Fedspeak

Where each of this year's voters stands relative to the statement of 20260916, from their votes and remarks since.

Where the Committee stands

NK

Recent remarks

• 
  Lisa D. Cook September 30, 2026 · the 2026 Investing in Rural America Conference, Federal Reserve Bank of Richmond, Asheville, North Carolina

  September 30, 2026 Governor Lisa D. Cook At the 2026 Investing in Rural America Conference, Federal Reserve Bank of Richmond, Asheville, North Carolina Thank you, President Barkin, for that kind introduction. And thank you to the Federal Reserve Bank of Richmond and your partners across the Federal Reserve System for organizing this timely and important conference this year and for the past several years.1 It is a delight and a privilege to be back in North Carolina where I spent the summers and holidays of my childhood. In fact, the summer after the TV series "Roots" aired, my parents packed my sisters and me up in our lime green station wagon, and we traversed much of the state identifying and meeting our relatives and researching our family's ancestry. This was significantly before we had AI, Google and Ancestry.com searches at our fingertips, and it was a real opportunity to discover rural North Carolina. It is a distinct pleasure to be back here in Asheville, especially at this colorful, beautiful time of year. And the people of Asheville and the rest of western North Carolina remain in my thoughts and prayers as you continue to recover from Hurricane Helene. slide 1 As a Fed Governor, my charge is to set policy that will best achieve maximum employment and stable prices for all Americans, including those of us who live in rural communities. I care about those communities as a policymaker and as an economist, but also as someone who grew up in a small town in central Georgia: Milledgeville. That makes this conference of special interest to me. I know firsthand how hard people in rural areas work, how intensely they care for their families and neighbors, and how much they contribute to their communities and to the entire economy. In turn, it is only appropriate that we have events like this to inform policymakers about how residents of rural areas are experiencing and contributing to the economy. As some of you may know, this is the first year that the scope of the Investing in Rural America conference has been national. It is also the first time that all 12 Reserve Banks and the Board of Governors have partnered to organize and present this conference. Congratulations to the Richmond Fed and the other Reserve Banks for achieving these firsts! The Systemwide commitment to this signature event is an acknowledgment of the importance of rural communities to the national economy and to the Federal Reserve. Rural communities are vital contributors to the U.S. economy. These communities are the source of critical resources to the nation's economy, including food to stock our grocery stores, energy to power our businesses, and materials to build our homes.2 Rural communities also play vital roles in integrated, regional supply chains, including those for furniture, motor vehicles, electronics, as well as paper, plastics, and rubber products. And I know that across rural America, small businesses in these and other industries play an essential role as employers and innovators. Today, I will take the opportunity to try to address a few key questions about rural areas and the Federal Reserve's analysis of and engagement with them. How are rural communities evolving economically, especially along the dimensions related to our dual mandate related to employment and inflation? How are small businesses faring in the rural economy? Finally, how are staff at the Board and across the System engaged in research and outreach to better understand rural economies? Economic Outlook in Rural Communities In my assessment, rural communities experience labor-market dynamics broadly similar to those in much of the rest of the country, with some important caveats. Nationwide, the labor market is largely stable. Unemployment is low by historical standards, and new claims for unemployment benefits—a proxy for layoffs—continue to trend at low levels. Hiring has been more modest in recent years than earlier in the expansion, though employment gains trended up over the summer months. The roughly 20 million workers in rural communities are an important part of that overall picture. They represent about 1 in 8 American workers. As you can see in Figure 1, the unemployment rate in rural communities has generally been quite close to the national unemployment rate, with the exception of the pandemic period when it rose less and recovered more quickly. A more notable difference between rural and urban communities can be seen in Figure 2. Rural communities have a smaller share of adults participating in the labor force. That is partly a demographic story. However, even among workers between 25 and 54 years old, the employment-to-population ratio in rural communities is several points lower. In part, this reflects a lower labor force participation rate among working-age men due to both economic and social factors.3 Similarly, the pace of job creation in rural communities has been slower than in urban areas. Figure 3 shows total employment indexed to 2019 levels for both rural and urban communities. During the pandemic, job loss was somewhat less severe in rural areas. Then, in the initial phase of the pandemic recovery, job growth was slightly stronger. However, over the past four or so years, job creation has tilted toward urban areas. On the other side of our dual mandate is the inflation picture in rural America. While broadly consistent with national trends, inflation in rural areas also differs in some notable ways. As you can see in Figure 4, in the year before the pandemic, inflation in rural communities was somewhat lower than in urban areas. That changed considerably during the early part of the pandemic recovery, when the cost of living in rural areas rose even faster than in urban areas. Indeed, several factors are salient, but I will mention two: the increase in energy prices and in housing costs. Energy costs can weigh more heavily on rural communities, partly because the distances traveled for employment and services can be significantly farther. Transportation costs account for about a fourth of all expenses for rural households versus less than a fifth for urban households.4 In terms of housing costs, during and in the first years after the pandemic, home-price trends deviated from their pattern over previous decades and rose much faster in rural areas and lower-density areas than in cities. Research shows that between March 2020 and March 2023, home values in nonmetro counties, smaller metro areas, and low-density suburbs of large metros rose about 36 percent, compared to just 21 percent in the densest urban counties.5 This change was driven by an increase in remote work and the desire of many families to have additional space. The rise in home values likely filtered through to put upward pressure on rents in rural and less dense areas as well. Since 2023, housing inflation in rural areas has reverted toward pre-pandemic patterns; however, housing costs remain a significant driver of overall inflation. Another outcome from the pandemic that may be familiar to those of you from Asheville, as well as those from other tourism-dependent rural areas, is a surge in the value of vacation properties and second homes. Research from Harvard's Joint Center for Housing Studies showed that counties with a high share of vacation and second homes saw home prices rise 47 percent in the 3 years after the pandemic.6 That rise in prices can place pressure on long-time residents and seasonal workers seeking housing in those areas. Regardless of whether you are in a rural or urban area, the fact remains that inflation has been too high for too long. On a national level, it has exceeded the Fed's 2 percent target for more than five years. As you know, I voted along with the rest of the FOMC to raise rates 25 basis points at the recent September meeting. I am committed to returning inflation to our objective while preserving the strength in the labor market. Small Businesses and the Rural Economy One very important element of the rural economy are small businesses and entrepreneurs. This is another topic that is dear to me, as I have long researched the economics of innovation and entrepreneurship. Some 4.3 million small businesses are dotted across rural America, accounting for more than 96 percent of all rural establishments. Those businesses employ 7.4 million people in rural communities.7 Both research and my firsthand experience show me that rural residents are highly entrepreneurial, with a greater share of people in rural areas than urban ones being self-employed.8 The Fed's latest Small Business Credit Survey shows that a large share of these small businesses, 30 percent, are less than three years old. That speaks as well to the entrepreneurial spirit in rural America, while also showing a mix of both older, more established small businesses and younger start-ups in rural America. This mix is important, because new businesses account for a disproportionately large share of gross job creation by small businesses. In 2023, the most recent year for which we have data, new firms represented just 9 percent of all small businesses nationwide, but they accounted for 24 percent of job creation.9 The presence of new, innovative small businesses in rural-communities is consistent with research showing that rural regions. Therefore, many with a higher concentration of innovative businesses demonstrate stronger employment and establishment growth.10 Fed's Role in Promoting Rural Vitality Now that I have discussed the economy in rural America, I would like to take a moment to highlight the Fed's role in promoting vitality in rural communities. Both at the Board and at each Reserve Bank, staff are dedicated to supporting the economic health of rural communities so that they are vibrant places where small businesses, families, and individuals can grow and thrive. I pay careful attention to this work, not just because of my rural roots, but also because of my role serving on the Board's Committee on Consumer and Community Affairs, as well as our Subcommittee on Smaller Regional and Community Banking. Consistent with our community development work across the country, the Fed helps advance rural community vitality through various research and engagement activities. Of course, every Fed District includes rural regions and therefore many staff members at Reserve Banks, as well as the Board, are engaged in research on rural communities. I would not be able to cite all of their thoughtful work, but I do want to offer a few highlights that are worth exploring further. Since we are in western North Carolina, I will start with a research project the Richmond Fed released jointly with Riverbird Research of the Asheville Area Chamber of Commerce. The publication explored how small businesses have been faring in the aftermath of flooding and storms associated with Hurricane Helene.11 Another effort is underway at the Federal Reserve Bank of Minneapolis. Staff there have conducted research exploring the important role that Native community development financial institutions (CDFIs) play in expanding credit access in tribal communities, especially those located in more remote rural areas. CDFIs have long been of interest to me, I served on the board of a CDFI before coming to the Fed, and I have discussed CDFIs in past speeches.12 In addition, a few years ago, the Board and the Federal Reserve Bank of St. Louis published a book, Investing in Rural Prosperity. The book highlighted work being done to promote entrepreneurship, homeownership, workforce development, and more.13 Engagement with rural communities is also part of our community development efforts. Again, our Reserve Banks play a critical role here. I will offer a few highlights among a much larger portfolio of work. In April of this year, the Board and six Reserve Banks hosted an event that brought together stakeholders from across the public, private, nonprofit, and philanthropic sectors to explore the landscape of investment in rural communities and to identify opportunities to smooth the flow of capital to rural regions.14 At a more grassroots level, in November 2025, the Federal Reserve Bank of Philadelphia hosted a Rural Community Action Assembly focused on how to promote strong small business networks that can support rural economies by fostering innovation, job creation, and local growth.15 Finally, I would be remiss if I did not mention the fine work done right here in the Fifth District. The Richmond Fed recently welcomed the third cohort to its Community Investment Training program, where participants learn how to develop investment-ready community development proposals and how to get connected with potential capital providers.16 I am happy to say that western North Carolina has been well represented across all three cohorts. And thank you again to the Richmond Fed for hosting this event here in Asheville. Meetings like these allow us to share the best ideas and research, which will drive better outcomes for all Americans. Conclusion Rural communities have played multidimensional roles in the U.S. economy since this country's founding and will continue to do so in the future. It is encouraging that they will do so with the support of people like you in this room, who bring expertise, connections, and resources to help them leverage their assets in new and valuable ways. Thank you for the work you do every day to support a thriving rural America and for taking the time to be here to both share your expertise and to learn from your peers. Working together across sectors, from the local to the national level, we can help ensure the ongoing vitality of rural communities across the country. Thank you again for the opportunity to connect with you today. slide 6 1. The views expressed here are my own and are not necessarily those of my colleagues on the Federal Reserve Board or the Federal Open Market Committee. Return to text 2. For example, between 2001 and 2021, 53 percent of all personal income generated by the forestry and logging industry and 51 percent of farm income was earned in rural communities. Return to text 3. Andrew Dumont (2024), "Changes in the U.S. Economy and Rural-Urban Employment Disparities," FEDS Notes (Washington: Board of Governors of the Federal Reserve System, January 19). Return to text 4. Raji Chakrabarti, Natalia Emanuel, Thu Pham, Beck Pierce, and Maxim Pinkovskiy (2026), Economic Heterogeneity Indicators—National (PDF), Federal Reserve Bank of New York, April. Return to text 5. See Alexander Hermann and Peyton Whitney (2024), "The Geography of Pandemic-Era Home Price Trends and the Implications for Affordability," working paper (Cambridge, Mass.: Harvard University Joint Center for Housing Studies, May). Return to text 6. See Alexander Hermann and Peyton Whitney (2025), "Rural Housing Shift: Vacation Area Home Prices Surge Post-Pandemic," working paper (Cambridge, Mass.: Harvard University Joint Center for Housing Studies, December). Return to text 7. U.S. Small Business Administration, Office of Advocacy, 2025 Small Business Profile: Rural Areas (Washington: SBA, August). An "establishment" is defined as a single physical location at which business is conducted or services or industrial operations are performed. It is not necessarily identical with a company or enterprise, which may consist of one or more establishments. Return to text 8. Brian Thiede, Lillie Greiman, Stephan Weiler, Steven C. Beda, and Tessa Conroy (2017), "Six Charts that Illustrate the Divide between Rural and Urban America," The Conversation, March 16. Return to text 9. Gross job creation refers to all jobs created by entering and expanding establishments. Data are from the Census Bureau's Business Dynamics Statistics, 2023. Return to text 10. Tim Wojan and Timothy Parker (2017), "Innovation in the Rural Nonfarm Economy: Its Effect on Job and Earnings Growth, 2010–2014," Economic Research Report No. 238 (Washington: U.S. Department of Agriculture, September). Return to text 11. Bethany Greene, Anthony Tringali, and Riverbird Research of the Asheville Area Chamber of Commerce (2026), "How Small Businesses Are Faring in the Aftermath of Hurricane Helene," Federal Reserve Bank of Richmond, Regional Matters, January 15. Return to text 12. For example, see Lisa D. Cook (2024), "Growth and Change at Community Development Financial Institutions," speech delivered at the Expanding Access to Capital for CDFIs event, hosted by the Federal Reserve Bank of New York, New York, May 14. Return to text 13. See Andrew Dumont and Daniel Paul Davis, eds. (2021), Investing in Rural Prosperity (Federal Reserve Bank of St. Louis and Board of Governors of the Federal Reserve System). Return to text 14. For more information, see Board of Governors of the Federal Reserve System (2026), "Strengthening America's Economy through Rural Investment: A Working Forum," April 14–15. Return to text 15. For more information, see Federal Reserve Bank of Philadelphia (2025), "Rural Community Action Assembly: Sustaining Entrepreneurial Ecosystems," November 19. Return to text 16. For more information, see Federal Reserve Bank of Richmond (2026), "Rural Investment Collaborative," webpage. Return to text Accessible Version

  Repeats the FOMC's commitment to price stability and maximum employment.

  Full remarks

• 
  Michael S. Barr September 29, 2026 · the Detroit Economic Club, Detroit, Michigan

