Opening remarks for conversation at Greater Waco Chamber

Thank you, Matthew [Meadors]. I’m excited to be here with you all, and I look forward to seeing the area’s continued success.

I have the privilege of leading the Federal Reserve Bank of Dallas. The Dallas Fed serves all of you, and people throughout Texas, northern Louisiana and southern New Mexico, by promoting a strong economy and financial system for everyone. Before we dive into today’s conversation, I’d like to start with some background on the work we do at the Fed, why that work matters for you, and how I’m thinking about the economy right now. I’ll note that, as always, these are my views and not necessarily those of my Federal Reserve colleagues.

The Dallas Fed is one of the 12 reserve banks that, along with the Board of Governors in Washington, make up the Federal Reserve System. We are the nation’s central bank, and we perform five functions to support a strong economy for everyone in the United States:

• We supervise banks to ensure they are safe and sound.
• We promote the stability of the financial system as a whole.
• We operate parts of the payments system, which lets you get cash from your bank or send money electronically to pay a bill.
• We promote consumer protection and community development.
• And we carry out monetary policy to pursue two goals established by Congress: maximum employment and stable prices.

Relative to other public institutions, the Federal Reserve has two aspects of its structure that are unique and crucial to how we serve you. The Fed is not one centralized organization but rather a federated system with deep local roots. And in our monetary policy responsibilities, the Fed operates independently while remaining accountable to the public through elected leaders.

Let me say more about each of those unique characteristics.

As I mentioned, the Federal Reserve System has 12 regional reserve banks, the one I lead in Dallas and 11 others, that serve districts around the United States. Our network of operations gives us insight into communities’ unique economic circumstances. And in our country’s wonderfully varied economy, those local insights help us make the best decisions to serve the country as a whole.

But it’s more than that. The 12 reserve banks are not just branch offices of a centralized agency. Each reserve bank is a separate corporation with its own board of directors. Our directors represent the public in the district, including the interests of agriculture, business, workers, consumers and banks. Directors share their perspectives with us on conditions in the district, but just as important, they hold us accountable for serving the district well. This governance gives the public of our region a say—a strong say—in how we do our work, in addition to the oversight provided by the Board of Governors in Washington.

To be clear, in most of our work, the Federal Reserve ultimately must act in a unified way to best serve the country as a whole. For example, in monetary policy, we have to set the same interest rate target for Texas as for Tennessee. And in bank supervision, we can’t be any more or less stringent when we examine banks in Dallas than we are in Denver.

But our local roots and structure keep us accountable for ensuring your voices and concerns are heard in reaching those national decisions and for delivering services effectively and efficiently to the people, banks and businesses of this region.

I’m very proud of the work the people of the Dallas Fed do to hear your voices and gather your insights. Our network of branches in Houston, San Antonio and El Paso gives us a foundation to reach communities throughout the region. Each branch has a board of directors that, like the board of the head office in Dallas, keeps us accountable to the local community and updated on how the economy is evolving.

In 2024, our team also hosted dozens of business and community roundtables, conducted more than 800 formal outreach calls with leaders in the district, and spoke at more than 200 regional events. This two-way dialogue with people throughout the region keeps the information flowing as we work to serve you.

And, we gather information systematically through our Texas Manufacturing Outlook Survey, Texas Service Sector Outlook Survey, Texas Retail Outlook Survey, Energy Survey, Agricultural Survey and Banking Conditions Survey. More than a thousand business and banking executives in the region respond to these monthly and quarterly surveys, giving us a picture of economic trends that enriches the official national statistics. We share all the survey findings on our website so businesses and local leaders can use the results to inform their own decisions. In fact, the data are so useful they regularly get coverage from the national media, and the surveys even got a mention on Saturday Night Live.

I hope those of you who lead businesses and banks are already responding to our surveys. If not, we’d welcome you to sign up by visiting dallasfed.org.

So what do we do with all that information? It informs how we carry out all our work, but it’s especially important for monetary policy, which brings me to the Fed’s second unique characteristic, monetary policy independence.

