Good day. My second FOMC committee meeting as chairman has come quickly. It's probably too early to call it a streak, but our discussions again were collegial and constructive. I'm truly lucky to work with colleagues so capable and mission focused and so determined like I am to sharpen the performance of the Federal Reserve. Today, as you know, our committee decided to vote by a 9-to-3 vote to maintain the target range for the federal funds rate at 3 and 1/2 to 3 and 3/4%. The committee is continuing its policy of making ample reserves in the banking system. The economy is showing impressive resilience even with recent shocks. The trends are positive and reveal solid growth. Job gains have kept pace with the workforce and the unemployment rate has changed little. Inflation remains elevated relative to the committee's 2% goal. The committee remains resolute. You've heard this before, but we will deliver price stability.
As before, the policy statement conveys just the facts. It's steering clear of forecasting, a choice we consider especially prudent at these uncertain times. Uncertainty, however, does not mean a lack of clarity. For some households, businesses, and market professionals, five years of high inflation have left a mistaken impression that's hard to shake. That the Fed's implicit inflation target was somehow above 2%. Let me reiterate, there is no soft inflation target. There is no soft implicit target, not on this committee's watch. There's only a target, and it's 2%. Not one of my FOMC colleagues is under any illusion. We have begun a new chapter and we understand that the five plus years of inflation above target cannot be cured in nine weeks or by a single month of modest price decreases. This Fed will not waver. Our credibility rests on performing our duties and delivering on our responsibilities. Americans are right to expect that because our nation's prosperity depends on it. To the regulars here in the press room, today's assessment might sound familiar. Yet, there was nothing inertial about our discussions, our policy, or our strategy.
Two economic developments are worth highlighting. The first is a very notable change since our last meeting 42 days ago. Nominal and real yields are materially higher across the Treasury curve. In fact, some of the increases in market interest rates between FOMC meetings are among the most significant in the last two decades, ranking around the top decile or so. But if the committee didn't change its policy rate, what happened? In the intervening period, market attention centered on real data and real economic developments. Prices reacted in real time to incoming information, and the reduction in forward guidance may have been a factor. Market participants are learning to play the ball, not the referee. And market prices will continue to respond in the direction and magnitude they see fit. This is in my view a change for the better and we're just getting started. After all, the central bank need not always and everywhere be the center of attention. I understand the desire for rolling forecasts and commentary from this committee, but for our part, we need to observe market reaction to developments direct and unfiltered. I want to stress, of course, that decisions by this committee matter a great deal and where necessary and appropriate, we will not hesitate to act.
A second economic development is one that I noted at the congressional oversight hearings this month, but it's worth repeating. The most striking feature of the economy is the strong growth of business investment. The surge in high-tech capex has been remarkable, but that does not necessarily make the Fed's role any easier. In the AI related category of high tech equipment and software, the most recent data shows four quarter growth rates of nearly 20%. This is helping to sustain the healthy momentum of manufacturing output. More generally, CAPEX is preparing the ground for future growth. Nonetheless, the precise timing and magnitude of effects on the supply side remain hard to predict.
FOMC meetings produce policy decisions, but just as important is candid discussion of the big things that matter most. That too is a priority in this new chapter at the Fed. In our meeting, vigorous discussion centered on four questions which I will enumerate. First, we talked a lot about the implications of the past five years of high inflation on the current policy conjuncture. To echo an old phrase, has the past really passed? Second, my colleagues and I considered the economic shocks of recent years, strained supply chains arising from the pandemic, military conflicts, energy supply disruptions, substantial increases in tariff rates, and yes, the surge in AI related investment. These differ in their sources. Do they also differ in their effects on output and employment? Third, we took up the related question of price increases arising from shocks. The business capex boom, for example, is driving up prices of memory and logic chips and associated AI infrastructure. Do these changes indicate a broader inflationary dynamic or do we just focus on them because they are under the bright street light? Finally, we discuss monetary policy tools and strategies for achieving stable prices. If, as the Fed has long held, interest rate policy should be its primary monetary policy instrument, how much accommodation are we getting from the balance sheet? In all of this, our work is advancing at the Fed. We're asking the right questions. And in this consequential time, we know how very much depends on getting the right answers. Of course, you've all arrived with questions of your own. So, let's turn to them now.
Start with Steve.
Uh, thank you for taking our questions, Mr. Chairman. Sure. Um, you've had a couple months now or nine weeks or whatever number it is um to see the markets behave in the absence of uh forward guidance. I'm wondering if you could tell me what message are you getting from the markets as to where policy ought to be right now.
