Pub. 5 2015 Issue 4

us here. We already took a step in that direction when we ended QE3. Given the progress we continue to make on our goals, I view the next appropriate step as the start of a process of gradually raising interest rates. That’s the “how;” as I said, the data will determine the “when.” I also want to stress that when we’re looking at monetary policy choices, it’s important to remember that we’re in a very different place now than when we first instituted extremely accommodative policy. Since the dark days of late 2009, we’ve added 13 million jobs; more than 3 million of those came last year, and most of those were full-time. It’s been a tough journey back, and when I look ahead, I’m highly conscious that monetary policy played a crucial role in healing a once- ailing economy. 4 THE NEW NORMAL As we make our way back to an econo- my that’s at full health, it’s also important to consider what constitutes a realistic view of the new normal—a perhaps over- used, but apt, phrase. The pace of employment growth and the decline in the unemployment rate have slowed a bit this year relative to last year. But that’s to be expected. When unem- ployment was at its 10 percent peak, and as it struggled to come down during the recovery, we needed rapid declines to get the economy back on track. Now that we’re getting closer, the pace has to start slowing. Once the economy is operating at full strength, we’re only going to need between 60,000 and 100,000 new jobs a month to keep up with the growing labor force. 5 In the mindset of the recovery, that sounds like nothing; but in the context of a healthy economy, it’s what we’ll need for stable growth. As the next year unfolds, we want to see a steady pace of economic growth at around 2 percent. If jobs and growth kept the same pace as last year, we would seriously overshoot our mark. I want to see continued improve- ment, but it’s not surprising, and it’s actually desirable, that the pace is slowing. . . . w End Notes 1. Evans et al. (2015). 2. Friedman (1961). 3. Havranek and Rusnak (2013). 4. See Swanson and Williams (2014) and Williams (2014). 5. Aaronson et al. (2014). References Aaronson, Daniel, Luojia Hu, Arian Seifoddini, and Daniel G. Sullivan. 2014. “Declining Labor Force Participation and Its Implications for Unemployment and Employment Growth.” Federal Reserve Bank of Chicago Economic Perspectives 38 (fourth quarter), pp. 100–138. Evans, Charles, Jonas Fisher, Francis Gourio, and Spencer Krane. 2015. “Risk Management for Monetary Policy Near the Zero Lower Bound.” Brookings Papers on Economic Activity, March. Friedman, Milton. 1961. “The Lag in Effect of Monetary Policy.” Journal of Political Economy 69(5), pp. 447−466. Havranek, Tomas, and Marek Rusnak. 2013. “Transmission Lags of Monetary Policy: AMeta-Analysis.” International Journal of Central Banking 9(4, December), pp. 39–75. Swanson, Eric T., and John C. Williams. 2014. “Measuring the Effect of the Zero Lower Bound on Medium- and Longer-Term Interest Rates.” American Economic Review 104(10, October), pp. 3,154–3,185. Williams, John C. 2014. “Monetary Policy at the Zero Lower Bound: Putting Theory into Practice.” Working paper, Hutchins Center on Fiscal and Monetary Policy at Brookings. For the full speech visit http://www.frbsf. org/our-district/press/presidents-speeches/ williams-speeches/2015/november/arizona- council-on-economic-education/ Elena Zee, ACEE President & CEO; Brahm Resnik of channel 12; John Williams, San Francisco Fed President and Keynote Speaker 11 FALL 2015