate to achieve and maintain maximum employment and price stability, or should the toolkit be expanded? And, if so, how?" The FOMC's primary means of changing the stance of monetary policy is by adjusting its target range for the federal funds rate. In the fall of 2008, the FOMC cut that target to just above zero in response to financial turmoil and deteriorating economic conditions. Because the U.S. economy required additional policy accommodation after the ELB was reached, the FOMC deployed two additional tools in the years following the crisis: balance sheet policies and forward guidance about the likely path of the federal funds rate.21

The FOMC altered the size and composition of the Fed's balance sheet through a sequence of three large-scale securities purchase programs, via a maturity extension program, and by adjusting the reinvestment of principal payments on maturing securities. With regard to forward guidance, the FOMC initially made "calendar based" statements, and, later on, it issued "outcome based" guidance. Overall, the empirical evidence suggests that these added tools helped stem the crisis and support economic recovery by strengthening the labor market and lifting inflation back toward 2 percent. That said, estimates of the effects of these unconventional policies range widely.22

In addition to assessing the efficacy of these existing tools, we will examine additional tools to ease policy when the ELB is binding. During the crisis and its aftermath, the Federal Reserve considered but ultimately found some of the tools deployed by foreign central banks wanting relative to the alternatives it did pursue. But the review will reassess our earlier findings in light of more recent experience in other countries.

The third question the review will consider is, "How can the FOMC's communication of its policy framework and implementation be improved?" Our communication practices have evolved considerably since 1994, when the Federal Reserve released the first statement after an FOMC meeting. Over the past decade or so, the FOMC has enhanced its communication practices to promote public understanding of its policy goals, strategy, and actions, as well as to foster democratic accountability. These enhancements include the Statement on Longer-Run Goals and Monetary Policy Strategy; postmeeting press conferences; various statements about principles and strategy guiding the Committee's normalization of monetary policy; and quarterly summaries of individual FOMC participants' economic projections, assessments about the appropriate path of the federal funds rate, and judgments of the uncertainty and balance of risks around their projections.23

As part of the review, we will assess the Committee's current and past communications and additional forms of communication that could be helpful. For example, there might be ways to improve communication about the coordination of policy tools or the interplay between monetary policy and financial stability.

Activities and Timeline for the Review

The review will have several components.24 The Board and the Reserve Banks are currently conducting town hall-style Fed Listens events, in which we are hearing from a broad range of interested individuals and groups, including business and labor leaders, community development advocates, and academics. The conference here at the Minneapolis Fed is one of these events, as was the "Community Listening Session" hosted by the Dallas Fed in February. Several more Fed Listens events will follow in May.

In addition, we are holding a System research conference on June 4-5, 2019, at the Federal Reserve Bank of Chicago, with speakers and panelists from outside the Fed. The program includes overviews by academic experts of themes that are central to the review: the FOMC's monetary policy since the financial crisis, assessments of the maximum sustainable level of employment, alternative policy frameworks and strategies to achieve the dual mandate, policy tools, global considerations, financial stability considerations, and central bank communications. Two sessions will feature panels of community leaders who will share their perspectives on the labor market and the effects of interest rates on their constituencies.

We expect to release summaries of the Fed Listens events and to livestream the Chicago conference. Building on the perspectives we hear and on staff analysis, the FOMC will conduct its own assessment of its monetary policy framework, beginning around the middle of the year. We will share our conclusions with the public in the first half 2020.

Concluding Thoughts

The economy is constantly evolving, bringing with it new policy challenges. So it makes sense for us to remain open minded as we assess current practices and consider ideas that could potentially enhance our ability to deliver on the goals the Congress has assigned us. For this reason, my colleagues and I do not want to preempt or to predict our ultimate finding. What I can say is that any refinements or more material changes to our framework that we might make will be aimed solely at enhancing our ability to achieve and sustain our dual-mandate objectives in the world we live in today.