Yeah. So, I think officially it's eight weeks and four days, but uh I'm not counting. Uh, the message from markets is the message from markets. What I've really been trying to do, Steve, as I think you appreciate, your colleagues appreciate, is getting an unfiltered message from markets, getting a direct message. Um, letting buyers and sellers meet at prices for treasuries, for the foreign exchange value of the dollar, and then trying to judge for ourselves what does that mean about our remit. How are we doing on inflation? How are we doing on employment? Um, we're trying not to interfere with that market signal. That's part of the reason why we've been somewhat spare in our words, why we pulled back from forward guidance. So, they're reacting to events, I would say, much more directly over the 42 days since we last met. This is a good thing. As I mentioned in the prepared remarks, we've seen a material tightening not just in nominal rates, but in real rates, too. And um we're observing it. We're trying to stay out of that because, you know, many of you might be interested in our reaction function. We're interested in the reaction of financial markets.
I I I get that, Mr. Chairman. And I guess the follow-up question is if the markets are talking to you, what do you hear them saying? And if it's real rates or higher, it would suggest that that's where the funds rate ought to go.
Yeah. So in interpreting markets is an imperfect business. We central bankers like market pros can think these things are overdetermined. But let me offer uh some speculation. First, as we said in the FOMC statement that you got at 2 o'clock, the economy output is solid. Uh capex and productivity are strong. Uh labor markets solid, steady. Um, the bond market, the treasury market, it seems to be saying that as well. If I were to try to break down, disaggregate the Treasury market signals, I wouldn't be able to do it perfectly. But the bond market's saying many of those same things and that's why we're seeing a tightening both in nominals and in reals. Even while at some level we haven't done much in 42 days, uh the markets have done quite a bit.
Claire Jones, Financial Times. Um, you seem to have got the family fight you were after at this meeting. We saw um we saw three dissents. Um, could you characterize the arguments that those dissenters put forward please and tell us a little bit why you weren't persuaded by them at this stage. Thank you.
So I guess I shouldn't give you their best arguments. I'll give you some others. Um, so you were right. I asked for a good family fight and I got one. That's the purpose. That's the design feature. I come into this meeting, even this press conference, heartened by what I've experienced the last two days. Most of our discussion were on the big questions that matter to the conduct of monetary policy. We didn't sort of hide from them. We weren't scared of them. There was a lot more interaction between and among my colleagues. It was a real family fight. Um, my view, which you've long heard, is uh that's the better way to get policy right. That's our north star. So there was a lot of agreement that I heard that we have the powers, the tools, also the authority to deliver stable prices. No walking back from our responsibilities. Um, there was a large majority support for the decision that we made in the room. But I also want to leave you, Claire, with one other impression. There was nothing inertial about that discussion. It was an active, robust discussion about what's in the full range of what we can do and might want to do in the period ahead. Um, you characterized accurately there was a disagreement about a decision today. I would say that doesn't sort of capture the full essence of the discussion. Um, the path to central bank heaven requires delivering on our remit these days. That means delivering on price stability. I wouldn't measure that path in 42 days or any one particular meeting, and I came out of that meeting even more confident that this is the right team to win the battle against high inflation.
How much do you think um not going in July was down to the cool CPI print for June?
So in two words, not much. Not much. Um, I'd like to believe that the committee shares my views, which is the historic problem with data dependence is the data and the dependence. We are not relying on any one individual piece of data as cover or as an excuse or as validation. Um, what I care about and what I think the committee cares about is trends on the data. Um, sure we got some encouraging inflation data. I think at the meeting 42 days ago I said something like 63 months of inflation above target. I didn't say 64 though the final calculation might be a close one. So we'll be watching inflation data over the period ahead. But I also don't want you to leave with the misimpression that we're sort of breathlessly waiting. Um, I've called for a task force to revisit both the private and public data we use to make our decision-making. That task force is out doing their work. I'll be checking back in with them the next couple of weeks, but I wouldn't say we overly relied on any one piece of data, including that data which surprised some a couple of weeks ago.
Hi, Chairman Warsh. Thanks, Neil Irwin with Axios. Thank you for taking our questions. Um, so the Fed funds rate is now about 75 basis points below the two-year yield. Uh, suggest markets think you'll have to tighten eventually about 100 basis points below most Taylor rule estimates. You're hitting your employment mandate. Inflation stays high. Why should rates not be higher today?
