 It's a real pleasure to welcome Dr. Lail Brainard to CSIS. I've had a chance to work with her for many years. She's currently a member of the Federal Reserve, and she serves a term that ends in the year 2026. Now, by that stage, she will be 47, so she'll have a full career ahead of her. I mean, that's not an issue. But this is one of the most unusual institutions where you serve for a long period of time doing work that everybody depends on and nobody knows anything about. I mean, this is part of what we're going to fix today. This is a rare opportunity for us to have a discussion with someone who is on the Fed Board and inside of this very important institution helping us think through what it means for all of us in our lives. And we're delighted that Dr. Brainard is with us. As I said, I first had a chance to meet her when she was the assistant to the president in the Clinton administration and the deputy director of the National Economic Council. Since that time, she went off. She was at Brookings for a time and then went into the administration first as counselor to the Secretary of Treasury and then became the Undersecretary for Treasury. And this is one of the very interesting things is how these two very different institutions that work so closely and how do they work together between the Federal Reserve and the Department of Treasury. And I think we're going to find this to be a very, very interesting morning. And so I'm very, very grateful to have her here. I'm glad to have all of you here. And can I ask you now with your warm applause to welcome Dr. Lail Brainard. Thank you. Thank John for those very kind remarks. It is a huge pleasure for me to be back here at CSIS. I've had a lot of opportunities to collaborate with colleagues here at CSIS over the years and it's always a real pleasure to be here. This spring marks the end of the Federal Reserve's calendar-based forward guidance and the return to full data dependency in the setting of the federal funds rate. It's notable that just as policymaking is becoming more anchored in meeting-by-meeting assessments of the data, the data picture is decidedly mixed. No doubt bad weather, port disruptions and statistical issues are responsible for some of the dismal first quarter GDP estimate. But there may be reasons not to dismiss the recent soft readings entirely. First, the limited data in hand pertaining to the second quarter may not suggest a significant bounce back yet. And second, it wouldn't be the first time. The underlying momentum of our recovery has proven susceptible to headwinds which has kept economic growth well below the average of previous upturns. My own reading is that earlier, more optimistic growth projections may have placed too much weight on the boost to spending from lower energy prices and too little weight on the negative implications of the demand of the significant increase in the foreign exchange value of the dollar and the decline in the price of crude oil. At a time when a lot of the growth burden is riding on U.S. consumers, they appear to be disinclined to spend much of the gains from cheaper prices at the pump preferring it seems to strengthen household balance sheets instead. Relative to expectations predicated on that boost to real income and lower gas prices, consumer spending so far this year has been undeniably weak, especially given a backdrop of improving labor market prospects, solid consumer sentiment, and improving credit. Consumer spending is reported to have increased at an annual rate of only 1.8% in the first quarter, far below the 5.3% increase in household real disposable income. And data through April suggests a large bounce back. Continuing softness and consumption this year would naturally raise some questions about whether there's a more persistent change of foot, in particular, whether the financial crisis may have caused consumers to be more cautious about spending gains in income and wealth that are perceived to be temporary. Modest growth in consumer spending matters because strength in other categories of aggregate demand remains elusive. Certainly the public sector is not likely to contribute significantly to GDP growth over the next few years, and although the data on housing starts and permits from April looks promising, average growth in residential investment over the past year and a half has been tepid. It's puzzling that housing starts to remain so far below trend levels implied by population growth given low interest rates and continued job gains. Tight credit for borrowers with less than pristine credit histories may explain some of the weakness, but it's possible that attitudes towards home ownership have changed as a result of the financial crisis, especially among the millennial great recession generation. Just as the positive effects appear to have been more muted, so too the negative effects from the substantial decline in the price of oil and appreciation of the exchange rate on business investment, manufacturing and export seems to have been greater than expected. Drilling activity, for instance, is reported to have fallen at an annual rate of 50% in the first quarter, and data suggest another large decline this quarter. The dollar's rise is reducing net exports and may be restraining investment in areas sensitive to foreign demand with greater force than anticipated. Net exports subtracted 1 percentage point from GDP in the fourth quarter of last year in a whopping 1.9 percentage point in the first quarter. Business equipment spending and business sentiment have also been weak, suggesting that overall business investment could change little over the first half of the year. Foreign headwinds also appear to be affecting manufacturing activity. Manufacturing production declined at an annual rate of 1% in the first quarter, and the ISM National Manufacturing Diffusion Index of new export orders has been in contractionary or neutral territory for the last five months. Of course, there is a danger in reading