References

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• Cajner, Tomaz, Tyler Radler, David Ratner, and Ivan Vidangos (2017). "Racial Gaps in Labor Market Outcomes in the Last Four Decades and over the Business Cycle (PDF)," Finance and Economics Discussion Series 2017-071. Washington: Board of Governors of the Federal Reserve System, June.
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• Cecchetti, Stephen G., Michael E. Feroli, Peter Hooper, Anil K. Kashyap, and Kermit L. Schoenholtz (2017). Deflating Inflation Expectations: The Implications of Inflation's Simple Dynamics (PDF), report prepared for the 2017 U.S. Monetary Policy Forum, sponsored by the Initiative on Global Markets at the University of Chicago Booth School of Business, held in New York, March 3.
• Chen, Han, Vasco Cúrdia, and Andrea Ferrero (2012). "The Macroeconomic Effects of Large‐Scale Asset Purchase Programmes," Economic Journal, vol. 122 (November), pp. F289-315.
• Chung, Hess, Etienne Gagnon, Taisuke Nakata, Matthias Paustian, Bernd Schlusche, James Trevino, Diego Vilán, and Wei Zheng (2019). "Monetary Policy Options at the Effective Lower Bound: Assessing the Federal Reserve's Current Policy Toolkit (PDF)," Finance and Economics Discussion Series 2019-003. Washington: Board of Governors of the Federal Reserve System, January.
• Clarida, Richard H. (2012). "What Has--and Has Not--Been Learned about Monetary Policy in a Low‐Inflation Environment? A Review of the 2000s," Journal of Money, Credit and Banking, vol. 44, s1 (February), pp. 123-40.
• Clarida, Richard, Jordi Galí, and Mark Gertler (2000). "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," Quarterly Journal of Economics, vol. 115 (February), pp. 147-80.
• Clinton, Kevin, Charles Freedman, Michel Juillard, Ondra Kamenik, Douglas Laxton, and Hou Wang (2015). "Inflation-Forecast Targeting: Applying the Principle of Transparency (PDF)," IMF Working Paper WP/15/132. Washington: International Monetary Fund, June.
• D'Amico, Stefania, William English, David López‐Salido, and Edward Nelson (2012). "The Federal Reserve's Large‐Scale Asset Purchase Programmes: Rationale and Effects," Economic Journal, vol. 122 (November), pp. F415-46.
• D'Amico, Stefania, and Thomas B. King (2013). "Flow and Stock Effects of Large‐Scale Treasury Purchases: Evidence on the Importance of Local Supply," Journal of Financial Economics, vol. 108 (May), pp. 425-48.
• Economic Policy Institute (2019). State of Working America Data Library. Washington: EPI, March.
• Eggertsson, Gauti B., and Michael Woodford (2003). "The Zero Bound on Interest Rates and Optimal Monetary Policy (PDF)," Brookings Papers on Economic Activity, no. 1, pp. 139-235.
• Engen, Eric M., Thomas Laubach, and David Reifschneider (2015). "The Macroeconomic Effects of the Federal Reserve's Unconventional Monetary Policies (PDF)," Finance and Economics Discussion Series 2015-005. Washington: Board of Governors of the Federal Reserve System, January.
• English, William B., David López-Salido, and Robert Tetlow (2015). "The Federal Reserve's Framework for Monetary Policy: Recent Changes and New Questions," IMF Economic Review, vol. 63 (May), pp. 22-70.
• Erceg, Christopher, James Hebden, Michael Kiley, David López-Salido, and Robert Tetlow (2018). "Some Implications of Uncertainty and Misperception for Monetary Policy (PDF)," Finance and Economics Discussion Series 2018-059. Washington: Board of Governors of the Federal Reserve System, August.
• Faust, Jon, and Jonathan H. Wright (2013). "Forecasting Inflation," in Graham Elliott, Clive Grander, and Allan Timmermann, eds., Handbook of Economic Forecasting, vol. 2A. Amsterdam: Elsevier, pp. 2-56.
• Fuhrer, Jeffrey, Giovanni Olivei, Eric Rosengren, and Geoffrey Tootell (2018). "Should the Fed Regularly Evaluate Its Monetary Policy Framework? (PDF)" paper presented at the Brookings Papers on Economic Activity Conference, Fall, held at the Brookings Institution, Washington, September 13-14.
• Gagnon, Joseph, Matthew Raskin, Julie Remache, and Brian P. Sack (2011). "Large-Scale Asset Purchases by the Federal Reserve: Did They Work? (PDF)" FRBNY Economic Policy Review, vol. 17 (May), pp. 41-59.
• Hamilton, James D., and Jing Cynthia Wu (2012). "The Effectiveness of Alternative Monetary Policy Tools in a Zero Lower Bound Environment," Journal of Money, Credit and Banking, vol. 44, s1 (February), pp. 3-46.
