CEOInterviews.AILIVE: Federal Reserve Announces Major Interest Rate Decision | Jerome Powell

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Jerome Powell0:00

We also decided to conclude the reduction of our aggregate securities holdings as of December 1. I will have more to say about monetary policy after briefly reviewing economic developments. Available indicators suggest that economic activity has been expanding at a moderate pace. GDP rose at a 1.6% pace in the first half of the year, down from 2.4% last year.

Data available prior to the shutdown show that growth in economic activity may be on a somewhat firmer trajectory than expected, primarily reflecting stronger consumer spending. Business investment in equipment and intangibles has continued to expand while activity in the housing sector remains weak.

The shutdown of the federal government will weigh on economic activity while it persists, but these effects should reverse after the shutdown ends.

In the labor market, the unemployment rate remained relatively low through August. Job gains have slowed significantly since earlier in the year. A good part of the slowing likely reflects a decline in the growth of the labor force due to lower immigration and labor force participation, though labor demand has clearly softened as well.

Although official employment data for September are delayed, available evidence suggests that both layoffs and hiring remain low and that both households' perceptions of job availability and firms' perceptions of hiring difficulty continue to decline. In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months.

Inflation has eased significantly from its highs in mid-2022, but remains somewhat elevated relative to our 2% longer-run goal. Estimates based on the consumer price index suggest that total PCE prices rose 2.8% over the 12 months ending in September and that, excluding the volatile food and energy categories, core PCE prices rose 2.8% as well.

These readings are higher than earlier in the year as inflation for goods has picked up. In contrast, disinflation appears to be continuing for services. Near-term measures of inflation expectations have moved up on balance over the course of this year on news about tariffs as reflected in both market and survey-based measures. Beyond the next year or two or so, however, most measures of longer-term expectations remain consistent with our 2% inflation goal.

Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. At today's meeting, the committee decided to lower the target range for the federal funds rate by a quarter percentage point to 3 and 3/4 to 4%.

Higher tariffs are pushing up prices in some categories of goods, resulting in higher overall inflation. A reasonable base case is that the effects on inflation will be relatively short-lived, a one-time shift in the price level. But it is also possible that the inflationary effects could instead be more persistent. And that is a risk to be assessed and managed. Our obligation is to ensure that a one-time increase in the price level does not become an ongoing inflation problem.

In the near term, risks to inflation are tilted to the upside and risks to employment to the downside. A challenging situation. There is no risk-free path for policy as we navigate this tension between our employment and inflation goals. Our framework calls for us to take a balanced approach in promoting both sides of our dual mandate.

With downside risks to employment having increased in recent months, the balance of risks has shifted. Accordingly, we judged it appropriate at this meeting to take another step toward a more neutral policy stance.

With today's decision, we remain well positioned to respond in a timely way to potential economic developments. We will continue to determine the appropriate stance of monetary policy based on the incoming data, the evolving outlook, and the balance of risks. We continue to face two-sided risks.

In the committee's discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it. Policy is not on a preset course.

At today's meeting, the committee also decided to conclude the reduction of our aggregate securities holdings as of December 1. Our long-stated plan has been to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions. Signs have clearly emerged that we have reached that standard.

In money markets, repo rates have moved up relative to our administered rates and we have seen more notable pressures on selected dates along with more use of our standing repo facility. In addition, the effective federal funds rate has begun to move up relative to the rate of interest on reserve balances. These developments are what we expected to see as the size of our balance sheet declined and warrant today's decision to cease runoff.

Over the three and a half years that we've been shrinking our balance sheet, our securities holdings have declined by $2.2 trillion. As a share of nominal GDP, our balance sheet has fallen from 35% to about 21%. In December, we'll enter the next phase of our normalization plans by holding the size of our balance sheet steady for a time while reserve balances continue to move gradually lower as other non-reserve liabilities such as currency keep growing.

We will continue to allow agency securities to run off our balance sheet and will reinvest the proceeds from those securities in Treasury bills, furthering progress toward a portfolio consisting primarily of Treasury securities. This reinvestment strategy will also help move the weighted average maturity of our portfolio closer to that of the outstanding stock of Treasury securities, thus furthering the normalization of the composition of our balance sheet.

The Fed has been assigned two goals for monetary policy, maximum employment and stable prices. We remain committed to supporting our maximum employment, bringing our inflation sustainably to our 2% goal, and keeping longer-term inflation expectations well anchored. Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals. Thank you. I look forward to your questions.

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Nick Timmeros7:00

Nick Timmeros of the Wall Street Journal. Chair Powell, are you uncomfortable with how market pricing has assumed a rate cut is a foregone conclusion at your next meeting?

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Jerome Powell7:15

Well, as I just mentioned, a further reduction in the policy rate at the December meeting is not a foregone conclusion, as I've just said. So, I would say that that needs to be taken on board. We had, you know, I would just say this, 19 participants on the committee. Everyone works very hard at this and takes their obligations to serve the American people very seriously. And at a time when we have tension between our two goals, we have, you know, strong views across the committee. And as I mentioned, there were strongly differing views today. And the takeaway from that is that we haven't made a decision about December and, you know, we're going to be looking at the data that we have, how that affects the outlook and the balance of risks.

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Nick Timmeros8:00

You and some of your colleagues have framed last month and maybe today—I won't put words in your mouth—as a risk-management exercise. At what point do you conclude that you've taken out enough insurance? Are you looking for some kind of improvement in the outlook or could this unfold along the lines of last year where you made a sequence of adjustments and then waited to gather more information?

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Jerome Powell8:27

So the way I've been thinking about it is the risks to the two goals. For a very long time, the risk was clearly of higher inflation and then that has changed now. And as we saw, particularly after the July meeting, we saw the downward revisions in job creation, we saw a very different picture of the labor market and suggested that there were higher downside risks to the labor market than we had thought. And that suggested that policy, which we had been holding at a, I would say, modestly—others people would say moderately—restrictive level, needed to move more in the direction over time of neutral. If the two goals are sort of equally at risk, then you ought to be at neutral because one of them's calling for you to hike and one of them is calling for you to cut. So if that got back into balance, then you'd want to be roughly at neutral. So in that sense, it was a risk-management exercise and I would say the same about today, sort of the same logic. But as I mentioned, going forward is a different thing.

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Claire Jones9:29

Claire Jones, Financial Times. Thank you for taking this question. We've just heard from you that the discussion in December and the conclusion of the discussion is not a foregone conclusion. I'd like to just dig into that a little bit more about what sort of arguments were brought up. Was there any consideration, for instance, of the investment we're seeing in AI and some of the generation of household wealth through rises in stock prices related to the AI boom?

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Jerome Powell10:07

You know, I wouldn't say that's a factor in everyone's assessment of the economy. I wouldn't say it's the driving factor, I don't think, for anybody. You know, I guess I would say it this way once again. I would just point out that we have the situation where the risks are to the upside for inflation and to the downside for employment. We have one tool. It can't do both of those. So, you can't address both those at once. You've got a very different situation. So, you have some people—people have different forecasts, right? So, they'll feel they'll forecast faster or slower progress on one or the other. And they also have different levels of risk aversion. And, you know, some will be more averse to inflation overruns and some will be more averse to underruns of employment. And so you put that together and as you can see from the SEP and from the public discussion that goes on between the meetings when, you know, participants go out and talk, they're very disparate views and they were reflected in strongly differing views in today's meeting as I pointed out in my remarks. And that's what leads me to say that we haven't made a decision about December. You know, I always say that it's a fact that we don't make decisions in advance, but this is—I'm saying something in addition here—is that it's not to be seen as a foregone conclusion. In fact, far from it.

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Claire Jones11:26

Can I just ask a quick follow-up on QT? How much of the funding pressures we've seen in money markets are related to the US Treasury issuing more short-term debt?

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Jerome Powell11:38

You know, that could be one of the factors, but the reality is we've seen, you know, the things that we've seen—higher repo rates and federal funds rate moving up. These are the very things that we look for. We actually have a framework for looking at, you know, what the place we're trying to reach. What we said for a long time now is that when we feel like we're a little bit or a bit above what we consider a level that's ample, that we would freeze the size of the balance sheet. Of course, reserves will continue to decline from that point forward as non-reserve liabilities grow. So, this happened, some things have been happening for some time now, showing a gradual tightening in money market conditions. Really, in the last, call it three weeks or so, you've seen more significant tightening and I think a clear assessment that we're at that place. The other thing is, you know, the balance sheet is shrinking at a very, very slow pace now. We've reduced it by half twice. And so there's not a lot of benefit to be, you know, holding on to get the last few dollars because, you know, again, reserves are going to continue to shrink as non-reserves grow. So, you know, there was support on the committee as we thought about it to go ahead with this and announce effective December 1 that we will be, you know, freezing the size of the balance sheet and that the December 1 date gives the markets a little bit of time to adapt.

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Colby Smith13:05

Colby Smith with the New York Times. So much of the rationale for cutting interest rates even as inflation moves away from the 2% target seems to be, you know, that there are these mounting downside risks to the labor market. But if those don't materialize and the labor market either stabilizes around current employment levels or even starts to strengthen somewhat, how would that change your perception of how much interest rates need to fall from here? Would you then be a bit more concerned about underlying inflation and the possibility of second-round effects from tariffs?

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Jerome Powell13:38

Yeah, I mean, in principle, if you were to see data that suggested that the labor market is strengthening or even that it's stabilizing, you know, that would certainly play into our decisions going forward. So, and we do have, you know, we get some data. The labor market is a place where we get, for example, we get the state-level data on initial claims which are sending a sort of a signal of more of the same. We also get job openings and we'll get lots of survey data. We'll get the Beige Book and things like that. So, we'll have a picture of what's going on in the labor market. And, you know, the fact that we're not seeing an uptick in claims or a downtick really in openings suggests that you're seeing maybe continued very gradual cooling, but nothing more than that. So, that does give you some comfort.

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Colby Smith14:24

But if this shutdown lasts a while longer and you don't have that data in hand, I'm just wondering how that hinders the committee's ability to assess the state of the labor market and make the right policy decisions and also how much is that factoring into the debate about December?

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Jerome Powell14:40

Yeah. So, you know, we get, like I mentioned, what we get in the labor area. We get some data in inflation, some data in economic activity. And we'll have a picture of what's going on. And we also will have the Beige Book. Again, I would say we're not going to be able to have the, you know, the detailed feel of things, but I think if there were a significant or material change in the economy one way or another, I think we'd pick that up through this. So, in terms of how it might affect December, it's really hard to say. December's, you know, the meeting is I guess six weeks away. We just don't know what we're going to get. If there is a very high level of uncertainty, then, you know, that could be an argument in favor of caution about moving, but we'll have to see how it unfolds.

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Steve Liesman15:32

Steve Liesman, CNBC. Mr. Chairman, can you characterize the meeting in terms of—you said strongly differing views—was this a close call, this cut, or was it a close call maybe the other way because you had dissents on both sides?

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Jerome Powell15:51

So I was referring to the discussion about, to the extent it related to December. You saw we had two dissents, one for 50 and one for no cut. So, you know, that was a strong, solid vote in favor of this cut. The strongly differing views were really about the future. What does that look like? And I think people are saying, you know, they're noticing stronger economic activity. You know, forecasters generally broadly have raised their economic growth forecast for this year and next year in some cases quite materially. In the meantime, we see, you know, a labor market that's kind of—I don't want to say stable, but it's not clearly in motion. It's not clearly declining quickly. In any case, it may be just continuing to gradually cool. And again, people have different forecasts and expectations about the economy and different risk tolerances. And so there's a, you know, you read the SEP, you read the speeches, you know, there are different views on the committee and to the point where I said what I said.

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Steve Liesman16:55

And just to follow up on the balance sheet, if you stop the runoff now, does that mean you have to go back to actually adding assets sometime next year so that the balance sheet doesn't shrink as a percentage of GDP and become a tightening factor?

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Jerome Powell17:11

So, you're right. The place we'll be on December 1 is that the size of the balance sheet is frozen and as mortgage-backed securities mature we'll reinvest those in Treasury bills which will foster both a more Treasury balance sheet and also a shorter duration. So that's what—in the meantime, if you freeze the size of the balance sheet, the non-reserve liabilities, currency for example, they're going to continue to grow organically and because the size of the balance sheet is frozen, you have further shrinkage in reserves and reserves is the thing that we're managing that has to be ample. So that'll happen for a time but not a tremendously long time. We don't know exactly how long but at a certain point you'll want to start reserves to start gradually growing to keep up with, you know, the size of the banking system and the size of the economy. So we'll be adding reserves at a certain point and that's the last point. Even then, we didn't make decisions about this today but we did talk today about the composition of the balance sheet and there's a desire that the balance sheet be—right now it's got a lot more duration than the outstanding universe of Treasury securities and we want to move to a place where we're closer to that duration. That'll take some time. We haven't made a decision about the ultimate end point, but we all agree that we want to move more in the direction of a balance sheet that more closely reflects the outstanding Treasuries, and that means a shorter duration balance sheet. Now, this is something that's going to take a long time and move very, very gradually. I don't think you'll notice it in market conditions, but that's the direction of things.

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Janelle Marte18:51

Janelle Marte with Bloomberg. How are officials interpreting the latest CPI report? So some components came in lower than expected but core inflation was still at 3%. So at this moment, what are you learning about the drivers and also do you view that the risks are greater that the Fed makes a mistake on employment or inflation?

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Jerome Powell19:20

So okay, so the September CPI report—we didn't get PPI after that which is important for translation into what we look at which is PCE inflation—but we can still make a pretty good assessment of what that will be. When we get PPI there might be some adjustments but so directionally, you know, it was a little softer than expected and we always break it down into the three components. So basically, you've seen goods prices increasing and that's really due to tariffs and that's in comparison to a longer-run trend of very, very mild deflation in goods. So that's moving inflation up. On the other side of that, good news that housing services inflation has been coming down and is expected to continue to come down. So if you remember a year, a couple years ago, that's the one that we kept expecting it to do that. Now it's been doing that for some time and we expect to continue that. That leaves the biggest category is services other than housing services and that's kind of been moving sideways over the last few months but a significant part of that is non-market services and we don't take a lot of signal about the tightness of the economy from that. So, if you add all that up, a couple things to say. One is that inflation away from tariffs is actually not so far from our 2% goal. And we estimate—people have different estimates of what that is—but it might be, you know, five or six tenths. And so that, you know, if it's 2.8, then core PCE not including tariffs might be 2.3 or 2.4 in that range, something like that. So, that's not so far from your goal. So we look at that and the thing about tariff inflation is the base case is that it will come and it probably will increase further but it is that it will be a one-time increase. And, you know, we've been very focused for all of this year at making sure that that's the case and thinking carefully about what are the pathways through which it could become something else, troublesome inflation. One of those would be, you know, a really tight labor market. We don't see that. Another could be inflation expectations moving. We don't see that. So, I think, you know, we're watching this very carefully. I think it's not the case that we're just assuming that it's going to be a one-time inflation. We understand fully that this is a risk we have to monitor and ultimately manage.