There's a lot in there, Neil. Um, so rates are higher today than they were 42 days ago. Um, markets have made decisions because we step back in part from trying to influence those. Market judgments have moved up on what nominal rates are across the Treasury curve. That doesn't mean we take them as by dictation, but we're observing them. So, I think it's a mischaracterization to say that markets haven't reacted because we didn't move today. Markets are reacting in real time. Uh, in the period ahead, we've got important decisions to make about the policy rate. Markets in the intervening period, I think, have quite a bit of uh decisions to make. I'll see if I can put it this way. Uh, monetary policy matters not just by what we say or even what we do. Monetary policy matters by how it affects the real economy. And these prices that we see in financial markets is one of the many ways in which it affects the real economy. Um, we'll be continuing to watch that market information, see how it responds to incoming events, and that can help inform our decision-making when we meet in seven or eight weeks.
How would you characterize of the in the family fight the last couple of days of you and the other eight members who wanted to hold? Was that a strong conviction or was that a hair trigger uh close call on holding versus tightening?
Well, I think uh you know the vote was 9 to 3. Um, the broader discussion to my ear over the course of the last days showed a lot of agreement on the hard questions. Uh, the four questions I raised at the outset about what's really happening in the economy with the shocks and absent the shocks. What are our tools and our capabilities? Um, what's the effect on prices on output? I heard a lot of commonality on the questions. Were there different leans on the answers? You bet there was. Um, so could people come to different conclusions? Absolutely. But my own judgment is um this is a period of watchful thinking, not watchful waiting. And I think the score on that vote was unanimous.
Thank you. Colby Smith with the New York Times. You've mentioned that looking at the Fed's policy tools is one element of a three-prong strategy to address the inflation problem. So, I'm curious how you view the effectiveness of those tools. If inflation is too high and not coming down, is the best remedy to raise interest rates?
So, that was the discussion in the last two days. Is that the dominant remedy if inflation continues to be elevated through the forecast period? Interest rates could well be part of that solution, but I wouldn't say it's in isolation. Um, I tried to describe in my remarks today a point that I made to the oversight committees a couple of weeks ago. I think there was a misimpression by some in financial markets, by some households and businesses that central bankers like me, we set a 2% inflation target, but maybe we were more tolerant of a somewhat higher inflation target. In economics, we'd call that the revealed preference. And so, might it have been rational for people to think, well, their inflation target is somewhat higher. What I heard in the last two days, what I've heard in eight and a half weeks is no, we will deliver the 2% inflation target. That is the committee's definition of price stability. So, one way absent the tools that you referenced to ensure that we get there is ensure that expectations are centered around the right number. Um, and I think we made some progress on that. I am not suggesting we're done on that. It's worth reiterating. And ultimately the business we're in, Colby, is performance. We are going to be judged by how we perform. Um, and that's what we intend to do. The inflation target making clear expectations is one part of it. Making sure we demonstrate we're responsible for it, we're not blaming, is another. And our policy tools like you referenced is the third and equally consequential part.
How are you factoring the fact that a large portion of the inflation overshoot is being caused by supply shocks as it's mentioned again in the statement? Does that blunt the effectiveness of rate hikes in your view?
Um, first on the premise of your question, it was almost as if you were listening to our discussion the last day and a half. A lot of our focus was on trying to understand and identify underlying inflation dynamics amid shocks. We take these shocks seriously. There have been a series of them that have been hitting this economy. We're not looking through them and saying, "Oh, they don't matter." But we're trying to understand to what extent are these shocks broadening in their effect, broadening in their impact on prices that are quite far removed from it. Our goal is to have growth that is broadening and inflation that is becoming more limited, more circumscribed. Uh, I'll be the first to admit the shocks make this job and this policy conjuncture a little tougher, but that's among the chief questions we've asked ourselves and around the room people have different views on it. I tend to think in the coming months we're going to refine that view and have a better judgment and we're going to have market prices trying to help inform it, too.
Uh, thank you, Mr. Chairman. Edward Lawrence from Fox Business. I guess I want to drill down maybe a little bit. What specifically in your mind would be the argument then for a pause today?
So I wouldn't characterize what we did as anything like a pause. I would characterize what we did as a rigorous review of the economic situation. I would characterize what we did as a review of the big hard questions and I'd characterize it as a view of what our own homework is to try to resolve those questions in the period ahead. Um, if you were to try to force a description that this was a pause, I would say financial market prices would take the other side of that. Financial market prices in this intervening period, they didn't pause. They reacted to the inflation data in one direction, strong economic growth in the other direction. Um, and uh, nominal and real rates went up. Did the Fed take an explicit change in its policy rate today? No. But I think that's the beginning of the story, not the end of the story.
And if I could, I did want to ask, not forward guidance, but looking forward. Traditionally, a Federal Reserve chairman uses the Jackson Hole summit as a sort of a reset of monetary policy. How do you look at the speech that you're going to make in August?
