vice president, i'm the president-elect, morgan stanley chief u.s. economist, and whether this is me admitting i have a problem or not, i have been a member since 1998. i always like to tell people i found my first job on wall street via the name jobs board. i owe nabe a lot to my career. i have the distinct pleasure of moderating the conversation with vice chair philip jefferson today. a little bit about vice chair jefferson county he joined the federal reserve board of governors in 20. in september, he was confirmed as vice chair of the federal reserve. he also started his career as a research economy at the bell reserve. i suspect he may not have thought that -- thought back then that he would return as the vice chair of the federal reserve. it has been quite an impressive career. he has been a professor of

economics at swarthmore in columbia, he has had a position at davidson. and he received his phd from the university of virginia and born and raised in washington, d.c. he has stayed deeply rooted in the d.c. area. is research over time has been centered on education, poverty, inequality, how monetary policy affects the labor market. i want to give you the state of play today. vice chair jefferson is going to give prepared remarks alongside a presentation, then i will invite him to join me on stage in order to have a conversation, and also work in your questions. be sure to submit your questions over the course of our conversation. this was a fairly short introduction, but i have been told the more accomplished you are, the bios get shorter and shorter.

because everyone knows vice chair jefferson. please come of the floor is yours. -- please, the floor is yours. thank you. [applause] vice chair jefferson: good afternoon, everyone. thank you for inviting me to join this conference, and ellen, thank you for the kind introduction. . it is a pleasure to be here. before i begin, let me remind you that the views i will express today are my own, and not necessarily those of my colleagues in the federal reserve system. i will take this opportunity to share with you my outlook on the u.s. economy. i will also discuss risk facing the economy.

then, i will turn to the transmission of monetary policy, including some recent evidence on a source of lag effects of policy. finally, i will discuss considerations for monetary policy that follow from efforts to manage risk, given the lag effects of monetary policy. these considerations include the need to proceed carefully, as the risk of tightening monetary policy too much, relative to those of not tightening enough, is closer into balance. with that, let me turn to my outlook for the u.s. economy. even though recent inflation data have been encouraging, inflation remains too high. over the 12 months ending in

august, total personal consumption expenditure prices rose 3.5%. the black line in figure one. it is hurting the volatile food categories, core pce prices rose 3.9%. the redline. to better understand core inflation trends, i found it useful to look at three large categories that together make up the core pce price index. because what has been causing inflation in each of the sectors is somewhat different. the first category, core goods inflation, the red line in figure two, has slowed strikingly as a supply chain related price pressures continue to ease. the second category, housing services price inflation, the black line, has clearly stepped

down, as was anticipated given the previous slowing of increases in rent for new tenants. in contrast, price increases for the third category, corn on housing services, the blue line, have yet to slow or show a significant slowdown. since this segment accounts for more than 50% of overall core pce index, we will need to see further slowing in this area to meet our inflation objective. nevertheless, i believe that core pce prices will moderate further, as the labor market comes into better balance. despite the strong september labor market data we received last week, there is evidence that the imbalance between labor demand and labor supply

continues to narrow, as labor demand cools while labor supply improves. even so, the labor market remains tight. consistent with quarterly demand, job openings declined by nearly one million from the end of january to the end of august. nevertheless, as shown in figure three, job openings remain about 30% above their pre-pandemic level. at the same time, layoffs have remained very low. and the price -- and the pace of payroll remains strong. with september payroll job gains coming in higher than expected. in addition, the unemployment rate is 3.8%. a level that is still near

historic lows. the fact that the unemployment rate and layoffs have remained low over the past year have made this inflation suggest that there is a path to restoring price stability without the kind of substantial increase in unemployment that has often accompanied significant tightening cycles. improvements in labor supply is also contributing to rebalancing. the labor market for instance, since the start of the year, the prime age labor force participation rate, shown in figure four, has moved up further. immigration has also picked up. further contributing to the increase in labor supply. slowing labor demand and improving labor supply have eased pressure in the labor