  September 29, 2026 Governor Michael S. Barr At the Detroit Economic Club, Detroit, Michigan Thank you for the opportunity to speak to you today.1 It's wonderful to be back in Michigan and in this great city. For more than a century, Detroit has been at the center of the U.S. economy, driving America's growth and prosperity, while also reflecting the profound forces that have transformed our economy in recent decades. Detroit is a good place to discuss the outlook for the U.S. economy and monetary policy because I believe it continues to be an important part of that story. Detroit's Economy As a longtime Michigander who has worked to promote entrepreneurship and community development in Detroit, I've seen firsthand the spirit that has driven its rebirth and growth. I've seen it in the economic growth in the Live6 community where I will visit later today. I've seen it among new entrepreneurs at Newlab and the Mezz at Michigan Central and in the economic revitalization of the surrounding Corktown neighborhood. I've seen it in the faces of hundreds of entrepreneurs who have worked with students and faculty in the Detroit Neighborhood Entrepreneurs Project. And I know each of you has seen it all across the city of Detroit in the work you do here every day. Detroit, as you know well, still faces significant challenges. For example, unemployment in the Detroit area is estimated to be around 11 percent, much higher than Michigan's rate of 5 percent and the U.S. rate of 4.1 percent. But the entrepreneurship I have mentioned is an engine for job creation. As it did in other places around the country, new business formation in Detroit rose after the pandemic, to an average of about 6,000 firms each year, adding 30,000 jobs a year to the city's economy. In Detroit, the share of all businesses that are new has outpaced the share in Michigan overall. The automobile industry, of course, remains critical for Detroit and for Michigan. Twelve percent of U.S. auto assembly and auto parts jobs are in the Detroit metro area. National sales have grown strongly recently, hitting an annualized rate of 16.8 million in August, a solid pace. Automakers are investing in battery technology and in electric vehicle design and production, which is creating engineering and other high-tech jobs in this region. National Economy A big economic issue for Michigan and for the United States is the technological revolution under way in artificial intelligence (AI). The Federal Reserve—and, indeed, the country—is grappling with what AI will mean for U.S. businesses and workers. I would like to dig into that question with you, after an update on the state of the U.S. economy and the outlook for what lies ahead. I will conclude with a discussion of the role of monetary policy in helping to shape that outcome. Economic activity in the United States has grown at a solid pace in 2026 and has recently gained momentum. Real gross domestic product grew at roughly a 2 percent rate in the first half of the year, and I expect it will pick up a bit in the second. This growth shows remarkable resilience given the series of significant shocks we have faced. The COVID-19 pandemic caused massive disruptions to the economy, and fiscal and monetary policy stepped in to support economic growth. Then came Russia's war on Ukraine, which disrupted energy and commodity markets. Then came the price increases and disruptions to trade from sharply higher import tariffs as well as continuing uncertainty about tariff levels. Most recently, there is the conflict in the Middle East and its effect on energy prices. On top of that, we have seen a surge in investment to support the AI buildout, which has particularly boosted demand for certain high-tech goods. All of these factors have had the effect of raising the prices that consumers and businesses face, which has been a key concern for me as a monetary policymaker. Inflation Inflation, which has been a problem for consumers and businesses, has run above the Federal Open Market Committee's (FOMC) 2 percent target for five and a half years. Inflation as measured by the personal consumption expenditures (PCE) price index surged in the wake of the pandemic and with the escalation of the war in Ukraine, peaking at a 12-month rate of 7 percent in 2022. Significant monetary policy tightening by the FOMC, along with an easing of supply constraints, helped lower inflation, and by early 2025 it was running close to our objective. Tariff increases in April of that year pushed up goods prices, but at the time it was reasonable to forecast that tariffs would be a one-time increase in prices. Then the Middle East conflict drove energy prices and inflation higher still. While the effects of tariffs may have diminished, high energy prices are still with us, and there is considerable uncertainty about when the conflict driving them may be resolved. At the same time, it is apparent that the surge of investment, and related demand from the AI buildout, is having a measurable effect on prices. The combined effect has meant we have been knocked off course on our progress toward our 2 percent goal. Digging into inflation data, although the monthly prints have been highly volatile during this inflationary period, one can discern trends over longer time periods. I count only two months of data consistent with 2 percent core PCE inflation over the past 20 months. And I don't yet see a clear trend toward a timely return to 2 percent. Labor Market While inflation is significantly above the FOMC's goal, strong business investment and resilient spending by consumers is supporting a solid labor market. A year ago, when job growth slowed and the unemployment rate rose, there were questions about whether the labor market would hold up to the effects of the shocks we experienced. Since then, the unemployment rate has improved, and it now appears that supply and demand in the labor market are in rough balance. On the labor supply side, lower net immigration has reduced the number of new jobs needed to keep pace with growth in the labor force. Job creation has averaged around 80,000 a month this year, close to reasonable estimates of its breakeven pace, and the unemployment rate of 4.1 percent is close to many estimates of maximum sustainable employment. AI and the Implications for Labor Productivity A key question for monetary policy, both in the near term and for years to come, will be the effect of AI on the productive capacity of the economy and the structure of the labor market. While there are some indications that AI may already be a factor limiting new job opportunities for entry-level workers in sectors heavily exposed to AI, across the economy there is little evidence of significant displacement so far, and there are notable examples of how AI is increasing the productivity of many workers. Past technological revolutions have tended to create more, usually higher-skilled, jobs than the ones they displaced, but AI may be more revolutionary, and its effects could be different. That's why I find it helpful to consider different scenarios to explore the implications of AI and potential effects over different time horizons. Before I discuss the implications of the economic outlook I have just described for monetary policy, let me lay out those scenarios for AI. Short-term effects of AI investment on the economy Starting with the near term, in the next year or so, the most important effects of the AI buildout on the U.S. economy are likely to be a strong boost to economic activity from business fixed investment and a surge in prices for computer chips and related equipment. Those price increases are spreading to other products that require chips and related goods and services. Supply constraints, especially for chips, are emerging. It is also likely that the big boost that valuations of technology firms are giving to major stock price indexes is in turn supporting spending by those made wealthier by these gains. Longer-term effects of AI investment on the economy Turning to the longer-term effects of AI on productivity, as I have discussed in a number of previous speeches, I am optimistic about the potential of AI to enhance human potential, including significantly improving productivity and raising living standards.2 This would mean the economy can grow faster, and real income can grow more, without feeding into higher inflation. Medium-term effects of AI on the economy I have mentioned the potential short- and longer-term outcomes for AI. Where I see the greatest uncertainty that might be relevant to monetary policy decisionmaking—not today, but down the road—is how AI will affect the economy in the medium term, by which I mean the next two to five years. Penciling in a projection for a productivity boost from AI in the medium term makes a lot of sense to me given the massive investment and indications of adoption we are increasingly seeing. But it is difficult to project how and when those productivity gains would take hold. The "J curve effect" refers to the delay we have historically seen in the productivity boost of technology investment. When a new technology is adopted, productivity may dip as firms devote resources not only to installing the technology, but also to reorganizing their business processes—a transformation that is necessary for the productivity improvements to be realized. While, historically, the adoption of new technologies has taken years to onboard and transform the way people work, the pace of AI adoption so far indicates that this technology could spread more quickly and have a faster effect, boosting output, at least in some sectors. Some firms, especially those in computer coding and high tech, are seeing rapid productivity gains, but for the economy as a whole, broad productivity gains may take some time. A second key question is whether investors will see returns on the AI buildout consistent with their expectations, or whether a reassessment could lead to a repricing. A realignment of investment that would occur in this scenario could result in a hit to growth (from both the direct effect of a drop in investment and the knock-on wealth effects). Interrogating assumptions and exploring scenarios will remain crucial as we grapple with the implications of this technology in the years ahead. A third key question for the medium term is the extent to which AI proves to be a labor substitute or a labor complement, and at what pace we might expect to see labor market changes. We are already seeing signs that AI may be a labor substitute in some sectors, especially for younger, less experienced workers. Other evidence points to the labor-augmenting effects of AI, suggesting a more sanguine outlook for the labor market. Some tasks that are easily automated with clear guardrails and predictable outcomes might see rapid labor substitution, while other tasks that require human judgment, management, coordination and relationships, creativity, or outputs that are hard to measure might see more labor augmentation.3 If labor market changes happen quickly, it will be hard for workers to adjust and dislocations might be large, whereas a more gradual adoption might permit more orderly adjustments. That said, we should be prepared for the possibility that there might be serious short-term disruptions in the labor market that need to be managed effectively to ensure the benefits of AI are realized over the long term. If AI proves to be capable of work that displaces humans, the extent of the disruption to the labor market will depend in part on whether society undertakes the investments needed in new job creation, worker training, connecting workers to new jobs, and other efforts to mitigate adverse effects for the long term. In my judgement, now is the time for society to begin to consider how to address these potential disruptions, while AI adoption is in its relatively early stages so we can realize the long-term benefits for society.4 Of course, many other issues are being raised about the safety of AI, privacy, tradeoffs for local communities with respect to data center buildouts, energy and water usage, national security, appropriate governmental policies, and other issues. These issues are beyond the scope of central bankers, but they are important for us all to consider. Implications of AI for Monetary Policy In terms of monetary policymaking, as I have noted in a previous speech, monetary policy is not well suited to dealing with structural changes in the economy, and it could be difficult for policymakers to assess in real time whether changes to the labor market are structural or cyclical.5 In the event that we see a long-lasting boost to productivity growth, wages and economic activity could grow more than would otherwise be the case without putting upward pressure on inflation, as I mentioned. But at the same time, demand for capital would rise because of the higher returns on investment, and household savings would fall due to expectations of stronger real wage growth and, thus, higher lifetime earnings. Balancing this shift in savings and investment would require higher interest rates in equilibrium—what monetary economists would call a rise in r*. That, in turn, implies a higher setting for the policy rate. In my view, it is too early to know if these dynamics are in play right now. What is clear right now is that inflation is too high. And that brings me to my current views on monetary policy. Earlier this month, the FOMC unanimously agreed to raise short-term policy interest rates to support achieving our dual mandate of maximum employment and stable prices. With economic growth strong and the labor market solid, we need to address risks to achieving our inflation target in a timely fashion. Risks to achieving our inflation target have increased, while risks to the labor market have receded, so we need to recalibrate policy to get us in a better position that more evenly balances risks to both components of our dual mandate. In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion. We want to support sustainable, durable growth in support of maximum employment, and price stability is crucial to that. I will leave it there, and I look forward to some questions and conversation. 1. The views expressed here are my own and are not necessarily those of my colleagues on the Federal Reserve Board or the Federal Open Market Committee. Return to text 2. See, for example, Michael S. Barr, "What Will Artificial Intelligence Mean for the Labor Market and the Economy?" speech delivered at the New York Association for Business Economics, New York, New York, February 17, 2026. Return to text 3. See Erik Brynjolfsson, Bharat Chandar, and Ruyu Chen, "No Widespread Displacement, but the AI Employment Gap for Young Workers Has Widened to 19%," Stanford Digital Economy Lab, August 12, 2026; David Autor, Caroline Chin, Anna M. Salomons, and Bryan Seegmiller, "What Makes New Work Different from More Work?" NBER Working Paper No. 34986 (National Bureau of Economic Research, March 2026); Isabella Loaiza and Roberto Rigobon, "The EPOCH of AI: Human-Machine Complementarities at Work," MIT Sloan Research Paper No. 7236-24 (November 21, 2024; revised October 1, 2025), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5028371; Wilbur Xinyuan Chen, Suraj Srinivasan, and Saleh Zakerinia, "Displacement or Complementarity? The Labor Market Impact of Generative AI (PDF)," Harvard Business School Working Paper No. 25-039 (December 2024); and Kathryn Bonney, Cory L. Breaux, Emin Dinlersoz, Lucia S. Foster, John C. Haltiwanger, and Aditya A. Pande, "The Microstructure of AI Diffusion: Evidence from Firms, Business Functions, and Worker Tasks," NBER Working Paper No. 35141 (National Bureau of Economic Research, April 2026). Return to text 4. See Michael S. Barr, "Will Artificial Intelligence Broadly Raise Living Standards or Drive Income and Wealth Inequality?" speech delivered at "Next-Gen Financial Inclusion," the third annual Financial Inclusion Conference hosted by the Federal Reserve Board, July 14, 2026. Return to text 5. See Barr, "What Will Artificial Intelligence Mean?" Return to text

  Signals less confidence in returning inflation to target than the statement implies.

  Full remarks

• 
  Lisa D. Cook September 28, 2026 · the Oakland Tech Week Opening Keynote, cohosted by the Kapor Center, Oakland, California

  September 28, 2026 Governor Lisa D. Cook At the Oakland Tech Week Opening Keynote, cohosted by the Kapor Center, Oakland, California Thank you, Freada and Mitch, for that kind introduction. I appreciate the invitation to speak here at Oakland Tech Week and for the opportunity to return to the East Bay, where I lived and spent several formative years when I attended graduate school at Berkeley.1 Oakland was a vibrant, exciting place then and is an even more vibrant and exciting place now, and I am happy to have the opportunity to engage with you on a critical topic: artificial intelligence (AI) and its effects on our economy. In fact, my interest in the economics of innovation and artificial intelligence began at Cal. One of the most intriguing, impactful courses I took was on growth theory taught by Paul Romer who posited that investing in science and ideas could produce continuous, unbounded growth and later received the Nobel Prize for his seminal contributions advancing our thinking related to economic growth. I believe we are living in an era that, coupled with the historic, post-World War II investment in basic science, is seeing these and similar ideas coming to fruition and being tested in the global economy today. AI is poised to become the most significant technological shift of our lifetime. I view it as a general-purpose technology, on par with or exceeding breakthroughs, such as the steam engine, electricity, and the internet. Those innovations spread throughout the economy, sparked downstream innovation, and improved over time.2 AI is doing the same. As a long-time researcher of the economics of innovation and current monetary policymaker, I have observed these developments with keen interest. AI affects nearly every aspect of my role at the Federal Reserve, including monetary policy, financial stability, bank supervision, financial market infrastructure, and our own operational preparedness.3 While AI introduces an infinite set of exciting possibilities, it also offers us much to contemplate in a sober way. From the data on which AI models are trained to AI safety, I have long been an advocate of responsible AI development.4 Whether all the beneficial possibilities of AI are realized—and how—will depend on how researchers, consumers, businesses, and policymakers across the country rise to meet its opportunities and its challenges. To fully recognize the benefits of AI, we must pair optimism with caution and be cognizant of valid concerns AI may pose for privacy, bias, workers, fraud, cybersecurity, and intellectual property rights. For our part at the Fed, as a supervisor of banking organizations, we have encouraged, and continue to encourage, responsible use of AI within the financial sector in a manner that is consistent with safe and sound practices and in compliance with applicable law. Beyond that, any specific role for the government in the path of AI's trajectory is for elected officials to decide. I will continue to monitor closely the speed, direction, and magnitude of AI development as I assess the economic outlook, the appropriate path of monetary policy, and financial stability. What are AI's implications for monetary policy? Today, I will offer an approach for thinking about AI's economic implications related to our dual mandate of promoting price stability and maximum employment. I am studying these effects closely, because it is my job to set monetary policy in a way that will navigate the multiple sources of near-term pressure while fostering conditions for long-run gains that benefit all Americans. AI and Inflation First, I would like to consider inflation implications in the short run and longer run. A broad range of factors have caused inflation to remain above the Fed's 2 percent target over the past five years. Over the past year, one of these factors has been AI-driven investment. Prices for AI-related goods—such as chips, computers, and software—have surged. I believe that some of these steep price increases reflect a shift in demand toward AI-related sectors rather than an increase in economy-wide demand. When a surge in demand is concentrated in one sector, goods and services in that sector can get pushed onto a steep part of its supply curve. Had that demand been spread evenly across the economy, the overall price index would not climb as much. As supply chains adjust and efficiency gains accrue, this kind of pressure should resolve on its own without policy intervention. In fact, attempting to fight sector-specific inflation with monetary policy could be a mistake. Our tools are too blunt to target narrow sectors, and addressing relative price shifts is not our role. Nonetheless, I see some economy-wide pressure from AI-fueled demand. Data-center investment relies on inputs, like construction labor and energy, that are broadly used in many sectors in the economy. As a result, increased AI investment could introduce price pressure to those other sectors. And even more investment is in the pipeline, and companies have only spent a small fraction of the $2 trillion in announced plans.5 Further, a large portion of the rise in equity prices over the past few years can be attributed to enthusiasm about AI, and that added wealth appears to be feeding through to household spending. You can see signs in the inflation data that the pressure may be broadening: Electricity and water costs are each up around 5 percent over the past year, potentially attributable in part to AI, and core goods prices, which were drifting down before the pandemic, are running over a 3 percent annual pace so far this year. This introduces the risk that, even as inflation in the narrow AI sector moderates, new and more broadly based price pressures may take its place. A well-timed productivity boom could counter broadening price pressure, if it were to increase the supply capacity of the economy more than it increases demand. To understand this mechanism, consider an economy where, because of lower input costs, it becomes possible to produce more goods and services at the same cost. If demand does not expand to meet additional supply, you would expect prices to fall. This reduction in price pressure can be described in a classic aggregate supply—aggregate demand framework—a first and major toolkit of macroeconomists. Currently, I anticipate that productivity gains will provide modest disinflation within the next few years. However, I do not expect those effects to arrive in time to offset the broadening inflationary pressure later this year. Moreover, uncertainty surrounds any estimates related to how and when this mechanism may operate, and it warrants further research and discussion. The key is determining the conditions under which a productivity boom would provide inflation relief relative to today by increasing the economy's supply potential more than demand. In a scenario where the productivity gains are spread evenly across the economy, I expect the relief to be limited but real. It is limited, because higher productivity not only raises the economy's potential supply but also raises demand through the expectation of higher future wages, better returns on investment, and the accompanying gains in wealth. In fact, some of that extra demand is likely already baked into today's economy through AI data center investment and wealth effects. Therefore, going forward, the new supply generated by rising productivity may outweigh the new demand, bringing supply and demand into better alignment and reducing the upward pressure on prices felt today. On balance, a broad-based increase in productivity, when and if it comes, could lead to a modest easing in price pressure. To be clear, I am also attuned to other scenarios, including those in which a productivity boom generates less disinflation than in my baseline, as well as those in which it leads to even more downward pressure on inflation. The scenarios where we get more inflation relief imply that demand is adversely affected and falls well short of the economy's capacity. This could happen. if the productivity gains were highly concentrated among higher-income consumers who tend to spend less of each additional dollar of income or wealth; if productivity gains are not passed on to wages because of low worker bargaining power; or if a painful stretch of job reallocation leaves unemployment higher and confidence lower, increasing households' precautionary savings. Scenarios where we might get less inflation relief are ones in which productivity gains are not passed on to prices—say, if market concentration leads to less competition and higher markups. Ultimately, the timing of any disinflationary payoff will depend on how quickly and broadly businesses adopt AI tools, how changes in business practices translate to higher productivity, and how fast any productivity gains pass through to the labor market. I am very uncertain as to the breadth and timing of these channels and will adjust my view depending on what I see in the data. AI and the Labor Market While AI's implications for inflation are increasingly notable, the technology's potential effects on the labor market have long captured the public's attention and deserve policymakers' close study. Looking at the history of technologies that changed the way humans work—such as the mechanical loom and the PC—we see widespread anxiety about those advancements at the time of their introduction. In the past, the benefits and costs of technological change did not necessarily arrive simultaneously, and that could well be the case with AI. This technology could bring the most significant reorganization of work in generations.6 AI technology and its adoption are still in their early stages. At the moment, there is limited evidence that AI is yielding significant changes to the structure of the labor market. The data underscore this: Both the unemployment rate and layoffs remain low. Those readings have been relatively flat over the last two years, even as AI adoption has picked up. So far, I have been heartened to see that the labor market has remained remarkably resilient through the early stages of AI adoption. Nevertheless, some workers have already been affected, and I understand the hardship that joblessness creates for them and their families. There is evidence in some sectors, including coding jobs in the software industry and in simultaneous translation, that AI might be decreasing labor demand. In addition, many recent college graduates are facing more difficulty finding their first jobs. This is possibly partly related to AI's ability to take on entry-level tasks. These types of shifts could broaden as AI adoption deepens and AI technology improves. At the same time, AI is likely to lead to great innovation, with new tasks and occupations cropping up that we cannot imagine today. In the future, I continue to expect AI to fundamentally change business practices and transform the labor market in a commensurate way. It is my hope that AI adoption will continue to occur at a pace and in a way that allows job creation to match or exceed job destruction. Nonetheless, I am highly attentive to a scenario where AI leads to at least a temporary increase in the unemployment rate. In this scenario, the rise in the unemployment rate might not necessarily reflect an increase in slack (or a shortage of demand) but rather a "supply-side" mismatch between workers' skills and available jobs. In that case, we at the Fed would have limited tools. We could lower the federal funds rate in an attempt to bring down high unemployment, but that could risk fueling inflation. As a policymaker, I am watching the speed and acceleration of AI adoption across sectors and noting evidence of the changing mix of jobs within firms. I also pay attention to whether new job creation is at least offsetting displacement. I am constantly evaluating the broadest possible set of data and considering the evolving outlook and the balance of risks when making policy decisions. I will also note that fiscal policy could play a role in managing AI's effects on the labor force, but that is outside of my purview at the Fed. Diffusion of AI across Firms One area I am studying is how AI is affecting firms of different sizes. Clearly, the leaders in AI technology are rapidly growing, high-profile companies. And this technology has also prompted considerable investment from some of the other largest and most established players in the tech industry. That has fueled the narrative that only large firms with substantial resources can deploy advanced AI. I would challenge that thinking. I see evidence that smaller firms are proving resourceful and adaptive when thinking about how to use AI to their advantage, even if they lag larger firms in overall adoption. Across the country, I have heard from both early-stage investors and founders that AI tools have made it easier and cheaper to start businesses, which could be a factor in the historic boom we observe in new business formation recently. I view this as a hopeful sign that AI could benefit smaller businesses and the workers they employ. Take the findings in the Federal Reserve Small Business Credit Survey released earlier this year. That study found that nearly half of small employer firms are using AI and that 71 percent report increased productivity as a result.7 These data suggest that many small businesses are eager to find innovative tools that help them manage and grow their operations. This could help these firms compete more effectively, allowing them to grow and create more jobs. Evidence shows that AI adoption is happening faster than PC or internet adoption at comparable points.8 This is encouraging for small businesses because we know that some of the most significant breakthroughs this country has ever witnessed came from start-ups using frontier technologies in new and innovative ways. This matters greatly to the overall economy and to achieving the Fed's dual-mandate goals because small businesses with fewer than 500 employees represent more than 99 percent of all U.S. businesses. Those firms have accounted for 61 percent of net new job creation since 1995. When they become more productive, it strengthens the entire economy. When powerful tools are available to everyone—not just large corporations—it unleashes more inventors, innovators, and entrepreneurs. I have long talked about Paul Romer's view that long-term economic growth is driven from within the economy by people generating new ideas and knowledge.9 AI can help us generate more ideas faster—suggesting we are at a Romer moment. If adoption becomes as broad based as I believe is possible, and there is robust competition among producers of models, then productivity gains will not necessarily be concentrated among a few firms. If that is the case, AI could allow small companies to scale faster and create more jobs—not a guarantee, but a reason to be hopeful about this technology. Here is what we do know: AI will transform the economy, perhaps in a bigger way than previous general-purpose technologies. However, we also know from those breakthroughs that their effects can have long and variable lags—a concept very familiar to me as a monetary policymaker. Ultimately the full benefits AI delivers will depend on countless decisions by firms, workers, and policymakers. Those decisions include investment decisions, and not just in chips and data centers. They also comprise complementary investments employers and others make in worker training, reorganization, and generating new processes and ideas. As a policymaker, I consider the promise and challenge of AI over several time horizons. In the short term, AI appears to be adding inflationary pressures to the economy, postponing inflation's return to our 2 percent target. In the medium term, while I expect that productivity growth may modestly ease those inflationary pressures, the labor market will be at risk of entering a painful transition. In the long term, I am optimistic that AI-fueled productivity growth can raise living standards for all Americans. With appropriate vigilance and thoughtful navigation of these opportunities and challenges, the Federal Open Market Committee (FOMC) will be able to achieve its dual mandate of maximum employment and stable prices. Economic Outlook Speaking of the dual mandate, I will conclude my remarks with a few words about my broader view of the economy and what that means for monetary policy. As you know, I voted along with the rest of the FOMC to raise rates 25 basis points at the recent September meeting. This increase was to address inflation, which has been too high for too long. Total inflation rose an estimated 3.8 percent in the 12 months leading into August, almost double our target. Core inflation, which strips out energy and food prices, rose an estimated 3.4 percent. Furthermore, in coming months I expect to see continued pressure on inflation from the AI buildout, as discussed today, and from the pass-through of higher oil prices and supply chain disruptions associated with the conflict in the Middle East. The labor market appears to be well positioned to handle an increase in rates. Over the course of this year, the unemployment rate has been trending down, with the most recent reading coming in at 4.1 percent in August. Other indicators also show a labor market that is roughly in balance and gradually improving. Payrolls have increased, job openings have ticked up, and initial unemployment claims have trended lower. The strength seen in the labor market is also present in the broader data on economic growth, which has remained remarkably resilient over the past year. Looking ahead, I will consider what policy rate may be needed to continue to guide inflation down to our target. Of course, the number and magnitude of any future adjustments will be informed by observations of the economy's reaction to our policy actions thus far and the inflation and labor data over the coming months. Thank you again for the invitation and the opportunity to speak to you today. 1. The views expressed here are my own and are not necessarily those of my colleagues on the Federal Reserve Board or the Federal Open Market Committee. Return to text 2. See Lisa D. Cook (2023), "Generative AI, Productivity, the Labor Market, and Choice Behavior," speech delivered at the National Bureau of Economic Research Economics of Artificial Intelligence Conference, Toronto, Canada, September 22. Return to text 3. See Lisa D. Cook (2026), "The Opportunities and Risks AI Presents for the Economy and Financial System," speech delivered at the Stanford Institute for Economic Policy Research, Stanford University, Standford, California, May 27. Return to text 4. See Lisa D. Cook (2024), "Artificial Intelligence, Big Data, and the Path Ahead for Productivity," speech delivered at "Technology-Enabled Disruption: Implications of AI, Big Data, and Remote Work," a conference organized by the Federal Reserve Banks of Atlanta, Boston, and Richmond, held in Atlanta, Georgia, October 1. Return to text 5. See Eirik Eylands Brandsaas, Daniel Garcia, Robert Kurtzman, Joseph Nichols, and Adelia Zytek (2025), "Estimating Aggregate Data Center Investment with Project-Level Data," Finance and Economics Discussion Series 2025-109 (Washington: Board of Governors of the Federal Reserve System, December). For updated data and publicly available results, see Eirik Brandsaas (2026), "Estimating Aggregate Data Center Investment with Project-Level Data," DataCenterPublic, GitHub repository, https://github.com/eirikbrandsaas/DataCenterPublic. Return to text 6. See Lisa D. Cook (2026), "Opening Remarks for the 'AI and Productivity across the Economy' Panel," speech delivered at "The Great Realignment: Navigating AI, Demographic, and Geoeconomic Shifts," 42nd Annual NABE Economic Policy Conference, Washington, D.C., February 24. Return to text 7. See Lisa D. Cook (2026), "Welcome Remarks," speech delivered at the State of Small Business Symposium, Federal Reserve Bank of Cleveland (via pre-recorded video), June 24. Return to text 8. See Alexander Bick, Adam Blandin, and David J. Deming (2024), "The Rapid Adoption of Generative AI," NBER Working Paper Series 32966 (Cambridge, Mass.: National Bureau of Economic Research, September; revised February 2025). Return to text 9. See Paul M. Romer (1990), "Endogenous Technological Change," Journal of Political Economy, vol. 98 (October), pp. S71–S102. Return to text