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Janelle Marte21:50

With the stubborn services inflation, what are some of the things that the Fed could do to address that? And especially when we're seeing potentially labor supply challenges.

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Jerome Powell22:01

Sorry, say the first part.

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Janelle Marte22:03

The stubborn services inflation.

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Jerome Powell22:05

Services inflation. Yeah. Well, again, the part of services inflation that isn't coming down as we would like it to is the non-market part of non-housing services. And, you know, overall, that's just something that we expect will come down. The non-market part of it should come down. It largely reflects higher stock prices and—I mean, financial services that are imputed rather than actually paid—is a big part of that. But also just, you know, we think policy is still modestly restrictive in my telling. So that's the kind of thing that should lead to a gradually cooling economy. That's one of the reasons you see a gradually cooling labor market is because, you know, Fed policy is modestly restrictive. So that should also help get that. I want to say though, we're absolutely committed to returning inflation to 2%. If you look at longer-term surveys or market pricing, you will see that that's a credible commitment and there should be no question that that's where we're going.

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Chris Rugaber23:12

Chris Rugaber, Associated Press. So there's a big investment boom in AI infrastructure right now as you know and wondering if the existence of such a boom would indicate that rates are not that restrictive after all and could further rate cuts at this point perhaps fuel an excess level of investment there or market bubbles. How is the Fed thinking about that?

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Jerome Powell23:41

So I don't think that—you're right, there are a lot of data centers being built and other investments being made around the country and around the world. And big US companies are just investing a lot of resources in thinking about how AI, which will be based on those data centers, run through those data centers, is going to affect their businesses. So it's a big deal. I don't think that the spending that happens to build data centers all over the country is especially interest-sensitive. It's based on longer-run assessments that this is an area where there's going to be a lot of investment and that's going to drive higher productivity and those sorts of things. I don't know how those investments will work out but I don't think they're particularly interest-sensitive compared to some of the other sectors.

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Chris Rugaber24:36

And then just a quick follow-up, you mentioned that you do have data that you're looking at for inflation and growth in the absence of government data. Could you give us a sense? I think we know a lot about the jobs data that's out there. Can you give us a sense of what you're looking at to track inflation in the absence of government data?

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Jerome Powell24:54

So, it's a lot of things and it doesn't replace government data, but, you know, all of these—it's, I'll just mention some of the many, many names: PriceStats, Adobe and others. And for wage inflation, there's ADP data. On spending, you're going to ask about spending at some point. You know, there are lots of other things that we look at, but it's again, it's many different sources and again including what we get out of the Beige Book, which will be sort of come out mid-cycle as always. And it doesn't replace the government data, but it gives us a picture again. I think if something material were happening, if there were material developments, I think we would pick that up. I don't think we'll be able to have the very granular understanding of the economy while this data is not available.

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Howard Schneider25:48

Howard Schneider with Reuters. Thank you. I just want you to elaborate a little bit on what you said a moment ago about the continued shutdown making it more difficult to make a move in December and that may make you more cautious. To the degree you are relying on private data that isn't the gold standard or that you're relying on your own surveys or the Beige Book, do you worry at some point you're going to have to start making policy by anecdote?

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Jerome Powell26:20

You know, this is a temporary state of affairs and, you know, we're going to do our jobs. We're going to collect every scrap of data we can find, evaluate it, and think carefully about it. And that's our job. So that's what we're going to do. If you ask me, could it affect the December meeting? I'm not saying it's going to, but yeah, you could imagine that, you know, what do you do when you're driving in the fog? You slow down. So that could or could not—I don't know how that's going to play into things. We may get—the data may come back, but there's a possibility that it would make sense to be more cautious about moving. I'm not committing to that. I'm just saying it's certainly a possibility that you would say, we really can't see, so let's slow down.

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Howard Schneider27:06

As a follow-up in the debate on this meeting, we saw recently some pretty big layoff announcements coming from Amazon and others. Wondering if that figured into the discussion at all, that you're starting to see the turn, this tension between growth and employment starting to be resolved, you know, to the detriment of employment. And secondly, some of the stress is starting to appear in the bottom spur of the K as they call it, household health premiums that are going to possibly be going up quite substantially, things like that. Has that started to become a factor in your policy discussion?

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Jerome Powell27:39

So those are both things, you know, that we're watching very, very carefully. To start with, the layoffs. You're right. You see a significant number of companies either announcing that they are not going to be doing much hiring or actually doing layoffs and much of the time they're talking about AI and what it can do. So, we're watching that very carefully and, you know, yes, it could absolutely have implications for job creation. We don't really see it in the initial claims data yet. Now, it's not a surprise that we don't. It takes some time for it to get in there, but we're watching that really carefully. But again, don't see it yet in the initial claims data. On the K-shaped economy thing, I would say the same thing or similar thing. We are—if you listen to the earnings calls or the reports of, you know, big public consumer-facing companies, many of them are saying that there's a bifurcated economy there and that consumers at the lower end are struggling and buying less and shifting to lower-cost products but that at the top, people are spending at the higher income and wealth. And there you have so much anecdotal data on that and so we think there's something there.

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Edward Lawrence29:10

Edward Lawrence with Fox Business. So Mr. Chairman, I want to take another crack at the further reduction in rates is not a foregone conclusion. So in December, you said far from it. So if a cut might not be on the table for December because of lack of data, what does the other concerns then stem from? So if it's not lack of data as the reason December is not a foregone conclusion, what other things could be the concern then?

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Jerome Powell29:40

Well, the perspectives of people on the committee that, you know, we've now moved 150 basis points and that we're down into, you know, the range between three and four where most estimates of the neutral rate live in that 3 to 4% area. You're there now. You're above the median number for the committee, but I think there are people on the committee who have higher estimates of the neutral rate and that's—you can argue these positions since it can't be directly observed, the neutral rate. You know, I think for some part of the committee, it's time to maybe take a step back and see whether there really are downside risks to the labor market or see whether in fact the stronger growth that we're seeing is real. Ordinarily the labor market is a better indicator of the momentum of the economy than the spending data. That's the lore. In this case, that gives a more downbeat read. So people just have—there again, we've cut 50 more basis points in the last two meetings and there was a sense like, let's—from some, let's pause here kind of thing and a sense from others wanting to go ahead. But that's why I say differing views, strongly differing views.

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Edward Lawrence31:06

So on that division then you're talking about going forward, so what's more important in this division? Is it inflation risks, is it employment risk, or is there a deeper philosophy division among the board?

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Jerome Powell31:18

I—look, everybody on the committee is deeply committed to doing the right thing to achieve our goals: maximum employment and stable prices. You have differences on how to do that and as I mentioned, some of that is different forecasts but a lot of it is also different risk aversions to the two different variables, which is common through all Federal Reserves. People just have different risk tolerances, let's say. So that leads you to people with disparate views. You will know that from the speeches you've been listening to from my colleagues. And so we're at a place now where we have in fact cut two more times. And, you know, we're now 150 basis points closer to neutral, wherever that may be, than we were a year ago. And so there's a growing chorus now of feeling like maybe this is where we should at least wait a cycle. Something like that. That's what it is. It's just what you think it would be. And again, you've seen it in the September summary of economic projections. You've seen this in the public remarks of FOMC participants and now I'm telling you that's what you can expect in the minutes. And I'm just telling you that's what happened in the meeting.

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Elizabeth Schulze32:31

Elizabeth Schulze with ABC News. What is your explanation for why the job market is weakening right now and what will this rate cut do to improve the job market?

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Jerome Powell32:45

So I think there are two things affecting the job market and one of them is just a dramatic reduction in the supply of new workers. So, and that's two things. That's declining labor force participation, which is a cyclical thing, and then there's declining immigration, which is just a big policy change that actually began in the last administration and has been accelerated now. So, a big part of the whole story is that supply-side story. Okay. In addition, labor demand has declined and, you know, so the unemployment rate has gone down meaning that demand for workers has gone down a little more than supply. So that's what's going on and but it is mostly a supply function, you know, it's mostly a function of the change in supply I think and many people think. So the question then is what does our tool do which supports demand. And, you know, so I would just say when you're in a situation where job creation, if you adjust for likely over-counting in the way that BLS does its work, is pretty close to zero. So maximum employment on a sustainable basis—if you're creating zero jobs, if it's in equilibrium, if it's in balance, it's a pretty—as I said before—a pretty curious balance. So, you know, I thought and many of my colleagues thought, in fact you've seen the last two meetings, that it was appropriate for us to react by supporting demand with our rates and we've done that. We've reduced so that rates are looser—I wouldn't say that they're accommodative right now, but they're meaningfully less tight than they were. And that should help so that at least the labor market doesn't get worse. So, it's a complicated situation. And some people argue that this is supply and we really can't affect it much with our tools, but others argue, as I do, that there is an effect from demand and that we should use our tools to support the labor market when we see this happening.

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Elizabeth Schulze34:56

You also talked about tariffs causing a one-time price increase. Should American households, consumers expect that inflation will continue to go up this year because of those tariffs?

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Jerome Powell35:06

So, the basic expectation is that there will be some additional increased inflation because it takes a while for tariffs to work their way through the production chain and finally get to consumers. And we see this now from the tariffs that were put in place now many months ago. We see those effects. But if you put tariffs in effect and they've been coming into effect consistently in, you know, February, March, April, May, and that's all happening. So that'll continue to happen for some time, probably into the spring. These are not big increases, though. These are a tenth or so on inflation. They may be big increases on a particular product that's been tariffed, but overall, these are fairly modest. I think, you know, some projections go—we're at 2.8% core PCE inflation. You might get two or three more tenths or four more tenths maybe. But then as all the tariffs are in, they stop generating inflation. You've had a one-time price increase. As long as you're not—at least this is the theory. This is how we believe and hope that it will work out. Once the last tariff is put on something, at that point it becomes a higher price level, but it stops going up, if you will. Prices stop going up. They'll just be at that level and then measured inflation will come back down to non-tariff inflation. As I mentioned, non-tariff inflation is not so far from 2%. Now, consumers are not interested in that story. Their prices are higher. More than that, the reason they're so unhappy about inflation is the inflation that we had in 2021, '22, and '23. Because, you know, you can say that prices aren't going up as much, but that doesn't mean people aren't feeling those higher prices from the inflation we had two or three years ago. They are. And that's I think a large part of why the public view—sample people—inflation is still very much making people quite unhappy even, you know, and it's nice that prices are not going up as fast as they were, but they're still much higher than they were. And it'll take some time for that effect to wear off. As real incomes rise, it will feel better over time, but that's going to take time.

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Michael McKee37:17

Michael McKee from Bloomberg Television and Radio. Do you have any concerns that equity markets are or are close to being overvalued at this point?

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Jerome Powell37:30

You know, we don't look at any one asset price and say, 'Hey, that's wrong.' You know, it's not our job to do that. We look at the overall financial system and we ask whether it's stable, whether it could withstand shocks, right? So, you know, banks are well capitalized. While some households are clearly under stress, in the aggregate, households are in good shape financially, relatively manageable levels of debt. At the lower income spectrum you are seeing rising defaults particularly around subprime auto but nonetheless in the aggregate pretty good. And you don't see too much leverage in the banking system or the financial system. It's a mixed picture but it's not an overly troubling picture. And again, it's not appropriate—we don't set asset prices, markets do that.

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Michael McKee38:26

Well, you must be well aware that by lowering interest rates you're contributing to additional asset price increases. And I wonder how you balance the idea that lowering rates would help the labor market with the reality that it seems more likely to be stimulating increased investment in AI, which is the rationale for thousands of job cuts that have been announced in the last few weeks.

J

Jerome Powell38:49

Yeah, I don't think interest rates are an important part of the AI, of the data center story. I think, you know, people think there's great economics in building these data centers and they're making a lot of money building them and they think they have very high present value and all that sort of thing. It's not really about—it's not about 25 basis points here or there. You know, we use our tools to support the labor market and to create price stability. That's what we do. That's our two jobs, right? So we're here to—by lowering rates at the margin that will support demand and that will support more hiring and that's why we do it. Now, no 25 basis point or even 50 basis point hike is going to be a dispositive thing but ultimately, you know, lower rates will support more demand and that'll support hiring over time. Now, of course, we also have to be careful about this, which is what we've been doing because we know where inflation is and we know that, you know, I've told you the story. It's a complicated story, but this is the best assessment that we can make. And but, you know, because there's uncertainty around inflation and the path ahead for inflation, that's why the pace we're going has been a careful one.

V

Victoria Guida40:08

Victoria Guida from Politico. On AI, I'm just wondering, you know, it seems like a lot of the economic growth that we've been seeing is fed by investments in AI. So, how worried are you about what a sudden contraction in tech investment would mean for the overall economy? Is there enough strength in other sectors? And, specifically, are there any lessons that you take from the 1990s in how you might approach what's happening right now?

J

Jerome Powell40:38

Yeah, this is different in the sense that these companies—the companies that are so highly valued—actually have earnings and stuff like that. So if you go back to the '90s and the dot-com, they were ideas rather than companies and, you know, there was a clear bubble there whereas, you know, I won't go into particular names but they actually have earnings and, you know, it looks like they have business models and profits and that kind of thing. So it's really a different thing. You know, the investment we're getting in equipment and all those things that go into creating data centers and feeding the AI, it's clearly one of the big sources of growth in the economy. Consumer spending also though has been—has been growing and has defied a lot of negative forecasts, continuing to do so this year. Consumers are still spending. Now, it may be mostly higher-end consumers or maybe skewed that way but the consumer is spending and that's a big, big chunk of what's going on in the economy, substantially bigger than AI. You can point to the growth—I mean, actually, growth as opposed to level—but consumer spending is a much bigger part of the economy.

V

Victoria Guida41:57

And why do you think that the labor market is slowing so much even though consumer spending is strong?