• Hebden, James, and David López-Salido (2018). "From Taylor's Rule to Bernanke's Temporary Price Level Targeting (PDF)," Finance and Economics Discussion Series 2018-051. Washington: Board of Governors of the Federal Reserve System, July.
• Hills, Timothy S., Taisuke Nakata, and Sebastian Schmidt (2016). "The Risky Steady State and the Interest Rate Lower Bound (PDF)," Finance and Economics Discussion Series 2016-009. Washington: Board of Governors of the Federal Reserve System, January.
• Holston, Kathryn, Thomas Laubach, and John C. Williams (2017). "Measuring the Natural Rate of Interest: International Trends and Determinants," Journal of International Economics, vol. 108, Supplement 1 (May), pp. S59-75.
• Joyce, Michael, Ana Lasaosa, Ibrahim Stevens, and Matthew Tong (2011). "The Financial Market Impact of Quantitative Easing in the United Kingdom (PDF)," International Journal of Central Banking, vol. 7 (September), pp. 113-61.
• Joyce, Michael, David Miles, Andrew Scott, and Dimitri Vayanos (2012). "Quantitative Easing and Unconventional Monetary Policy--An Introduction," Economic Journal, vol. 122 (November), pp. F271-88.
• Kiley, Michael T., and John M. Roberts (2017). "Monetary Policy in a Low Interest Rate World (PDF)," Brookings Papers on Economic Activity, Spring, pp. 317-96.
• King, Mervyn, and David Low (2014). "Measuring the 'World' Real Interest Rate (PDF)," NBER Working Paper Series 19887. Cambridge, Mass.: National Bureau of Economic Research, February.
• Nakov, Anton (2008). "Optimal and Simple Monetary Policy Rules with Zero Floor on the Nominal Interest Rate (PDF)," International Journal of Central Banking, vol. 4 (June), pp. 73-127.
• Nessén, Marianne, and David Vestin (2005). "Average Inflation Targeting," Journal of Money, Credit and Banking, vol. 37 (October), pp. 837-63.
• Rachel, Lukasz, and Thomas D. Smith (2017). "Are Low Real Interest Rates Here to Stay? (PDF)" International Journal of Central Banking, vol. 13 (September), pp. 1-42.
• Reifschneider, David L., and John C. Williams (2000). "Three Lessons for Monetary Policy in a Low-Inflation Era," Journal of Money, Credit and Banking, vol. 32 (November), pp. 936-66.
• Roberts, John M. (2006). "Monetary Policy and Inflation Dynamics," International Journal of Central Banking, vol. 2 (September), pp. 193-230.
• Romer, David (2010). "A New Data Set on Monetary Policy: The Economic Forecasts of Individual Members of the FOMC," Journal of Money, Credit and Banking, vol. 42 (August), pp. 951-57.
• Ruge-Murcia, Francisco (2014). "Do Inflation-Targeting Central Banks Implicitly Target the Price Level? (PDF)" International Journal of Central Banking, vol. 10 (June), pp. 301-26.
• Simon, John, Troy Matheson, and Damiano Sandri (2013). "The Dog That Didn't Bark: Has Inflation Been Muzzled or Was it Just Sleeping? (PDF)" in World Economic Outlook: Hopes, Realities, Risks. Washington: International Monetary Fund, April, pp. 79-95.
• Swanson, Eric T. (2017). "Measuring the Effects of Federal Reserve Forward Guidance and Asset Purchases on Financial Markets," NBER Working Paper Series 23311. Cambridge, Mass.: National Bureau of Economic Research, April (revised August 2018).
• -------- (2018). "The Federal Reserve Is Not Very Constrained by the Lower Bound on Nominal Interest Rates," NBER Working Paper Series 25123. Cambridge, Mass.: National Bureau of Economic Research, October.
• Weingarden, Alison (2017). "Labor Market Outcomes in Metropolitan and Non-Metropolitan Areas: Signs of Growing Disparities," FEDS Notes. Washington: Board of Governors of the Federal Reserve System, September 25.
• Woodford, Michael (2012). "Methods of Policy Accommodation at the Interest-Rate Lower Bound (PDF)," paper presented at "The Changing Policy Landscape," a symposium sponsored by the Federal Reserve Bank of Kansas City, held in Jackson Hole, Wyo., August 30-September 1.
• Yellen, Janet (2015). "Inflation Dynamics and Monetary Policy," speech delivered at the Philip Gamble Memorial Lecture, University of Massachusetts, Amherst, September 24.
• -------- (2017). "The Economic Outlook and the Conduct of Monetary Policy," speech delivered at the Stanford Institute for Economic Policy Research, Stanford University, Stanford, Calif., January 19.