  Suggests the FOMC should not respond to sector-specific price shifts, a nuance not in the statement.

  Full remarks

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  Michael S. Barr September 23, 2026 · “Housing Affordability 2026: A Community Development Summit,” hosted by the Federal Reserve Bank of Chicago, Chicago, Illinois

  September 23, 2026 Governor Michael S. Barr At “Housing Affordability 2026: A Community Development Summit,” hosted by the Federal Reserve Bank of Chicago, Chicago, Illinois Thank you for the opportunity to speak to you.1 My interest in access to affordable housing spans several decades. During my career, I have worked on housing and mortgage market reform and promoted access to credit for low- and moderate- income (LMI) households. I've seen firsthand what public–private partnerships in low-income communities can mean for improving affordable housing, from the South Bronx, to the South Side of Chicago, to the Mississippi Delta, to South Central L.A., and places in between. Now at the Federal Reserve Board, I oversee our Division of Consumer and Community Affairs and participate in rate-setting decisions that affect the economy. By pursuing maximum employment and stable prices, the Federal Reserve seeks to create the stable macroeconomic environment necessary for households to maintain purchasing power, earn reliable incomes, access housing, and, ultimately, build capital through homeownership and other forms of investment. The Economic Outlook Before I turn to my thoughts about housing, I want to spend a few moments sharing my views on the broader economy and monetary policy. As you know, the Federal Reserve has what we call a dual mandate, which is to achieve maximum employment and stable prices. Our economy has experienced a series of shocks over the past year and half: the imposition of tariffs, the conflict in the Middle East and continued disruptions from Russia's war on Ukraine, and, more recently, a surge in investment demand to support the artificial intelligence (AI) buildout. These shocks have contributed to upward price pressures. Economic growth is strong and the labor market is solid, but inflation is above our 2 percent target and not clearly trending toward target in a timely way. Moreover, risks to achieving our inflation target have increased, while risks to the labor market have receded. We needed to recalibrate monetary policy to reflect the balance of risks to our mandate goals. The FOMC took important action to that end last week by increasing the policy rate, which I supported. In my view, given changes to the economy, we were out of position, and we made an adjustment in the right direction. In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion. We want to support sustainable, durable growth in support of maximum employment, and price stability is crucial to that. The Costs of Shelter Today Let's return to the main topic. By a variety of measures, high rents and high home prices, relative to income and savings, have made shelter increasingly unaffordable for many Americans for a number of years. I'll begin with homeownership and then turn to renting. The Federal Reserve Bank of Atlanta maintains a Home Ownership Affordability Monitor (Monitor) that includes an affordability index, in which a value below 100 indicates a median-income family would not be able to afford a median-priced home given the current mortgage rate. According to the Monitor, homes were, on average, affordable after the housing price crash of 2006 until the COVID-19 pandemic hit, when the affordability index fell sustainably below the threshold of 100 and kept falling to a value of 68 in July 2026, the lowest in 21 years.2 Real, constant-quality house prices are at a record high in many places around the country.3 Another obvious factor that affects the cost of buying a home is mortgage rates. Mortgage rates are high relative to the pre-pandemic level. This combination of high prices and high rates puts homeownership out of reach for many families. Some ask what the role of the Fed is when it comes to mortgage rates. Our short-term policy rates affect longer-term borrowing rates, including those for mortgages, but many other things affect mortgage rates as well. As I noted earlier, the Fed pursues its mandate to foster maximum employment and stable prices. Mortgage rates are generally lower when inflation is lower, and we are working toward that goal. With respect to the rental market, affordability is also a problem for many households. About 20 percent of rental housing units rented for $1,000 or less a month in 2024, but in 1980, adjusted for inflation, 55 percent rented for the equivalent of that amount.4, i Today, about one-half of all renters are cost burdened, meaning they pay 30 percent or more of their income on rent, and about one-fourth of renters dedicate at least half of their income to rent.5 It's true that, on a quality-adjusted basis, the rent increases track improvements in housing quality and amenities, but that is little comfort for someone who cannot afford the high rent burden that follows. Families need affordable shelter. One side of the affordability challenge is income and savings and to what extent wages and salaries keep pace with housing costs. Over the past two decades, inflation-adjusted household incomes have risen far more slowly than home prices: Between 2000 and 2024, real median household income increased roughly 17 percent, while real U.S. house prices increased approximately 70 percent.6 Lagging incomes compound the challenge of accumulating enough cash to get through the upfront costs of both buying and renting. According to the Federal Reserve's Report on the Economic Well-Being of U.S. Households, 68 percent of prospective first-time buyers in 2024 said they could not afford a down payment.7 Renters face a similar cash flow barrier when moving into a new place: Upfront costs can include the first month's rent, security deposit, application fees, and sometimes the last month's rent. Fannie Mae found that affording the upfront costs of renting is a leading financial pain point when renting or moving into a new rental home.8 Inadequate Supply of Housing Drives Home Prices The other side of the affordability challenge is housing costs. And let me focus for a while on homeownership. A major force driving high home prices is a shortage of supply relative to demand. Housing production has remained below historical rates for many years. It is challenging to arrive at a precise estimate of the housing shortage. But estimates put the U.S. housing supply shortfall at roughly 2 million to 5.5 million units, depending on the methodology used and accounting for regional differences.9 Against a U.S. housing stock of roughly 150 million units, these estimates imply a shortfall of approximately 1 percent to 4 percent of the total stock.10 While relatively small as a share of the nation's housing stock, the deficit can have an outsized effect on homeownership affordability because housing markets require a certain level of vacancy and available inventory to function efficiently. Factors Driving the Housing Shortage I would cite four major factors driving the housing shortage. The first is that land is a finite resource, and its development is heavily shaped by state and local government policies. Over several decades, the accumulation of local land use, zoning, permitting, and building regulations has shaped where housing can be built, how densely it can be developed, and what types of housing are permitted. Land use regulations mandating lower density, such as single-family-home-only construction and minimum lot sizes, have become more widespread, especially in suburban areas, with the effect of limiting supply and supporting home price appreciation.11 This can exacerbate housing shortages and lead to higher prices around urban centers. Other local regulatory barriers, including processes for obtaining construction permits, have become stricter, adding to the time and expense of homebuilding and, at the margin, likely limiting supply.12 Because many of these rules are applied at the local level, variations in rules have also increased, limiting the economies of scale for developers. Land use regulation is a local issue, and it involves many benefits such as attention to school capacity and infrastructure investments, as well as costs. One of those costs is likely higher home prices that make homeownership less affordable for new buyers. Low construction activity has become more widespread across geographies over time and is not confined to cities where historically it has been difficult to build, such as New York, San Francisco, Boston, and Washington, D.C. Land use and other regulatory restrictions are a factor in the slowdown in home construction in traditionally high-growth Sunbelt markets, such as Atlanta, Phoenix, and Miami.13 Decades of fast growth and change there have led communities understandably to try to slow things down. The second factor—which is, in part, tied to the first—is the lower rate of productivity growth in the construction sector relative to other sectors of the economy. Bureau of Labor Statistics (BLS) data show that construction productivity, including home construction, has exhibited no long-run growth since 1987.14 Less strong productivity growth translates to higher costs, all other things being equal. This puts pressure on profit margins and makes it more difficult to build more affordable homes. This lower rate of productivity growth may be related to the labor-intensive nature of construction relative to many other industries. Many of the physical processes such as pouring foundations, framing walls, installing structural systems, and finishing interiors are not replaceable with machines or AI, for example—at least not yet. Construction has adopted technologies such as computer-aided design, building information modeling, and digital project management, but these tools often improve coordination and information management without fundamentally changing how homes are physically built. As technology evolves, there may be opportunities for improvements in housing construction that have not yet been realized. A third factor that has probably exacerbated the housing shortage in the past nearly 20 years was the damage to the homebuilding business wrought by the bursting of the housing bubble and the Great Recession. Home construction was very slow to recover, particularly in markets experiencing severe housing price busts.15 From 2007 through 2012, the number of new homebuilders fell by half, from 98,000 to 49,000.16 One remarkable statistic is that after the housing bust, more that 30 percent of construction workers left the industry and another 25 percent either dropped out of the labor force or turned to informal work.17 That is a huge, generational loss of skill and manpower that likely affected homebuilding for years afterward. More recently, a fourth factor is higher home prices related to the COVID-19 crisis and inflation. More demand for housing, given work from home and pandemic distancing, coupled with supply constraints for building materials and labor led to a large rise in inflation for the inputs to housing production after the pandemic. The cost of materials and other goods used to build homes rose sharply after 2020. According to the Census Bureau, the constant-quality price index for new single-family homes increased roughly 40 percent between 2020 and 2025.18 Labor is a major component of housing construction costs, and a persistent shortage of skilled construction workers adds to cost pressures and constrains the pace at which new housing can be built.19 In addition to the factors that have raised the costs of building homes and, therefore, house prices, other aspects of purchasing a home have become more expensive as well. Property taxes tend to rise with home prices. Home insurance costs have also risen significantly in recent years, in part reflecting higher costs of rebuilding.20 Another recent factor that has made homeownership less affordable is high mortgage interest rates, as I mentioned earlier. Many families benefited from very low mortgage rates before 2022; these households are now less likely to move given the high rates they would face. This lock-in effect reduces both demand and supply and thus housing market dynamism. About half of all mortgages still carry rates of 4 percent or lower, and nearly 80 percent have a rate below 6 percent.21 In tight housing markets, the lock-in effect can raise home prices because the reduction in housing supply associated with fewer homeowners selling can outweigh the corresponding reduction in demand.22 So prospective homeowners face higher prices for homes, higher mortgage rates, higher home insurance costs, and higher property taxes. Turning to shelter costs for renters. The inflationary period since the start of the pandemic has been extremely difficult. In August of this year, the consumer price index for rent of primary residence was 34 percent higher than it was in December 2019. Shelter cost inflation has eased considerably from its 2022–23 pace, but shelter prices are still rising at an annual rate of about 2¾ percent. While slower rent inflation should provide some relief over time, the higher level of rents remains a significant burden for many households, particularly lower-income renters.23 As I noted at the outset, rent-to-income ratios have grown significantly, and while quality has improved, income-stressed households are spending much more of their hard-earned dollars on shelter costs. So far, I've been discussing shelter costs in aggregate terms. But LMI families face even greater challenges, both with homeownership and with affordable rental housing. And while increasing housing supply should help everyone somewhat, it is also the case that we need to focus with intentionality on the needs of low- and moderate-income households. These households have a hard time finding affordable rental housing and an even harder time finding their way to homeownership. The Role of the Community Reinvestment Act, the Low-Income Housing Tax Credit, and Other Efforts The Community Reinvestment Act (CRA), enacted in 1977, has promoted housing affordability by encouraging banks to serve LMI communities, expanding homeownership access, and supporting affordable housing and community development investments. The CRA is a cornerstone of U.S. affordable housing policy, and the Fed is responsible for administering the act for banks we supervise. In 2024 alone, CRA-related incentives supported over $430 billion in loans and investments for homeownership, small businesses, and affordable housing in these areas. This leverage of private capital helps expand the supply of affordable rental housing, often in partnership with local community-based organizations and the public sector.24 The CRA has expanded homeownership opportunities for LMI families, such as through down-payment assistance and partnership with community development financial institutions (CDFIs). More recently, many banks and nonbank mortgage providers have been using alternative cash flow underwriting to expand access to credit for prospective homebuyers. Similarly, the CRA bolsters the effectiveness of the low-income housing tax credit (LIHTC), which has been a fundamental resource for financing affordable housing for 40 years. When banks invest in LIHTC developments, they not only receive tax credits but also earn CRA consideration for supporting housing in underserved areas. Together, the CRA creates the expectation to invest, and the LIHTC provides the tool to do it, leveraging private capital to build safe, stable, and affordable apartments that strengthen families and communities.25 On average, the LIHTC creates 110,000 units of affordable housing per year, about 4 million apartments since its enactment.26 More broadly, multifamily construction is a key component of any strategy to improve access to affordable housing for low- and moderate-income families. On the demand side, housing vouchers have also been used to supplement the incomes of LMI renters, though the demand for vouchers far outstrips the supply. And vouchers can have a positive effect on supply as well by assuring builders of affordable housing that renters will have sufficient incomes to pay. Recent legislation may also play a role in supporting housing accessibility. Congress recently passed bipartisan legislation that includes provisions for expanding rental assistance, guidelines for addressing zoning barriers to production, homeownership counseling and financial literacy, commercial conversions to housing, and support for manufactured housing.27 Industry, government, and community development groups are also exploring how innovative building practices, such as modular housing, can lower costs and speed construction. For those working directly in communities—developing affordable housing, counseling prospective homebuyers, managing emergency assistance programs, working with voucher recipients—the research discussed today reflects the daily realities you navigate: families that can find themselves priced out of neighborhoods and essential workers unable to find affordable housing near their jobs. Collaboration between public and private sectors will continue to be important going forward. Private-sector innovation in construction methods, materials, and financing approaches can help lower development costs and expand what's feasible. Financial institutions, including CDFIs, support affordable housing development through lending and investment. Community development organizations bring irreplaceable knowledge of local needs, relationships with residents, and on-the-ground experience with what works and what doesn't in different contexts. Progress on housing affordability will require action across all these fronts, with each institution and sector doing its part and working together. Earlier this year, I attended a Federal Reserve conference in which a panel of mayors from cities and towns in Arizona, Utah, and Tennessee, without regard to politics, discussed practical ways to invest in affordable housing and improve their communities. They are doing the practical hard work of talking with neighbors, cutting red tape, and investing in public–private partnerships. When I hear this type of commitment and skill, I am encouraged by local leaders' devotion to making a better future for their communities. That's the kind of practical approach that can help make a difference in advancing affordable housing all across the country. Thank you.1 1. The views expressed here are my own and are not necessarily those of my colleagues on the Federal Open Market Committee (FOMC) or the Federal Reserve Board. Return to text 2. According to the Monitor, if the annual cost of homeownership exceeds a 30 percent share of the annual median household income, homeownership is considered unaffordable. If the annual cost of homeownership is below a 30 percent share of the annual median household income, homeownership is considered affordable. Alternatively, the Monitor allows the user to view affordability using an affordability index, where an index value of 100 or above indicates a median-income family could afford a median-priced home; a value below 100 indicates a median-income family would not be able to afford a median-priced home given the current interest rate. See Federal Reserve Bank of Atlanta (2026), "Home Ownership Affordability Monitor," webpage. Return to text 3. See Benjamin J. Keys and Vincent Reina (2025), "Improving Housing Affordability (PDF)," in Melissa S. Kearney and Luke Pardue, eds., Advancing America's Prosperity (Washington: Aspen Institute), pp. 130−66. Return to text 4. Keys and Reina, "Improving Housing Affordability" (see note 3). This figure includes U.S. Census rental housing stock—that is, housing units that are renter occupied or available for rent. Return to text 5. See Joint Center for Housing Studies of Harvard University (2026), America's Rental Housing 2026 (PDF) (Cambridge, Mass.: JCHS). Return to text 6. See Melissa Kollar and Zach Scherer (2025), Income in the United States: 2024 (PDF) (Washington: U.S. Census Bureau, September), Table A-1: Income Summary Measures by Selected Characteristics: 2023 and 2024, p. 15; and Federal Housing Finance Agency (n.d.), "Purchase-Only House Price Index®," U.S. national house-price index, 2000–2024. The income series is adjusted using the Census Bureau's Chained Consumer Price Index for All Urban Consumers; the real house price change is calculated by adjusting the Federal Housing Finance Agency's (FHFA) national house price index for consumer price inflation over the same period. The FHFA index measures changes in single-family house prices and is not a median-price measure. The comparison is intended to illustrate the relative change in household purchasing power and house prices. Return to text 7. See Board of Governors of the Federal Reserve System (2025), "Housing," in Report on the Economic Well-Being of U.S. Households in 2024, (Washington: Board of Governors, May); and National Association of REALTORS® (2024), "First-Time Home Buyers Shrink to Historic Low of 24% as Buyer Age Hits Record High," press release, November 4. Return to text 8. See Jonathan Gross (2024), "Fannie Mae Research Identifies Challenges Faced by Today's Renters," Perspectives Blog, February 1, https://www.fanniemae.com/research-and-insights/perspectives/research-identifies-renter-challenges. Return to text 9. Freddie Mac estimated a 3.7 million unit shortage as of the third quarter of 2024, while the National Association of REALTORS® estimated a 5.5 million unit shortage. Return to text 10. See U.S. Census Bureau (2026), "Housing Inventory Estimate: Total Housing Units in the United States," Federal Reserve Economic Data (FRED), Federal Reserve Bank of St. Louis (accessed September 21, 2026). Return to text 11. See Nathaniel Baum-Snow and Gilles Duranton (2025), "Housing Supply and Housing Affordability," NBER Working Paper Series 33694 (Cambridge, Mass.: National Bureau of Economic Research, April). Return to text 12. Keys and Reina, "Improving Housing Affordability" (see note 3). Return to text 13. See Edward Glaeser and Joseph Gyourko (2025), "America's Housing Supply Problem: The Closing of the Suburban Frontier? (PDF)" Brookings Papers on Economic Activity, Spring, pp. 375–425. Return to text 14. See Bureau of Labor Statistics (2025), "Construction Labor Productivity," webpage; and Leo Sveikauskas, Samuel Rowe, James Mildenberger, Jennifer Price, and Arthur Young (2014), "Productivity Growth in Construction (PDF)," BLS Working Paper 478 (Washington: Bureau of Labor Statistics, October). Return to text 15. See Thao Le (2025), "The Scarring of the Great Recession on Construction Labor and Housing Supply," Real Estate Economics, vol. 25 (May), pp. 543–73. Return to text 16. See Rose Quint (2015), "US Government: Number of Builders Declined 50% between 2007 and 2012," National Association of Home Builders Economic Research Blog, September 9. Return to text 17. See Hubert Janicki and Erika McEntarfer (2015), "Where Did All the Construction Workers Go?" Research Matters (blog), October 16. Return to text 18. The constant-quality price index measures how much the cost of building a new single-family home has changed over time while holding the home's size and features constant so the change reflects construction costs rather than the changes in the type or quality of homes being built. See U.S. Census Bureau and U.S. Department of Housing and Urban Development (n.d.), "Survey of Construction (SOC)," webpage. Return to text 19. See Joint Center for Housing Studies of Harvard University (2023), The State of the Nation's Housing 2023 (PDF) (Cambridge, Mass.: JCHS).  Return to text 20. See Joshua Blonz, Mallick Hossain, Benjamin J. Keys, Philip Mulder, and Joakim A. Weill (2026), "Pricing Protection: Credit Scores, Disaster Risk, and Home Insurance Affordability (PDF)," NBER Working Paper Series 34848 (Cambridge, Mass.: National Bureau of Economic Research, February). Return to text 21. The Board staff's calculations are based on the National Mortgage Database; data extend through 2026:Q2. See also Hannah Jones (2026), "The Slow Unlock Continues in Q1: 22.1% of Outstanding Mortgages Have a Rate of 6% or Higher," realtor.com, July 24, https://www.realtor.com/research/2026-q1-outstanding-mortgage-data. Return to text 22. See Aditya Aladangady, Jacob Krimmel, and Tess Scharlemann (2024), "Locked In: Mobility, Market Tightness, and House Prices," Finance and Economics Discussion Series 2024-088 (Washington: Board of Governors of the Federal Reserve System, November; revised May 2025). Return to text 23. BLS shelter data accessed via FRED; Joint Center for Housing Studies of Harvard University, America's Rental Housing 2026 (see note 6). Return to text 24. See National Association of Affordable Housing Lenders (n.d.), "Community Reinvestment Act," webpage. Return to text 25. See Michael S. Barr (2026), "Developing Communities through Public–Private Partnerships," speech delivered at the 2026 National Community Investment Conference, Phoenix, Ariz., March 24. Return to text 26. Keys and Reina, "Improving Housing Affordability" (see note 3). Return to text 27. See U.S. Congress (2026), "21st Century ROAD to Housing Act," H.R. 6644, 119th Cong., July 11. Return to text i. The initial published version of these remarks included two sentences on page 3 that mistakenly compared rents in 1980 and more recently. On September 28, 2026, the remarks were corrected to say "About 20 percent of rental housing units rented for $1,000 or less a month in 2024, but in 1980, adjusted for inflation, 55 percent rented for the equivalent of that amount." Return to text