J

Jerome Powell42:02

Why has it slowed so much? Well, what's happened is that the supply of workers has dropped very, very sharply due to mainly immigration but also lower labor force participation. So, and that means there's less need for new jobs because there isn't this flow into the pool of labor where people need jobs because those people aren't there now. So there's not a supply of workers showing up for jobs. In addition, demand has also gone down and so has labor force participation has declined, which is more of a sign in this case of demand as well as trend. So I think you're seeing some softening. You know, the economy is growing at a slower rate than it was, 2.4% last year. We think around 1.6% this year. It could have been a couple of tenths higher if not for the shutdown. And of course that will reverse, but, you know, you still got the economy growing at a moderate pace.

A

Andrew Ackerman43:05

Andrew Ackerman with the Washington Post. I wanted to ask if you could elaborate on how you think about policy in the context of the data drought. Does it make you inclined to stick with your plans as set out in September in the absence of the data that might change your mind or does it make you inclined to proceed with added caution because of uncertainty?

J

Jerome Powell43:30

Yeah. Well, we'll know when we face that question if we face that question. You know, it'll probably be argued both ways, right? But I've said a couple times here that, you know, if you really aren't getting information and you really don't know and the economy looks like it's solid and stable and hasn't really changed, you know, there will be an argument. I don't know how persuasive it will be, but there will be an argument that, you know, you slow down when you can't see as far ahead. Others may argue—I mean, I'm not sure where this argument will come—but you're perfectly right that you could also argue, well, things haven't really changed, but you might not know that.

I don't know whether we'll face this or not. I hope we don't. I hope by the time of the December meeting, we're getting a better flow of data. But we're going to have to do our jobs one way or the other.

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Nick Timmeros44:21

I also just wanted to ask a final question. I think several years ago, you said the overall amount of capital in the system was about right. As the Fed moves forward with a revised Basel proposal, potentially changes to the G-SIB surcharge, has that changed at all, and are you planning to significantly reduce the amount of capital in the system?

J

Jerome Powell44:42

So there's discussions going on, I think, among the agencies, and I don't want to get ahead of those discussions. I continue to think that the level of capital when I said that in 2020 was about right, and of course, there's been much capital added since then through various mechanisms. But I look forward to... I know those discussions are really just getting going. They haven't come to the point where they've got a whole plan and that kind of thing. So I really don't have much to say on that.

Brian.

B

Brian Chung45:19

Hi Chairman Powell. Brian Chung with NBC News. Is the weakness in the jobs market accelerating, and who's at risk if the interest rate cuts are not the effective medicine for a further slowdown in the labor market?

J

Jerome Powell45:33

So we do not see the weakness, as you put it, in the job market accelerating. I would say, then again, we didn't get the September employment report, payroll report, but we do get... we look at the initial claims, which are reported at the state level, and we still get those, and we can accumulate them and get the national number. And there's really, I mean, no story. You can look at the numbers. Same thing with the job openings we get from Indeed. There's just no story over the last four weeks. It's kind of stable. So you don't see anything that says that the job market, or really any part of the economy, is making a significant deterioration. Don't see that. You see more things like I mentioned, though, which is that you see big companies making announcements of either layoffs or of the idea that they won't need to hire, their number of employees is not expected to go up over a number of years. There may be different people working there, they say that too, but they don't need a bigger headcount. So you see those kinds of things. You don't see it in the aggregate numbers. The layoff numbers have not gone up, but job creation is very low. And the job finding rate for people who are unemployed is very low. But the unemployment rate is very low as well. 4.3% is a low unemployment rate.

B

Brian Chung47:02

So as you make these cuts, is it the lower income workers that you're thinking about, or those who might have their jobs automated? Is there a particular part of the market that you're particularly...

J

Jerome Powell47:11

So we can't... our tools don't allow us to target any demographic or any income level and that kind of thing. I do think that people... you know, we saw this during the global financial crisis and the long recovery. If you have a long period of very strong labor market conditions, it benefits people at the lower end the most. The last two or three years of that long expansion, people at the lower part of the income spectrum were getting the biggest benefits, and lots of things were happening in that space demographically which were very constructive. And you know, we're not at that place right now. But so yeah, you know, I mean, a stronger labor market is the best thing we can do for the public. It's also part of our job, it is half of our job, but it is absolutely the best thing we can do for people, you know, along with keeping prices stable. Those two things... I mean, inflation also hurts people on fixed incomes more than other people.

Courtney.

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Courtney Brown48:14

Hi Chair Powell. Courtney Brown from Axios. As you know, the 12 Reserve Bank presidents' terms are up for renewal at the end of February. I'm wondering if you can give us a timeline for when the board will consider those reappointments, and whether we can expect everyone to be re-upped, or if we can expect some changes.

J

Jerome Powell48:33

So, it's a process that we go through under the law. The way the law works is we have a reappointment process every five years for all of the... each of them and all of them. We're in the middle of that process, and we're going to complete it in a timely way. And I really... that's really all I can say.

Daniel.

D

Daniel48:58

Daniel with AFP. You've now had dissents in three consecutive FOMC meetings, but in this meeting you had dissents going in both directions, and you've just mentioned there's strong disagreement over the future path of rate cuts. Have these disagreements complicated your role presiding over the FOMC meetings, and if so, how?

J

Jerome Powell49:13

I wouldn't say that. No, I think you have to take what comes, and what comes right now is a pretty challenging situation where we have, first of all, we have 4.3% unemployment. We have an economy that's growing close to 2%. So, you know, overall it's a good picture. It's a good picture. But in terms of our policy, we have upside risks to inflation, downside risks to employment. And this is a very difficult thing for a central bank because, you know, one of those calls for rates to be lower, one calls for rates to be higher. We can't do both. So we have to balance the two. And so it's a challenging thing. And as we have worked our way through this process, you would expect that there would be a range of views across the committee on what to do and the speed with which we should do it. And that's what we have. That makes a lot of sense to me. These are all of these people are, you know, people who take their jobs very seriously, work very hard at this and just want to do what's right for the American people, but they have different views on what that is. And, you know, it's an honor to work among people who care that much. It is, but I don't feel that it's unfair or anything like that. It's just it's a time when we're making quite difficult judgments in real time. And I believe we'll get through this. And I think we've done sort of the right thing so far this year. I think it was appropriate for us to be careful about this. I think it would not be appropriate to just ignore or assume away the inflation issue. At the same time, I think the risk of higher, more persistent inflation has declined significantly since April. And if we do wind up resuming rate cuts at some point, we will at some point. You know, I think we're trying to get to the end of this cycle with the labor market in a good place and with inflation, you know, on its way to 2% or at 2%. So, that's all we're trying to do and we're doing it under, you know, quite challenging circumstances and doing the best we can.

We'll go to Jennifer for the last.

J

Jennifer Schonberger51:21

Thank you so much, Chair Powell. Jennifer Schonberger with Yahoo Finance. Both regional and large banks have taken losses on loans given delinquencies on subprime auto loans. JP Morgan CEO Jamie Dimon warned, 'When you see one cockroach, there may be more likely.' I'm curious how the Fed is looking at these loan losses and if it poses risks to the financial system or the outlook for the economy. Is it a warning sign?

J

Jerome Powell51:47

So, you know, we're obviously we watch these things very carefully, credit conditions very carefully. You're right. You've seen rising defaults in subprime credit for some time now. And now you've seen a number of subprime credit, automobile credit institutions having significant losses, and some of those losses are now showing up on the books of banks. You know, we're looking at it carefully. We're paying close attention. I don't see at this point a broader credit issue. It doesn't seem to be something that has very broad application across financial institutions, but you know, we're going to be monitoring this quite carefully and making sure that that is the case.

J

Jennifer Schonberger52:33

And then separately, many... you yourself have said that we're in a bifurcated economy right now with high net worth individuals continuing to spend, with lower income pulling back. How much of consumer spending continuing hinges on the stock market remaining strong? In some odd way, does the market help keep the economy buoyant?

J

Jerome Powell52:54

So there is some relationship there, but remember, the more wealth someone has, the lower an additional dollar of wealth matters. So your marginal propensity to consume declines quite dramatically as you reach levels of stock market wealth. So, you know, the stock market, it would affect spending if the stock market went down, but it wouldn't drop sharply unless there were quite a sharp drop in the stock market. People at the lower end of income and wealth have a much higher marginal propensity to consume of an incremental dollar of income or wealth, but they don't have the stock market wealth. So, I think it's certainly a factor supporting consumption right now. And you would see it if you saw a material correction in spending, but it wouldn't be... you shouldn't think that it'll, you know, dollar for dollar stop consumption because that wouldn't be the case. Thanks very much.

Good afternoon. My colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people. Although some important federal government data have been delayed due to the shutdown, the public and private sector data that have remained available suggest that the outlook for employment and inflation has not changed much since our meeting in September. Conditions in the labor market appear to be gradually cooling and inflation remains somewhat elevated. In support of our goals and in light of the balance of risks to employment and inflation, today the Federal Open Market Committee decided to lower our policy interest rate by a quarter percentage point. We also decided to conclude the reduction of our aggregate securities holdings as of December 1. I will have more to say about monetary policy after briefly reviewing economic developments. Available indicators suggest that economic activity has been expanding at a moderate pace. GDP rose at a 1.6% pace in the first half of the year, down from 2.4% last year. Data available prior to the shutdown show that growth in economic activity may be on a somewhat firmer trajectory than expected, primarily reflecting stronger consumer spending. Business investment in equipment and intangibles has continued to expand, while activity in the housing sector remains weak. The shutdown of the federal government will weigh on economic activity while it persists, but these effects should reverse after the shutdown ends. In the labor market, the unemployment rate remained relatively low through August. Job gains have slowed significantly since earlier in the year. A good part of the slowing likely reflects a decline in the growth of the labor force due to lower immigration and labor force participation. Though labor demand has clearly softened as well. Although official employment data for September are delayed, available evidence suggests that both layoffs and hiring remain low and that both households' perceptions of job availability and firms' perceptions of hiring difficulty continue to decline. In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months. Inflation has eased significantly from its highs in mid-2022, but remains somewhat elevated relative to our 2% longer-run goal. Estimates based on the consumer price index suggest that total PCE prices rose 2.8% over the 12 months ending in September and that excluding the volatile food and energy categories, core PCE prices rose 2.8% as well. These readings are higher than earlier in the year as inflation for goods has picked up. In contrast, disinflation appears to be continuing for services. Near-term measures of inflation expectations have moved up on balance over the course of this year on news about tariffs as reflected in both market and survey-based measures. Beyond the next year or two or so, however, most measures of longer-term expectations remain consistent with our 2% inflation goal. Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. At today's meeting, the committee decided to lower the target range for the federal funds rate by a quarter percentage point to 3 and 3/4 to 4%. Higher tariffs are pushing up prices in some categories of goods, resulting in higher overall inflation. A reasonable base case is that the effects on inflation will be relatively short-lived, a one-time shift in the price level. But it is also possible that the inflationary effects could instead be more persistent, and that is a risk to be assessed and managed. Our obligation is to ensure that a one-time increase in the price level does not become an ongoing inflation problem. In the near term, risks to inflation are tilted to the upside and risks to employment to the downside. A challenging situation. There is no risk-free path for policy as we navigate this tension between our employment and inflation goals. Our framework calls for us to take a balanced approach in promoting both sides of our dual mandate. With downside risks to employment having increased in recent months, the balance of risks has shifted. Accordingly, we judged it appropriate at this meeting to take another step toward a more neutral policy stance. With today's decision, we remain well positioned to respond in a timely way to potential economic developments. We will continue to determine the appropriate stance of monetary policy based on the incoming data, the evolving outlook, and the balance of risks. We continue to face two-sided risks. In the committee's discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it. Policy is not on a preset course. At today's meeting, the committee also decided to conclude the reduction of our aggregate securities holdings as of December 1. Our long-stated plan has been to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions. Signs have clearly emerged that we have reached that standard. In money markets, repo rates have moved up relative to our administered rates, and we have seen more notable pressures on selected dates along with more use of our standing repo facility. In addition, the effective federal funds rate has begun to move up relative to the rate of interest on reserve balances. These developments are what we expected to see as the size of our balance sheet declined and warrant today's decision to cease runoff. Over the three and a half years that we've been shrinking our balance sheet, our securities holdings have declined by $2.2 trillion. As a share of nominal GDP, our balance sheet has fallen from 35% to about 21%. In December, we'll enter the next phase of our normalization plans by holding the size of our balance sheet steady for a time. While reserve balances continue to move gradually lower as other non-reserve liabilities such as currency keep growing, we will continue to allow agency securities to run off our balance sheet and will reinvest the proceeds from those securities in treasury bills, furthering progress toward a portfolio consisting primarily of Treasury securities. This reinvestment strategy will also help move the weighted average maturity of our portfolio closer to that of the outstanding stock of Treasury securities, thus furthering the normalization of the composition of our balance sheet. The Fed has been assigned two goals for monetary policy, maximum employment and stable prices. We remain committed to supporting our maximum employment, bringing our inflation sustainably to our 2% goal, and keeping longer-term inflation expectations well anchored. Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals. Thank you. I look forward to your questions.

Nick.

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Nick Timmeros1:02:02

Nick Timmeros of the Wall Street Journal. Chairman Powell, are you uncomfortable with how market pricing has assumed a rate cut is a foregone conclusion in your next meeting?

J

Jerome Powell1:02:11

Well, as I just mentioned, a further reduction in the policy rate at the December meeting is not a foregone conclusion as I've just said. So, I would say that that needs to be taken on board. We had, you know, just say this, 19 participants on the committee. Everyone works very hard at this and takes their obligations to serve the American people very seriously. And at a time when we have tension between our two goals, we have strong views across the committee. And as I mentioned, there were strongly differing views today and the takeaway from that is that we haven't made a decision about December and, you know, we're going to be looking at the data that we have, how that affects the outlook and the balance of risks and I'll just say that.

N

Nick Timmeros1:02:56

You and some of your colleagues have framed last month and maybe today... I won't put words in your mouth... there's a risk management exercise. At what point do you conclude that you've taken out enough insurance? Are you looking for some kind of improvement in the outlook, or could this unfold along the lines of last year where you made a sequence of adjustments and then waited to gather more information?