market. and my expectation is for further gradual easing in labor market conditions, as restrictive monetary policy continues to slow labor demand, without causing an abrupt increase in layoffs or the unemployment rate. data we have received so far, according to economic growth in the third quarter. contrary to expectations earlier this year that the economy would slow. consumer spending was strong in both july and august. housing starts shown in figure five, are rebounding after a slowdown that was widely seen as caused by higher interest rates. despite the sign of resilience in the economy this year, some analysts expected more economic

growth this fall, which leaves me to my -- leads me to my next topic. what are some near-term risks facing the u.s. economy? so far, the economy has been resilient and inflation has been subsiding. however, i have a high degree of uncertainty to my outlook, and receive multiple risks. i am particularly attentive to the upside risk to inflation, such as those associated with the economy and labor market remaining too strong to achieve further disinflation. as well as risk associated with unexpected increases in energy prices. since energy prices are volatile , i tend to look through changes in energy prices and focus more on core inflation in my deliberations.

i am mindful that persistent inflation above the federal open market committee's 2% target increases the risk that inflationary expectations become unanchored. thus, regardless of its source, my objective is to return inflation to the fomc's 2% target. i just mentioned upside risk to inflation. but they are also important downside risks to economic activity. such as the slowdown in foreign economic growth. china's economy appears to have lost momentum as real estate activity has fallen. other indicators, including retail sales, also suggest softness in economic activity. in europe, manufacturing and

services, purchaser manager indices, were both in a contractionary areas recently. i have followed these developments to the extent that they may have implications for the u.s. economy. especially if conditions deteriorate sharply abroad. as you know, monetary policy is transmitted to the rest of the economy by affecting broad financial conditions, including market interest rates. higher market rates raise the interest rates that households and businesses face, and reduce the spending they undertake. most notably spending or business investment, presidential construction, and consumer durables. higher interest rates also affect asset prices. for example, higher interest rates, all else equal, raises

the exchange value of the dollar, which then boosts imports and reduces exports. additionally, higher interest rates, along with higher anticipated policy, lead investors to discount cash flows associated with longer-term investments, at higher rates. this reduces the value of the stock market, which then reduces consumption to wealth effects, and business investment through the cost of capital. in addition, monetary policy affects risk premiums. tighter monetary policy tends to reduce the willingness of investors to bear risk. increasing use spreads and reducing the price for a range of asset classes and augmenting the direct effects of interest rates and asset prices described earlier.

figure six illustrates how long-term interest rates move in anticipation of changes in the federal funds rate. the red line is the average long-term triple b corporate bond rate. in measure of corporate borrowing costs. the blue line is the average 30 year mortgage rate, a measure of household cost. notice that both measures increased in early 2022 in response to communications, and in anticipation of increases in the effective federal funds rate. black line. recently, these long-term rates have increased further. moreover, or generally, financial conditions have tightened further. and real long-term treasury yields have risen significantly.

i will say more on this later. in the speech last spring, i noted we are still learning about the full effects of our policy tightening in this post-pandemic cycle. thus, i am also mindful of factors that could continually, or delay the transmission of monetary policy. one such factor is that the bulk of corporate debt, issued by large firms, has not yet had to be refinanced since the fomc started to tighten monetary policy in march, 2022. large businesses rely on corporate bonds and bank loans as sources of debt financing. corporate bonds tended to be fixed rate debt, while bank loans tend to be floating-rate debt.