  Goes beyond the statement by suggesting the FOMC was behind the curve, whereas the statement frames the hike as a routine action.

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  Christopher J. Waller September 3, 2026 · Reuters NEXT Newsmaker Interview, Washington, D.C.

  September 03, 2026 Governor Christopher J. Waller At Reuters NEXT Newsmaker Interview, Washington, D.C. Thank you, Howard. To set the stage before we talk, let me give you a sense of my thinking, as of today, about the economic outlook and the implications for monetary policy.1 The short version is that, while inflation remains meaningfully above the Federal Open Market Committee's (FOMC) 2 percent goal, recent data suggest we are finally seeing some signs of disinflation. If this continues in the data due over the next two weeks, I would be inclined to support holding the target for the federal funds rate at its current setting. But there continues to be considerable uncertainty about how military conflicts, trade policy, and artificial intelligence (AI) will affect prices and economic activity. If the incoming data for August show this improvement has been fleeting, then it may be appropriate to raise the policy rate when the FOMC meets on September 15 and 16. After a description of my outlook for the economy and monetary policy, I will offer some thoughts on how I communicate those views to the public. Let me start with the real side of the economy. Despite the uncertainties I mentioned, most of which weigh on economic activity, growth in real gross domestic product (GDP) is continuing at a solid pace. Real GDP grew at a 1.8 percent annual rate in the first half of this year. Consumer spending growth was solid in the second quarter after a slow start to the year, while business investment has been strong throughout. Overall, real private domestic final purchases, the measure of spending that best reflects the underlying strength of consumer demand, rose a strong 3 percent in the first half of 2026. We have only limited data for the third quarter, including July retail sales, which were weak. But this decrease reflected the fact that Amazon's Prime Day promotion was held in June, dragging down seasonally adjusted sales in July. Outside of "non-store" sales, retail spending grew. Given the rise in wealth from the increase in equity prices this year, I believe this should sustain consumption growth. On the business side, data center plans point to continued rapid growth in business investment associated with the ongoing buildout of AI and related technological upgrades. High-tech investment continues to rise at a rapid pace, and software investment, which some feared could be depressed by AI's coding ability, has grown near its long-term historical average rate. Some would argue that this investment in a narrow sector that tends to be capital intensive, rather than labor intensive, is misleadingly propping up GDP and should in some sense be discounted. I don't agree.2 AI investment is a legitimate part of GDP today, and I expect this technology will continue to be an important part of the economy after the buildout peaks and AI becomes as integrated into our lives as the internet has been. More broadly, one signal of continuing business spending growth was another increase in July in sentiment among purchasing managers for nonmanufacturing firms—to a level that I would also describe as "solid." New orders for these firms, which represent the majority of businesses in the economy, continued to grow in July, and the index of supply problems continued to improve. Today we will get the August nonmanufacturing survey, so we will see if this trend continues. Combining the various pieces of the economy, I expect real GDP to grow a bit more than 2 percent this year, a respectable outcome considering the uncertainties I mentioned. Turning to the labor market, it is also in satisfactory shape. While there were indications in the second half of 2025 of easing labor demand, relative to supply, those signs evaporated. Job creation, though a bit volatile, has increased this year by an average of 60,000 a month through July. That is close to and probably a bit above estimates of what it takes to keep pace with the slow growth in the labor force—mostly because of much lower net immigration. Payroll gains have broadened to most sectors of the economy in recent months, and the unemployment rate has fallen a bit to 4.1 percent in July, a historically low rate and slightly below the median of FOMC participants' long-run or equilibrium rate. Layoffs and initial claims for unemployment insurance are likewise low. I expect more of the same tomorrow when we get the August employment report. With economic activity and the labor market in good shape, they are not a large factor in my determination of the appropriate setting of monetary policy. But they are an important backdrop for the part of the outlook that is my focus right now, inflation, and my judgment about how much the current stance of policy is working to return inflation to 2 percent. More about that in a moment. Inflation is elevated significantly above the FOMC's 2 percent goal and has exceeded that target for five and a half years. In July, prices based on personal consumption expenditures (PCE) rose 0.2 percent, and core prices excluding food and energy increased 0.2 percent. While I was happy to see this monthly number for core inflation because it continued the pattern of lower monthly readings that we saw earlier in the year, what caught my eye in the last PCE report is that nonmarket services prices accounted for approximately half of the increase in core prices. As you are probably aware, I don't like throwing out specific categories going into the estimate of PCE inflation, but nonmarket services prices have always been an issue for me, since they are imputed and not actual price changes.3 So, ignoring this one factor, my take is that underlying inflation is doing better than the core numbers suggest. PCE prices are up 3.7 percent in the past 12 months, and core PCE inflation is 3.3 percent. While it is important to acknowledge these 12-month increases for the real-world effect they have had on businesses and consumers, they are not the best guide for where inflation is today. I say this because, notwithstanding uncertainty over the geopolitical factors that have raised prices, I don't see elevated energy prices and tariffs now as a significant source of ongoing inflation pressure. The evidence is that the price effects of tariffs have largely passed through inflation, and my earlier worry that higher energy prices would bleed into many goods and services prices hasn't come to pass, at least so far. In the wake of these price shocks, to get a fix on the current trend for inflation, it is helpful to focus on more recent price increases, such as how inflation measured over the past three months has evolved over the year. To deal with the ongoing volatility in energy prices, I will focus on core inflation, excluding food and energy prices, which is a good guide for inflation going forward. Three-month core inflation is 3.05 percent for the three months through July, a level that is still not consistent with the FOMC's 2 percent goal. Nevertheless, it is important to note the trend. Three-month inflation has fallen steadily from 4.76 percent in February. That is a considerable improvement, and the speed of this downward trajectory is encouraging. One factor that I expect will lower reported inflation a bit is a pending change in the way the Commerce Department estimates the fees paid to stock market traders and related professionals. That change in this "nonmarket" price estimate, which I expect to be made shortly, could lower 12-month PCE inflation by a few tenths of a percentage point. Given my issues with nonmarket services prices, this is a welcome measurement correction. I do see some upside risks to inflation. Energy prices have moved up again and remain significantly higher than they were at the beginning of 2026, and the economy faces both pressure on technology goods prices related to the AI buildout and the possibility of more tariff increases. But, in contrast to the period of high inflation after the pandemic, wage growth, once one accounts for productivity growth, is broadly consistent with an expectation that inflation is continuing to come down to 2 percent. I am also attentive to the fact that public views about future inflation could rise after the long period of inflation above the FOMC's goal. Fortunately, the Fed has a very good record of making good on its commitments, and we haven't seen a significant increase in longer-term inflation expectations, but it must be acknowledged as a risk—one that the FOMC should be prepared to act on if longer-term expectations rise and progress on inflation reverses. This leads me to my outlook for monetary policy, which I previewed at the beginning of these remarks. As of today, the labor market is stable, with employment near its maximum sustainable level, and inflation is making slow but continued progress on reaching 2 percent. We will get another employment report and inflation reading before the next FOMC meeting. I don't expect that the employment data will deviate much from what we have been seeing. So my decision on the appropriate stance of policy will be heavily influenced by what we learn about August inflation. If there is continued progress toward our 2 percent goal, then I am willing to support holding the policy rate at its current level. But if inflation comes in hot, I would consider a rate hike. I judge that policy is currently only slightly restricting aggregate demand, and it may not take much acceleration in inflation to nudge me into supporting tighter policy. If there is evidence that progress toward 2 percent inflation reversed in August, a small adjustment in our stance would help ensure that it resumes. By way of wrapping up, I want to speak about central bank communication, which I consider an essential part of the monetary policy process. I distinguish between three types of communication that matter for monetary policy and how I try to communicate my views to the public. First, I try to communicate why I have taken my current policy position. If I vote to hold rates steady, I explain how current economic conditions affected my policy decision. I was comfortable supporting the FOMC's decision in late July to hold rates steady because the data at that time led me to view the real side of the economy as solid and we finally saw hints that disinflation may be starting. So I was willing to be patient and see if the disinflation would continue. The second way in which I communicate is to explain how future economic data will shape my future monetary policy decisions—in short, I try to describe my "reaction function." When thinking about future data, I communicate that IF the data comes in a particular way, THEN I will advocate for policy to be set a particular way. The key point here is that this it is not a commitment to a policy action—it is a conditional policy statement. A different economic outcome would lead me to advocate for a different policy action. In my remarks today, I have outlined what it would take for me to support a continued pause as well as what would cause me to support tighter policy. By communicating my reaction function, consumers, businesses, and investors can better understand how I will vote on policy given the range of outcomes and then factor that into their planning for the future. Now, is that reaction function perfect? No. But my years as a professional economist and policymaker have given me substantial knowledge on how policy should respond to shocks. In this sense, I view myself as a home plate umpire in baseball. The pitcher is trying to strike out the batter, and the batter is trying to hit the ball or walk to get on base. Both want to play the ball, but they cannot do that until they know the umpire's strike zone. The strike zone is the umpire's reaction function. If the ball goes here, it's a strike; if it goes there, it's a ball. The players don't expect the umpire to have a perfect strike zone—they just need a rough idea of its parameters and some guarantee that it won't change much on every pitch. Perfection is not needed for them to play well. So, when it comes to my reaction function, I do not let perfection become the enemy of the good. The third and final type of communication is forward guidance, which specifies a path for the policy rate that is essentially independent of incoming data. This type of communication is most warranted when the policy rate is at the effective lower bound and additional communication is needed to guide market expectations.4 For example, by September 2021 it was clear to me that we needed to raise the policy rate to deal with accelerating inflation. But as this would only happen after asset purchases had stopped, I supported forward guidance that strongly signaled the end of those purchases, setting the stage for rate increases in 2022. By communicating to markets that rate hikes were coming and coming soon, market interest rates began to climb. By March 2022, the two-year Treasury note had increased 200 basis points, and we hadn't moved the policy rate off the effective lower bound yet. In this example, forward guidance helped tighten economic conditions long before we actually raised the policy rate. But it is important to remember that those actions were taken when the policy rate was near zero. I agree with Chairman Warsh that forward guidance isn't appropriate now or in many other situations. But when it is truly needed, I believe it should be used. And with that, I think I have said enough. So, Howard, let's get to your questions, which I am sure will be well informed and probably better informed than my answers. 1. The views expressed here are my own and are not necessarily those of my colleagues on the Federal Reserve Board or the Federal Open Market Committee. Return to text 2. I see this as a technological change that will reliably raise productivity and living standards while improving the quality of our lives. For a discussion on how AI is likely to affect our lives along these lines and how it differs from past technological changes, see Christopher J. Waller (2025), "Innovation at the Speed of AI," speech delivered at DC Fintech Week, Arlington, Va., October 15.) Return to text 3. For a discussion on how imputed prices were holding up inflation in 2024 and how, because they are estimated rather than directly observed, I consider them to be a less reliable guide to the balance of supply and demand across all goods and services in the economy, see Christopher J. Waller (2025), "Challenges Facing Central Bankers," speech delivered at Lectures of the Governor, Organisation for Economic Co-operation and Development, Paris, France, January 8.) Return to text 4. See my July 6, 2026 remarks on where I discuss how forward guidance can be a valuable tool that has, at times, significantly strengthened policymaking and will continue to be useful and yet is more art than science and there have been times when it has hindered, rather than helped, policymaking. Christopher J. Waller (2026), "Two Thoughts on the Transmission of Monetary Policy," speech delivered at "Challenges for Monetary Policy Transmission in a Changing World," a conference sponsored by the Bank of Italy for the research network initiated by the European System of Central Banks, Rome, Italy, July 6.) Return to text

  Signals a possible rate hike, departing from the FOMC's hold stance.

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  Michael S. Barr September 1, 2026 · the Second-Chance Lending Forum, Developing Evidence-Based Policy on Creditworthiness and Criminal History, Washington, D.C.