J

Jerome Powell1:03:23

So the way I've been thinking about it is the risks to the two goals... for a very long time the risk was clearly of higher inflation, and then that has changed now. And as we saw, particularly after we saw after the July meeting, we saw the downward revisions in job creation, we saw a very different picture of the labor market and suggested that there were higher downside risks to the labor market than we had thought, and that suggested that policy which we had been holding at a, I would say modestly, others people would say moderately restrictive level needed to move more in the direction over time of neutral. If the two goals are sort of equally at risk, then you ought to be at neutral because one of them's calling for you to hike and one of them is calling for you to cut. So if that got back into balance, then you'd want to be roughly at neutral. So in that sense it was a risk management, and I would say the same about today, sort of the same logic, but as I mentioned, going forward is a different thing.

Claire.

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Claire Jones1:04:30

Claire Jones, Financial Times. Thank you for taking this question. You know, we've just heard from you that the discussion in December and the conclusion of the discussion is not a foregone conclusion. I'd like to just dig into that a little bit more about what sort of arguments were brought up. Was there any consideration, for instance, of the investment we're seeing in AI and some of the generation of household wealth through rises in stock prices related to the AI boom?

J

Jerome Powell1:05:04

Thank you. You know, I wouldn't say that's a factor in everyone's assessment of the economy. I wouldn't say it's the driving factor, I don't think, for anybody. You know, I guess I would say it this way. Once again, I would just point out that we have the situation where the risks are to the upside for inflation and to the downside for employment. We have one tool. You can't do both of those. So, you can't address both those at once. You've got a very different situation. So, you have some people... people have different forecasts, right? So they'll feel they'll forecast faster or slower progress on one or the other. And they also have different levels of risk aversion and, you know, people... some will be more averse to inflation overruns and some will be more averse to underruns of employment. And so you put that together and as you can see from the SEP and from the public discussion that goes on between the meetings when, you know, participants go out and talk, they're very disparate views and they were reflected in strongly differing views in today's meeting as I pointed out in my remarks and that's what leads me to say that we haven't made a decision about December. You know, I always say that it's a fact that we don't make decisions in advance, but this is... I'm saying something in addition here is that it's not to be seen as a foregone conclusion. In fact, far from it.

C

Claire Jones1:06:22

Can I just ask a quick follow-up on QT? How much of the fund impressions we've seen in money markets are related to the US Treasury issuing more short-term debt?

J

Jerome Powell1:06:34

You know, that could be one of the factors, but the reality is we've seen, you know, the things that we've seen, higher repo rates and federal funds rate moving up. These are the very things that we look for. We actually have a framework for looking at, you know, what the place we're trying to reach. What we said for a long time now is that when we feel like we're a little bit or a bit above what we consider a level that's ample, that we would freeze the size of the balance sheet. Of course, reserves will continue to decline from that point forward as non-reserve liabilities grow. So, this happened, some things have been happening for some time now, showing a gradual tightening in money market conditions. Really, in the last, call it three weeks or so, you've seen more significant tightening and I think a clear assessment that we're at that place. The other thing is, you know, the balance sheet is shrinking at a very, very slow pace now. We've reduced it by half twice. And so there's not a lot of benefit to be holding on for to get the last few dollars because, you know, again, the reserves are going to continue to shrink as non-reserves grow. So, you know, there was support on the committee as we thought about it to go ahead with this and announce effective December 1 that we will be, you know, freezing the size of the balance sheet and that the December 1 date gives the markets a little bit of time to adapt.

Colby.

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Colby Smith1:08:04

Thank you. Colby Smith with the New York Times. So much of the rationale for cutting interest rates even as inflation moves away from the 2% target seems to be, you know, that there are these mounting downside risks to the labor market. But if those don't materialize and the labor market either stabilizes around current employment levels or even starts to strengthen somewhat, how would that change your perception of how much interest rates need to fall from here? Would you then be a bit more concerned about underlying inflation and the possibility of second-round effects from tariffs?

J

Jerome Powell1:08:35

Yeah. I mean, in principle, if you were to see data that suggested the labor market strengthening or even that it's stabilizing, you know, that would certainly play into our decisions going forward. So, and we do have, you know, we get some data. The labor market is a place where we get, for example, we get the state-level data on initial claims which are sending a sort of a signal of more of the same. We also get job openings. And we'll get lots of survey data. We'll get the Beige Book and things like that. So, we'll have a picture of what's going on in the labor market. And, you know, the fact that we're not seeing an uptick in claims or a downtick really in openings suggests that you're seeing maybe continued very gradual cooling, but nothing more than that. So that does give you some comfort.

C

Colby Smith1:09:21

But if this shutdown lasts a while longer and you don't have that data in hand, I'm just wondering how that hinders the committee's ability to assess the state of the labor market and make the right policy decisions, and also how much is that factoring into the debate about December.

J

Jerome Powell1:09:36

Yeah. So, you know, we get like I mentioned what we get in the labor area. We get some data in inflation, some data in economic activity. And we'll have a picture of what's going on. We also will have the Beige Book. Again, I would say we're not going to be able to have the, you know, the detailed feel of things, but I think if there were a significant or material change in the economy one way or another, I think we'd pick that up through this. So, in terms of how it might affect December, it's really hard to say. December's, you know, the meeting is I guess six weeks away. We just don't know what we're going to get. If there is a very high level of uncertainty, then, you know, that could be an argument in favor of caution about moving, but we'll have to see how it unfolds.

Steve.

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Steve Liesman1:10:31

Steve Liesman, CNBC. Mr. Chairman, can you characterize the meeting in terms of... you said strongly differing views. Was this a close call, this cut, or was it a close call maybe the other way because you had dissents on both sides?

J

Jerome Powell1:10:47

So I was referring to the discussion about, to the extent it related to December. You saw we had two dissents, one for 50 and one for no cut. So, you know, that was a strong, solid vote in favor of this cut. The strongly differing views were really about the future. What does that look like? And I think people are saying, you know, they're noticing stronger economic activity. You know, forecasters generally broadly have raised their economic growth forecast for this year and next year in some cases quite materially. In the meantime we see, you know, a labor market that's kind of... I don't want to say stable, but it's not clearly in motion, it's not clearly declining quickly. In any case, it may be just continuing to gradually cool. And again, people have different forecasts and expectations about the economy and different risk tolerances. And so there's a, you know, you read the SEP, you read the speeches, you know, there are different views on the committee and to the point where I said what I said.

S

Steve Liesman1:11:51

And just to follow up on the balance sheet, if you stop the runoff now, does that mean you have to go back to actually adding assets sometime next year so that the balance sheet doesn't shrink as a percent of GDP and become a tightening factor?

J

Jerome Powell1:12:08

So, you're right. The place we'll be on December 1 is that the size of the balance sheet is frozen. And as mortgage-backed securities mature, we'll reinvest those in treasury bills, which will foster both a more treasury balance sheet and also a shorter duration. So that's what... in the meantime, if you freeze the size of the balance sheet, the non-reserve liabilities, currency for example, they're going to continue to grow organically. And because the size of the balance sheet is frozen, you have further shrinkage in reserves. And reserves is the thing that we're managing that has to be ample. So that'll happen for a time but not a tremendously long time. We don't know exactly how long but at a certain point you'll want to start reserves to start gradually growing to keep up with, you know, the size of the banking system and the size of the economy. So we'll be adding reserves at a certain point and that's the last point. Even then we'll be... we didn't make decisions about this today but we did talk today about the composition of the balance sheet and there's a desire that the balance sheet be... right now it's got a lot more duration than the outstanding universe of Treasury securities and we want to move to a place where we're closer to that duration. That'll take some time. We haven't made a decision about the ultimate end point, but we all agree that we want to move more in the direction of a balance sheet that more closely reflects the outstanding treasuries, and that means a shorter duration balance sheet. Now, this is something that's going to take a long time and move very, very gradually. I don't think you'll notice it in market conditions, but that's the direction of things.

Janelle.

J

Janelle Marte1:13:52

Janelle Marte with Bloomberg. How are officials interpreting the latest CPI report? So some components came in lower than expected but core inflation was still at 3%. So at this moment, what are you learning about the drivers, and also do you view that the risks are greater that the Fed makes a mistake on employment or inflation?

J

Jerome Powell1:14:16

So okay, so the September CPI report... we didn't get PPI after that which is important for translation into what we look at, which is PCE inflation, but we can still make a pretty good assessment of what that will be. When we get PPI there might be some adjustments but so directionally, you know, it was a little softer than expected and we always break it down into the three components. So basically, you've seen goods prices increasing and that's really due to tariffs and that's in comparison to a longer-run trend of very, very mild deflation in goods. So that's moving inflation up. On the other side of that, good news that housing services inflation has been coming down and is expected to continue to come down. So if you remember a couple years ago, that's the one that we kept expecting it to do that. Now, it's been doing that for some time and we expect to continue that. That leaves the biggest category is services other than housing services and that's kind of been moving sideways over the last few months, but a significant part of that is non-market services and we don't take a lot of signal about the tightness of the economy from that. So, if you add all that up, a couple things to say. One is that inflation away from tariffs is actually not so far from our 2% goal. We estimate... people have different estimates of what that is, but it might be, you know, five or six tenths. And so that, you know, if it's 2.8, then core PCE not including tariffs might be 2.3 or 2.4 in that range, something like that. So that's not so far from your goal. So we look at that and the thing about tariff inflation is the base case is that it will come and it probably will increase further but it is that it will be a one-time increase. And, you know, we've been very focused for all of this year at making sure that that's the case and thinking carefully about what are the pathways through which it could become something else, troublesome inflation. One of those would be, you know, a really tight labor market. We don't see that. Another could be inflation expectations moving. We don't see that. So, I think, you know, we're watching this very carefully. I think it's not the case that we're just assuming that it's going to be a one-time inflation. We understand fully that this is a risk we have to monitor and ultimately manage.

J

Janelle Marte1:16:46

With the stubborn services inflation, what are some of the things that the Fed could do to address that? And especially when we're seeing potentially labor supply challenges.

J

Jerome Powell1:16:58

Sorry, say the first part.

J

Janelle Marte1:16:59

The stubborn services inflation that you...

J

Jerome Powell1:17:02

Service inflation. Yeah. Well, again, the part of services inflation that isn't coming down as we would like it to is the non-market part of non-housing services. And, you know, overall that's just something that we expect will come down. The non-market part of it should come down. It largely reflects higher stock prices and, I mean, financial services that are imputed rather than actually paid is a big part of that. But also just, you know, we think policy is still modestly restrictive in my telling. So that's the kind of thing that should lead to a gradually cooling economy. That's one of the reasons you see a gradually cooling labor market is because, you know, Fed policy is modestly restrictive. So that should also help get that. I want to say though, we're absolutely committed to returning inflation to 2%. If you look at longer-term surveys or market pricing, you will see that that's a credible commitment and there should be no question that that's where we're going.

Chris.

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Chris Rugaber1:18:12

Great. Thank you. Chris Rugaber, Associated Press. So there's a big investment boom in AI infrastructure right now as you know, and wondering if the existence of such a boom would indicate that rates are not that restrictive after all, and could further rate cuts at this point perhaps fuel an excess level of investment there or market bubbles. How is the Fed thinking about that?

J

Jerome Powell1:18:37

So I don't think that... you're right, there are a lot of data centers being built and other investments being made around the country and around the world. And big US companies are just investing a lot of resources in thinking about how AI, which will be based on those data centers, run through those data centers, is going to affect their businesses. So it's a big deal. I don't think that the spending that happens to build data centers all over the country is especially interest sensitive. It's based on longer-run assessments that this is an area where there's going to be a lot of investment and that's going to drive higher productivity and those sorts of things. I don't know how those investments will work out but I don't think they're particularly interest sensitive compared to some of the other sectors.

C

Chris Rugaber1:19:32

And then just a quick follow-up, could you... you mentioned that you do have data that you're looking at for inflation and growth in the absence of government data. Could you give us a sense... I think we know a lot about the jobs data that's out there. Can you give us a sense of what you're looking at to track inflation in the absence of government data?

J

Jerome Powell1:19:50

So it's a lot of things and it doesn't replace government data but, you know, and you know all of these... it's... I'll just mention some of the many, many names. PriceStats, Adobe and others. And for wage inflation, there's ADP data. On spending, you're going to ask about spending at some point. You know, there are lots of other things that we look at, but it's again, it's many different sources and again, including what we get out of the Beige Book, which will be sort of come out mid-cycle as always. And it doesn't replace the government data but it gives us a picture. Again, I think if something material were happening, if there were material developments, I think we would pick that up. I don't think we'll be able to have the very granular understanding of the economy while this data is not available.

Howard.

H

Howard Schneider1:20:50

Howard with Reuters. Thank you. I just wanted you to elaborate a little bit on what you said a moment ago about the continued shutdown making it more difficult to make a move in December, and that may make you more cautious. To the degree you are relying on private data that isn't the gold standard, or that you're relying on your own surveys or the Beige Book, do you worry at some point you're going to have to start making policy by anecdote?

J

Jerome Powell1:21:16

You know, this is a temporary state of affairs and, you know, we're going to do our jobs. We're going to collect every scrap of data we can find, evaluate it, and think carefully about it. And that's our jobs. That's what we're going to do. If you ask me, could it affect the December meeting? I'm not saying it's going to, but yeah, you could imagine that, you know, what do you do when you're driving in the fog? You slow down. So, that could or could not. I don't know how that's going to play into things. We may get the data may come back, but there's a possibility that it would make sense to be more cautious about moving. I'm not committing to that. I'm just saying it's certainly a possibility that you would say we really can't see, so let's slow down.

H

Howard Schneider1:22:02

As a follow-up, in the debate on this meeting, we saw recently some pretty big layoff announcements coming from Amazon and others. Wondering if that figured into the discussion at all, that you're starting to see the turn, this tension between growth and employment starting to be resolved, you know, to the detriment of employment. And secondly, some of the stress is starting to appear in the bottom spur of the K, as they call it, household health premiums that are going to be possibly going up quite substantially, things like that. Has that started to become a factor in your policy discussion?

J

Jerome Powell1:22:35

So those are both things that we're watching very, very carefully. To start with, the layoffs. You're right. You see a significant number of companies either announcing that they are not going to be doing much hiring or actually doing layoffs, and much of the time they're talking about AI and what it can do. So, we're watching that very carefully and, you know, yes, it could absolutely have implications for job creation. We don't really see it in the initial claims data yet. Now, it's not a surprise that we don't. It takes some time for it to get in there, but we're watching that really carefully. But again, don't see it yet in the initial claims data. On the K-shaped economy thing, I would say the same thing or similar thing. We are... if you listen to the earnings calls or the reports of, you know, big public consumer-facing companies, many of them are saying that there's a bifurcated economy there and that consumers at the lower end are struggling and buying less and shifting to lower cost products but that at the top people are spending at the higher income and wealth. And so you have much anecdotal data on that and so we think there's something there.