as most nonfinancial corporate debt is in the form of corporate bonds that were issued before 2022, the interest rate averaged across all outstanding corporate debt is still low, as shown in figure seven. this rate will likely increase next year when a large fraction of maturing corporate bonds needs to be refinanced. given this additional tightening, it may be too soon to say confidently that we have tightened enough to return inflation to our 2% target. at the same time, i will be mindful of the additional tightening because of our past rate hikes, because i consider whether there is a need to tighten policy further in the future. this leads me to my next topic. considerations for monetary

policy that follow from my outlook and risk to it that i have already mentioned. after increasing the target rates for the federal funds rate by 525 basis points since early 2022, my view is that the fomc is in a position to proceed carefully in assessing the extent of any additional policy firming that may be necessary. we are in a sensitive period of risk management where we have to balance the risks of not having tightened enough against the risk of policy being too restrictive. but balancing of these two risks was a good reason for holding the policy rate constant at our most recent fomc meeting. as i mentioned earlier, our

long-term treasury yields were mentioned recently. in part, 3 -- real yields may reflect investors assessments that the underlying momentum of the economy is stronger than previously recognized. and as a result, a restrictive stance of monetary policy may be needed for longer than previously thought in order to return inflation to 2%. but i am also mindful that increases in real yields can arise from changes in investor's attitudes toward risk and uncertainty. looking ahead, i will remain cognizant of the tightening in financial conditions to higher bond yields, and i will keep that in mind as i assess the

future path of policy. i will be taking financial market developments into account, along with the totality of incoming data, in assessing the economic outlook and the risks surrounding the outlook. and in judging the appropriate future course of policy. q. [applause] ellen: that's great. joining me on stage, and i was just a quote -- just about to ask greg for that, but yes. this is so that i can read the questions that you all submit. of course, i walked away without them. ok, thank you. wonderful. i can see the questions have already come in. thank you for that, vice chair jefferson. vice chair jefferson: you're

welcome. ellen: let me start with a key debate that we have heard at this conference already. you touched on it a little bit. and that has been how to interpret the changes in premia in thinking about the rise of long-term yields. some arguments in the debate suggests structural developments are persistent rather than a temporary source, of higher term premium. do you agree with that premise around persistence? how would a higher persistence of term premium affect or into your outlook for monetary policy? vice chair jefferson: thank you for that question. it is certainly the case that we are aware, and i am aware, of the recent run-up in real yields, particularly in the long end of treasuries. there can be a variety of sources for that. if we think about what the total

structure of interest rates is composed of. we have the expected future value of short-term rates as associated with policy. then the term premium. it could be the case, as i mentioned in my speech, that investors think that real economic growth is going to be stronger than they anticipated, and that is part of it. it could be that there is greater uncertainty around future interest rates, so investors are deciding that they would require to be compensated for holding long-term securities. it could be that it is equaled to interest rates in the economy. i think right now, i have no reason for ruling out any of those different alternatives.

what i think about is the real rate that is required to bring aggregate supply back into balance with aggregate demand. i think current policy is restrictive in putting downward pressure on the inflation rate. and that is really what my concern is. finding the right stance of policy to bring inflation down to the fomc's target of 2%. ellen: great. you mentioned that you gave a speech back in the spring. and i had made note of that in preparation for today. you had talked about the risk of lags reflected in the higher rate and lower earnings for businesses testing their ability to service the debt. you went through in your presentation about the large corporate's, and what has to be done next year.

the worry, because of that lag hits later and harder, is that something that concerns you? is there a difference and how you look at various parts of the corporate universe, in terms of the large corporate's that have to -- next year, they turned out that debt, versus the high yield space, middle-market companies that face floating rates. vice chair jefferson: the company -- the companies, or households, that are facing the formal rate debt, they have already started to feel the impact of policy because they have had to deal with those increases that i have talked about in the policy rate since march of 2022. in terms of what is trained has to do with the fact that households and businesses that have had long-term debt, that they have been able to hold onto , they have not been impacted

yet -- or to the same extent, i should say. i need to be careful here. by the increase in the policy rate and long-term rates. but we have reason to expect that next year, starting next year, they well. as a policymaker, i have to be mindful, when i am trying to think about the restrictive stance of policy, that the cumulative effect of past interest rate increases has not yet fully been felt. that is part of the deliberation and calibration that i have to think about when thinking about the future path of policy and what might be done in terms of changes, say, in the short run in terms of policy rate. i have to be mindful that there is still some restriction