NOTES

1. Additional information about Fed Listens, including background information on the initiative and a listing of events around the country, is available on the Board's website at https://www.federalreserve.gov/monetarypolicy/review-of-monetary-policy-strategy-tools-and-communications-fed-listens-events.htm. 
2. Fuhrer and others (2018) explore the desirability of comprehensive reviews of the monetary policy framework. They argue that such reviews may help the Fed more effectively identify and implement needed changes to its framework.
3. For evidence of a fall in neutral rates of interest in the United States and abroad, see, among several contributions, King and Low (2014); Holston, Laubach, and Williams (2017); Rachel and Smith (2017); and Brand, Bielecki, and Penalver (2018).
4. For assessments of the risks that U.S. monetary policy will be constrained by the ELB and its implications for economic activity and inflation, see Kiley and Roberts (2017), Erceg and others (2018), Swanson (2018), and Chung and others (2019).
5. For evidence of a flattening of the slope of the Phillips curve in the United States and abroad, see, among others, Simon, Matheson, and Sandri (2013); Blanchard, Cerutti, and Summers (2015); and Bank for International Settlements (2017).
6. One potential contributor to the flattening of the Phillips curve is a change in the conduct of monetary policy since the 1980s toward greater stabilization of inflation and economic activity; for evidence of such a change, see Clarida, Galí, and Gertler (2000); Boivin and Giannoni (2006); and Boivin, Kiley, and Mishkin (2010). As discussed in Roberts (2006) and Bullard (2018), greater stabilization on the part of a central bank can lead to the estimation of flatter Phillips curves in reduced-form regressions. Similarly, the adoption of an explicit inflation objective, along with greater certainty regarding the conduct of monetary policy, can help anchor longer-term inflation expectations and stabilize actual inflation in response to shocks.
7. See Yellen (2015) for a discussion of inflation dynamics and monetary policy; see Erceg and others (2018) for a quantitative exploration of the monetary policy implications of a flat Phillips curve in an uncertain economic environment. Since the mid-1980s, movements in both realized inflation and measures of longer-term inflation expectations have been somewhat muted, complicating the task of extracting the precise role of inflation expectations as a determinant of realized inflation. Faust and Wright (2013) review the literature on inflation forecasting and present evidence in support of the conclusion that measures of inflation expectations help predict the trend in inflation. Cecchetti and others (2017) showed that while the level of realized inflation and four-quarter-ahead inflation expectations are positively correlated, changes in these variables have been largely uncorrelated since the mid-1980s. These authors suggest that, in a low and stable inflation environment, policymakers should pay attention to a wide array of other indicators in determining the implications of movements in realized inflation and measures of inflation expectations.
8. The average estimate from the Blue Chip respondents was 4.3 percent. The box "How Tight Is the Labor Market?" in the Board's February 2018 Monetary Policy Report contains a discussion of some indicators that can be used to assess labor market tightness; see Board of Governors (2018a, pp. 8-9).
9. The box "The Labor Force Participation Rate for Prime-Age Individuals" in the Board's July 2018 Monetary Policy Report contains a discussion of recent developments in labor force participation rates for prime-age individuals; see Board of Governors (2018b, pp. 8-10).
10. See Cajner and others (2017) for a careful examination of how labor market differentials by race and ethnicity have evolved over time.
11. See Aaronson and others (2019) for evidence on the relative behavior of unemployment rates by race and ethnicity in a strong labor market. The authors find similar patterns for labor force participation rates and for employment-to-population ratios.
12. Disparities in labor market outcomes are also evident between urban and rural areas of the United States. However, these gaps have not narrowed as the labor market has strengthened. The box "Employment Disparities between Rural and Urban Areas" in the Board's February 2019 Monetary Policy Report examines these disparities in more detail; see Board of Governors (2019, pp. 10-12). See also Weingarden (2017).
13. Wage gains for workers with different wage levels and with different levels of education can be calculated using data from the Current Population Survey from the Bureau of Labor Statistics. The Economic Policy Institute (2019) provides convenient tabulations of these data.
14. The statement is available on the Board's website at https://www.federalreserve.gov/monetarypolicy/files/FOMC_LongerRunGoals.pdf.
15. For a discussion of this terminology and references, see English, López-Salido, and Tetlow (2015) and Clinton and others (2015).