too much into this data. The ISM's non-manufacturing index suggests that activities remain solid in the private services sector, which of course accounts for the bulk of economic activity. So in assessing whether a stronger trend in domestic economic activity will soon reassert itself, I think it's important to keep in mind the international context. And here, one thing is clear. The risk of recent cross-currents from abroad should late arrest any remaining lure that the United States is a closed economy. Financial linkages between the United States and foreign economies are immediate and extensive. Equity prices, long-term interest rates and risk spreads and exchange rates show strong reactions to developments abroad, and in recent months foreign developments have at times a prominent factor driving U.S. financial conditions. Weak foreign aggregate demand accompanying accommodative monetary policies in the Euro area and Japan and diverging expectations have been key among the factors causing a significant 10% appreciation of the dollar since last June. To the exchange rate appreciation exerts a tightening force on financial conditions in the United States, it delays the return of U.S. interest rates to more normal levels. And while trade is a smaller share of the U.S. economy than in many other economies, exchange rate changes of the magnitude seen recently can have large effects on aggregate demand. We've seen a large negative contribution of net exports in the past two quarters and some models estimate that the effect of exchange rates on net exports can last up to three years. Even before the latest estimate of the first quarter dragged from net exports, many private sector forecasters expected net exports to subtract materially from GDP growth this year and next. Foreign headwinds also appear to be affecting U.S. inflation. Weak foreign demand appears to be the dominant factor driving recent reductions in the prices is weighing on U.S. inflation through lower import prices more generally. Non-oil import prices are reported to have declined at an annual rate of 4.5% last quarter and April data suggests a decrease of a similar magnitude this quarter. Some models imply that falling import prices might subtract about a third of a percentage point from consumer price inflation this year. Recently, the Euro data the Euro area has seen some encouraging data. Nonetheless, there remain risks that could prolong or intensify foreign headwinds going forward. Most immediately, negotiations between Greece and its creditors are challenging and the risk of further deterioration cannot be ruled out. While the Euro area has broadened its policy toolkit and member states have made significant strides in building their resilience the recovery is still fragile in several member states but there are still some challenges. In addition, Chinese GDP growth looks to have slowed noticeably and there is some risk of further slowing. This reflects in part a significant correction in the property market and the shadow banking sector but structural factors are also at work. Potential output growth in China is expected to slow in part because of challenging demographics and the transition from heavy to heavy. Starting this month with the end of calendar based forward guidance the decisions of the Federal Open Market Committee, the FOMC regarding the federal funds rate will depend on the evolution of incoming economic data. While the date of lift off will not be predetermined the conditions governing the decision to lift off have been clearly stated. First, to have reasonable confidence that inflation will be on track to reach its target of 2% over the medium term I will be looking closely at signs that core inflation is firming, deflationary pressures from abroad are abating and measures of inflation expectations are stable. Recent data have provided some reassurance that U.S. inflation is starting to firm. Oil prices have retraced part of their earlier decline and monthly changes in core PCE prices have increased from the very low levels around the turn of the year. Even so, most indicators of the underlying trend in PCE inflation are around 1.25% noticeably below the FOMC's 2% target. It's reassuring that survey based measures of longer run inflation expectations appear to remain stable. In addition, market based measures of inflation expectations have moved up somewhat in the past few months after several months of decreases. Second, I'll also want to see solid further employment growth and further evidence of a reduction in labor market slack based on a variety of indicators. The robust pace of labor market improvement was perhaps the brightest part of the data picture over 2014. As we've advanced into 2015, the pace of job gains has slowed. Even so, job gains appear to be consistent with declining labor market slack as are indicators such as unemployment insurance claims and job openings. My judgment is that there is still room for employment and hours worked to grow as labor market indicators suggest slack not captured by the overall unemployment rate. In particular, labor force participation still remains low relative to its declining pre-crisis trend and the number of employees who are working less than they would like is still elevated. Moreover, measures of wage growth remain soft and haven't significantly strengthened over the past year providing evidence of remaining slack. Although the overall unemployment rate is near levels commonly associated with the natural rate, that natural rate may actually have declined over the past few years such that a gap remains between the unemployment rate and its natural rate. The composition of the labor force looks to be shifting toward groups with relatively low levels of unemployment. A reduction in workers' bargaining power or reduced levels of labor market churning may also be putting downward pressure on the natural rate. With the labor market evidencing additional slack not well captured by the standard unemployment rate and with inflation soft relative to its target, there may be room to support further healing in the labor market which is appropriate following the deep damage from the Great Recession. On net then, there is value to watchable waiting. While additional data help clarify the economy's underlying momentum in the face of headwinds from abroad. If the labor market strengthens further and inflation readings continue to improve liftoff could come before the end of the year. Of course the data of liftoff is only one in a series of decisions the FOMC will be making in response to incoming data. Just as no previous recovery has proceeded as this one has so too, there is no reason to reject monetary policy to follow previous tightening cycles. Given the unique conditions in the labor market and the economy more broadly I will want to move step by step observing how the markets and the economy respond before gauging the appropriate next step in the policy path. The divergence in conditions here and abroad injects an important element of uncertainty with regard to the path of policy while the dollar's appreciation is generally transmitted into somewhat tighter financial conditions the advent of quantitative easing in Europe appear to have led to some compression in term premiums not only in European bond markets but also in the United States. Although longer dated yields have recently moved somewhat higher it's difficult to know in advance how term premiums will respond when U.S. normalization gets underway. To the extent that the commencement of normalization leads to relatively greater demand for U.S. assets we could see echoes of the so called conundrum of 2004 to 2005 when rising short term rates were accompanied by falling forward rates. But the reverse is also possible with term premiums moving more steeply than appropriate for underlying economic conditions which we saw in the so called taper tantrum in 2013. Certainly my colleagues and I are mindful of recent episodes which have seen unusually sharp spikes in market volatility. Accordingly I expect the FOMC will continue proceeding to the greatest extent possible in a very deliberate manner aiming to provide clear communications about the economic and policy outlook. Based on today's picture of moderate underlying momentum at home and cross currents from abroad the process of normalizing monetary policy is likely to be gradual. The stance of monetary policy will remain highly accommodative even after the federal funds rate moves off the effect of lower bound because of the elevated size of the Federal Reserve's balance sheet and the associated downward pressure on long term rates as well as initially low real federal funds rate. Moreover the FOMC has made clear that it will reduce the size of the balance sheet in a gradual and predictable manner starting at an appropriate time after lift off which will depend on the evolution of economic and financial conditions. To wrap up while it's possible that residual seasonality and temporary factors are to blame for the recent string of soft data it is difficult to dismiss the possibility of a more significant drag on the economy then anticipated from the exchange rate and the negative effects of the oil price decline along with a more cautious US consumer. This argues for giving the data some more time to confirm further improvements in the labor market and firming of inflation towards our 2% target. But while the case for lift off may not be immediate it is coming into clearer view. When that time comes the policy path will be highly attuned to incoming data and not on a preset course. It's important to be mindful of the possibility of volatility when markets do adjust to the change in the stance of policy. So the FOMC will continue communicating as clearly as possible regarding the outlook and the factors underlying its policy determination. Thank you. Can I put you on this one? I think it will be easier so the audience over here and I'll get out of the way a little bit. I'm so proud of myself I understood 100% of those words and 40% of what they meant. I'm so proud. This is really good. So I'm going to struggle to try to ask a few intelligent questions and then I'm counting on the audience to really help me with that. But let me begin. I just took some little notes as we were going along. You said that normalization is likely to be gradual. Let me ask there's a limit to what you can say maybe about this but you and your colleagues are you guys all over the map and therefore your consensus reflects a lowest common denominator or do you have a strong consensus about what's happening and a policy consensus and therefore that's what informs it. Is it a positive consensus or a negative consensus that informs the board? So the FOMC speaks through its statements with one voice and then of course you see the members of the FOMC clarifying their own views in their own comments outside of that context but I think what you can see from the statement that came out of the last FOMC meeting and in fact the evolution of statements that there is pretty clear set of guidelines about what the committee overall is looking for as we prepare to normalize monetary policy and in particular there's been emphasis put on further strengthening of the labor market and reasonable confidence that inflation is moving towards our 2% target over the medium term and then I think what you'll see is that individual members have given some context about what they will be looking at in particular for those two conditions to be met. You had a term that you used in your speech where you said watchful waiting will be kind of the by word for this. What then would be the kind of important leading indicators that you would be watching for? What gives you a sense of things really important that in your mind give you direction? So there's a set of data really that we will be looking at and I will in particular be looking at overcoming weeks and months as I was