associated with what we have already done. and that could influence what i think should happen next. ellen: this has come up time and again. you have forward guidance versus data dependence. when you think about lags in monetary policy, and granted, they are big uncertainty bands around that, and how they impact the economy, and which are the largest humility of impacts. is there some some -- is there still some forward guidance in all of this, as opposed to solely data dependent? vice chair jefferson: if you look at history, i showed a graph, i think it was figure six in my talk today, where we saw how forward guidance works. i don't know if it is possible to put that figure back up? maybe not. what do we see there? we saw that in early 2022, we

did not hurt this part. we saw the communication, so this is a very helpful graph in terms of answering this question, because it shows the forward guidance in policymaking. there were communications in early 2022 about what the fed's intentions work. we saw market rates and financial conditions tighten in anticipation of that. as long as that minute -- as long as that is an empirical future of the policy process, then we do have to be aware of what we say, because that is going to influence what actually happens. data dependence is key because

we are in an unprecedented period. we are coming out of a pandemic which could have caused the underlying structure of the economy to be different. we have to be nimble, because some of the responses and feedback we get from the economy may be different from what we observed in the past. for me, how i think about policy. ellen: coming out of the pandemic, significant shock. i recall post gsc, where sometimes after -- sometime after the financial crisis, it seems like a economists had a big re-think. i know i did. on what that crisis meant for potential growth in our star. i brought down my potential growth forecast by a full percentage point at that time.

when we think through the pandemic shock and the subsequent fiscal policy shock as well, has that shook us out of the malaise from the gsc, so that some time, whether it is a few years from now, we will look back and say, that shook us out of that post gsc malaise and potential growth, and our star higher? how would you be thinking about that? vice chair jefferson: well, our star, i am a teacher at heart, i'm going to assume people know what our star is. i think of it as the equilibrium interest rate in the economy. but it is hard to know what that interest rate. then i interpret your question as to whether or not it has shifted up in the post-pandemic period. the way that i think about that

is that i am not going to know for sure until i see an economy in balance. perhaps before the pandemic is here to think about what the -- what the equilibrium interest rate was. because we were in a non-inflationary environment that was growing over an extended period of time. in that type of world, you have that type of stability, of fundamentally unobservable variables, can be somewhat more straightforward because the economy is not an balance. you can reasonably infer that the fundamental value that you imagine to be there are in any more stable position. that is not the situation that we are in now. the pandemic was a significant

shock to the economy. it disrupted fundamental relationships. we have aggregate supply and aggregate demand out of long-run balance. the idea that in a transition period like this one can infer, what the underlying equilibrium value is, to me, just strikes me as a difficult task. i would be in the camp that we need to wait and continue to do our work to build the economy inflation rate down. it has been the case that the labor market has been robust. once we are in the point where some of the fundamental, other fundamental long-run very -- variables we care about, like 2% inflation, is present, full employment is present, then i will be able to think about what

the appropriate inference is for our star, in the long run. ellen: there have been several questions coming in about real rates. . there is one in particular which encapsulates a few of the questions in spirit. real rates, if you are holding policy study for a time, real rates presumably are going to be rising. when you think forward to the path of the policy you envision for 2024, do you envision cuts in 2024 to avoid additional tightening in real rates? vice chair jefferson: right, yes. so, i hear that question is saying, ok, what is implicit in that question is that inflation is actual and expected inflation and it has slowed through the fed's target of 2% that would be

a very good thing. i am in favor of that. but we also have the issue of what is actually happening in the economy. the real economy. i cannot answer your question because i would need to have a feel for what is happening in real economic activity in terms of what it's growth to growth rate is, and what is happening in the labor market. because that is the other side of the picture in terms of mandates. but also in terms of our ability to have that outcome with respect to inflation. that is implicit in the question about rising rates, given in the nominal rate. ellen: economists love scenarios.