16. These risks could be exacerbated if households and businesses expect monetary policy to be insufficiently accommodative because of proximity to the ELB. For related discussions, see Reifschneider and Williams (2000); Adam and Billi (2007); Nakov (2008); and Hills, Nakata, and Schmidt (2016).
17. Eggertsson and Woodford (2003) provide an early discussion of how optimal monetary policy at the ELB entails a commitment to reflate the price level during the subsequent economic expansion. Nessén and Vestin (2005) discuss the relationship between average inflation targeting and price-level targeting. There is a dearth of empirical evidence on strategies seeking to make up for inflation deviations. Central banks that pursue an inflation goal generally seek to achieve a specific rate of inflation by some time horizon--typically a couple years ahead or over the "medium run"--without regard to past inflation deviations. One exception is the Reserve Bank of Australia, whose inflation goal is specified as a range of "2-3 per cent, on average, over the medium term" and thus might embed some notion of history dependence. However, Ruge-Murcia (2014) argues that the drift in the price level in Australia is comparable with the drifts observed in economies with purely forward-looking specification of the inflation goal. The only known historical example of price-level targeting occurred in Sweden from 1931 to 1933 when the country abandoned the gold standard and attempted instead to maintain its price level. The temporary adoption of price-level targeting is credited with helping Sweden avoid deflation, an outcome that contrasted with that in countries that stayed on the gold standard. See Berg and Jonung (1999).
18. See Bernanke (2017) for a discussion of such a strategy. See Hebden and López-Salido (2018) for a quantitative assessment of that and other strategies. See also Kiley and Roberts (2017) for a strategy in which policymakers aim for inflation higher than 2 percent during economic expansions to compensate for below-target realizations of inflation during economic downturns.
19. See Reifschneider and Williams (2000) for a strategy in which a central bank following a Taylor rule makes up for shortfalls in policy accommodation during ELB episodes by subsequently keeping the policy rate lower than otherwise. The box "Complexities of Monetary Policy Rules" in the Board's July 2018 Monetary Policy Report contains an application of such a modified rule; see Board of Governors (2018b, pp. 37-41).
20. See English, López-Salido, and Tetlow (2015) for applications of flexible price-level targeting and nominal income-targeting strategies to a quantitative model of the U.S. economy.
21. As an illustration of the shortfall in policy support created by a binding ELB during the Global Financial Crisis, the simple policy rules considered in a January 2017 speech by then-Chair Janet Yellen prescribed setting the federal funds rate between negative 1-1/2 and negative 9 percent; see Yellen (2017). In addition to using these two additional monetary policy tools, the Federal Reserve implemented a number of other measures to stabilize the financial system, increase households and business confidence, and more generally support the economic recovery. These supplementary measures included the setting up of several credit facilities and the introduction of stress tests for systemically important financial institutions.
22. On the transmission channels of balance sheet policies, see D'Amico and others (2012), Joyce and others (2012), Clarida (2012), Woodford (2012), and Bauer and Rudebusch (2014). On the financial market effects of balance sheet policies, see Gagnon and others (2011), Joyce and others (2011), Hamilton and Wu (2012), D'Amico and King (2013), and Swanson (2017). For discussions of the macroeconomic effects of these policy actions, see Chen, Cúrdia, and Ferrero (2012); Baumeister and Benati (2013); Engen, Laubach, and Reifschneider (2015); Chung and others (2019), and the references therein. For related assessments of forward guidance, see Campbell and others (2012); Engen, Laubach, and Reifschneider (2015); Campbell and others (2017); and Swanson (2017).
23. Starting in 1979, the Federal Reserve published a summary of individual economic projections from various Board members, FOMC members, or FOMC participants in the semiannual Monetary Policy Report. With the introduction of the Summary of Economic Projections (SEP) in 2007, the FOMC increased the frequency of the releases of policymaker projections, expanded the set of economic variables included, and extended the forecast horizon. Because the SEP includes individual contributions of projections and assessments from all FOMC participants, it captures a broader range of views than those of FOMC members. For a discussion and data, see Bernanke (2007) and Romer (2010).
24. Information about the review and the events associated with it are available on the Board's website at https://www.federalreserve.gov/monetarypolicy/review-of-monetary-policy-strategy-tools-and-communications.htm.