  September 01, 2026 Governor Michael S. Barr At the Second-Chance Lending Forum, Developing Evidence-Based Policy on Creditworthiness and Criminal History, Washington, D.C. Thank you to the organizers of this important event for the opportunity to be part of it.1 This conference sits at the intersection of several policy issues that are central, I believe, to the future of the U.S. economy—entrepreneurship, financial inclusion, technological innovation, including artificial intelligence (AI)—and, critically, how to bolster these forces in ways that support employment, lift living standards, and promote an economy that works for everyone. The Federal Reserve has a stake in all of these outcomes. Realizing full employment depends on a labor market in which everyone can participate productively, including those formerly incarcerated or otherwise with a record of navigating the legal system. Perhaps in part because they face obstacles to employment that others do not, many of these individuals pursue entrepreneurship, so extending options to them includes the opportunity to build a business. For them, financial inclusion is essential, and meeting their banking and financial needs is also critical to a healthy economy. Before I proceed, I wanted to share a few thoughts about the economy. The labor market is stable, with relatively low unemployment. The economy has been growing solidly, powered in part by the boom in AI-related business investment and the buildout of AI-related capabilities. Productivity and new business formation have been strong for a number of years. Consumer spending to date has been largely resilient. But inflation remains too high—and has been for over five years. We made enormous progress from inflation's peak of more than 7 percent in 2022 to a bit above 2 percent in 2024, but that progress stalled in 2025. A series of shocks—from tariffs and then the conflict in the Middle East, as well as from the rapid AI buildout—pushed us off course. And core non-housing services inflation remains elevated. With inflation above target for a protracted period, there is a risk of broader price pressures taking hold, a risk I am watching closely. At our September FOMC meeting, we will again discuss the outlook for inflation and our policy stance. If trends in the data give me some confidence that inflation is moderating on a path to 2 percent, then I think we can take a bit more time to assess our policy stance. However, if inflation appears not to be moderating sufficiently, then I think we should act decisively to raise rates. Now, turning back to the topic at hand, my interest in financial inclusion predates my time at the Federal Reserve and has been an important part of my life's work over the past three decades. During my years at the University of Michigan, I worked with several colleagues to launch the Detroit Neighborhood Entrepreneurs Project to help entrepreneurs start and grow their businesses, helping that city to bounce back from the dire place it was in a dozen years ago. And I have studied how exclusion from basic banking services can make it harder for people to find a stable living situation and employment.2 I'd like to spend some time today discussing financial well-being and entrepreneurship for those with a criminal or arrest record, encouraging research to enrich our knowledge, and touching on how the emergence of new technologies could improve financial access and business opportunities for this group. The Challenge Individuals with criminal records experience high employment barriers that substantially limit their access to formal employment and leave them far less likely to be employed than others.3 Some of these labor market penalties stem from socioeconomic disadvantages associated with those who have a criminal record, but a large share come from the effects of justice involvement—the incapacitation and human capital loss during incarceration or legal proceedings and the aversion of employers to hiring those with a record.4 Research shows that incarceration leads to persistently lower employment rates and reduced earnings trajectories after release.5 By one measure, employment propensity falls around 7 to 26 percent after an initial criminal charge and remains persistently low even six years later.6 A 2018 study found unemployment rates among the formerly incarcerated are nearly five times higher than for the general population.7 Research shows people of color are often disproportionately affected by the existence of criminal records.8 While there have been large-scale initiatives in recent years to reduce these disparities, such as "ban the box" and "clean slate" laws, employment gaps persist and criminal records continue to create lasting employment barriers.9 Another hurdle that compounds these challenges comes from certain occupational licensing requirements.10 Nearly one in four jobs in the United States requires a government-issued occupational license.11 Several states allow licensing boards to disqualify applicants with criminal records, regardless of whether the offense is related to the occupation or poses any substantive risk to public safety.12 In addition to the financial consequences for these individuals, such barriers reduce available labor in communities.13 Some research suggests that reducing occupational licensing burdens may help lower recidivism rates and improve employment outcomes for those with a criminal record.14 Beyond employment outcomes, these individuals experience multiple dimensions of financial vulnerability. A 2022 Consumer Financial Protection Bureau report highlights how people with a record face systemic barriers. Financial obligations and the high cost of essential services—including bail bonds and money transfers—put them at elevated risk of high-cost debt, credit delinquency, and lower credit scores.15 These credit challenges make it harder to access affordable loans, secure stable housing, and find employment. The Federal Reserve's 2023–24 Survey of Household Economics and Decisionmaking (SHED) data indicated that those with a record have significantly lower levels of financial well-being, reduced access to credit, and a higher incidence of being unbanked. These gaps persist after accounting for demographic and economic differences, and they widen with longer incarceration and other measures of greater justice system contact.16 As an example, the SHED found that, among people with no criminal records, 75 percent report doing okay financially or living comfortably, while for those convicted and once incarcerated the rate is 60 percent doing at least okay financially. Those with a record, especially those with convictions, are also less connected to the financial system. According to the SHED, those who have a previous conviction are less likely to have a bank account or a credit card; instead, they rely more heavily on alternative financial services like payday loans and pawnshop loans. This disconnection from traditional credit systems appears to stem from limited credit supply rather than a lack of demand. Those who experience incarceration are 16 percentage points less confident about approval but are 10 percentage points more likely to have applied for credit in the past year. This tells us they face substantial barriers to the mainstream credit that they need. Enhancements to underwriting, like cash flow–based underwriting and the use of alternative financial data, may help expand financial inclusion for a cohort that often has a thin or poor credit history. Entrepreneurship as a Pathway to Economic Opportunity People with a record may be an underutilized source of talent and effort. Second-chance hiring initiatives could help these individuals to find pathways into the labor market. Entrepreneurship is another path to better economic outcomes for those with a criminal record. One estimate finds that, among formerly incarcerated individuals, those who have started their own business could earn 24 percent more in annual earnings than those in traditional employment.17 The same research finds that entrepreneurship may reduce five-year recidivism relative to employment, with a larger decline in reoffending than that associated with traditional paid employment. And those individuals with a record see this opportunity. Research has found that roughly 20 to 30 percent of people with criminal records report being self-employed business owners.18 According to research conducted in 2021, approximately 1.1 million small business owners, nearly 4 percent of all small business owners nationally, have a criminal record.19 Those who pursue business ownership may have the talent and motivation to succeed but are more likely to be disconnected from the networks and support that other entrepreneurs draw on—mentors from larger businesses, peer entrepreneurs, professional contacts—the very channels that often point people toward available credit and financing options as well as business opportunities. Lending and Support that Makes Entrepreneurship Possible The difference between a good idea and a lasting, operational business often boils down to three essentials: access to credit, access to business networks and opportunities, and access to missing skills or technical assistance needed to run a business well.20 Entrepreneurs who have been involved in the criminal justice system face these needs as well, often with fewer opportunities to meet them. Lending is a key input in supporting entrepreneurs with a criminal record, and it is most effective when paired with the training and networks that help a business succeed once its credit needs have been funded.21 In 2024, the Small Business Administration (SBA) finalized a rule removing many criminal history bars from the SBA's small business loan and loan guarantee programs. It lifted the barrier that had automatically barred applicants on parole or probation from SBA loan programs—citing research on the prevalence and viability of entrepreneurship among people with a record as part of its justification.22 For those who might consider setting up a second-chance lending program, dedicated models already exist. For example, the community development financial institution (CDFI) operating as a lending subsidiary of Texas's Prison Entrepreneurship Program (PEP) was established to provide business loans to entrepreneurs with a record.23 PEP graduates have launched more than 500 businesses, some generating annual revenues of over $1 million. It's one example, but it demonstrates that this approach works when lending is paired with structured, accessible support. Beyond second-chance lending programs, there is a broader small business network supporting credit access, and encouraging those with a record to engage with them may be an option. Small Business Development Centers (SBDCs)—a national network of business advisers and technical assistance providers supported by the SBA—don't lend money directly, but they play a direct role in assisting businesses in connecting with lenders and accessing funding. SBDC counselors help entrepreneurs build the business plans, financial projections, and loan packages that lenders require, and they routinely refer clients to SBA-approved lenders, CDFIs, microlenders, and other financial institutions suited to their credit profile. CDFIs and state, regional, or local economic development organizations often play key roles. Local chambers of commerce support and help build business networks and local relationships that can lead to loan referrals, vendor relationships, and informal credit references, filling the need for access to business networks. These resources, as well as others that provide technical assistance and business support, should be as accessible to entrepreneurs with a record as they are to any small business owner. Along with Texas's PEP, there are other effective programs, such as multistate organizations, that have supported thousands of entrepreneurs in training through mentorship and small business coaching, helping launch businesses. Similarly, other nonprofits deliver entrepreneurial coaching and business fundamentals with high rates of program completions.24 The businesses started by graduates from these programs have gone on to hire employees that often include others with a record, extending the effect beyond the original participant. Looking Forward I am hoping this conference can find ways to make progress on how entrepreneurship programs can better serve people with a record and, therefore, promote a labor market in which everyone can participate productively. Evidence from programs related to entrepreneurship among those with a record shows it reduces recidivism. We also need more data to show the broader economic effects on individuals and the savings and other benefits to society. Expanded use of pilot programs can help build data on what leads to small business success. We also need data that show the creditworthiness of these individuals and their businesses to support credit underwriting decisions. We need long-term program evaluations to assess which entrepreneurship training and development programs are proving most successful. Evaluations can help identify scalable best practices and drive continuous improvement of these programs. Rigorous evaluation can also help attract the funding and support needed to expand these programs. Technology can help support entrepreneurship and improve financial inclusion for all underserved individuals, including those with a record. Technological change—most recently including AI—always poses risks and offers opportunities, but technology has expanded the availability of business expertise and knowledge, which could be especially important for those who have been involved in the justice system. While the effect of this technology is yet to be measured, there are some promising examples of how it can improve financial inclusion. AI-powered cash flow underwriting or alternative financial data underwriting can help consumers access credit and financial products. This is particularly important for those who have been incarcerated and who may have thin credit files or low traditional credit scores. Alternative data can support the provisioning of "second look" initiatives for the second-chance population. AI has also been used to provide financial advice and to answer common questions that consumers have. This is a useful tool, as it can provide information quickly in a "judgement free" environment. Of course, it is important to ensure that advice is provided accurately and complies with consumer and investor protection laws. In terms of business support, AI can help entrepreneurs with a record both start and manage their firms. AI can act as a writing partner for entrepreneurs drafting business plans—guiding them through a structured template, helping them think through their business's legal structure, developing market analysis, and asking and answering other key questions. AI tools can review industry reports and market data to give entrepreneurs a data-backed snapshot of their market and competitors—work that would otherwise require paid research or expert consultation. Of course, AI is not a substitute for actually thinking about and implementing a business plan, and it should be thought of as a useful way to augment entrepreneurial skills, rather than a way to replace them. Many small businesses are using AI to automate tasks, improve customer experience, and identify growth opportunities. AI is effectively serving as a marketer, social media manager, or financial planner for owners who cannot afford to hire separately for each role. If democratized through ready access, affordable pricing, and safety protocols, AI could help bolster small business formation and growth for those with a record and, indeed, for other small businesses throughout our economy. Conclusion One of the great promises of technology and innovation is that they help us tackle longstanding challenges and unlock opportunities. "Unlocking" is a good word to use in extending opportunity to individuals whose challenges do not end when their imprisonment or other engagement with the legal system is over. Financial inclusion could help them to succeed as workers, consumers, and entrepreneurs. Removing hinderances for them can give them the opportunity to make the most of their talents, which will benefit them and help build a stronger U.S. economy. Helping those with a record to build a better future for themselves and their loved ones could help to build a better future for all of us. Thank you. 1. The views expressed here are my own and are not necessarily those of my colleagues on the Federal Reserve Board or the Federal Open Market Committee. Return to text 2. See Michael S. Barr (2012), No Slack: The Financial Lives of Low-Income Americans (Washington: Brookings Institution Press). Return to text 3. See also Wendy Sawyer and Peter Wagner (2025), "Mass Incarceration: The Whole Pie 2025," Prison Policy Initiative, March 11. Return to text 4. See Harry J. Holzer, Diane Whitmore Schanzenbach, Greg J. Duncan, and Jens Ludwig (2007), "The Economic Costs of Poverty in the United States: Subsequent Effects of Children Growing Up Poor (PDF)," Center for American Progress, January 24; Andrew Jordan, Ezra Karger, and Derek Neal (2024), "Early Predictors of Racial Disparities in Criminal Justice Involvement," NBER Working Paper Series 32428 (Cambridge, Mass.: National Bureau of Economic Research, May; revised June 2026); Evan K. Rose and Yotam Shem-Tov (2025), "Understanding Criminal Record Penalties in the Labor Market," Center for Economic Studies Working Paper Series 25-39, June; Michael Mueller-Smith (2014), "The Criminal and Labor Market Impacts of Incarceration," working paper; and Andrew Garin, Dmitri Koustas, Carl McPherson, Samuel Norris, Matthew Pecenco, Evan K. Rose, Yotam Shem‐Tov, and Jeffrey Weaver (2025), "The Impact of Incarceration on Employment, Earnings, and Tax Filing," Econometrica, vol. 93 (March), pp. 503–38. Return to text 5. See Jeffrey R. Kling (2006), "Incarceration Length, Employment, and Earnings," American Economic Review, vol. 96 (June), pp. 863–76; Mueller-Smith, "The Criminal and Labor Market Impacts of Incarceration" (in note 3); and Garin and others, "The Impact of Incarceration" (in note 3). Return to text 6. See Amanda Agan, Andrew Garin, Dmitri Koustas, Alexandre Mas, and Crystal S. Yang (forthcoming), "Can You Erase the Mark of a Criminal Record? Labor Market Impacts of Criminal Record Remediation," American Economic Journal: Economic Policy. Return to text 7. See Lucius Couloute and Daniel Kopf (2018), "Out of Prison & Out of Work: Unemployment among Formerly Incarcerated People," Prison Policy Initiative, July. Return to text 8. See Amanda Agan and Sonja Starr (2018), "Ban the Box, Criminal Records, and Racial Discrimination: A Field Experiment," Quarterly Journal of Economics, vol. 133 (February), pp. 191–235; see also Jennifer L. Doleac and Benjamin Hansen (2020), "The Unintended Consequences of 'Ban the Box': Statistical Discrimination and Employment Outcomes When Criminal Histories Are Hidden," Journal of Labor Economics, vol. 38 (February), pp. 321–74. Return to text 9. See Agan and Starr, "Ban the Box" (in note 7); Doleac and Hansen, "The Unintended Consequences of 'Ban the Box'" (in note 7); and Agan and others, "Can You Erase the Mark of a Criminal Record?" (in note 5). Return to text 10. See Chidi Umez and Rebecca Pirius (2018), "Barriers to Work: Improving Employment in Licensed Occupations for Individuals with Criminal Records (PDF)," National Conference of State Legislatures. Return to text 11. See further information on the Council of State Governments Justice Center's website at https://csgjusticecenter.org/projects/fair-chance-licensing/the-issue/. Also, see information from the Current Population Survey on the Bureau of Labor Statistics website at https://www.bls.gov/cps/cpsaat53.htm. Return to text 12. See Stephen Slivinski (2016), "Turning Shackles into Bootstraps: Why Occupational Licensing Reform Is the Missing Piece of Criminal Justice Reform," Center for the Study of Economic Liberty, Arizona State University, November; Umez and Pirius, "Barriers to Work" (in note 9); and Jails to Jobs (2021), "States Continue to Loosen Occupational Licensing Law Restrictions for Those with Criminal Records," July 20. Return to text 13. See Joshua Gaines, Jasmine Quinta, and Chidi Umez-Rowley (2024), "Expanding Access to Health Care Jobs for Workers with Criminal Histories," Council of State Governments Justice Center, September. See also information on licensing on the Council of State Governments Justice Center's website at https://csgjusticecenter.org/projects/fair-chance-licensing/the-issue/. Return to text 14. See Slivinski, "Turning Shackles into Bootstraps," (in note 11). See also Emily Fetsch (2016), "How Does Occupational Licensing Affect Employment and Recidivism?" Ewing Marion Kauffman Foundation, November 19. Return to text 15. This report, "Justice-Involved Individuals and the Consumer Financial Marketplace," is available on the Consumer Financial Protection Bureau's website at https://files.consumerfinance.gov/f/documents/cfpb_jic_report_2022-01.pdf. Return to text 16. See Kabir Dasgupta, Jennifer Fernandez, and Alicia Lloro (2026), "Financial Well-Being and Inclusion of Justice Involved Populations: Evidence from the SHED," Finance and Economics Discussion Series 2026-024 (Washington: Board of Governors of the Federal Reserve System, May). Return to text 17. See Kylie Jiwon Hwang and Damon J. Phillips (2024), "Entrepreneurship as a Response to Labor Market Discrimination for Formerly Incarcerated People," American Journal of Sociology, vol. 130 (July), pp. 88–146. Return to text 18. See Keith Finlay, Kylie Jiwon Hwang, Michael Mueller-Smith, and Brittany Street (2025), "Credit Access among Formerly Justice-Involved Entrepreneurs: Regression Discontinuity Evidence from the Paycheck Protection Program," working paper, https://brittanystreet.github.io/website/FinlayHwangMuellerSmithStreet_WP_CreditAccessandCJ.pdf. Return to text 19. See Shawn D. Bushway, Dulani Woods, Denis Agniel, and David Abramson (2021), "The Prevalence of Criminal Records among Small Business Owners," RAND Research Briefs, June 30. Return to text 20. See Michael S. Barr (2025), "Opening Remarks," speech delivered at the 2025 Northeast/Mid-Atlantic Small Business Credit Symposium, Federal Reserve Bank of New York, New York, (via pre-recorded video), May 15; Michael S. Barr (2015), Minority and Women Entrepreneurs: Building capital, networks, and skills, Brookings Institution. Return to text 21. See U.S. Small Business Administration (2021), "Evaluation of Microloan Program Outcomes," November 1. The SBA formally evaluated the relationship between the microloan program borrowers' business outcomes and training and technical assistance offered through intermediary lenders covering the fiscal years from 2010 through 2019. Microloan borrowers reported larger growth and better survival outcomes when intermediary lenders provided technical assistance and training and help for borrowers to access other training sources. Additionally, business borrowers with access to one-on-one assistance and training reported better business outcomes. Return to text 22. See U.S. Small Business Administration (2024), "Biden-Harris Administration Announces New Rule to Increase Economic Opportunity for Returning Citizens," news release, May 1. Return to text 23. See Initiative for a Competitive Inner City (2018), "Impact Analysis of the Prison Entrepreneurship Program: Reducing Recidivism and Creating Economic Opportunity (PDF)," July. Return to text 24. For example, see information on the nonprofit Inmates to Entrepreneurs at https://inmatestoentrepreneurs.org/. Return to text

  Signals a possible rate hike, while the FOMC statement only mentions maintaining the current range.