Edward.

E

Edward Lawrence1:24:09

Thank you. Edward Lawrence with Fox Business. So Mr. Chairman, I want to take another crack at the further reduction in rates is not a foregone conclusion. So in December, you said far from it. So if a cut might not be on the table for December because of lack of data, what does the other concerns then stem from? So if it's not lack of data as the reason December is not a foregone conclusion, what other things could be the concern then?

J

Jerome Powell1:24:36

Well, the perspectives of people on the committee that, you know, we've now moved 150 basis points and that we're down into, you know, you're into that range between three and four where most estimates of many estimates of the neutral rate live in that 3 to 4% area. You're there now. You're above the median number for the committee, but I think there are people on the committee who have higher estimates of the neutral rate and that's a... you can argue these positions since it can't be directly observed, the neutral rate. So, you know, I think for some part of the committee, you know, it's time to maybe take a step back and see whether there really are downside risks to the labor market or see whether in fact the stronger growth that we're seeing is real. Ordinarily the labor market is a better indicator of the momentum of the economy than the spending data. That's the lore. In this case that gives a more downbeat read. So people just have, you know, there again we've cut 50 more basis points in the last two meetings and there was a sense like, let's... from some, let's pause here kind of thing and a sense from others wanting to go ahead but that's why I say differing views, strongly differing views.

E

Edward Lawrence1:26:02

So on that division then you're talking about going forward. So what's more important in this division? Is it inflation risks? Is it employment risk, or is there a deeper philosophy division among the board?

J

Jerome Powell1:26:15

I look... everybody on the committee is deeply committed to doing the right thing to achieve our goals, maximum employment and stable prices. You have differences on how to do that and as I mentioned, some of that is different forecasts but a lot of it is also different risk aversions to the two different variables, which is common through all Federal Reserves. People just have different risk tolerances, let's say. So that leads you to people with disparate views. You will know that from the speeches you've been listening to from my colleagues. And so we're at a place now where we have in fact cut two more times. And, you know, we're now 150 basis points closer to neutral, wherever that may be, than we were a year ago. And so there's a growing chorus now of feeling like maybe this is where we should at least wait a cycle, something like that. That's what it is. It's just what you think it would be. And again, you've seen it in the September summary of economic projections. You've seen this in the public remarks of FOMC participants. And now I'm telling you that's what you can expect in the minutes and I'm just telling you that's what happened in the meeting.

Elizabeth.

E

Elizabeth Schulze1:27:30

Thank you so much. Elizabeth Schulze with ABC News. What is your explanation for why the job market is weakening right now, and what will this rate cut do to improve the job market?

J

Jerome Powell1:27:41

So I think there are two things affecting the job market and one of them is just a dramatic reduction in the supply of new workers. So that's two things, that's declining labor force participation, which is a cyclical thing, and then there's declining immigration which is just a big policy change that actually began in the last administration and has been accelerated now. So a big part of the whole story is that supply side story. Okay. In addition, labor demand has declined and, you know, so the unemployment rate has gone down meaning that demand for workers has gone down a little more than supply. So that's what's going on and but it is mostly a supply function, you know, it's mostly a function of the change in supply I think and many people think. So the question then is what does our tool do which supports demand and, you know, so...

I would just say when you're in a situation where job creation, if you adjust for likely overcounting in the way that BLS does its work, is pretty close to zero. So maximum employment doesn't, on a sustainable basis, if you're creating zero jobs, if it's in equilibrium, if it's in balance, it's a pretty, as I said before, a pretty curious balance. So you know, I thought and many of my colleagues thought, in fact you've seen the last two meetings, that it was appropriate for us to react by supporting demand with our rates. And we've done that. We've reduced so that rates are looser. I wouldn't say that they're accommodative right now, but they're meaningfully less tight than they were. And that should help so that at least the labor market doesn't get worse. So it's a complicated situation and some people argue that this is supply and we really can't affect it much with our tools, but others argue, as I do, that there is an effect from demand and that we should use our tools to support the labor market when we see this happening.

N

Nick Timmeros1:29:52

You also talked about tariffs causing a one-time price increase. Should American households, consumers expect that inflation will continue to go up this year because of those tariffs?

J

Jerome Powell1:30:02

So the basic expectation is that there will be some additional increased inflation because it takes a while for tariffs to work their way through the production chain and finally get to consumers. And we see this now from the tariffs that were put in place now many months ago. We see those effects. But if you put tariffs in effect and they've been coming into effect consistently in February, March, April, May, and that's all happening. So that'll continue to happen for some time, probably into the spring. These are not big increases, though. These are a tenth or so on inflation. They may be big increases on a particular product that's been tariffed. But overall, these are fairly modest. I think, you know, some projections go we're 2.8% inflation. You might get two or three more tenths or four more tenths maybe. But then as all the tariffs are in, they stop generating inflation. That you've had a one-time price increase. As long as you're not, at least this is the theory. This is how we believe and hope that it will work out. Once the last tariff is put on something, at that point it becomes a higher price level, but it stops going up, if you will. Prices stop going up. They'll just be at that level. And then measured inflation will come back down to non-tariff inflation. As I mentioned, non-tariff inflation is not so far from 2%. Now, consumers are not interested in that story. Their prices are higher. More than that, the reason they're so unhappy about inflation is the inflation that we had in 2021, 22, and 23 because, you know, you can say that prices aren't going up as much, but that doesn't mean people aren't feeling those higher prices from the inflation we had two or three years ago. They are and that's I think a large part of why the public views inflation as still very much making people quite unhappy. Even though it's nice that prices are not going up as fast as they were, but they're still much higher than they were and it'll take some time for that effect to wear off as real incomes rise.

M

Michael McKee1:32:22

Michael McKee from Bloomberg Television and Radio. Do you have any concerns that equity markets are or are close to being overvalued at this point?

J

Jerome Powell1:32:33

You know, we don't look at any one asset price and say, 'Hey, that's wrong.' You know, it's not our job to do that. We look at the overall financial system and we ask whether it's stable, whether it could withstand shocks, right? So you know, banks are well capitalized. While some households are clearly under stress, in the aggregate, households are in good shape financially, relatively manageable levels of debt. At the lower income spectrum you are seeing rising defaults, particularly around subprime auto, but nonetheless in the aggregate pretty good. And you don't see too much leverage in the banking system or the financial system. It's a mixed picture but it's not an overly troubling picture. And again, it's not appropriate, you know, we don't set asset prices, markets do that.

M

Michael McKee1:33:29

Well, you must be well aware that by lowering interest rates you're contributing to additional asset price increases. And I wonder how you balance the idea that lowering rates would help the labor market with the reality that it seems more likely to be stimulating increased investment in AI, which is the rationale for thousands of job cuts that have been announced in the last few weeks.

J

Jerome Powell1:33:52

Yeah, I don't think interest rates are an important part of the AI, of the data center story. I think, you know, people think there are great economics in building these data centers and they're making a lot of money building them and they think they have very high present value and all that sort of thing. It's not really about, you know, about 25 basis points here or there. You know, we use our tools to support the labor market and to create price stability. That's what we do. That's our two jobs, right? So we're here to, by lowering rates at the margin, that will support demand and that will support more hiring and that's why we do it. Now, no 25 basis point or even 50 basis point hike is going to be this positive thing but ultimately, you know, lower rates will support more demand and that'll support hiring over time. Now, of course, we also have to be careful about this, which is what we've been doing because we know where inflation is and we know that, you know, I've told you the story. It's a complicated story, but this is the best assessment that we can make. And because there's uncertainty around inflation and the path ahead for inflation, that's why the pace we're going has been a careful one.

V

Victoria Guida1:35:11

Hi, Victoria Guida from Politico. On AI, I'm just wondering, you know, it seems like a lot of the economic growth that we've been seeing is fed by investments in AI. So, how worried are you about what a sudden contraction in tech investment would mean for the overall economy? Is there enough strength in other sectors? And specifically, are there any lessons that you take from the 1990s in how you might approach what's happening right now?

J

Jerome Powell1:35:41

Yeah, this is different in the sense that these companies, the companies that are so highly valued, actually have earnings and stuff like that. So if you go back to the 90s and the dotcom, they were ideas rather than companies and, you know, there was a clear bubble there. Whereas the, you know, I won't go into particular names, but they actually have earnings and, you know, it looks like they have business models and profits and that kind of thing. So it's really a different thing. You know, the investment we're getting in equipment and in all those things that go into creating data centers and feeding the AI, it's clearly one of the big sources of growth in the economy. Consumer spending also though has been, you know, is much bigger than that and has been growing and has defied a lot of negative forecasts, continuing to do so this year. Consumers are still spending. Now it may be mostly higher-end consumers or may be skewed that way but the consumer is spending and that's a big, big chunk of what's going on in the economy, bigger than, substantially bigger than AI. You could point to growth, I mean actually, you may be growth as opposed to level, but consumer spending is a much bigger part of the economy.

V

Victoria Guida1:36:59

And why do you think that the labor market is slowing so much even though consumer spending is strong?

J

Jerome Powell1:37:05

Why has it slowed so much? Well, what's happened is that the supply of workers has dropped very, very sharply due to mainly immigration but also lower labor force participation. So, and that means there's less need for new jobs because there isn't this flow into the pool of labor where people need jobs because those people aren't there now. So there's not a supply of workers showing up for jobs. In addition, demand has also gone down and so has labor force participation declined, which is more of a sign in this case of demand as well as trend. So I think you're seeing some softening. You know, the economy is growing at a slower rate than it was, 2.4% last year. We think around 1.6% this year. It could have been a couple of tenths higher if not for the shutdown. And of course that will reverse, but you still got the economy growing at a moderate pace.

A

Andrew Ackerman1:38:08

Hey there, Andrew Ackerman with the Washington Post. I wanted to ask if you could elaborate on how you think about policy in the context of the data drought. Does it make you inclined to stick with your plans as set out in September in the absence of the data that might change your mind or does it make you inclined to proceed with added caution because of uncertainty?

J

Jerome Powell1:38:33

Yeah. Well, we'll know when we face that question if we face that question. You know, it'll probably be argued both ways, right? But I've said a couple times here that, you know, if you really aren't getting information, you really don't know and the economy looks like it's solid and stable and hasn't really changed, you know, there will be an argument. I don't know how persuasive it will be, but there will be an argument that you slow down when you can't see as far ahead. Others may argue, I mean, I'm not sure where this argument will come, but you're perfectly right that you could also argue, well, things haven't really changed, but you might not know that. So, I don't know whether we'll face this or not. I hope we don't. I hope by the time of the December meeting, we're getting, you know, a better flow of data, but we're going to have to do our jobs one way or the other.

A

Andrew Ackerman1:39:24

Okay. I also just wanted to ask a question. I think several years ago, you said the overall amount of capital in the system was about right. As the Fed moves forward with a revised Basel proposal, potentially changes to the G-SIB surcharge, has that changed at all and or are you planning to significantly reduce the amount of capital in the system? Thanks.

J

Jerome Powell1:39:45

So there's discussions going on, I think, among the agencies and I don't want to get ahead of those discussions. I continue to think that the level of capital when I said that in 2020 was about right and of course there's been much capital added since then through various mechanisms. But I look forward to, I know those discussions are really just getting going. They haven't come to the point where they've got a whole plan and that kind of thing. So I really don't have much to say on that.

B

Brian Chung1:40:19

Hi Chairman Powell. Brian Chung with NBC News. Is the weakness in the jobs market accelerating and who's at risk if the interest rate cuts are not the effective medicine for a further slowdown in the economy?

J

Jerome Powell1:40:36

So we do not see the weakness, as you put it, the weakness in the job market accelerating. I would say then again we didn't get the September employment report, payroll report, but we do get, we look at, you know, unemployment insurance claims, initial claims are reported at the state level and we still get those and we can accumulate them and get the national number and there's really, I mean, no story. You can look at the numbers. Same thing with the job openings we get from Indeed. There's just no story over the last four weeks. It's kind of stable. So you don't see anything that says that the job market or really any part of the economy is making a significant deterioration. Don't see that. You see more things like I mentioned though, which is that, you know, you see big companies making announcements of either layoffs or of the idea that they won't need to hire. Their number of employees is not expected to go up over a number of years. There may be different people working there, they say that too, but they don't need a bigger headcount. So, you see those kinds of things. You don't see it in the aggregate numbers. The layoff numbers have not gone up, but job creation is very low. And the job finding rate for people who are unemployed is very low. But the unemployment rate is very low as well. 4.3% is a low unemployment rate.

B

Brian Chung1:42:04

So, as you make these cuts, is it the lower income workers that you're thinking about or those who might have their jobs automated? Is there a particular labor market that you're particularly focused on?

J

Jerome Powell1:42:14

So we can't, our tools don't allow us to target any demographic or any income level and that kind of thing. I do think that people, you know, we saw this during the global financial crisis and the long recovery, if you have a long period of very strong labor market conditions it benefits people at the lower end the most. The last two or three years of that long expansion, people at the lower part of the income spectrum were getting the biggest benefits and lots of things were happening in that space demographically which were very constructive. And you know, we're not at that place right now but so yeah, you know, I mean a stronger labor market is the best thing we can do for the public. It's also part of our job, it is half of our job, but it is absolutely the best thing we can do for people, you know, along with keeping prices stable. Those two things, I mean inflation also hurts people on fixed incomes more than other people.

C

Courtney Brown1:43:14

Hi Chair Powell. Courtney Brown from Axios. As you know the 12 Reserve Bank presidents' terms are up for renewal at the end of February. I'm wondering if you can give us a timeline for when the board will consider those reappointments and whether we can expect everyone to be re-upped or if we can expect some changes.

J

Jerome Powell1:43:36

So, it's a process that we go through under the law. The way the law works is we have a reappointment process every five years for all of the Reserve Banks, each of them and all of them. We're in the middle of that process and we're going to complete it in a timely way and I really, that's really all I can say.

D

Daniel1:43:56

Daniel from AFP. You've now had dissents in three consecutive FOMC meetings but in this meeting you had dissents going in both directions and you've just mentioned there's strong disagreement over the future path of rate cuts. Have these disagreements complicated your role presiding over the FOMC meetings and if so how?