Monetary policy means adjusting interest rates to influence the macroeconomy. As assigned by Congress, the Fed works to achieve both maximum employment and stable prices, meaning a 2 percent inflation rate. When we raise interest rates, that tends to slow the economy, typically reducing both inflation and employment. And when we lower interest rates, that tends to stimulate the economy, typically increasing both inflation and employment.

Deciding what to do is easier at some times than others. When inflation is too high and the labor market is overheated, as was the case a few years ago, or when inflation is too low and the labor market is weak, as happened after the Global Financial Crisis, it’s clear which way we need to move rates to achieve our goals. At other times, inflation and employment can miss our goals in opposite directions, and then we take a balanced approach to setting policy. Regardless, the effects of rate changes take time to play out. So to get the balance right, we always have to think about where the economy is headed, not just where it is now. Regional and local insights are very helpful in that process because they’re timely and help us understand the nuances and reasons behind what we can see in national data.

We make monetary policy to do the best job for the country over time, in the long term, not just for the moment. This is incredibly important. In the short run, a central bank could always juice employment by cutting interest rates. People might enjoy that for a little while. But over time, excessive rate cuts would trigger a spiral of inflation. And those rising prices would wipe out whatever temporary benefits people experienced from a hot labor market. To have a sustainably strong economy, a central bank has to make decisions with the long run in mind.

Congress designed the Federal Reserve System to promote that long-term focus while maintaining ultimate accountability to the public. Members of the Board of Governors are appointed by the president and confirmed by the Senate to serve 14-year terms. Reserve bank presidents, like me, are appointed to five-year terms by our local boards of directors, with approval by the Board of Governors. All of us serve together on the Federal Open Market Committee, or FOMC, which meets every six to seven weeks to set monetary policy. The long terms for these roles allow us to think about which policies will best serve the country over time.

But while the Fed’s leaders aren’t up for election, we remain accountable to the public for achieving our assigned monetary policy goals. That accountability comes through the Fed chair’s regular, semiannual testimony to Congress; our extensive public dialogue and communications, which provide transparency into how we serve the public; and ultimately through the regular turnover of governors and reserve bank presidents as terms are completed and new leaders are appointed.

Research shows that central banks perform better on inflation when they are independent from short-term political considerations. The pattern is clear around the world and over history. And in my experience, the Fed’s combination of independence and accountability enables us to make thoughtful, objective, technical decisions while keeping the public interest at the center of all we do.

Now that I’ve described how the Fed’s local roots and accountable independence help us make monetary policy to serve the nation most effectively for the long run, let me share my thinking on monetary policy in the current moment.

As I mentioned earlier, Congress has assigned the FOMC to pursue two goals in monetary policy: maximum employment and stable prices. At present, the labor market is strong, with unemployment hovering just above 4 percent for most of the past year. Inflation has fallen significantly from the postpandemic peak but remains somewhat above our 2 percent goal.

Because monetary policy takes time to influence the economy, though, the question isn’t just where the economy is today but also where it’s headed. Such forecasts are never certain. And the wide array of ongoing changes in federal policies makes the current outlook even more difficult to pinpoint.

But just as all of you must make decisions every day to lead your organizations without knowing the future for certain, my job as a policymaker is to make the best monetary policy decisions I can in light of the current data and the uncertainty we face. When I look ahead, I see a balance of risks. Tariffs could push up inflation, at least temporarily. And if expectations of higher inflation became entrenched, inflationary pressures could persist and become very costly to reverse. Stimulative federal fiscal policy or changes in regulations could also boost investment and consumer demand. On the other hand, economic uncertainty and financial market volatility could prompt consumers and businesses to pull back, slowing the economy. And tariffs could weigh on employment in sectors that rely heavily on imported materials.

For now, with the labor market holding strong, inflation trending gradually back to target, and risks to the FOMC’s objectives roughly balanced, I believe monetary policy is in a good place. It could take quite some time to know whether the balance of risks is shifting in one direction or another. But if the balance shifts, we’ll be well prepared to respond.

That’s an overview of how I’m thinking about the national economy, but many factors go into my outlook, so I’d be happy to take your questions.