  Full remarks

• 
  Kevin Warsh August 28, 2026 · “Financial Innovation: Implications for Payments and Policy,” an economic policy symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming

  August 28, 2026 Chairman Kevin Warsh At “Financial Innovation: Implications for Payments and Policy,” an economic policy symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming Thank you. It's great to be here again and to see so many familiar faces. I've been looking forward to this weekend—what better place to mark my 100th day as Chairman? For the fine hospitality, everyone here is in debt to President Jeff Schmid and his colleagues at the Federal Reserve Bank of Kansas City. Jeff, our thanks to you all. Jeff and the other planners have some recreation options lined up for later today. And I'd advise you to be very careful with your choices. As I learned years ago, you can take two different kinds of hikes on the trails around Jackson Hole. I can sum up my hikes with former Vice Chairman Don Kohn in two words: I survived. These steely marathon death marches revealed a side of Don I wasn't ready for. There's another kind of hike—one I associate with Chairman Ben Bernanke, my old colleague. With Ben, it's a much more leisurely pace, an easy stroll along the wandering trails at the Rockefeller Preserve. So before setting out, do a wellness check and ask yourself: "Is this a Kohn day or a Bernanke day?" The best thing about this gathering is that it helps us all clear our minds and think straight about our world and our time. For me, it feels like the right place, and the right audience, for a real engagement with the ideas that matter most. Innovation is the conference theme, and I believe that the public and the markets—in their collective wisdom—understand that innovations in the conduct of policy at the Fed will help deliver price stability alongside full employment. Here is a quick overview of what I'll cover in my remarks this morning. You can call it an outline . . . you can call it a trail map . . . just don't call it forward guidance. First, I'll touch on a few of the longer-term questions we're asking at the Fed about the latest general-purpose technology, artificial intelligence (AI), and where it might take the economy. Then I'll reflect a bit on the practice of forward guidance and the interaction between the central bank and financial markets. Next, I'll present some of the key principles that I believe should guide the conduct of monetary policy. And, finally, I'll give you my assessment of the economy. Preparing for Future Policy Conjunctures With the unchanging picture of the Tetons as our backdrop, we are here to survey an economic landscape that is anything but static. It wasn't so long ago—in the run-up to the crisis of 2008 and over the decade that followed—when economists and policymakers were speaking of secular stagnation and a global saving glut.1 It was a widely held view that an excess of capital would sit on the sidelines for a long, long time, because there just wouldn't be enough compelling investment opportunities. All the good stuff had been invented. So growth would be low and slow.2 Well, times sure have changed. We've come to a hinge point in history.3 To cite the clearest example, progress in artificial intelligence—the 80-year-old name for the newest technology—has been faster even than its evangelists predicted a couple of years ago. The potential for substantially higher growth is on the rise. Ever-expanding pools of capital are pouring into AI-related infrastructure of all sorts. A kind of hyper–Moore's law seems to be playing out. Scaling laws, too, are changing both the method and speed of innovation.4 Capital and labor have combined to create the large language models at the heart of AI. Users buy tokens to gain access to the models. Reports put annualized token sales for the two leading labs alone at more than $100 billion—an increase of 500-plus percent from a year ago. The Fed watches all of this attentively. We recognize that AI is a new variable—potentially a new factor of production—that will have consequences for both the economy and the conduct of monetary policy. It opens some major lines of inquiry: Will the application of AI cause a significant, sustained rise in productivity across the economy? And if so, when? Will token usage be complementary or competitive to labor? Will the next generation of AI models demand even greater capital intensity, or will the models themselves help devise a capital-light solution? Among the other yet unknowns is the resulting market structure. It's not obvious where the returns on capital will land or on what timescale. Early on, how much of the surplus goes to owners of scarce assets—AI labs, chipmakers, energy producers, and cloud providers? Over time, how much of that value accrues to businesses and consumers? What are the broad implications for workers and for the employment side of the Fed's mandate? Likewise, we don't yet know the equilibrium price of the tokens. Might there be a heterogeneity of tokens, such that growing sums will be paid for access to the best models at the frontier? Will token prices for older models fall to the level of their marginal cost? We will be thinking through these matters with the help of a task force on productivity and jobs. My early check-ins with the leaders of that task force, and the four others, have been encouraging. To be clear, though, their recommendations will come later and have no bearing on decisions we make in the current policy conjuncture. But I believe that for future policy challenges, this intellectual investment today will leave us far better prepared. Forward Guidance and Its Stand-ins As our task forces go about their work, I am not waiting to introduce innovations at the Fed to make us fit for purpose. To highlight one example, I have set out to change the form and function of the Fed Chairman's so-called forward guidance. You might know about my long-time discomfort with early pronouncements of future policy decisions. I much prefer another path . . . and will make the case for it. Transparency in communications about future policy decisions is not a virtue unto itself. Communications must be in service to the Fed's paramount responsibility: getting monetary policy right.5 Forward guidance as a regular practice was adopted by my colleagues and me during the Global Financial Crisis.6 It was essential at the time, and we introduced it with much fanfare. But, as with other legacies of crises past, I believe that the practice has overstayed its welcome. In normal times, the role of forward guidance should be limited and circumscribed. Otherwise it risks creating ambiguity in the name of clarity. Oversharing policy deliberations and overcommitting to future decisions can lead markets, businesses, and households astray.7 And I believe when policymakers make quasi-commitments on interest rates through the cycle, we inhibit our own freedom to make the right calls when it's time to decide. To get policy right, we also need to get the relationship right between financial markets and the central bank. The Fed needs clear market signals, as unfiltered as possible . . . from market internals . . . the level and change in asset prices across sectors . . . the prices and trading volumes of Treasury securities. . . the foreign exchange value of the dollar . . . the cost and availability of credit . . . and the price of a broad set of commodities. These and other indicators should inform the Fed's near-term outlook on economic activity and inflation throughout the business cycle. They should also reveal the state of broader financial conditions . . . and the risks and uncertainties in the financial cycle. At the same time, market participants themselves should be tracking real information across the economy. They should draw their own conclusions; form their own expectations of output, employment, and inflation; and stay sharply attuned to risks. The Fed should be humble and never naïve. The Fed plays an essential role in the economy and the markets. And our tools are powerful. We determine the path of short-term interest rates. And market participants will always try to anticipate what we will do next. But we should not indulge a regime in which market participants are looking primarily to the Fed for their next trade. The economic literature has long described the distorting effects: a hall-of-mirrors problem.8 If markets rely materially on the Fed's guidance and the Fed relies on market prices, we are all more likely to be blinded to new developments . . . more likely to be caught unprepared for a turn of events . . . and more likely to commit errors in policymaking.9 Perversely, market participants are unlikely to bear the biggest costs of the hall-of-mirrors problem. The most serious harm is likely to befall those without financial assets. If the Fed gets inflation wrong and judges the economy wrong, who gets the worst of it? Not the financial high-fliers. Hard-working Americans are the ones left to deal with inflation that is too high or jobs that suddenly appear less secure. So, if forward guidance is ill-suited to normal times, then how about the new Fed chief commits—at the very least—to an explicit reaction function? Surely, he should tell us his interest rate path—if, say, the data were to come in hot or cold. I wish our understanding of the economy were so precise as to provide a mechanical, tried-and-true answer—that some simple function like a Taylor rule could be rigorously relied upon. But our knowledge just doesn't extend that far—at least not yet—and the factors most relevant to the proper conduct of monetary policy change over time. Providing forecasts to illustrate the Fed's reaction function works better in theory than in practice, better in the lab than in the field. I'm not alone in noticing that forward guidance in 2021, to cite one example, might well have slowed the policy response to high inflation.10 In my term as Chairman, my colleagues and I will endeavor to construct more reliable models and more robust rules to guide policy decisions. We'll do this knowing that accuracy in economic forecasting is still just an aspiration. With so much changing so fast in geopolitics, global supply chains, and technology, it's wise to be modest about what we can and cannot know. In the same spirit, we should receive the full range of ideas on matters that may inform the Fed's monetary policy decisions. If the aim is optimal decisionmaking, we should not crowd out views on the economy. How, then, to chart a better path to policy? In the balance of my remarks, I will share some key principles that guide my thinking on the appropriate conduct of monetary policy . . . then offer my promised assessment of the economy. Key Principles Turning to principles . . . First, I've noticed that, in this line of work, yesterday's news has a way of getting mistaken for what is happening right now. The challenge is to know the difference. In other words, we must interrogate reality to make sure we are not setting forward-looking policy based on stale or inaccurate data. Nor should we rely on isolated data points. Trends matter most. The Fed is a decisionmaking agency. We make choices amid uncertainty, and the data upon which we draw must be as relevant, contemporaneous, accurate, and actionable as possible.11 Second, the Federal Reserve's actions are intended to ensure that the aggregate demand side of the economy is broadly consistent with aggregate supply. However, all we observe directly is activity. We never see, and can only infer, what's really happening on the supply side. Hence, evaluating the current and expected balance between aggregate supply and demand is imprecise.12 Third, there should be no misunderstanding: The Fed's price-stability objective of 2 percent, as measured by the personal consumption expenditures (PCE) price index, is a firm, fixed target. Let's be equally clear about another aspect of the objective: Price stability is not self-executing, nor is inflation necessarily mean-reverting. It is the Fed's job to deliver stable prices. Fourth, the Fed also bears responsibility for maximum employment. Achieving both sides of our mandate over the medium term is not an either/or proposition. I do not believe that the Fed's dual mandate works at cross-purposes. After all, high inflation itself is very harmful to economic prosperity. Fifth, short-term interest rates are the predominant tool to achieve the dual mandate. Unconventional policies to spur economic activity may suit genuine crises but should otherwise be used sparingly, if at all. Sixth, money matters. It's not fashionable these days, but my view is that money has something important to do with monetary policy.13 We should pay attention to money created by the central bank and money that comes from the banking and financial systems.14 It's true that financial innovations and other factors alter the mechanics that link the monetary base, the velocity of money, and the broader economy. But that is scarcely a reason to ignore the ultimate effects of money on financial conditions and prices. Finally, a quieter Fed, more purposeful in its communications, is better able to meet its objectives. And we can be held accountable for delivering on our remit—the only true test of our credibility. To borrow a line from General Chuck Yeager, "At the moment of truth, there are either reasons or results."15 The Economy Today Now, given these principles, how do I read the economy today? What's really going on outside the window?16 You may have read in the July minutes the unanimous view of the FOMC:17 Labor markets were stable, and output was solid. But inflation remained too high. A good majority of my colleagues and I thought the wiser course was to await new information in the intermeeting period—especially given possible developments in supply chains, investment flows, and geopolitics—before deciding whether a change in interest rate policy was advisable. And we expressed our joint readiness to act as circumstances might require. For my part, today I am impressed by the overall performance of the economy, which appears to have strengthened. One indicator of strength is how well an economy holds up to shocks. On that score, both Main Street and Wall Street have been remarkably resilient. Several observations: Business capital expenditures—the seed corn of future economic growth—are rising rapidly. The four-quarter change in investment in equipment and intangibles has been around 9 percent, its highest growth rate since 2021. More than half of the cap-ex growth this year can likely be ascribed to the buildout related to AI. For firms in the S&P 500, profits have grown by more than 20 percent over the past year. Profit margins are quite elevated, relative to history. Overall equity market volatility is low. We're staying keenly focused on market internals, watching performance across sectors. Expectations for growth in both cap-ex and corporate earnings are running quite high. I will continue to watch the change in their growth rates, the second derivative. The follow-on effects on asset prices, business confidence, consumer income, and spending are equally important to gauge. Credit spreads on corporate bonds and leveraged loans are near the low ends of their historical ranges, and issuance volumes in these markets have been quite strong this year. Looking beyond fixed-income markets to the banking business, in the July Senior Loan Officer Opinion Survey on Bank Lending Practices, banks tell us that standards for commercial and industrial loans are on the easier end of their historical range. That helps explain the growth we've seen this year in those loans. Credit and loan markets are showing few signs of policy restraint. Certain sectors—like housing and agriculture—are showing strains. But, on balance, I would be hard pressed to describe broad financial conditions as restrictive. Real consumer spending has been healthy despite the shocks, increasing more than 2 percent over the past four quarters. Combining consumption with the brisk investment we've observed, private domestic final purchases (PDFP) has also risen. PDFP has increased at a pace of nearly 3 percent so far this calendar year. That's a measure that typically carries more signal than gross domestic product, and the trend here too is positive. On the employment side of the Fed's dual mandate, our country is doing well. Labor markets are quite stable. The jobless rate, at 4.1 percent, remains low by historical standards and has not changed much for a couple of years. Unemployment claims, on a four-week average—an empirically robust real-time indicator—are near their lowest level in decades. In my view, the relatively low turnover in today's labor market is partly a result of the significant rematching between employers and employees that happened at scale in the post-pandemic environment. When labor supply is barely growing, monthly job gains are naturally going to run low. There are always areas of concern in the labor market—for example, among recent graduates. In general, though, people who want to work, by and large, are holding or finding jobs. They may well be concerned about possible future labor disruptions, but as of now, I believe the labor markets are consistent with full employment. But on the price-stability side of our mandate, the numbers are more concerning. The Fed's preferred measure of inflation, the 12-month change in the PCE price index, stands at 3.7 percent, while the six-month change is 4.1 percent. The comparable measures from the consumer price index (CPI) are also elevated, as are the core measures of both PCE and CPI inflation. None of these measures are perfect, but they all tell a similar story: Inflation is running above our 2 percent target. So the Fed's predominant focus right now should be on prices. The job for policymakers is to capture underlying trend inflation—that is, the generalized change in prices in the economy, unaffected by idiosyncratic factors. We want to gauge whether underlying inflation is rising, falling, or stuck in place. We also want to understand not just the direction of travel, but also the speed. Each of these broad inflation measures has fallen significantly from their 2022 heights. But progress over the past two years has been modest. And while this summer's PCE and CPI readings were better than expected, they do not tell me that underlying trends have meaningfully improved. The data also show moderate wage growth. But in tracking underlying inflation, wage growth has not proven a reliable indicator of future inflation for a very long time.18 To try to gauge underlying inflation, I find it instructive to disaggregate the 199 individual components of the PCE price measure. Over the past 12 months, 54 percent of goods and services in the PCE basket showed price increases above 3 percent. This is well below the post-pandemic highs of about 77 percent, but it remains well above the level of 32 percent in the two decades that preceded the pandemic. Looking over just the past six months, the conclusion is similar: Of goods and services in the PCE basket, 49 percent showed annualized price increases above 3 percent. Again, this is well below the post-pandemic highs but still quite elevated. The recent rise in overall commodity prices also bears watching. What we need to judge is whether trends indicate upside inflation risks. It matters, too, whether the inflation readings of the past five-plus years have seeped into expectations. The good news is that measures of inflation expectations in the medium term, by and large, look stable. And inflation compensation measures from the swaps market send a strong and similar message. Especially in light of recent developments, it is a credit to the Fed as an institution—and consistent with the best of the Fed's traditions—that market prices show confidence that we will deliver price stability. And I can assure you . . . they're right. The thing about market measures of inflation expectations in economic history is that they tend to look strong and durable until they don't. Those expectations are not pushed around easily, and right now they are well anchored. But they must be closely minded. It's the Fed's job to make sure that inflation expectations do not get unanchored. There is one signal nobody can miss: The responsibility for 65 months of sustained, elevated inflation sits squarely with the central bank. And that is where it belongs. Here is my standard: We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do. That's our job . . . our mandate . . . and our charge to keep. Conclusion I stand here today committed to a discipline, not to a decision. My Fed colleagues and I are hardly the first to hold these positions in a time of great consequence. We are determined to redeem the time by doing our very best work. We take our responsibility seriously, with humility and with resolve. So much depends on choices we make. Sound monetary policy helps households and businesses to prosper. When carried out effectively, it broadens and deepens the momentum of our economy . . . and helps to secure America's leadership in the world. And I know that our country needs us to think carefully and act wisely. It is a tremendous honor to serve once again at the Federal Reserve. I am truly grateful for the encouragement and good counsel I've received from my colleagues . . . and from so many of you in this room. For that, and for your kind attention this morning, I thank you. 1. See Lawrence H. Summers (2015), "Have We Entered an Age of Secular Stagnation? IMF Fourteenth Annual Research Conference in Honor of Stanley Fischer, Washington, DC," IMF Economic Review, vol. 63 (1), pp. 277–80, https://doi.org/10.1057/imfer.2015.6; and Ben S. Bernanke (2005), "The Global Saving Glut and the U.S. Current Account Deficit," speech delivered at the Sandridge Lecture, Virginia Association of Economists, Richmond, Va., March 10. Return to text 2. See Robert J. Gordon (2017), The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War (Princeton, N.J.: Princeton University Press). Return to text 3. See George P. Shultz and James Timbie (2020), A Hinge of History: Governance in an Emerging New World (Stanford, Calif.: Hoover Institution Press). Return to text 4. See Sha Sajadieh, Loredana Fattorini, Raymond Perrault, Yolanda Gil, Vanessa Parli, Lapo Santarlasci, Juan Pava, Nestor Maslej, Russ Altman, Erik Brynjolfsson, Carla Brodley, Jack Clark, Virginia Dignum, Vipin Kumar, James Landay, Terah Lyons, James Manyika, Juan Carlos Niebles, Yoav Shoham, Elham Tabassi, Russell Wald, Toby Walsh, and Dan Weld (2026), The AI Index 2026 Annual Report (PDF) (Stanford, Calif.: AI Index Steering Committee, Institute for Human-Centered AI, Stanford University, April). Return to text 5. See Kevin M. Warsh (2014), "Transparency and the Bank of England's Monetary Policy Committee (PDF)," Review commissioned by the Bank of England (London: BOE, December). Return to text 6. While forward guidance became a regular feature of Federal Open Market Committee (FOMC) policy statements beginning in December 2008, there are earlier examples of the practice; see Edward Nelson (2021), "The Emergence of Forward Guidance as a Monetary Policy Tool," Finance and Economics Discussion Series 2021-033 (Washington: Board of Governors of the Federal Reserve System, May). Return to text 7. Consistent with this concern, some evidence suggests that survey and market expectations adjust too slowly away from prior projections of the Summary of Economic Projections, resulting in predictable forecast errors; see Eric Engstrom (2026), "Anchored to the Dot Plot: Central Bank Projections and Interest Rate Expectations," Finance and Economics Discussion Series 2026-026 (Washington: Board of Governors of the Federal Reserve System, May). Return to text 8. See Ben S. Bernanke (2004), "What Policymakers Can Learn from Asset Prices," speech delivered at the Investment Analysts Society of Chicago, Chicago, Ill., April 15; and Jeremy C. Stein and Adi Sunderam (2018), "The Fed, the Bond Market, and Gradualism in Monetary Policy," Journal of Finance, vol. 73 (June), pp. 1015–60. Return to text 9. See Stephen Morris and Hyun Song Shin (2002), "Social Value of Public Information," American Economic Review, vol. 92 (December), pp. 1521–34. Return to text 10. Romer and Romer argue that the 2021 inflation experience "reinforces the view that forward guidance can be a barrier to reacting quickly to changed conditions and risks policy becoming overly based on internal considerations rather than macroeconomic fundamentals." See Christina D. Romer and David H. Romer (2026), "An Early Retrospective on Monetary Policy in the Powell Era (PDF)," Hutchins Center Working Paper 108 (Washington: Hutchins Center on Fiscal and Monetary Policy, June, page 3). Return to text 11. This framing echoes Sherman Kent, who argued that intelligence must be "useful to the people who make the decisions: that is, that it is relevant to their problems, that it is complete, accurate, and timely." See Sherman Kent (1949), Strategic Intelligence for American World Policy (Princeton, N.J.: Princeton University Press), page 69. Return to text 12. See N. Gregory Mankiw (2024), "Six Beliefs I Have About Inflation: Remarks Prepared for NBER Conference on 'Inflation in the Covid Era and Beyond'," Journal of Monetary Economics, vol. 148 (November), 103631. Return to text 13. See Kevin M. Warsh (2022), "Money Matters: The US Dollar, Cryptocurrency, and the National Interest," in Paul Ryan and Angela Rachidi, eds., American Renewal (Washington: American Enterprise Institute), pp. 283−303, https://www.americanrenewalbook.com/money-matters-the-us-dollar-cryptocurrency-and-the-national-interest. Return to text 14. As Ravi Menon, former managing director of the Monetary Authority of Singapore, has observed: "The credibility of money is underpinned by this two-tier monetary structure where commercial banks create money and central banks preserve its value." See Ravi Menon (2021), "The Future of Money, Finance and the Internet (PDF)," speech delivered at the Singapore FinTech Festival, November 9, page 1. Return to text 15. See Scott McDonald (2020), "Top 20 Quotes from Chuck Yeager, the First Man to Break the Sound Barrier," Newsweek, December 8, https://www.newsweek.com/top-20-quotes-chuck-yeager-first-man-break-sound-barrier-1553038. Return to text 16. Or, as Kay and King put it, the question to ask is, "What is going on here?" See John Kay and Mervyn King (2020), Radical Uncertainty: Decision-Making Beyond the Numbers (New York: W.W. Norton & Company). Return to text 17. See Federal Open Market Committee (2026), "Minutes of the Federal Open Market Committee: July 28–29, 2026 (PDF)" (Washington: FOMC, July). Return to text 18. See Gadi Barlevy and Luojia Hu (2023), "Unit Labor Costs and Inflation in the Non-Housing Service Sector (PDF)," Chicago Fed Letter 477 (Federal Reserve Bank of Chicago, March); and Adam H. Shapiro (2023), "How Much Do Labor Costs Drive Inflation?" FRBSF Economic Letter 2023-13 (Federal Reserve Bank of San Francisco, May 30). Return to text