questions have come in about the balance sheet. it is the balance sheet, vis-a-vis, where it fits in the order of operations, with rates and balance sheets. in this scenario, let's say there is a disorderly tightening in financial conditions, the nonlinear tightening of financial conditions. order of operations, would it be to communicate around the policy rate first? and is there a role for the balance sheet in that? is there a role for the balance sheet if you need to respond in disorderly tightening and financial conditions? vice chair jefferson: our objective is to have the policy decisions working in harmony, and not as cross purposes. what i think is the case is that

-- i'm speaking for myself as a policymaker, thinking about what you are saying. it is dependent on what is happening in the economy. ok, in other words, i think our responsibility is to bring inflation down to 2%, and to be nimble with regards to what may or may not be happening in the economy as we go forward. i would not want to prejudge how we would respond. i know economists like hypotheticals. as a policymaker, i would want the president to know that we are going to be mindful of whatever is happening, and we will use data in real-time to

pick an appropriate response. ellen: there is a question here that i will take a little bit of liberty with this question. i don't know who poses the question, so that keeps me unbiased with who i choose, when i choose questions. employment growth has been strong. you noted the unemployment rate, despite that the unemployment rate has been steady, and you have been able to bring inflation down, despite that, and the underlying dynamics means that on the path toward back -- toward better balance in the labor market, if you continue to see wage growth slowing, if you continue to see a stable unemployment rate. it looks like we are continuing to see better balance in labor market, but you have continued

strong job gains on the headlines. does that alone keep you from determining that we are in better balance? is when to be solely bound to if job gains continue to be too strong or really robust, do the other factors matter in terms of that? vice chair jefferson: the job gains, i'm hoping, as i showed in an earlier graph, what we have is labor supply is increasing. i don't know if joe can put that graph up there. [laughter] what the graph shows is that labor supply is increasing in terms if we go by labor force participation rates.

demand, labor demand, is strong. why isn't demand strong? the demand for labor derived from the demand for goods and services. then we have to go back to consumers are still out there buying, and that is a good thing. employment growth in and of itself is a good thing. i don't remember being on the record as saying it's not. it is a good thing. we want the growth to be consistent with what we think is a path for the rate of inflation. to be consistent without a target. if more people are coming off the sidelines and into the labor force, and prosperity's are being spread, we are for that. and we just want this process in the labor market to be orderly and consistent with the kind of

economy that is growing all the time, and in real terms, and is noninflationary. ellen: you talk about the importance of foreign growth in an outlook. when you think about the outperformance of the u.s. this year, and i know that the fomc made significant upward revisions to growth in the september summary of economic projections. our own outlook survey that we presented yesterday, those growth expectations were revised up from four point 1% to 2.1%. when you think about that relative to the eu growth, for instance, what do you think has been the biggest driver mechanism of that outperformance in the u.s.? vice chair jefferson: coming out of the pandemic, it was the case

that balance sheets for households and businesses were pretty strong. we know that consumption is 65%, 70% of the economy. as long as consumers are out there spending in the way that they have, that is going to really be a positive impulse to the economy. the fact that the labor market feels so strong means that even as those balance sheets are running down, i think people can look at the labor market and say, ok, the possibilities of getting employment are pretty good. and that can lead to an increase in confidence about their own

situation, even though those surveys may indicate they are not super confident overall. if you are watching what people do, as opposed to what they say, you may see that retail sales are going pretty strong. the strength of consumption and my views that american households have about the possibility of future income growth and strength is stronger consumption behavior then maybe i would have anticipated. ellen: do you think -- let me ask you this. there has been a couple questions coming in about productivity. productivity and other difficult concepts to measure. what do you say to communities that you speak to or others when they talk about the advancements

in tech, ai, and the labor market. productivity gains, worry over jobs. how do you spin that narrative? vice chair jefferson: it can be the case that the experiences of different people, even in the labor market as robust as this one, is different. is going to be a distributionl. -- distribution. from the perspective of myself as a policymaker at the fed, what i have to focus on his macroeconomic conditions. and trying to create the type of macroeconomic environment where individuals can choose their path to prosperity. what does that economy look like?