INTERNATIONAL FINANCIAL SYSTEM

U.S. Department of the Treasury. 04/09/2019. Statement of Secretary Steven T. Mnuchin Before the U.S. House Financial Services Committee

Chairwoman Waters, Ranking Member McHenry, and members of the Committee, it is good to be with you today to discuss the state of the international financial system, the National Advisory Council on International Monetary and Financial Policies (NAC) report to Congress, and the key priorities of the Treasury Department.

I am proud to report that President Trump’s program of tax cuts, regulatory relief, and improved trade deals is resulting in the strongest economic growth for the American economy since 2005 and the best job market in generations.  From Q4 of 2017 to Q4 of 2018, real GDP increased by 3 percent.  Earnings also rose by over 3 percent for the first time in a decade.  Unemployment is historically low, and more Americans are participating in the workforce with renewed optimism for the future.

The World Economic Forum’s most recent competitiveness report named the United States the most competitive economy in the world for the first time in 10 years.  Thanks in part to the Tax Cuts and Jobs Act (TCJA), companies are investing hundreds of billions of dollars in new and expanded U.S. business operations, resulting in more career opportunities for hardworking Americans.  Families are also saving thousands on their yearly tax bills because the TCJA cut rates across the board, doubled the standard deduction, and enhanced the child tax credit.

I would note that Opportunity Zones are a key component of the TCJA, and they will help more Americans benefit from our strong economy.  Opportunity Zones offer capital gains tax relief for investments in businesses in distressed communities.  We are seeing a great deal of enthusiasm for this policy all across the country because it will lead to revitalization and restore the promise of prosperity to more workers and families.

The Administration is making trade with our international partners a top priority.  I urge all members of Congress to support the passage of the US-Mexico-Canada Agreement (USMCA).  It will create the highest standards ever negotiated to protect the intellectual property rights of entrepreneurs, provide strong support for small and mid-sized businesses, encourage manufacturing, and open markets for American agricultural products.  We are also making progress negotiating with China to rebalance our economic relationship, end unfair trade practices, open their economy to American companies, and protect our critical technology.

We remain focused on several economic issues relating to national security.  We are implementing the Foreign Investment Risk Review Modernization Act (FIRRMA).  This legislation, which passed with overwhelming bipartisan support, modernizes the Committee on Foreign Investment in the United States (CFIUS) review process and enhances CFIUS’s ability to analyze transactions for national security risks, while preserving our commitment to an open investment environment.

Treasury is combating the abuse of our financial system by rogue regimes, terrorist organizations, cybercriminals, and other illicit actors.  The United States government and our international partners are putting unprecedented pressure on the illegitimate Maduro regime in Venezuela.  We will continue to target this regime and support interim President Juan Guaido as he seeks to restore security and prosperity in his country and the region.

Treasury is also using its authorities to combat human rights abuses and corruption.  We are pleased that many members of this committee have supported our sanctions and other actions, and I assure you that the Trump Administration will continue aggressively targeting malign actors all around the world.

Turning to policy developments impacting international financial institutions, we are advancing reforms to more efficiently alleviate poverty and foster stability and growth in emerging markets.  We are working constructively with the G7, G20, World Bank, International Monetary Fund (IMF), and other partners to foster debt transparency that will reduce the risk of crises in developing countries.

As you are aware, the IMF aims to conclude its 15th General Review of Quotas this year.  We believe that overall resources are currently adequate for it to accomplish its goals.  We are beginning discussions with other shareholders on this issue.

Finally, of particular note to this committee, we are requesting authorization for funding for the World Bank’s capital increase.  In connection with this increase, we successfully negotiated a comprehensive reform package, which includes sustainable lending measures to limit the need for future capital increases and focus resources on poorer countries.  We are also requesting authorization for the planned share purchase in the North American Development Bank with the goal of working more closely with Mexico to improve economic conditions in our hemisphere.

I look forward to your questions and discussing ways to create more jobs and raise wages for hardworking families.  Thank you very much.

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LGCJ.: