BoE: Dovish? Hawkish? Call It Neutral and Expect a March Pause

Thank you, Frank [Smets], for the kind introduction. And thank you to the BIS for inviting me to participate on this distinguished panel. International dialogues like today’s generate so many valuable insights about how central banks can navigate the current environment. The theme of this panel is “future challenges for monetary policy in the Americas.” Where to begin? One challenge is simply to note all of the important challenges when I’ve been asked to keep my opening remarks to five minutes! I would like to highlight three topics in particular: the reconfiguration of global trade patterns and supply chains; the shift to a higher-interest-rate environment; and the need to keep inflation expectations well anchored after the surge in inflation following the pandemic. Let me note that these views are mine and not necessarily those of my Federal Open Market Committee (FOMC) colleagues. In recent years, companies worldwide began to reorganize their supply chains in response to disruptions experienced during the pandemic as well as geopolitical developments. Government policy changes in this space are ongoing, and the resulting changes in trade patterns could leave a substantial imprint on economic activity. For example, a Dallas Fed economist and a colleague at the Banco de México found in their research that tariffs on China drove growth at Mexican firms integrated into global supply networks. Central bankers will need to parse what these shifts mean for the inflation and employment outlooks and for capital flows. At the Dallas Fed, we recently launched our Global Institute to study these and other questions, and we look forward to generating insights that can advance the missions of the Federal Reserve and other central banks. Turning to my second point, following the Global Financial Crisis, many experts thought a core challenge of modern central banking was downside risk to inflation resulting from the proximity of interest rates to the effective lower bound. While a return to the lower bound remains one scenario to prepare for, the past few years show we must be equally well prepared to achieve our goals when rates are well above zero and inflation risks are to the upside. Related, and this brings me to my third point, central banks will need to ensure inflation expectations remain well anchored following the recent global inflation surge. High inflation has been costly for households and businesses. It would be surprising if this episode didn’t cause people to reevaluate how they expect inflati post: LOGAN STATES TRADE POLICY CHANGES COULD SIGNIFICANTLY AFFECT ECONOMY post: FED'S LOGAN: 2% INFLATION DOES NOT IMPLY RATE CUTS