describing earlier to get confident that the labor market is getting closer to full employment per our mandate, our dual mandate that's given to us by law. It's no longer sufficient simply to look at the aggregate unemployment rate because obviously the great recession and the financial crisis that preceded it have changed some of the relationships in the labor market and as a result it is possible that the aggregate unemployment rate is not capturing fully the dimensions of Slack. So I think it's important to look at wage growth. I think it's important to look at the number of workers who are working part time but would prefer to be working more. It's also important to be looking at the labor force participation rate. That gives us a much richer picture of the amount of remaining slack in the labor market and as you know we really haven't seen the kind of firming of wages that would suggest that Slack is really narrow in the labor market. The second set of indicators pertain to inflation and obviously our inflation target is a forward-looking target but there too in order to get a sense of whether inflation is giving us reasonable confidence that it's moving towards the 2% target over the medium term. I am also looking at a variety of indicators both underlying trend in PCE inflation today but also measures of inflation expectations from the markets from surveys and recognizing that some factors like the oil price decline were transitory and really we can look through some elements of inflation but we're really trying to gauge that underlying trend. Let me hover over this issue and answer you gave where you said that obviously looking at the quality of wages becomes an important thing that you will look at. There's a bigger debate going on in Washington now about fairness of compensation labor returns to labor returns to equity does that enter in any way into your deliberations when you are meeting and thinking through these things? Well certainly as I'm thinking about the robustness of the recovery the distribution of income enters into an assessment of the health of the recovery. In particular we have seen income trends over a period that really predates the recession that are leading to a greater concentration of income and wealth at a very much smaller part of the population income distribution and the concern over time apart from fairness which of course is also a very important concern but from an economic robustness point of view is whether consumers at the middle and lower end who are not getting those income gains to the extent they might have 20-30 years ago are feeling secure enough about their futures and their children's futures to invest in housing to consume and so there is a very important link between the distribution of income and the robustness of economic growth that I think I worry about certainly. There are really kind of two sets of political voices on this question of normalization you get one group that says look we needed to be aggressive to replace the collapse of aggregate demand to avoid it getting worse and therefore active intervention, monetary policy, fiscal policy was needed to put a foundation under demand and then you get those that argue that quantitative easing is a narcotic we're hooked, we can't get rid of it, we look at Japan for 20 years of stumbling through a recovery four different times when they've tried to reverse and sent back I mean how does that debate figure with you guys? So obviously it's very important for me that I have the research that's been done in this arena and also the evidence that we're gauging every day my reading of the research is it's a strong endorsement of the highly accommodative monetary policies that were undertaken over the last several years you know if you do a comparing contrast between this great recession and the depression for instance that a very activist and accommodative monetary policy made a material difference in the course of both the recession and the subsequent recovery now the channels through which it worked in the United States I think are pretty evident from the research that we saw a material boost to the housing market we saw a material boost to investment and economic activity from the reduction in longer term rates so you know it's very hard for me to see the case the real question would be what would the alternative have been how would one have seen the recovery proceeding and I think you know that's where the critique really falls short because it's not clear that those who criticize QE and of course every policy has some risks have a really good alternative to propose certainly not an alternative that I have seen that would have been effective under the very severe conditions that we saw. Can I get just again to on this point if you know you earlier said that soft soft wage increases in the labor market become a factor that holds back normalization but American labor because of today's technology competes against Chinese labor and Indian labor around the world in certain ways it looks like we're seeing a slack coming in China it looks like we are seeing a long slack in Europe so American workers in some sense have their wages depressed by the slump or the slackness how does that figure in because you're not operating just with an autonomous American economy now we've got these behaviors in other countries that are affecting. I think generally speaking we have this kind of very outdated notion that the US economy is a closed economy and I think if we've learned anything if we've seen anything over the last few quarters and previously it is that the US is very highly integrated into international markets on all dimensions and yes we do experience cross currents from abroad and they do affect our recovery and of course they also affect the policy response you know as our recovery is buffeted by headwinds from abroad that affects our policy response here at home so we certainly have seen that net exports have been a big drag that means that manufacturing is weaker than it would otherwise be and of course that does transmit into the labor market and similarly we've seen that prices are being import prices are being affected by deflationary pressures from abroad and that affects our underlying rate of inflation so these headwinds from China from Europe from Japan from a weaker global economy really do materially affect the pace of our recovery the pace at which labor market slack is being taken up here in our economy as well so we have a slack labor market maybe in China and in Europe at the time in the fall when perhaps you want to start more normalization which would mean higher interest rates how does this happen without cycling back to create the problem again because interest rates would come up capital would flow in what would happen here wouldn't it reinforce the negatives in this situation so as I was sketching out earlier certainly when you have divergent expectations of growth in the US relative to our foreign trade partners accompanied by expectations of divergences in the monetary policy or interest rates abroad versus the US that will cycle back into financial conditions in the US it cycles back through asset prices through the exchange rate and as a result it actually does affect the pace of normalization here in the US monetary policy usually tends to respond to a tightening of financial conditions here in the US that may be coming from abroad Do you think Greece leaves the EU or the Euro? I know that European leaders and policy makers are very engaged on negotiations with Greek leadership policy makers I think there is clearly a path for Greece to regain more resilience financially for Greece to remain within the Euro area and for the Euro area as a whole to grow together but negotiations are ongoing as we speak and so we'll have to see how those proceed but there certainly is an ability for all sides to come together around a path that has Greece remaining in the Euro area in the Euro area growing as a whole I think you articulated what we all hope is the case and we want to be the case that we can crash up against the wall here what happens what happens to us what happens if we see this tremor in the Euro and how does it echo over here so European policy makers have built out their policy toolkit the Euro area as a whole is more resilient than it was two years ago but of course we always have to be attendant to risks whether they emanate from abroad or domestically and again our financial markets are very tightly integrated with European financial markets so I think we are very attentive to the possibilities of volatility and again there is a path here and our hope is that that is the path that the leaders choose to take over the next days, weeks and months I've used my privilege being here but I'll turn to you just one last question if I may I think it was last weekend that Germany hosted the finance ministers for the G7 and I think there's a G7 meeting coming up I realize there's a limit to what you can say and what insights into what we might be anticipating at this meeting I really don't any longer have the ability to speak at all for the administration's position in those kinds of negotiating fora I will say that there's a really important growth agenda from my narrow perspective sitting at the Fed that all of the members of the G7 really could come together and make a material difference in particular in case for more aggregate demand strengthening coming from inside the Euro area using a broader set of tools that go beyond the monetary policy toolkit and we've seen some of the surplus economies in the Euro area really have capacity to provide more of the aggregate demand and I'd like to see that so the austerity agenda should obey so I would like to see more aggregate demand coming from some of the surplus economies isn't she good, that's so impressive I'm unbelievable how she avoids this tough one okay let me open this up for colleagues you've got some questions over here we're going to write a microphone, we'll come right down here first thank you Katarina Sokou with Greek Daily Katharine if I may follow up on the Greek question you were instrumental in the past in the US handling of the Greek crisis and I'm wondering from your experience how much leverage does the US have in influencing these ongoing negotiations between Greece and its creditors and if you may just please also say would the Greek default influence the Fed's monetary policy thank you Katarina Sokou the US obviously has a very important diplomatic interest strategic interest in the relationship with Greece in the Euro area as well as of course economic interests these are decisions for members of the Euro area largely to make for Greece and other members of the Euro area to make but the US has a role to play has a big interest in a good outcome and so I think on the margins you know having the US Treasury Secretary the US President continuing to stay very engaged in those conversations has been very constructive and they can continue to play a constructive role with the recognition at the end of the day these are decisions for Greece and for other members of the Euro area and again just to return to the remarks I made earlier we do in the US economic policy makers in the US have an interest in the kind of ongoing resilience of the recovery in the Euro area and so Greece navigating this path forward along with other members of the Euro area in a way that's good for the Euro area good for Greece is actually also highly in our interest and does affect policy considerations here in the United States yes right down here a third row in the pink jacket thank you thank you so we learned from the news last week that Chair Yellen will not participate in this year's Jackson Hole meeting this is kind of in the history of this symposium so I just wonder and now the speculation just go on and on and some say it's because maybe September is the time and there's some other guesses so I just wonder is there any special thoughts or considerations behind this or just as simple as the schedule issue or if the Federal Reserve wants to keep low-key before any possible moves that might happen later this year thank you so let me just say that I really can't speak for Chair Yellen's schedule at all I can say there are a lot of conferences that the reserve banks, all of the reserve banks hold all year round and attendance at a particular conference for any member of the board or any of the presidents is a personal decision based on scheduling considerations right down here in front of the second row please thank you Richard Goodstein CSS class of 74 question about the labor force participation rate in political circles there's a bit of a tug of war some talk about the unemployment rate dropping others say oh my god we're 37 year lows on the labor force participation rate what is your judgment as to what's behind the participation rate dropping is it structural is it people just kind of making informed decisions can we what can we expect going forward how important a benchmark can that can be it's something that policymakers should in fact focus on changing it in some fashion so I'll give you a very simple answer to a fairly complicated question which is to say that based on demographic factors alone there is an underlying declining trend underlying structural declining trend in the labor force participation rate that predated the crisis and will continue now on top of that we saw a decline in the labor force participation rate that was associated with the great recession that was cyclical in nature and researchers have been trying to parse that and to pull apart what of current movements in the labor force participation rate are simply structural from cyclical my own reading is that as the labor force participation rate has stabilized somewhat over several labor force employment reports that that's a cyclical correction that there is still a cyclical element of the depressed labor force participation rate and again that is one of the dimensions of slack that explains perhaps why wages are not tightening as one might expect at this point in the cycle and again that along with a very elevated number of workers who are not working as much as they would like suggests that we have some distance to go Chuck, right second row, put your hand up there you go, great Chuck Volmer with Jobonomics I think you're accurate saying is that the unemployment rate the labor force participation rate the employment population ratios I think they're just symptoms it's our data we believe that the structural issues are really tied to the not in the labor force category which is 93 million able-bodied Americans now no longer work and are looking for work and they were leaving the work force at three times the rate of entering the work force to be employed you have to look for work the other structural thing we think that is the contingent's work force you mentioned part-timers but part-timers are only a small part of that especially with the millennial generation a third of our work force is contingent work now and it's looking to go by 2030 to about 40% of the work force and if the millennials really act on the generation Z act on the way that they're culturally it could be 50% of the work force which will be a significant structural changes to the work force my question is on the not in the labor force category those able-bodied that can work that don't work and the contingent work force growing are those factors that you really look at so obviously there's a set of underlying structural changes that are impacting the economy that I certainly think are important in trying to keep abreast of the data and the research on that and then there's a set of cyclical factors that is really more in our wheelhouse if you will and trying to disentangle that in the wake-up in extraordinarily damaging crisis is unusually difficult so we look at the data and their historical relationships for some set of signals about what's going on and what's the appropriate stance of monetary policy to support one leg of our dual mandate which is full employment but to the extent that there are structural features that may be subject to other kinds of policy obviously those are really not things that we would act on but would need to understand put some special emphasis on trying to understand some of the particular challenges that may be facing the millennial generation those workers who came of age at a time when the labor market was particularly difficult to penetrate and to navigate and how that might affect their subsequent job trajectories, earning trajectories as well as their investment decisions taking because I think that may be some that may be a legacy that is with us for some time we'll take this later on in the second row and then I'll come back to you thank you my name is Liu Jie I'm a reporter with China's Xinhua news agency my first question is about the US economy and recently people are talking about a new normal of the US economy say in the next five years or longer the US economy will grow at a very slow and modest pace so what's your interpretation of the new normal of the US economy in the next five years or longer and the second question is about cross-border spillovers as both the US and the Chinese economy are undergoing significant structural changes so what are the policy agenda for both countries in the longer run, thank you so let me start with the second question first and say that in fact the US is confronting a number of changes in the wake of its financial crisis and China too is confronting challenges I think China's challenges are in some respects even greater from a structural point of view just given the very steep demographic profile that China faces in the years ahead as well as the need to shift resources from more export resource intensive big investment projects to making consumers really the engine of the economy and that