J

Jerome Powell1:44:16

I wouldn't say that, no. I think you have to take what comes and what comes right now is a pretty challenging situation where we have, first of all, we have 4.3% unemployment, we have an economy that's growing close to 2%, so you know, overall it's a good picture. But in terms of our policy, we have upside risks to inflation, downside risks to employment and this is a very difficult thing for a central bank because, you know, one of those calls for rates to be lower, one calls for rates to be higher. We can't do both so we have to balance the two. And so it's a challenging thing and, you know, as we have worked our way through this process, you would expect that there would be a range of views across the committee on what to do and the speed with which we should do it and that's what we have. That makes a lot of sense to me. These are all people who take their jobs very seriously, work very hard at this and just want to do what's right for the American people but they have different views on what that is. And you know, it's an honor to work among people who care that much. It is, but I don't feel that it's unfair or anything like that. It's just a time when we're making quite difficult judgments in real time. And I believe we'll get through this. And I think we've done sort of the right thing so far this year. I think it was appropriate for us to be careful about this. I think it would not be appropriate to just ignore or assume away the inflation issue. At the same time, I think the risk of higher, more persistent inflation has declined significantly since April. And if we do wind up resuming rate cuts at some point, we will at some point. You know, I think we're trying to get to the end of this cycle with the labor market in a good place and with inflation, you know, on its way to 2% or at 2%. So that's all we're trying to do and we're doing it under, you know, quite challenging circumstances and doing the best we can.

J

Jennifer Schonberger1:46:21

Thank you so much, Chair. Jennifer Schonberger with Yahoo Finance. Both regional and large banks have taken losses on loans given delinquencies on subprime auto loans. JP Morgan CEO Jamie Dimon warned, 'When you see one cockroach, there may be more likely.' I'm curious how the Fed is looking at these loan losses and if it poses risks to the financial system or the outlook for the economy. Is it a warning sign?

J

Jerome Powell1:46:50

So, you know, we're obviously we watch these things very carefully, credit conditions very carefully. You're right. You've seen rising defaults in subprime credit for some time now. And now you've seen a number of subprime credit, automobile credit institutions having significant losses and some of those losses are now showing up on the books of banks. You know, we're looking at it carefully. We're paying close attention. I don't see at this point a broader credit issue. It doesn't seem to be something that has very broad application across financial institutions, but, you know, we're going to be monitoring this quite carefully and making sure that that is the case.

J

Jennifer Schonberger1:47:36

And then separately, many, you yourself have said that we're in a bifurcated economy right now with high net worth individuals continuing to spend with a lower income pulling back. How much of consumer spending continuing hinges on the stock market remaining strong? In some odd way, does the market help keep the economy buoyant?

J

Jerome Powell1:47:57

So there is some relationship there, but remember, the more wealth someone has, the lower an additional dollar of wealth matters. So your marginal propensity to consume declines quite dramatically as you reach levels of stock market wealth. So, you know, the stock market, it would affect spending if the stock market went down, but it wouldn't drop sharply unless there were quite a sharp drop in the stock market. People at the lower end of income and wealth have a much higher marginal propensity to consume of an incremental dollar of income or wealth, but they don't have the stock market wealth. So, I think it's certainly a factor supporting consumption right now. And you would see it if you saw a material correction in spending but it wouldn't be, you shouldn't think that it'll, you know, dollar for dollar stop consumption because that wouldn't be the case. Thanks very much.

Good afternoon. My colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people. Although some important federal government data have been delayed due to the shutdown, the public and private sector data that have remained available suggest that the outlook for employment and inflation has not changed much since our meeting in September. Conditions in the labor market appear to be gradually cooling and inflation remains somewhat elevated. In support of our goals and in light of the balance of risks to employment and inflation, today the Federal Open Market Committee decided to lower our policy interest rate by a quarter percentage point. We also decided to conclude the reduction of our aggregate securities holdings as of December 1. I will have more to say about monetary policy after briefly reviewing economic developments. Available indicators suggest that economic activity has been expanding at a moderate pace. GDP rose at a 1.6% pace in the first half of the year, down from 2.4% last year. Data available prior to the shutdown show that growth in economic activity may be on a somewhat firmer trajectory than expected, primarily reflecting stronger consumer spending. Business investment in equipment and intangibles has continued to expand, while activity in the housing sector remains weak. The shutdown of the federal government will weigh on economic activity while it persists, but these effects should reverse after the shutdown ends. In the labor market, the unemployment rate remained relatively low through August. Job gains have slowed significantly since earlier in the year. A good part of the slowing likely reflects a decline in the growth of the labor force due to lower immigration and labor force participation. Though labor demand has clearly softened as well. Although official employment data for September are delayed, available evidence suggests that both layoffs and hiring remain low and that both households' perceptions of job availability and firms' perceptions of hiring difficulty continue to decline. In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months. Inflation has eased significantly from its highs in mid-2022, but remains somewhat elevated relative to our 2% longer-run goal. Estimates based on the consumer price index suggest that total PCE prices rose 2.8% over the 12 months ending in September and that, excluding the volatile food and energy categories, core PCE prices rose 2.8% as well. These readings are higher than earlier in the year as inflation for goods has picked up. In contrast, disinflation appears to be continuing for services. Near-term measures of inflation expectations have moved up on balance over the course of this year on news about tariffs as reflected in both market and survey-based measures. Beyond the next year or two or so, however, most measures of longer-term expectations remain consistent with our 2% inflation goal. Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. At today's meeting, the committee decided to lower the target range for the federal funds rate by a quarter percentage point to 3 and 3/4 to 4%. Higher tariffs are pushing up prices in some categories of goods, resulting in higher overall inflation. A reasonable base case is that the effects on inflation will be relatively short-lived, a one-time shift in the price level. But it is also possible that the inflationary effects could instead be more persistent, and that is a risk to be assessed and managed. Our obligation is to ensure that a one-time increase in the price level does not become an ongoing inflation problem. In the near term, risks to inflation are tilted to the upside and risks to employment to the downside. A challenging situation. There is no risk-free path for policy as we navigate this tension between our employment and inflation goals. Our framework calls for us to take a balanced approach in promoting both sides of our dual mandate. With downside risks to employment having increased in recent months, the balance of risks has shifted. Accordingly, we judged it appropriate at this meeting to take another step toward a more neutral policy stance. With today's decision, we remain well positioned to respond in a timely way to potential economic developments. We will continue to determine the appropriate stance of monetary policy based on the incoming data, the evolving outlook, and the balance of risks. We continue to face two-sided risks. In the committee's discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it. Policy is not on a preset course. At today's meeting, the committee also decided to conclude the reduction of our aggregate securities holdings as of December 1. Our long-stated plan has been to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions. Signs have clearly emerged that we have reached that standard. In money markets, repo rates have moved up relative to our administered rates, and we have seen more notable pressures on selected dates along with more use of our standing repo facility. In addition, the effective federal funds rate has begun to move up relative to the rate of interest on reserve balances. These developments are what we expected to see if the size of our balance sheet declined and warrant today's decision to cease runoff. Over the three and a half years that we've been shrinking our balance sheet, our securities holdings have declined by $2.2 trillion. As a share of nominal GDP, our balance sheet has fallen from 35% to about 21%. In December, we'll enter the next phase of our normalization plans by holding the size of our balance sheet steady for a time while reserve balances continue to move gradually lower as other non-reserve liabilities such as currency keep growing. We will continue to allow agency securities to run off our balance sheet and will reinvest the proceeds from those securities in Treasury bills, furthering progress toward a portfolio consisting primarily of Treasury securities. This reinvestment strategy will also help move the weighted average maturity of our portfolio closer to that of the outstanding stock of Treasury securities, thus furthering the normalization of the composition of our balance sheet. The Fed has been assigned two goals for monetary policy, maximum employment and stable prices. We remain committed to supporting our maximum employment, bringing our inflation sustainably to our 2% goal, and keeping longer-term inflation expectations well anchored. Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals. Thank you. I look forward to your questions.

N

Nick Timmeros1:57:01

Nick Timmeros of the Wall Street Journal. Chair Powell, are you uncomfortable with how market pricing has assumed a rate cut is a foregone conclusion in your next meeting?

J

Jerome Powell1:57:11

Well, as I just mentioned, a further reduction in the policy rate at the December meeting is not a foregone conclusion as I've just said. So, I would say that that needs to be taken on board. We had, you know, I would just say this, 19 participants on the committee. Everyone works very hard at this and takes their obligations to serve the American people very seriously. And at a time when we have tension between our two goals, we have, you know, strong views across the committee. And as I mentioned, there were strongly differing views today. And the takeaway from that is that we haven't made a decision about December and, you know, we're going to be looking at the data that we have, how that affects the outlook and the balance of risks. And I'll just say that.

N

Nick Timmeros1:57:56

You and some of your colleagues have framed last month and maybe today, I won't put words in your mouth, as a risk-management exercise. At what point do you conclude that you've taken out enough insurance? Are you looking for some kind of improvement in the outlook or could this unfold along the lines of last year where you made a sequence of adjustments and then waited to gather more information?

J

Jerome Powell1:58:21

So the way we have been thinking, the way I've been thinking about it is the risks to the two goals, for a very long time the risk was clearly of higher inflation and then that has changed now. And as we saw, particularly after we saw after the July meeting, we saw the downward revisions in job creation, we saw a very different picture of the labor market and suggested that there were higher downside risks to the labor market than we had thought. And that suggested that policy which we had been holding at a, I would say modestly, others people would say moderately restrictive level needed to move more in the direction over time of neutral. If the two goals are sort of equally at risk then you ought to be at neutral because one of them's calling for you to hike and one of them is calling for you to cut. So if that got back into balance then you'd want to be roughly at neutral. So in that sense it was a risk-management, and I would say the same about today, sort of the same logic but as I mentioned going forward is a different thing.

C

Claire Jones1:59:25

Claire Jones, Financial Times. Thank you for taking this question. You know, we've just heard from you that the discussion in December and the conclusion of the discussion is not a foregone conclusion. I'd like to just dig into that a little bit more about what sort of arguments were brought up. Was there any consideration for instance of the investment we're seeing in AI and some of the generation of household wealth through rises in stock prices related to the AI boom? Thank you.

J

Jerome Powell2:00:03

You know, I wouldn't say that's a factor in everyone's assessment of the economy. I wouldn't say it's a driving factor, I don't think, for anybody. You know, I guess I would say it this way. Once again, I would just point out that we have the situation where the risks are to the upside for inflation and to the downside for employment. We have one tool. You can't do both of those. So, you can't address both of those at once. You've got a very different situation. So, you have some people, people have different forecasts, right? So, they'll feel they'll forecast faster or slower progress on one or the other. And they also have different levels of risk aversion. And you know, some will be more averse to inflation overruns and some will be more averse to underruns of employment. And so you put that together and as you can see from the SEP and from the public discussion that goes on between the meetings when participants go out and talk, they're very disparate views and they were reflected in strongly differing views in today's meeting as I pointed out in my remarks. And that's what leads me to say that we haven't made a decision about December. You know, I always say that it's a fact that we don't make decisions in advance, but this is, I'm saying something in addition here is that it's not to be seen as a foregone conclusion. In fact, far from it.

C

Claire Jones2:01:22

Can I just ask a quick follow up on QT? How much of the fund impressions we've seen in money markets are related to the US Treasury issuing more short-term debt?

J

Jerome Powell2:01:34

You know, that could be one of the factors, but the reality is we've seen, you know, the things that we've seen, higher repo rates and federal funds rate moving up. These are the very things that we look for. We actually have a framework for looking at, you know, what the place we're trying to reach. What we said for a long time now is that when we feel like we're a little bit or a bit above what we consider a level that's ample that we would freeze the size of the balance sheet. Of course, reserves will continue to decline from that point forward as non-reserve liabilities grow. So this happened, some things have been happening for some time now showing a gradual tightening in money market conditions. Really in the last, call it three weeks or so you've seen more significant tightening and I think a clear assessment that we're at that place. The other thing is, you know, the balance sheet is shrinking at a very, very slow pace now. We've reduced it by half twice. And so there's not a lot of benefit to be, you know, to be holding on for to get the last few dollars because, you know, again the balance sheet reserves are going to continue to shrink as non-reserves grow. So, you know, there was support on the committee as we thought about it to go ahead with this and announce effective December 1 that we will be, you know, freezing the size of the balance sheet and that the December 1 date gives the markets a little bit of time to adapt.

C

Colby Smith2:03:00

Thank you. Colby Smith with the New York Times. So much of the rationale for cutting interest rates even as inflation moves away from the 2% target seems to be, you know, that there are these mounting downside risks to the labor market. But if those don't materialize and the labor market either stabilizes around current employment levels or even starts to strengthen somewhat, how would that change your perception of how much interest rates need to fall from here? Would you then be a bit more concerned about underlying inflation and the possibility of second-round effects from tariffs?

J

Jerome Powell2:03:34

Yeah, I mean in principle if you were to see data that suggested the labor market is strengthening or even that it's stabilizing, you know, that would certainly play into our decisions going forward. So, and we do have, you know, we get some data. The labor market is a place where we get, for example, we get the state level data on initial claims which are sending sort of a signal of more of the same. We also get job openings. And we'll get lots of survey data. We'll get the Beige Book and things like that. So, we'll have a picture of what's going on in the labor market. And, you know, the fact that we're not seeing an uptick in claims or a downtick really in openings suggests that you're seeing maybe continued very gradual cooling, but nothing more than that. So, that does give you some comfort.

C

Colby Smith2:04:20

But if this shutdown lasts a while longer and you don't have that data in hand, I'm just wondering how that hinders the committee's ability to assess the state of the labor market and make the right policy decisions and also how much is that factoring into the debate about December.

J

Jerome Powell2:04:36

Yeah. So, you know, we get, like I mentioned, what we get in the labor area. We get some data in inflation, some data in economic activity. And we'll have a picture of what's going on. We also will have the Beige Book. Again, I would say we're not going to be able to have the, you know, the detailed feel of things, but I think if there were a significant or material change in the economy one way or another, I think we'd pick that up through this. So, in terms of how it might affect December, it's really hard to say. December's, you know, the meeting is I guess six weeks away. We just don't know what we're going to get. If there is a very high level of uncertainty then, you know, that could be an argument in favor of caution about moving but we'll have to see how it unfolds.

S

Steve Liesman2:05:28

Steve Liesman, CNBC. Mr. Chairman can you characterize the meeting in terms of, you said strongly differing views, was this a close call this cut or was it a close call maybe the other way because you had dissents on both sides. Thanks.

J

Jerome Powell2:05:47

So I was referring to the discussion about, to the extent it related to December. You saw we had two dissents, one for 50 and one for no cut. So, you know, that was a strong, solid vote in favor of this cut. The strongly differing views were really about the future. What does that look like? And I think people are saying, you know, they're noticing stronger economic activity. You know, forecasters generally broadly have raised their economic growth forecast for this year and next year in some cases quite materially. In the meantime, we see, you know, a labor market that's kind of, I don't want to say stable, but it's not clearly in motion. It's not clearly declining quickly. In any case, it may be just continuing to gradually cool. And again, people have different forecasts and expectations about the economy and different risk tolerances. And so there's a, you know, you read the SEP, you read the speeches, you know, there are different views on the committee and to the point where I said what I said.

S

Steve Liesman2:06:50

And just to follow up on the balance sheet, if you stop the runoff now, does that mean you have to go back to actually adding assets sometime next year so that the balance sheet doesn't shrink as a percent of GDP and become a tightening factor?

J

Jerome Powell2:07:07

So you're right, the place we'll be on December 1 is that the size of the balance sheet is frozen and as mortgage-backed securities mature, we'll reinvest those in Treasury bills, which will foster both a more Treasury balance sheet and also a shorter duration. So that's what, in the meantime, if you freeze the size of the balance sheet, the non-reserve liabilities, currency for example, they're going to continue to grow organically. And because the size of the balance sheet is frozen, you have further shrinkage in reserves. And reserves is the thing that we're managing that has to be ample. So that'll happen for a time but not a tremendously long time. We don't know exactly how long but at a certain point you'll want to start reserves to start gradually growing to keep up with, you know, the size of the banking system and the size of the economy. So we'll be adding reserves at a certain point and that's the last point. Even then we'll be, we didn't make decisions about this today but we did talk today about the composition of the balance sheet and there's a desire that the balance sheet be, right now it's got a lot more duration than the outstanding universe of Treasury securities and we want to move to a place where we're closer to that duration. That'll take some time. We haven't made a decision about the ultimate end point, but we all agree that we want to move more in the direction of a balance sheet that more closely reflects the outstanding Treasuries, and that means a shorter duration balance sheet. Now, this is something that's going to take a long time and move very, very gradually. I don't think you'll notice it in market conditions, but that's the direction of things.

J

Janelle Marte2:08:47

Janelle Marte with Bloomberg. How are officials interpreting the latest CPI report? So some components came in lower than expected but core inflation was still at 3%. So at this moment, what are you learning about the drivers and also do you view that the risks are greater that the Fed makes a mistake on employment or inflation?

J

Jerome Powell2:09:16

So okay, so the September CPI report, we didn't get PPI after that which is important for translation into what we look at which is PCE inflation but we can still make a pretty good assessment of what that will be. When we get PPI there might be some adjustments but so directionally, you know, it was a little softer than expected and we always break it down into the three components. So basically, you've seen goods prices increasing and that's really due to tariffs and that's in compared to a longer run trend of very, very mild deflation in goods. So that's moving inflation up. On the other side of that, good news that housing services inflation has been coming down and is expected to continue to come down. So if you remember a year, a couple years ago, that's the one that we kept expecting it to do that. Now it's been doing that for some time and we expect to continue that. That leaves the biggest category is services other than housing services and that's kind of been moving sideways over the last few months but a significant part of that is non-market services and we don't take a lot of signal about the tightness of the economy from that. So if you add all that up, a couple things to say. One is that inflation away from tariffs is actually not so far from our 2% goal. We estimate, people have different estimates of what that is, but it might be, you know, five or six tenths. And so if it's 2.8 then core PCE not including tariffs might be 2.3 or 2.4 in that range, something like that. So that's not so far from your goal. So we look at that and the thing about tariff inflation is the base case is that it will come and it probably will increase further but it is that it will be a one-time increase. And, you know, we've been very focused for all of this year at making sure that that's the case and thinking carefully about what are the pathways through which it could become something else, troublesome inflation. One of those would be, you know, a really tight labor market. We don't see that. Another could be inflation expectations moving. We don't see that. So, I think, you know, we're watching this very carefully. I think it's not the case that we're just assuming that it's going to be a one-time inflation. We understand fully that this is a risk we have to monitor and ultimately manage.

J

Janelle Marte2:11:46

With the stubborn services inflation, what are some of the things that the Fed could do to address that? And especially when we're seeing potentially labor supply challenges.

J

Jerome Powell2:11:57

Sorry, say the first part.

J

Janelle Marte2:12:01

The stubborn services inflation that you mentioned.

J

Jerome Powell2:12:01

Service inflation. Yeah. Well, again, the part of services inflation that isn't coming down as we would like it to is the non-market part of non-housing services. And, you know, overall that's just something that we expect will come down. The non-market part of it should come down. It largely reflects higher stock prices and, I mean, financial services that are imputed rather than actually paid is a big part of that. But also just, you know, we think policy is still modestly restrictive in my telling. So that's the kind of thing that should lead to a gradually cooling economy. That's one of the reasons you see a gradually cooling labor market is because, you know, Fed policy is modestly restrictive. So that should also help get that. I want to say though, we're absolutely committed to returning inflation to 2%. If you look at longer-term surveys or market pricing, you will see that that's a credible commitment and there should be no question that that's where we're going.

C

Chris Rugaber2:13:08

Great, thank you. Chris Rugaber, Associated Press. So there's a big investment boom in AI infrastructure right now as you know, and wondering if the existence of such a boom would indicate that rates are not that restrictive after all, and could further rate cuts at this point perhaps fuel an excess level of investment there or market bubbles. How is the Fed thinking about that?

J

Jerome Powell2:13:37

So I don't think that... you're right, there are a lot of data centers being built and other investments being made around the country and around the world. And big US companies are just investing a lot of resources in thinking about how AI, which will be based on those data centers, run through those data centers, is going to affect their businesses. So it's a big deal. I don't think that the spending that happens to build data centers all over the country is especially interest sensitive. It's based on longer run assessments that this is an area where there's going to be a lot of investment and that's going to drive higher productivity and those sorts of things. I don't know how those investments will work out, but I don't think they're particularly interest sensitive compared to some of the other sectors.

C

Chris Rugaber2:14:31

And then just a quick follow-up. You mentioned that you do have data that you're looking at for inflation and growth in the absence of government data. Could you give us a sense, I think we know a lot about the jobs data that's out there. Can you give us a sense of what you're looking at to track inflation in the absence of government data? Thank you.

J

Jerome Powell2:14:49

So it's a lot of things and it doesn't replace government data, but you know, all of these... I'll just mention some of the many, many names: PriceStats, Adobe, and others. And for wage inflation, there's ADP data. On spending, you're going to ask about spending at some point. You know, there are lots of other things that we look at, but it's again, it's many different sources and again, including what we get out of the Beige Book, which will come out mid-cycle as always. And it doesn't replace the government data, but it gives us a picture. Again, I think if something material were happening, if there were material developments, I think we would pick that up. I don't think we'll be able to have the very granular understanding of the economy while this data is not available.

H

Howard Schneider2:15:49

Howard with Reuters, thank you. I just want you to elaborate a little bit on what you said a moment ago about the continued shutdown making it more difficult to make a move in December, and that may make you more cautious to the degree you are relying on private data that isn't the gold standard, or that you're relying on your own surveys or the Beige Book. Do you worry at some point you're going to have to start making policy by anecdote?

J

Jerome Powell2:16:16

You know, this is a temporary state of affairs and you know, we're going to do our jobs. We're going to collect every scrap of data we can find, evaluate it, and think carefully about it. And that's our job. So, that's what we're going to do. If you ask me, could it affect the December meeting? I'm not saying it's going to, but yeah, you could imagine that. What do you do when you're driving in the fog? You slow down. So, that could or could not. I don't know how that's going to play into things. We may get the data back, but there's a possibility that it would make sense to be more cautious about moving. I'm not committing to that. I'm just saying it's certainly a possibility that you would say, we really can't see, so let's slow down.

H

Howard Schneider2:17:02

As a follow-up, in the debate on this meeting, we saw recently some pretty big layoff announcements coming from Amazon and others. Wondering if that figured into the discussion at all, that you're starting to see the turn, this tension between growth and employment starting to be resolved, you know, to the detriment of employment. And secondly, some of the stress is starting to appear in the bottom spur of the K, as they call it, household health premiums that are going to be possibly going up quite substantially, things like that. Has that started to become a factor in your policy discussion?

J

Jerome Powell2:17:35

So those are both things that we're watching very, very carefully. To start with the layoffs, you're right. You see a significant number of companies either announcing that they are not going to be doing much hiring or actually doing layoffs, and much of the time they're talking about AI and what it can do. So, we're watching that very carefully and yes, it could absolutely have implications for job creation. We don't really see it in the initial claims data yet. Now, it's not a surprise that we don't. It takes some time for it to get in there, but we're watching that really carefully. But again, don't see it yet in the initial claims data. On the K-shaped economy thing, I would say the same thing or similar thing. If you listen to the earnings calls or the reports of big public consumer-facing companies, many of them are saying that there's a bifurcated economy there and that consumers at the lower end are struggling and buying less and shifting to lower-cost products, but that at the top, people are spending at the higher income and wealth. And so you have much anecdotal data on that and so we think there's something there.

E

Edward Lawrence2:19:06

Edward, thank you. Edward Lawrence with Fox Business. So Mr. Chairman, I want to take another crack at the further reduction in rates is not a foregone conclusion. So in December, you said far from it. So if a cut might not be on the table for December because of lack of data, what does the other concerns then stem from? So if it's not lack of data as the reason December is not a foregone conclusion, what other things could be the concern then?

J

Jerome Powell2:19:36

Well, the perspectives of people on the committee that, you know, we've now moved 150 basis points and that we're down into, you know, you're into that range between three and four where most estimates, many estimates of the neutral rate live in that 3 to 4% area. You're there now. You're above the median number for the committee, but I think there are people on the committee who have higher estimates of the neutral rate, and that's a... you can argue these positions since it can't be directly observed, the neutral rate. So, you know, I think for some part of the committee, it's time to maybe take a step back and see whether there really are downside risks to the labor market or see whether in fact the stronger growth that we're seeing is real. Ordinarily, the labor market is a better indicator of the momentum of the economy than the spending data. That's the lore. In this case, that gives a more downbeat read. So people just have, you know, there again, we've cut 50 more basis points in the last two meetings and there was a sense like, let's, from some, let's pause here kind of thing, and a sense from others wanting to go ahead. But that's why I say differing views, strongly differing views.

E

Edward Lawrence2:21:01

And so on that division then you're talking about going forward. So what's more important in this division? Is it inflation risks? Is it employment risk? Or is there a deeper philosophy division among the board?

J

Jerome Powell2:21:14

I look, everybody on the committee is deeply committed to doing the right thing to achieve our goals: maximum employment and stable prices. You have differences on how to do that and as I mentioned, some of that is different forecasts, but a lot of it is also different risk aversions to different variables, which is common through all Federal Reserves. People just have different risk tolerances, let's say. So that leads you to people with disparate views. You will know that from the speeches you've been listening to from my colleagues. And so we're at a place now where we have in fact cut two more times. And you know, we're now 150 basis points closer to neutral, wherever that may be, than we were a year ago. And so there's a growing chorus now of feeling like maybe this is where we should at least wait a cycle, something like that. That's what it is. It's just what you think it would be. And again, you've seen it in the September summary of economic projections. You've seen this in the public remarks of FOMC participants. And now I'm telling you that's what you can expect in the minutes and I'm just telling you that's what happened in the meeting.

E

Elizabeth Schulze2:22:27

Elizabeth, thank you so much. Elizabeth Schulze with ABC News. What is your explanation for why the job market is weakening right now and what will this rate cut do to improve the job market?

J

Jerome Powell2:22:41

So I think there are two things affecting the job market and one of them is just a dramatic reduction in the supply of new workers. And that's two things: that's declining labor force participation, which is a cyclical thing, and then there's declining immigration, which is just a big policy change that actually began in the last administration and it has been accelerated now. So a big part of the whole story is that supply side story. Okay. In addition, labor demand has declined and so the unemployment rate has gone down meaning that demand for workers has gone down a little more than supply. So that's what's going on and but it is mostly a supply function, it's mostly a function of the change in supply I think and many people think. So the question then is what does our tool do which supports demand. And I would just say when you're in a situation where job creation, if you adjust for likely overcounting in the way that BLS does its work, is pretty close to zero. So maximum employment doesn't on a sustainable basis, if you're creating zero jobs, if it's in equilibrium, if it's in balance, it's a pretty, as I said before, a pretty curious balance. So I thought and many of my colleagues thought, in fact you've seen the last two meetings, that it was appropriate for us to react by supporting demand with our rates and we've done that. We've reduced so that rates are looser there. I wouldn't say that they're accommodative right now, but they're meaningfully less tight than they were, and that should help. So that at least the labor market doesn't get worse. So it's a complicated situation. And some people argue that this is supply and we really can't affect it much with our tools, but others argue, as I do, that there is an effect from demand and that we should use our tools to support the labor market when we see this happening.

E

Elizabeth Schulze2:24:52

You also talked about tariffs causing a one-time price increase. Should American households, consumers expect that inflation will continue to go up this year because of those tariffs?

J

Jerome Powell2:25:02

So, the basic expectation is that there will be some additional increased inflation because it takes a while for tariffs to work their way through the production chain and finally get to consumers. And we see this now from the tariffs that were put in place now many months ago. We see those effects. But if you put tariffs in effect and they've been coming into effect consistently in, you know, February, March, April, May, and that's all happening. So that'll continue to happen for some time, probably into the spring. These are not big increases, though. These are a tenth or so on inflation. They may be big increases on a particular product that's been tariffed, but overall, these are fairly modest. I think some projections go, we're at 2.8% inflation. You might get two or three more tenths or four more tenths maybe. But then as all the tariffs are in, they stop generating inflation. You've had a one-time price increase. As long as you're not... at least this is the theory. This is how we believe and hope that it will work out. Once the last tariff is put on something, at that point it becomes a higher price level, but it stops going up, if you will. Prices stop going up. They'll just be at that level and then measured inflation will come back down to non-tariff inflation. As I mentioned, non-tariff inflation is not so far from 2%. Now, consumers are not interested in that story. Their prices are higher. More than that, the reason they're so unhappy about inflation is the inflation that we had in 2021, 22, and 23. Because you can say that prices aren't going up as much, but that doesn't mean people aren't feeling those higher prices from the inflation we had two or three years ago. They are. And that's, I think, a large part of why the public, if you sample people, inflation is still very much making people quite unhappy. Even, you know, and it's nice that prices are not going up as fast as they were, but they're still much higher than they were. And it'll take some time for that effect to wear off as real incomes rise. It will feel better over time, but that's going to take time.