  The remark emphasizes the Fed's dual mandate, while the statement focuses on price stability.

  Full remarks

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  Lisa D. Cook August 5, 2026 · the 2026 Economic Luncheon of the Anchorage Economic Development Corporation, Anchorage, Alaska

  August 05, 2026 Governor Lisa D. Cook At the 2026 Economic Luncheon of the Anchorage Economic Development Corporation, Anchorage, Alaska Thank you, Jon, for that kind introduction. It is an honor to be here in Alaska. I appreciate the invitation from the Anchorage Economic Development Corporation to meet with you all today.1 As many of you know, I have spent the majority of my career as an academic economist and professor. I have a deep, longstanding love for data and information. At the Federal Reserve, I have the privilege to have the best and most timely data at my fingertips. Yet, there is no substitute for the information researchers—and policymakers—can gain from real-world interactions. This is a main reason I am delighted to be here today—not only to share my own view of how I see the economy developing but, just as importantly, to hear from all of you and to learn about how monetary policy affects your lives, careers, and businesses here in Alaska. Specifically, today I would like to share my economic outlook for the U.S. and then drill down a bit further to discuss what the data tell me about Alaska's economy. Finally, I would like to focus on one type of data I watch closely, consumer sentiment data. Outlook I view the U.S. economy as remaining resilient and growing at a solid pace. Inflation continues to be stubbornly high and has exceeded the Federal Open Market Committee's (FOMC) 2 percent target for more than five years. Meanwhile, the labor market appears to be stable, in a low-hire, low-fire environment. Thinking first of the price-stability side of our mandate, my assessment is simple: Inflation is too high. This has been my long-held view, and I have noted that inflation has moved significantly away from our target over the past year.2 The inflation picture improved modestly in June, the most recent month for which we have data. However, I would not put too much weight on a single data point, especially in what remains a highly uncertain environment. The personal consumption expenditures price (PCE) index rose 3.7 percent in the 12 months through June. That is nearly double our target. Elevated energy prices due to the conflict in the Middle East have contributed significantly to inflation over the past year, but it is not the only factor. Core prices, which exclude food and energy costs, rose 3.3 percent over the same period. This year has brought two unexpected sources of price pressure: The Middle East conflict has driven the cost of energy and certain other goods higher, and companies are ramping up capital spending to build out artificial intelligence (AI) infrastructure.3 That investment wave has lifted prices for semiconductors, high-tech equipment, software, and utilities. Taken together, these developments have shifted the balance of risks toward inflation and away from the labor market. On the other side of the dual mandate, the labor market has remained resilient over the past year. In June, the unemployment rate was 4.2 percent. That rate has barely changed from a year earlier and aligns with what many economists believe is the natural rate of unemployment. Job growth over the past year has been modest. However, it picked up during the spring months, averaging more than 100,000 jobs added per month in the April through June period. Although the hiring rate is low, the unemployment rate remains steady because layoffs are also low. Initial claims for unemployment benefits have trended at historically low levels for several years. The low-hire, low-fire equilibrium hits some groups, including new entrants, especially hard and may restrain worker sentiment for good reason. Several factors could explain why employers are not hiring as much as they did in the recent past, including longer-term structural shifts, pandemic-era over-hiring, or increased work from home. However, international and state-level evidence suggests that low hiring rates, when they reflect slow population growth, do not signal an impending downturn by themselves. At the same time, many workers understandably worry about how AI will affect their livelihood. Thus far, the most dire predictions about AI job losses have not materialized. I still see this development as a significant risk but one that has not grown over the past year. Overall economic growth in the U.S. remains solid this year. After being adjusted for inflation, output grew at a 1.8 percent pace through the first half of the year and is on track to grow at a faster pace in the second half. An important driver of those gains is the AI-related investment I previously mentioned. Overall business investment rose at a 10 percent annual rate in the first half of the year. Meanwhile, U.S. households appear resilient, with consumer spending advancing at close to a 2 percent rate in the first half. Housing continued to be a soft spot, with the level of residential investment edging down about 3 percent. Monetary Policy What does this outlook mean for monetary policy? As I have described, inflation is too high, and I consider the risks to the inflation side of the dual mandate higher than the risks to the employment side at this point. As such, I am prepared to act by raising rates, if necessary. The labor market and output growth are currently stable. I would consider how a rate increase could negatively affect that stability. Still, I would support an increase, if it becomes necessary to bring inflation down. It may not. Some disinflationary forces are already in play, which could push inflation toward our target without a rate increase. Allow me to describe these forces. First, the effects of tariffs announced last year on the price level are mostly behind us. So even though those tariffs account for a lot of the elevated inflation seen in 12-month changes, they may no longer provide much inflationary push going forward. We should see some disinflation as the early months of tariff pass-through drop out of the inflation window. However, the exact path of tariff policy remains uncertain. Second, while oil prices continue to be elevated relative to early this year because of the Middle East conflict, many forecasters suggest that they will come down by the end of the year, providing some deflationary relief. However, similar to tariff policy, uncertainty remains high. Third, and finally, some of the recent price pressure in goods is due to the relative demand shift from the AI buildout, as demand for chips, especially, has led to stark price increases in high-tech electronics. As supply chains adjust and sector-specific efficiency gains accrue, I believe some of the inflationary pressure coming from the AI buildout will ease. For these three reasons, I felt it was appropriate not to change rates while we see how these factors evolve. If I do not see signs of continued disinflation soon, I am prepared to act. With five years of above-target inflation, the risk grows that higher inflation may become entrenched in price- and wage-setting behavior, leading to persistence that would be much harder for us to attack. The longer inflation is above target, the more likely this scenario becomes. Thus, while we might be able to afford to wait for longer in a different environment, we do not have that luxury in this one. Alaska Outlook When I consider monetary policy, I focus on the national picture I just described. But I know the economy varies from state to state, city to city, and neighborhood to neighborhood. The Alaskan economy has some similarities with and some differences from what I see in the Lower 48 states. Like the rest of the country, Alaskans have faced substantial increases in the cost of living since the pandemic. And inflation pressure appears to be picking up in the most recent readings. These price increases are likely weighing heavily on Alaskan households, who historically have faced higher prices than other Americans, particularly in remote areas of the state. The labor market here appears to be stable, as it is in much of the country. The unemployment rate is low in Alaska—just 4.4 percent according to the Bureau of Labor Statistics. In fact, this level is lower than any reading published before the pandemic. Initial unemployment insurance claims are also low, suggesting that layoffs are low. Employment in the health-care sector has been a driver of overall job gains for several years in the state. Meanwhile, federal government employment, which constitutes a higher share of the Alaskan workforce relative to most states, has declined notably this past year.4 Alaska is facing a shrinking labor force and an aging population. Alaska's working-age population, those aged between 18 and 64, declined slightly in 2025. Simultaneously, the number of Alaskans aged 65 or older increased 3.2 percent last year.5 One major difference between the Alaskan economy and that of most states is the large share of the economy attributed to the oil and gas sector. Employment in this sector, which stood at 9,700 in June, has largely moderated over the previous decade, though the sector added a significant number of jobs in the past 12 months.6 When energy prices fluctuate, as we have seen in recent months, Alaska faces an economic dynamic that no other states experience to the same degree. When oil prices rise, your state government's fiscal position strengthens. At the same time, many Alaskans, particularly those in rural communities, see their energy costs spike. Therefore, the state's balance sheet improves while household budgets in remote areas face real strain. This dynamic is something I want to hear more about, but as an outside observer, this creates a natural tension in how different parts of Alaska's economy experience the same price movement. Certainly, this is something we need to keep in mind when we think about energy price volatility and its broader economic effects. A View on Sentiment And before I conclude, I would like to discuss a disconnect I have observed when examining economic data. The discussions I have had here—and around the country—reveal that many workers and business leaders have a less favorable outlook on the economy than official statistics indicate. National consumer sentiment data bear out this observation. Consumer sentiment, by many measures, is lower than one would expect in a solid labor market, and perceptions of job availability have continued to worsen. In outreach calls, I hear that vulnerable households are especially dissatisfied with the economy. It is important to understand what is driving this low sentiment to ensure that the FOMC is doing what it can to best achieve our dual mandate. I have come to the view that households are currently reporting low sentiment for three main reasons.7 First, the introduction of AI has raised uncertainty about the job market. Many Americans see the benefits of AI but are also concerned about the labor-market transition. They wonder whether in coming years jobs will be available for themselves and their families, which seems understandable. Although the labor market has been resilient, the hiring rate is low—which disproportionately affects young entrants. Moreover, some evidence suggests that hiring in certain AI-vulnerable sectors may have slowed. Second, decades-long structural changes present challenges for today's middle-class families. Most notably, housing costs have increased sharply for both homebuyers and renters. These increases have far surpassed wage gains in almost every region of the country. In Alaska, house prices have increased fivefold since 1990, more than double the rise in the overall price index for all goods and services. In addition, nationally, the cost of education, health care, elder care, and childcare has risen by more than wages; household debt has risen; and intergenerational mobility has declined. These trends may interact with other macroeconomic changes in ways that make them especially painful now. For instance, young adults today compete for housing and jobs with older, wealthier baby boomers—making these long-standing challenges more acute. Finally, the third reason I point to as an explanation for weak sentiment is the high inflation experienced over the past five years. This high inflation also interacts with the long-standing trends I just mentioned. The extended bout of inflation would have called attention to the corrosive rise in real prices of housing, childcare, and education that occurred over decades. In sum, the reasons for low sentiment are real and are deeply concerning. They require a varied and broad policy approach, largely outside the scope of monetary policy. But we have our part to play. As a monetary policymaker, I believe that the best thing we can do in our roles is to ensure that inflation returns to and stays at target. Conclusion If you take away one thing from this talk, I hope it is that I am firmly committed to restoring price stability. Bringing inflation back to target, first and most importantly, is critical to achieving the dual mandate that Congress assigned to the Fed. Achieving our goal will also bring much needed relief to families who have faced elevated price pressures for far too long. And achieving price stability will help narrow the disconnect that many Alaskans, and many Americans, feel when they assess their personal, less sanguine expectations for the economy relative to solid, more sanguine readings for growth and employment. Thank you again for the opportunity to speak here today. I look forward to continuing to hear and learn from workers, families, and business leaders here in Alaska. Thank you. 1. The views expressed here are my own and are not necessarily those of my colleagues on the Federal Reserve Board or the Federal Open Market Committee. Return to text 2. See Lisa D. Cook (2026), "Economic Outlook," speech delivered at the Exchequer Club of Washington D.C., Washington, July 15. Return to text 3. See Lisa D. Cook (2026), "The Opportunities and Risks AI Presents for the Economy and the Financial System," speech delivered at the Stanford Institute for Economic Policy Research, Stanford University, Stanford, Calif., May 27. Return to text 4. See Karinne Wiebold (2025), "Federal Jobs and Workers in Alaska (PDF)," Alaska Department of Labor and Workforce Development, Alaska Economic Trends, May. Return to text 5. See Alaska Department of Labor and Workforce Development, Office of the Commissioner (2026), "Alaska's Population Grew 0.2 Percent from 2024 to 2025," press release no. 26-2, January 28. Return to text 6. See Alaska Department of Labor and Workforce Development, Office of the Commissioner (2026), "June Jobs Down 0.3% from June 2025," press release no. 26-12, July 17. Return to text 7. See Lisa D. Cook (2026), "Economic Outlook," speech delivered at the Economic Club of Miami, Miami, Fla., February 4. Return to text

  Signals a possible rate increase, departing from the FOMC's neutral stance.

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  Philip N. Jefferson July 16, 2026 · the Stanford Institute for Economic Policy Research, Stanford University, Stanford, California