will take some time but the reform agenda that has been articulated in China does go in that direction but I would say there is a very important positive agenda for the US and China and in particular we've seen the very important beginnings of a rebalancing in both China and the US to more sustainable patterns of growth we've seen a very large current account surplus in China from 10% at the peak now coming down towards 2% and on the US side we've seen a 6% deficit at its peak which was unhealthy coming down to 3% my hope is in the years ahead we don't see any reemergence of those imbalances because I think it's important for the overall health of both economies going forward that we grow in a way that is more balanced with regard to the US obviously again we're trying I'm trying to disentangle what might be very temporary factors what might be cyclical factors from underlying structural factors and I think there is a debate about why productivity and the last very short period of time has seemed to diminish and whether this is likely to be evidence of lower potential growth going forward I am not in the secular stagnation camp I think we still have room to grow and I hope we'll continue to provide support to the recovery to allow growth to improve in the US on the fourth row yes, the lady right in the middle Hi Nancy Jacqueline I have a question about the FEDS toolkit as you look toward a potential reversal of FED policy and trying to execute that effectively the FEDS just announced a possible new tool for the toolkit as a way to either reduce reliance on reverse repos or supplement it and I wonder if you could explain that tool to us and also what the FEDS concerns are in the use of reverse repo as a primary tool so I think as we have seen in the FOMC statements as well as in the principles of normalization as liftoff is undertaken and normalization gets underway the primary tool that the FOMC intends to continue to rely on will be the interest on excess reserves knowing that we're at an unusual period with a lot of excess reserves in the system we have a built in suspenders kind of approach to normalization and so we also have the facility the overnight reverse repurchase facility that will be used to help put a floor under the target range for the federal funds rate and I think we have some testing we have good confidence that that framework will be sufficient to the extent that we need additional tools we also have a variety of tools that have been tested and so I think we're really getting prepared for any contingency but based on the testing that we've undertaken so far I think we have good confidence that we'll be able to see effective monetary control good control over the federal funds rate as we lift off and begin the normalization process with that primary reliance on the interest on excess reserves and secondary use of the overnight reverse repurchase facility to help provide a floor over here in the third row I've got somebody that if we get the questions tight we might get a few more in. Go ahead. Thank you. I'm Ben Carliner from the EU delegation I was hoping that you could expand on your comments about the term premium a little bit both in terms of what factors do you think have been driving movements in the term premium over the past year and also in terms of how future developments are going to influence the Fed's policy normalization in particular with regards to the evolution of the balance sheet. As I noted earlier we have obviously been watching a whole array of financial market indicators and one of the features that I think was noted by market participants and certainly was noted in our analysis as well is that we saw long-term yields falling particularly following the actual advent of quantitative easing on the part of the ECB and that those movements in European bond markets seem to have pretty close spillovers into US bond markets which was notable at a time when normalization is coming into clearer view here in the US. Now subsequent to that time we've seen some reversal some increase in long-term yields certainly in European bond markets and notably here in the US. When normalization arrives I think we will the members of the committee will be watching carefully to see what happens at the longer end of the yield curve and as I stated earlier in my remarks I don't think we can rule out that long-term yields could move depending on underlying term premia in either direction and so we are very attentive to that. The front here they're growing you're growing we'll be able to get them all let's try thank you thanks John Governor you've mentioned growth a couple of times and you've also mentioned that you're not sort of tied to a static sort of vision for America moving forward particularly with the issue of infrastructure what role might it play in tying the economies of the world together clearly creating job opportunities for workers who are a bit stagnant now just if you could offer some thoughts on that please Well I think the case for both more performance based and much more robust infrastructure investment agenda in the US is overwhelming both from a short-term growth perspective and from a longer-term growth productivity and innovation perspective I think you probably know this better than anybody but you go across different classes of infrastructure in the US and generally we underperform many of our peers in the advanced economies and in some cases even in emerging markets and that matters for long-term innovation whether it's moving ideas or moving people or moving goods to the places that they can be most innovative and most productive if we have aging infrastructure unsafe infrastructure infrastructure that's vulnerable that diminishes our potential as an economy and it's a particularly attractive area it's potentially an area that should attract bipartisan support both for something but also more performance-based infrastructure spending and it's a agenda that both fits the short-term needs