Thank you, Professor Wieland, for the introduction, and thank you to the Institute for Monetary and Financial Stability for the opportunity to speak to you today.1 I come here at a moment of great challenge for Germany and Europe, and a moment in which it has never been more evident that the interests of Europe and the United States are closely aligned. America stands with Europe in defending Ukraine because we all understand that an assault on democracy in Europe is a threat to democracy everywhere. We also face the common challenge of excessive inflation, which is no coincidence, since Germany and other countries are dealing with many of the same forces driving up inflation in the United States.

Fortunately, in response to this moment of common challenges and interests, Europe and the United States have strengthened our ties and I believe we are more unified today than we have been for decades. We see that in the deepening and possible broadening of our security commitments, and we also see it in the strong commitment that central banks in Europe and elsewhere have made to fight inflation.

In today's distinguished lecture I will deal with two distinct topics, both of which I believe will be of interest. First, I will provide my outlook for the U.S. economy and how the Federal Reserve plans to reduce inflation and achieve our 2 percent target. Then I will pivot to a more academic discussion of the labor market and the possibility of a soft landing in which taming inflation does not harm employment.

Let me start with the economic outlook for the United States. Despite a pause early this year in the growth of real gross domestic product (GDP), the U.S. economy continues to power along at a healthy pace. The contraction in output reported in the first quarter was due to swings in two volatile categories, inventories and net exports, and I don't expect them to be repeated. Consumer spending and business investment, which are the bedrock of GDP, were both strong, and more recent data point toward solid demand and continuing momentum in the economy that will sustain output growth in the months ahead.

Another sign of strength is the labor market, which has created 2 million jobs in the first four months of 2022 at a remarkably steady pace that is down only slightly from the 562,000 a month last year. Unemployment is near a 50-year low, and both the low numbers of people filing for unemployment benefits and the high number of job openings indicate that the slowdown in the economy from the fast pace of last year isn't yet weighing on the job market. Some look at labor force participation, which is below its pre-COVID-19 level, as leaving a lot of room for improvement. However, there are underlying factors that explain why participation is depressed, including early retirements and individual choices associated with COVID concerns. Whatever the cause, low participation has contributed to the fact that there are two job vacancies for every one person counted looking for a job, a record high. Before the pandemic, when the labor market was in very solid shape, there was one vacancy for every two unemployed people. As I will explain, this very tight labor market has implications for inflation and the Fed's plans for reducing inflation. But on its own terms, we need to recognize that robust job creation is an underlying strength of the U.S. economy, which is expanding its productive capacity and supporting personal income and ongoing economic growth, in the face of other challenges.