  July 16, 2026 Vice Chair Philip N. Jefferson At the Stanford Institute for Economic Policy Research, Stanford University, Stanford, California Thank you for the kind introduction. I am delighted to be here at Stanford University today to discuss a topic that is central to the Federal Reserve's work: how policymakers analyze and respond to economic shocks in real time.1 The economy is constantly experiencing shocks that change economic conditions and that policymakers must consider. Today, I will focus on shocks that are extremely difficult—if not impossible—to predict, such as the emergence of a pandemic, the start of a war, or a sudden breakthrough in technological advancement. When such shocks occur, the Federal Open Market Committee (FOMC) evaluates them and sets monetary policy consistent with its dual mandate of maximum employment and price stability. This responsibility is both crucial and complex. Since the effects of shocks are uncertain in real time, policymakers must draw conclusions about their nature based on analysis of data, rigorous economic modeling, and careful judgment. Economic conditions also often reflect the effects of overlapping shocks, whose relative importance and interactions must be assessed. Today, I will start by classifying economic shocks and then discuss how monetary policymakers might respond to different types of shocks. Then I will discuss how I am approaching the two significant developments affecting the current juncture: the energy price shock and the macroeconomic effects of artificial intelligence (AI). I will talk about how both might affect monetary policy going forward before taking your questions. Classifying Shocks One simple, yet effective conceptual framework policymakers can use to classify shocks is to determine whether their initial effect is on the demand side or the supply side of the economy. The demand side of the economy comprises household consumption, business investment, government expenditures, and net exports. Demand shocks initially change these expenditures without directly affecting the economy's underlying productive capacity. The supply side of the economy encompasses the structure of its production processes and markets. Supply shocks tend to affect the economy's productive capacity, often referred to as "potential output." Productive capacity captures the available supply of labor and capital as well as the productivity of those inputs.2 Potential output is the hypothetical level of production that the economy can sustain over the long run while maintaining price stability and maximum employment.3 Both demand and supply shocks can vary in duration. They may be temporary, causing short-term fluctuations, or they may be persistent, leading to more enduring changes in the economy. The nature and duration of these shocks significantly influence the approach to monetary policymaking, a subject that I will return to shortly. A key concept for analysis of an economic shock is the output gap—a valuable tool for monetary policymakers as we assess economic conditions because it summarizes the strength of demand relative to supply. The output gap represents the relationship between the economy's actual output—typically measured by gross domestic product (GDP)—and an estimate of its potential output. When GDP is higher than potential output, the output gap is positive, and the economy is in a state of excess demand. In this case, employment tends to be above its maximum sustainable level, with upward pressure on inflation. Conversely, when GDP falls below potential output, the output gap is negative, and the economy is in a state of excess supply. During periods of negative output gaps, employment levels typically are below their maximum sustainable point, accompanied by downward pressure on inflation. Without shocks, monetary policy decisions would be consistent with GDP in line with its potential. This alignment would correspond to employment reaching its maximum sustainable level, with inflation stable at our 2 percent longer-run objective. In practice, such conditions rarely occur. Often, economic shocks push GDP away from its potential. While conceptually distinct, supply and demand shocks are difficult to identify, especially in real time. Many economic events do not fall neatly into one category. They contain shocks that affect both demand and supply. Moreover, the persistence of shocks is highly uncertain, and even sophisticated forecasting techniques can struggle to resolve this uncertainty as an event unfolds. With these classifications as a backdrop, let's consider the implications of economic shocks for monetary policy formulation. Responding to Shocks in Real Time Our monetary policy strategy is designed to promote maximum employment and stable prices across a broad range of economic conditions. How we respond to economic events depends on whether shocks create tension between the two sides of our mandate. First, consider a shock that moves the output gap and inflation in the same direction. We may have a positive output gap, with employment above its maximum sustainable level and inflation above 2 percent. Conversely, we may have a negative output gap, with employment below its maximum sustainable level and inflation below target. In both cases, our inflation and employment objectives are aligned; therefore, policy actions taken to address one objective also support the other. With a positive output gap, where we observe both overheating in the labor market and inflation exceeding our target, our policy response would typically involve raising interest rates to cool excess demand. The intent is to bring employment closer to its maximum sustainable level while addressing inflationary pressures. With a negative output gap, lowering interest rates can stimulate the economy, which simultaneously should help increase employment and raise inflation toward its target. Now consider a shock that pushes the output gap and inflation in opposite directions. Policy tightening addresses inflationary pressures but possibly at the expense of employment; easing does the reverse. Thus, we could face a tradeoff, where tightening helps price stability but hurts employment. Given this possible tension, how should I react as a monetary policymaker? The answer depends on the relative size of the economic costs arising from deviations of inflation and employment from their respective longer-run goals and the balance of risks on both sides of our dual mandate.4 If inflation expectations risk becoming unanchored, then a stronger reaction to the inflation side of our mandate may be warranted. Conversely, if inflationary pressures do not intensify and inflation expectations remain well anchored, then it may be prudent to prioritize the downside risks to output and employment. This response may be especially necessary if weakness in the labor market risks becoming entrenched. Another consideration is whether the shock is expected to be short lived or persistent, keeping in mind that monetary policy actions tend to work with a lag. This consideration is important when deciding whether to respond to the shock or to allow it to pass without a policy response. If a shock is expected to reverse before monetary policy can take effect, looking through it may be the appropriate approach. It is challenging, however, to predict how long a shock may last. The appropriate monetary policy response, again, requires weighing the risks to both sides of our mandate from various actions. When confronted with a single shock, policymakers must carefully identify and respond to the shock. Shocks, however, rarely happen in isolation, further complicating this task. Sometimes the economy faces multiple shocks simultaneously that may affect both supply and demand. Moreover, we face uncertainty about how shocks propagate through the economy. Such complications bring me to the challenges posed by the current juncture. Challenges Posed by the Current Juncture Currently, I am monitoring two significant developments: the conflict in the Middle East and the proliferation of AI. The Middle East conflict is, in part, a supply shock. Global supply chains for oil and other energy-intensive goods have come under stress. The resulting spike in the price of oil, shown in figure 1, and related products has lowered real incomes and triggered a worsening of financial conditions more broadly. While oil prices have declined from the recent peak, considerable uncertainty remains in the region, which may still weigh on economic activity and inflation. This outcome has put modest downward pressure on aggregate demand. I expect the effects on demand to be muted, however, because the U.S. is now a net exporter of oil and U.S. production is less oil intensive than in the past, as is shown in figure 2. As shown in the left panel of figure 3, this supply shock is occurring in an environment in which inflation has already been above the FOMC's target for some time , in part a result of post-pandemic imbalances. At the same time, the unemployment rate, illustrated in the right panel of figure 3, is near a level that most observers view as consistent with maximum employment.5 These factors confront the FOMC with a delicate balancing act. On the one hand, we face the imperative to address inflationary pressures. On the other hand, we must be mindful of employment potentially moving below its maximum sustainable level. This scenario exemplifies the type of policy dilemma where our dual-mandate objectives are not aligned but rather in tension with each other. Of course, this energy shock also overlaps with the shock stemming from a significant change to trade policy. Recent trade policy changes have had at least near-term effects on output and prices. Those policy changes may alter the economy's productive capacity and have implications for the labor market. As a policymaker, I take all of these developments into account. We do not have the luxury of considering each shock in a vacuum. Instead, we must consider the whole of the economy when setting policy to achieve our dual-mandate objectives. The quick succession of shocks raises the risk that inflation becomes entrenched and inflation expectations become unanchored. The question of whether the recent increase in energy prices will feed into longer-term inflation expectations and result in a persistent rise in inflation is a critical one. The second development I am monitoring is AI. Surveys of businesses, like the one illustrated figure 4, suggest that the uptake of AI has risen considerably over the past two years. This technology presents a fascinating case study from a policymaker's perspective, as the economic shock from AI is likely to have persistent effects on both supply and demand. On the supply side, AI will automate some workers' tasks and augment their ability to do others, which will likely lead to significant productivity gains. That development, in turn, would raise the growth rate of potential output over the coming years. On the demand side, optimism about AI may boost investment and consumption today, even before these productivity gains fully materialize. Firms expecting higher future profits are investing heavily in data centers, advanced computing equipment, and AI capabilities. Indeed, figure 5 shows that firms' capital expenditures likely related to AI have increased substantially recently. The timing of the supply and demand effects is of critical importance for monetary policymakers. If, on the one hand, the demand effects from stronger investment and consumption are realized sooner than the supply effects from productivity growth, AI could exert upward pressure on inflation. If, on the other hand, increased productivity lowers production costs sooner, we may observe downward pressure on inflation. A related consideration is the potential effect of AI on the longer-run neutral rate of interest. Often called r*, this is the real interest rate consistent with the economy operating at its full potential once all shocks have dissipated. If AI leads to permanently higher levels of productivity growth, it may increase firms' desire to invest and, hence, their demand for funding. Higher productivity growth may also discourage household savings by increasing expected future income. Under these circumstances, to reconcile the increase in investment with reduced savings, r* would likely rise. However, predicting changes in the neutral rate is challenging, given the historically noisy relationship between productivity growth and real interest rates. Furthermore, potential AI-induced increases in inequality could have mitigating effects on r*. High-income households tend to save at higher rates than low-income households. Thus, a rise in income inequality could lead to an increase in the supply of savings, putting downward pressure on the neutral rate.6 While r*, like potential output, is not directly observable, estimating it is of considerable importance for monetary policymakers, because these estimates are informative about the range of interest rates that we consider broadly neutral. If AI indeed raises the neutral rate, then for any given level of the federal funds rate, policy effectively becomes more accommodative. Conversely, if AI-related developments cause r* to decline, policy effectively becomes more restrictive. Policymakers must remain attentive to developments to ensure that the stance of monetary policy remains appropriately calibrated and to help the economy smoothly transition to a new equilibrium. On the Current Stance of Monetary Policy Before closing, let me add a word about the current stance of monetary policy. I am firmly committed to returning inflation to our 2 percent target, consistent with our dual-mandate objectives of price stability and maximum employment given to us by Congress. At our last meeting, in June, the FOMC decided to maintain the target range for the federal funds rate at 3-1/2 to 3-3/4 percent. This policy stance should continue to support the labor market while allowing inflation to resume its decline toward our 2 percent target as the effects of past tariffs and energy prices pass through completely. That said, in a scenario where actual inflation does not start to cool down soon, I believe that it could be appropriate to reconsider our current policy stance to ensure we fulfill our commitment to deliver price stability. Fortunately, our current policy stance leaves us well positioned to respond to economic developments based on the incoming data, the evolving outlook, and the balance of risks. Conclusion As I have emphasized today, understanding and responding to economic shocks as events unfold is challenging. Correctly identifying shocks as they occur and setting policy appropriately helps maintain well-anchored inflation expectations, which is crucial for monetary policy. When the public trusts that the FOMC will return inflation to our 2 percent longer-run goal, policymakers have more flexibility to respond appropriately to the full range of shocks the economy might experience. The economy will continue to evolve, new shocks will occur, and policy responses will adapt accordingly. I think carefully about the shocks the economy faces, and their implications, because this puts me, as a policymaker, in the best position to fulfill our mandate and to serve the American people. Thank you for inviting me to speak today. I look forward to our discussion. 1. The views expressed here are my own and are not necessarily those of my colleagues on the Federal Open Market Committee or the Board of Governors of the Federal Reserve System. Return to text 2. Supply shocks can also reflect changes in the structure of markets that do not necessarily change the economy-wide level of potential output, such as a markup shock. Markup shocks occur when the wedge between a firm's production costs and the prices it charges changes without a corresponding change in actual costs of production. Markup shocks are a supply-side phenomenon because they affect prices for a given level of economic activity. Return to text 3. Another common definition of potential output is the hypothetical level of output that would prevail in the absence of frictions like nominal rigidity. Further, the distinction between demand and supply shocks discussed here does not necessarily hold for benchmark levels of output other than potential output as defined above. For example, demand shocks in the form of changes in household preferences can affect the hypothetical level of output under flexible prices in standard dynamic general equilibrium models. Return to text 4. For more discussion on the FOMC's longer-run goals and monetary policy strategy, see the "2025 Statement on Longer-Run Goals and Monetary Policy Strategy" on the Board's website at https://www.federalreserve.gov/monetarypolicy/monetary-policy-strategy-tools-and-communications-statement-on-longer-run-goals-monetary-policy-strategy-2025.htm. Return to text 5. For example, the current unemployment rate of 4.2 percent is near the CBO's estimate of the noncyclical rate of unemployment, which is 4.4 percent. Return to text 6. The increase in income risk associated with higher income inequality may also increase savings for precautionary reasons. For evidence on the drivers of long-run real interest rates, see Kurt G. Lunsford and Kenneth D. West, "Some Evidence on Secular Drivers of US Safe Real Rates," American Economic Journal: Macroeconomics 11, no. 4 (2019): 113–39. Return to text Accessible Version

  Highlights a risk of persistent inflation from energy prices, going beyond the statement's language.

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  Lisa D. Cook July 15, 2026 · The Exchequer Club of Washington D.C., Washington, D.C.

  July 15, 2026 Governor Lisa D. Cook At The Exchequer Club of Washington D.C., Washington, D.C. Thank you, Paul, for that kind introduction. I am honored to speak with you and all who have joined us here today.1 Persistently elevated inflation imposes an unacceptable burden on American families, and it is the Federal Reserve's responsibility to restore price stability. As a monetary policymaker, this challenge is top of mind for me. I am watching both sides of our dual mandate—price stability and maximum employment. However, as I have stated at several points this year, the risks from high inflation concern me more at this time.2 Even though this week's consumer price index and producer price index reports were softer than expected, they still imply that the price index we target rose 3.7 percent in the 12 months through June. That is 1.7 percentage points above our 2 percent target. We have not reached our 2 percent target in more than five years. To contextualize my views on the dual mandate, I would like to give you a broader sense of my economic outlook and discuss recent developments in monetary policy. Economic Conditions over the Past Year Thinking back a little more than a year ago to the spring and summer of 2025, the outlook for employment and output was subdued. Though the labor market had been fairly solid through that spring, many forecasters expected the unemployment rate would step up, as uncertainty related to trade policy weighed on the economy. The median Federal Open Market Committee (FOMC) participant forecast for gross domestic product (GDP) growth in 2025 and 2026 was just 1.4 percent and 1.6 percent. Those forecasts were well below the average growth rates seen in the decade preceding the pandemic. Also, last spring and summer, you might recall that inflation was still above target but subsiding. In April 2025, 12-month inflation had fallen to 2.3 percent from 2.8 percent a year earlier. But changes in tariff policy last year led many forecasters—including me—to believe that inflation would step up in 2025, interrupting the trend toward target. Still, economists widely expected that inflation would resume a downward trajectory by the end of 2026. In June of last year, Fed officials forecast inflation of 2.4 percent for 2026 for both the headline measure and the core reading, which excludes volatile food and energy prices. So, one year ago, we faced weakening employment and output forecasts as well as a small, but temporary, step-up in above-target inflation. With risks to both sides of the dual mandate, what did the FOMC decide to do? We voted to leave rates unchanged at that June 2025 meeting. Let me explain my thinking at the time. One simple way to visualize the monetary policy decision-making process is with a seesaw. You can imagine the risks to our employment mandate sitting on one side and the risks to our inflation mandate on the other. Last year, the seesaw was balanced—in that both sides were hovering in the air—though tilted a bit toward the threats to the employment mandate, which, in my view, were a bit weightier at the time. Current Economic Conditions How has the balance shifted today? Let's start with the labor market. The latest jobs report showed that the unemployment rate was 4.2 percent in June. That rate is roughly in line with the readings seen over the past year and consistent with what many economists believe is the natural rate of unemployment. The mostly steady unemployment rate suggests that the labor market has been stable. In fact, nearly all indicators point to stability. Claims for unemployment benefits have remained low, payrolls have been growing moderately, and job openings have picked up in the past few months. Now, it is true that the low-hire, low-fire environment is hitting some groups—such as new entrants—particularly hard, and it may be damping worker sentiment and for good reason. The low-hire environment could be caused by longer-term structural shifts, a hangover from over-hiring following the pandemic, or increased work from home.3 This environment can be challenging for certain workers, especially those trying to break into the workforce for the first time. However, international and state-level evidence suggests that a low-hire environment—to the extent that it reflects low population growth—does not mean that the labor market is likely to shift into a downturn. At the same time, many workers understandably harbor concern about how artificial intelligence (AI) will affect their livelihoods. So far, the most dire predictions about an AI job transition have not come to fruition. While I still see this as a significant risk, I do not see it as a greater risk than a year ago. In fact, I see few reasons that today's labor market has more risk than a year earlier. Therefore, risks on the employment side have diminished. The balance of risks has teetered toward the inflation mandate. Surprisingly resilient output further reinforces that view. GDP growth in 2025 came in at 2.0 percent, and FOMC participants now forecast that 2026 will come in at 2.2 percent. Both readings exceed last year's forecasts by about 1/2 percentage point. Labor productivity is booming, having grown about 2-1/2 percent per year over the past two years. The data center buildout has added some heat to the economy. As with the labor-market data, these developments point in the direction of less risk to the employment mandate. Now let me turn to the inflation side. The initial assessment is easy: inflation is simply too high. The current rate of annual inflation is near the highest since 2023. Last summer, it was reasonable to expect inflation to return to a downward path after one-time price increases from the tariffs. And, indeed, tariff-related price increases do appear to be mostly behind us, and yet inflation has moved higher. Headline inflation for 2026 is on track to come in about 1 percentage point higher than what was expected a year ago. Core inflation is also coming in well above what I previously anticipated, driven by core goods prices, which have been increasing at a striking 5 percent annual pace so far this year. Note that, in the pre-pandemic era, core goods prices were on a downward trend. Rising core goods prices underscore the fact that the recent acceleration in inflation is not only an energy price story. This year, the economy has faced two unanticipated price shocks. One shock is the Middle East conflict, which pushed energy prices higher and is likely to have some follow-on effect on other goods, such as food. And, as the events of the last week have shown, there is a lot of uncertainty as to when the price pressures from this shock will be resolved. The other shock is increased capital expenditures tied to the buildout of AI infrastructure.4 This spending has caused significant price increases for chips, other high-tech equipment, software, and utilities. Both of these new developments add weight to the inflation risk side of the seesaw, which is now tilting toward the ground. As a whole, I see a notable shift in the balance of risks relative to a year or so ago, with inflation risks now outweighing employment risks. Monetary Policy Considerations Turning to monetary policy, I voted with the rest of the FOMC last month to keep rates steady. I supported this stance, because the two main factors that have pushed up inflation over the past year—tariffs and the conflict in the Middle East—should, in theory, result in only short-lived increases in inflation. At this juncture, I see it as prudent to give a bit more time to observe how inflation unfolds from here. Going forward, though, I believe the risks continue to be strongly weighted toward higher inflation for at least two reasons. First, the AI buildout does not show signs of slowing. To date, companies have announced more than $1.5 trillion in data center plans, only a small portion of which has been realized.5 That fact suggests considerably more investment demand in the pipeline from data centers alone. Moreover, plans for other AI-related capital expenditures, such as robotics, may expand sizably in the coming years. Second, the recent big supply shocks—tariffs and the Middle East conflict—risk leading to persistently higher inflation. Under normal conditions, economists would expect these shocks to have only one-time effects. But keep in mind that these shocks come as inflation has been elevated relative to our target for five years. Firms' pricing and wage decisions may depend more on what inflation has been rather than its source—implying a risk that the high inflation we have seen boosts inflation going forward.6 Nevertheless, I am comforted that medium- and long-run inflation expectations appear mostly anchored. Perhaps because of these anchored expectations by workers and firms at the negotiating table, most measures of wages so far have continued to decelerate and appear consistent with 2 percent in the recent readings. I want to stress one point, however. Anchored inflation expectations comfort me only to the extent that they tell me that people believe we will do what is necessary to get inflation to target—they do not tell us what those policy actions need to be. This sign of public confidence in the Fed is reassuring, but it does not mean that we can take our eye off the ball. If we do not see signs of disinflation soon, I am prepared to act. I am fully committed to reaching our inflation target, and this commitment is unwavering. Conclusion In summary, I view the U.S. economy as remaining resilient. However, over the past year, I have taken notice of data that show the risks to our dual mandate have shifted more toward price stability and away from employment. In determining the appropriate path of policy, I will continue to monitor incoming data, the evolving outlook, and the balance of risks. I look forward to engaging with my fellow Committee members at our next meeting in two weeks. While I will decline to predict the path of policy today, I will underscore that I am committed to returning inflation to our 2 percent goal. Thank you. I look forward to your questions. 1. The views expressed here are my own and are not necessarily those of my colleagues on the Federal Reserve Board or the Federal Open Market Committee. Return to text 2. See Lisa D. Cook, "The Opportunities and Risks AI Presents for the Economy and the Financial System," speech delivered at the Stanford Institute for Economic Policy Research, Stanford University, Standford, CA, May 27, 2026. Return to text 3. See Peter John Lambert and Yannick Schindler, "The Broken Ladder: AI, Remote Work, and Early-Career Hiring," May 18, 2026, http://dx.doi.org/10.2139/ssrn.6787638. Return to text 4. See Cook, "Opportunities and Risks AI Presents." Return to text 5. See Eirik Eylands Brandsaas, Daniel Garcia, Robert Kurtzman, Joseph Nichols, and Adelia Zytek, "Estimating Aggregate Data Center Investment with Project-Level Data," Finance and Economics Discussion Series 2025-109 (Board of Governors of the Federal Reserve System, December 17, 2025). For updated data and publicly available results, see Eirik Eylands Brandsaas, "Estimating Aggregate Data Center Investment with Project-Level Data," DataCenterPublic, GitHub repository, https://github.com/eirikbrandsaas/DataCenterPublic. Return to text 6. See Lisa D. Cook, "Economic Outlook," speech delivered at the Economic Club of Miami, Miami, FL, February 4, 2026. Return to text

  Signals a greater willingness to tighten policy than the FOMC statement implies.

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