that economy looks like one in which there is a long-term growth with low-inflation. i understand there will be distributional differences below the macroeconomic level. but in my role as a policymaker at the fed, what i have to focus on and keep my eye on is the dual mandate and what is consistent with that. the safety and soundness of banks, maximum employment or low unemployment in noninflationary growth. if you look at the history of the united states, when we have that kind of economy over an extended period of time, we have shared prosperity. you see all kinds of people coming into the labor market -- coming into the economy, widespread participation, and

robust long-term growth. that is what i try to keep my focus on, while i understand that the lived experience of particular household communities will be distributed in different ways. ellen: great. i'm going to ask a little bit of a selfish question, because be awarded the nobel prize for economics today. and it went to claudia golden, a woman, for her work in along the run -- yes. [applause] she was awarded for her work uncovering the cost of wage and inequality between men and women. it goes to work she did in 1990.

in 1990, she became the first tenured woman at harvard's economics department. she is the third woman to win the nobel prize in economics, in the first to win it by herself. i recall speaking at the st. louis fed women's and economic supposing with president mary daly, but she was not the president of the san francisco fed yet, and claudia, and talking about the difficulties and women being recognized in academia. especially when they co-authored papers and things like that. it was nice to see her win by herself, not only because she gets all the money herself, but she gets all recognize -- recognition herself. the response she gave when asked why -- or what was the gist of her work. looking at the long-term

evolution of women's growth, where there has been enormous change, and still large differences remain. i bring this up because you have done so much work on inequality issues, including poverty and education. can you speak to a monetary policy standpoint? is there a loafer monetary policy in dealing with inequality? vice chair jefferson: first, i want to congratulate claudia for this tremendous accomplishment. it is a well-deserved, and certainly her work has been impactful on everyone in the profession, and far beyond. that is the most important thing about this day, is that award. and i am delighted by it. in terms of whether or not monetary policy can directly

impact the issues that her work has focused on, i can only say that by creating conditions of general prosperity, can we in some indirect way influence that. in the sense that if the case that the economy is growing and expanding, and an opportunity broadly defined as expanding, i would like to believe that that opportunity is one that spread across genders and races and socioeconomic status, and all of the other things that we care so much about. as a policymaker, monetary

policy is not designed to address specifically the issues that she has worked so much on. that is better treated in the other realms of public policy. what can we do in terms of monetary policy? what we can do is adhere to the mandate that the congress has given us. and create the kind of economy where opportunity is available to everyone, and very importantly, access is available to everyone. that is where this piece around the banking system comes in. we want a financial system that works for everyone, just like we want an economy that is growing, so that participation and prosperity is being shared by

everyone. ellen: thank you. i think that is a great note to end on. it is a great day to be a woman in economics. thank you so much for your time today. vice chair jefferson: thank you so much for having me. [applause] announcer: tonight, watching c-span's series, in partnership with the library of congress, "books that shaped america." we will feature narrative of the life of frederick dev gless -- frederick douglass. it was the first of three autobiographies by frederick douglass. deeply personal and sometimes graphic language, he describes his childhood years on the eastern shore of maryland, his time as a slave in baltimore, and his escape north in 1838. the book was widely sold and is said to have highly influence the cause of abolition. historian author will be our guest on the program to discuss

the book. watch "books that shaped america," featuring "narrative of the life of frederick douglass." tonight live at 9:00 p.m. eastern on c-span now, or online at c-span.org. also, be sure to scan the qr code to listen to our companion podcast, where you can learn more about the authors of the books featured. announcer: the office of speaker of the house of the united states house of representatives is hereby declared vacant. announcer: on tuesday at 5:00 p.m. eastern, the house republican convert -- congress meets to discuss candidates for speaker of the house follow kevin -- following kevin mccarthy's removal with a vote expected wednesday morning. the house democrats have announced their plan to select minority leader hakeem jeffries as their nominee for speaker. stay with c-span as the battle over house speakership continues. follow every moment om