The Economic Recovery and Monetary Policy: The Road Back to Ordinary

Monetary policy is moving slowly and cautiously towards normalization. Signs of improvement—falling unemployment, better financial conditions, and abating headwinds— indicate the United States is changing from extraordinary economic times back to ordinary ones. Risks to the recovery’s momentum linger, and “normalizing ” should not be confused with “tightening. ” Monetary policy will remain highly accommodative for some time. Overall, however, the outlook is positive. The following is adapted from a presentation by the president and CEO of the Federal Reserve Bank of San Francisco to the Association of Trade and Forfaiting in the Americas in San Francisco on May 22, 2014. For the past five years, monetary policy in the United States has reflected the extraordinary economic times we were in: interest rates held at essentially zero, multiple rounds of quantitative easing, and a lot more talk from the Fed about our intentions. Now, thankfully, the extraordinary is turning back into the ordinary, and we are starting down a path towards normalization, both for the economy and monetary policy. We’ll venture down this path slowly, and monetary policy will remain highly accommodative for some time. But I am happy to say that we are on the road back to normal. I’d like to give an overview today of the economic outlook and its implication