of the economy creates just the right kind of jobs and activity it's well suited for the current environment with a lot of well-priced credit available and it would also help with these productivity questions that are being raised so I'm an advocate but of course that is not a policy area that sits in any way with the Federal Reserve Lynn I'm going to take you I'm going to come down to this lady and then we're going to wrap up Thank you Governor Lynn Matisse National Economic Security Grid one of the things that we've seen take place is significant volatility in the markets stock markets a lot of driven by hedge funds that have attacked companies and really undermined their stability by trying to just draw more shareholder returns and then we've seen activities involved with a big drive towards automated trading which drives significant volatility could you give us your thoughts on both of those issues so I will say that there have been in recent months sharp spikes in volatility and in some cases associated with big news big policy news in some cases really not associated with very obvious big drivers of news and so we as part of the work that we do on financial stability we are looking very carefully at what might be contributing to this more volatile or at least spikier set of events and questions I think that have been raised and really do merit some more work which we're working on are questions about the change of market structure in some cases and clearly in some of these markets it's very particular to the types of instruments being traded in the markets but in some of these markets we do see a very notable shift in market structure to many more participants more dominant part of the trading activity taking place with electronic trading algorithmic trading high frequency trading and so it's important for us to understand how that might be affecting market functioning and market dynamics and so we are spending some time on those questions I think it's early days yet to draw firm conclusions I'm going to take this lady right here at the end and I'm sorry folks we've got about a half a dozen but we're not going to be able to make it Governor my name is Meredith Sumter and I'm a consultant to U.S. companies abroad I was struck by your comments on the younger generations the Millennials, the Gen X, etc we have long been a consumer driven economy and coming of age with the dot-com bust in the late 90s and then being an adult during the financial crisis of 08 and afterwards I'm often wonder if this this change in the way that these younger generations tend to make use of the resources focusing on the balance sheet rather than spending if this is something that is not temporal but rather something that is more psychological that will stay with us as we age and go through life and in that circumstance then how should we think about the future growth of our economy how should we consider growing our economy if we will continue to not consume or spend as much as our predecessors so those are really important and good questions and I really have very partial answers to them you know there has been some research that's been done that I've alluded to previously that suggests that the Great Depression generation did have some lasting effects in terms of views about the riskiness of certain kinds of investments or activities for instance and I think it's just a question today as to whether we might see some persistent effects on the Great Recession generation what we do know are the conditions that they confronted as they graduated from high school or graduated from college or we're going into their first second third jobs and what we know is that unemployment rates that they confronted particularly in their age groups were sky high that earnings potential was lower than it had been pre-crisis you know for many jobs that were posted either experience or education requirements were elevated relative to what they would have been so this is some of the things we know we also know that the Great Recession generation chose in surveying rather dismal job prospects to get more education that more of this education was financed through student loans than had previously been the case that for many people that's going to turn out to be a very good investment but for some people they didn't complete their degree or they took on debt to finance programs that haven't panned out in terms of better labor market outcomes and so they're going into their kind of young adult decisions about housing and when to start families with greater debt burdens than they might otherwise have done we do know that household formation has been extremely delayed for this group so many of you perhaps are either living with your parents or maybe have your kids still living with you for the record in my case I would be delighted for my kids to stay as long as possible but I don't think that's universally true and of course this delay in household formation is also being seen in depressed ownership rates for this generation and you know they are too not only are many of our young people carrying student loan burdens that may make it more difficult for them to make that first you know sort of mortgage but also they may have a different view about how beneficial a home investment is likely to be given that they might have experienced parent size mortgages that became albatrosses and housing investments that didn't turn out quite the way they expected even though we know from research that home ownership still despite even with all the data from the financial crisis is still perhaps the best investment that many middle class Americans can make this has been a remarkably informative seminar that's been a learning for me so I just would like to say thank you to you Dr. Brainard it's been a fabulous insight into your job, your thoughts how you're looking at the world and our world and I think you've made all of us better and more informed, thank you would you all please thank her