M

Michael McKee2:27:16

Michael McKee from Bloomberg Television and Radio. Do you have any concerns that equity markets are or are close to being overvalued at this point?

J

Jerome Powell2:27:26

You know, we don't look at any one asset price and say, 'Hey, that's wrong.' It's not our job to do that. We look at the overall financial system and we ask whether it's stable, whether it could withstand shocks, right? So banks are well capitalized. While some households are clearly under stress, in the aggregate, households are in good shape financially, relatively manageable levels of debt. At the lower income spectrum you are seeing rising defaults, particularly around subprime auto, but nonetheless in the aggregate pretty good. And you don't see too much leverage in the banking system or the financial system. It's a mixed picture but it's not an overly troubling picture. And again, it's not appropriate, you know, we don't set asset prices, markets do that.

M

Michael McKee2:28:22

Well, you must be well aware that by lowering interest rates you're contributing to additional asset price increases. And I wonder how you balance the idea that lowering rates would help the labor market with the reality that it seems more likely to be stimulating increased investment in AI, which is the rationale for thousands of job cuts that have been announced in the last few weeks.

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Jerome Powell2:28:45

Yeah, I don't think interest rates are an important part of the AI, of the data center story. I think people think there's great economics in building these data centers and they're making a lot of money building them and they think they have very high present value and all that sort of thing. It's not really about, it's not about 25 basis points here or there. We use our tools to support the labor market and to create price stability. That's what we do. That's our two jobs, right? So we're here to, by lowering rates at the margin that will support demand and that will support more hiring and that's why we do it. Now no 25 basis point or even 50 basis point hike is going to be a dispositive thing but ultimately lower rates will support more demand and that'll support hiring over time. And of course we also have to be careful about this which is what we've been doing because we know where inflation is and we know that, I've told you the story. It's a complicated story but this is the best assessment that we can make. And but because there's uncertainty around inflation and the path ahead for inflation, that's why we're going, that's why the pace we're going has been a careful one.

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Victoria Guida2:30:04

Victoria Guida from Politico. On AI, I'm just wondering, you know, it seems like a lot of the economic growth that we've been seeing is fed by investments in AI. So, how worried are you about what a sudden contraction in tech investment would mean for the overall economy? Is there enough strength in other sectors? And specifically, are there any lessons that you take from the 1990s in how you might approach what's happening right now?

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Jerome Powell2:30:34

Yeah, this is different in the sense that these companies, the companies that are so highly valued, actually have earnings and stuff like that. So if you go back to the 90s and the dot-com, they were ideas rather than companies and so there was a clear bubble there, whereas the... I won't go into particular names, but they actually have earnings and it looks like they have business models and profits and that kind of thing. So it's really a different thing. The investment we're getting in equipment and in all those things that go into creating data centers and feeding the AI, it's clearly part, one of the big sources of growth in the economy. Consumer spending also though has been, you know, is much bigger than that and has been growing and has defied a lot of negative forecasts, continuing to do so this year. Consumers are still spending. Now it may be mostly higher-end consumers or maybe skewed that way, but the consumer is spending and that's a big, big chunk of what's going on in the economy, bigger than, substantially bigger than AI. You can point to growth, I mean actually, maybe growth as opposed to level, but consumer spending is a much bigger part of the economy.

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Victoria Guida2:31:52

And why do you think that the labor market is slowing so much even though consumer spending is strong?

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Jerome Powell2:31:58

Why has it slowed so much? Well, what's happened is that the supply of workers has dropped very, very sharply due to mainly immigration but also lower labor force participation. So that means there's less need for new jobs because there isn't this flow into the pool of labor where people need jobs because those people aren't there now. So there's not a supply of workers showing up for jobs. In addition, demand has also gone down and so has labor force participation has declined, which is more of a sign in this case of demand as well as trend. So I think you're seeing some softening. The economy is growing at a slower rate than it was, 2.4% last year. We think around 1.6% this year. It could have been a couple of tenths higher if not for the shutdown. And of course that will reverse but you still got the economy growing at a moderate pace.

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Andrew Ackerman2:33:01

Andrew Ackerman with the Washington Post. I wanted to ask if you could elaborate on how you think about policy in the context of the data drought. Does it make you inclined to stick with your plans as set out in September in the absence of the data that might change your mind? Or does it make you inclined to proceed with added caution because of uncertainty?

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Jerome Powell2:33:25

Yeah. Well, we'll know when we face that question, if we face that question. It'll probably be argued both ways, right? But I've said a couple times here that if you really aren't getting information, you really don't know and the economy looks like it's solid and stable and hasn't really changed, there will be an argument. I don't know how persuasive it will be, but there will be an argument that you slow down when you can't see as far ahead. Others may argue, I mean, I'm not sure where this argument will come, but you're perfectly right that you could also argue, well, things haven't really changed, but you might not know that. So I don't know whether we'll face this or not. I hope we don't. I hope by the time of the December meeting, we're getting a better flow of data, but we're going to have to do our jobs one way or the other.

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Andrew Ackerman2:34:17

Okay. I also just wanted to ask a fin question. I think several years ago, you said the overall amount of capital in the system was about right. As the Fed moves forward with a revised Basel proposal, potentially changes to the G-SIB surcharge, has that changed at all and or are you planning to significantly reduce the amount of capital in the system? Thanks.

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Jerome Powell2:34:38

So there's discussions going on I think among the agencies and I don't want to get ahead of those discussions. I continue to think that the level of capital when I said that in 2020 was about right and of course there's been much capital added since then through various mechanisms. But I look forward to... I know those discussions are really just getting going. They haven't come to the point where they've got a whole plan and that kind of thing. So I really don't have much to say on that.

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Brian Chung2:35:12

Brian. Hi Chairman Powell. Brian Chung with NBC News. Is the weakness in the jobs market accelerating and who's at risk if the interest rate cuts are not the effective medicine for a further slowdown in the labor?

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Jerome Powell2:35:29

So we do not see the weakness as you put it, the weakness in the job market accelerating. I would say then again we don't have, we didn't get the September employment report, payroll report, but we do get, we look at, you know, the unemployment insurance claims, initial claims are reported at the state level and we still get those and we can accumulate them and get the national number and there's really, I mean, no story, you can look at the numbers. Same thing with the job openings we get from Indeed. There's just no story over the last four weeks. It's kind of stable. So you don't see anything that says that the job market is or really any part of the economy is making a significant deterioration. Don't see that. You see more things like I mentioned though which is that you see big companies making announcements of either layoffs or of the idea that they won't need to hire and their number of employees is not expected to go up over a number of years. There may be different people working there, they say that too, but they don't need a bigger headcount. So you see those kinds of things. You don't see it in the aggregate numbers. The layoff numbers have not gone up, but job creation is very low. And the job finding rate for people who are unemployed is very low. But the unemployment rate is very low as well, 4.3% is a low unemployment rate.

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Brian Chung2:36:57

So, as you make these cuts, is it the lower income workers that you're thinking about or those who might have their jobs automated? Is there a particular part of the market that you're particularly...

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Jerome Powell2:37:07

So we can't, our tools don't allow us to target any demographic or any income level and that kind of thing. I do think that people, you know, we saw this during the global financial crisis and the long recovery, if you have a long period of very strong labor market conditions, it benefits people at the lower end the most. The last two or three years of that long expansion, people at the lower part of the income spectrum were getting the biggest benefits and lots of things were happening in that space demographically which were very constructive. And we're not at that place right now but so yeah, I mean, a stronger labor market is the best thing we can do for the public. It's also part of our job, it is half of our job, but it is absolutely the best thing we can do for people along with keeping prices stable. Those two things, I mean, inflation also hurts people on fixed incomes more than other people.

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Courtney Brown2:38:07

Courtney. Hi Chair Powell. Courtney Brown from Axios. As you know the 12 Reserve Bank presidents' terms are up for renewal at the end of February. I'm wondering if you can give us a timeline for when the board will consider those reappointments and whether we can expect everyone to be re-upped or if we can expect some changes.

J

Jerome Powell2:38:29

So, it's a process that we go through under the law. The way the law works is we have a reappointment process every five years for all of the Reserve... each of them and all of them. We're in the middle of that process and we're going to complete it in a timely way and I really, that's really all I can say.

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Courtney Brown2:38:47

Okay. Thank you.

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Daniel Azoulay2:38:49

Daniel. Daniel Azoulay, Agence France-Presse. You've now had dissents in three consecutive FOMC meetings but in this meeting you had dissents going in both directions and you've just mentioned there's strong disagreement over the future path of rate cuts. Have these disagreements complicated your role presiding over the FOMC meetings and if so, how?

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Jerome Powell2:39:09

I wouldn't say that, no. I think you have to take what comes and what comes right now is a pretty challenging situation where we have, first of all, we have 4.3% unemployment, we have an economy that's growing close to 2%, so overall it's a good picture. But in terms of our policy, we have upside risks to inflation, downside risks to employment, and this is a very difficult thing for a central bank because one of those calls for rates to be lower, one calls for rates to be higher. We can't do both so we have to balance the two. And so it's a challenging thing and as we have worked our way through this process, you would expect that there would be a range of views across the committee on what to do and the speed with which we should do it and that's what we have. That makes a lot of sense to me. These are all people who take their jobs very seriously, work very hard at this and just want to do what's right for the American people but they have different views on what that is. And it's an honor to work among people who care that much. It is, but I don't feel that it's unfair or anything like that. It's just a time when we're making quite difficult judgments in real time. And I believe we'll get through this. And I think we've done sort of the right thing so far this year. I think it was appropriate for us to be careful about this. I think it would not be appropriate to just ignore or assume away the inflation issue. At the same time, I think the risk of higher, more persistent inflation has declined significantly since April. And if we do wind up resuming rate cuts at some point, we will at some point. I think we're trying to get to the end of this cycle with the labor market in a good place and with inflation on its way to 2% or at 2%. So that's all we're trying to do and we're doing it under quite challenging circumstances and doing the best we can.

Good afternoon. My colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people. Although some important federal government data have been delayed due to the shutdown, the public and private sector data that have remained available suggest that the outlook for employment and inflation has not changed much since our meeting in September. Conditions in the labor market appear to be gradually cooling and inflation remains somewhat elevated. In support of our goals and in light of the balance of risks to employment and inflation, today the Federal Open Market Committee decided to lower our policy interest rate by a quarter percentage point. We also decided to conclude the reduction of our aggregate securities holdings as of December 1. I will have more to say about monetary policy after briefly reviewing economic developments. Available indicators suggest that economic activity has been expanding at a moderate pace. GDP rose at a 1.6% pace in the first half of the year, down from 2.4% last year. Data available prior to the shutdown show that growth in economic activity may be on a somewhat firmer trajectory than expected, primarily reflecting stronger consumer spending. Business investment in equipment and intangibles has continued to expand, while activity in the housing sector remains weak. The shutdown of the federal government will weigh on economic activity while it persists, but these effects should reverse after the shutdown ends. In the labor market, the unemployment rate remained relatively low through August. Job gains have slowed significantly since earlier in the year. A good part of the slowing likely reflects a decline in the growth of the labor force due to lower immigration and labor force participation, though labor demand has clearly softened as well. Although official employment data for September are delayed, available evidence suggests that both layoffs and hiring remain low and that both households' perceptions of job availability and firms' perceptions of hiring difficulty continue to decline. In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months. Inflation has eased significantly from its highs in mid-2022, but remains somewhat elevated relative to our 2% longer-run goal. Estimates based on the consumer price index suggest that total PCE prices rose 2.8% over the 12 months ending in September and that excluding the volatile food and energy categories, core PCE prices rose 2.8% as well. These readings are higher than earlier in the year as inflation for goods has picked up. In contrast, disinflation appears to be continuing for services. Near-term measures of inflation expectations have moved up on balance over the course of this year on news about tariffs as reflected in both market and survey-based measures. Beyond the next year or two or so, however, most measures of longer-term expectations remain consistent with our 2% inflation goal. Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. At today's meeting, the committee decided to lower the target range for the federal funds rate by a quarter percentage point to 3 and 3/4 to 4%. Higher tariffs are pushing up prices in some categories of goods, resulting in higher overall inflation. A reasonable base case is that the effects on inflation will be relatively short-lived, a one-time shift in the price level. But it is also possible that the inflationary effects could instead be more persistent. And that is a risk to be assessed and managed. Our obligation is to ensure that a one-time increase in the price level does not become an ongoing inflation problem. In the near term, risks to inflation are tilted to the upside and risks to employment to the downside. A challenging situation. There is no risk-free path for policy as we navigate this tension between our employment and inflation goals. Our framework calls for us to take a balanced approach in promoting both sides of our dual mandate. With downside risks to employment having increased in recent months, the balance of risks has shifted. Accordingly, we judged it appropriate at this meeting to take another step toward a more neutral policy stance. With today's decision, we remain well positioned to respond in a timely way to potential economic developments. We will continue to determine the appropriate stance of monetary policy based on the incoming data, the evolving outlook, and the balance of risks. We continue to face two-sided risks. In the committee's discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it. Policy is not on a preset course. At today's meeting, the committee also decided to conclude the reduction of our aggregate securities holdings as of December 1. Our long-stated plan has been to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions. Signs have clearly emerged that we have reached that standard. In money markets, repo rates have moved up relative to our administered rates and we have seen more notable pressures on selected dates along with more use of our standing repo facility. In addition, the effective federal funds rate has begun to move up relative to the rate of interest on reserve balances. These developments are what we expected to see as the size of our balance sheet declined and warrant today's decision to cease runoff. Over the three and a half years that we've been shrinking our balance sheet, our securities holdings have declined by $2.2 trillion. As a share of nominal GDP, our balance sheet has fallen from 35% to about 21%. In December, we'll enter the next phase of our normalization plans by holding the size of our balance sheet steady for a time while reserve balances continue to move gradually lower as other non-reserve liabilities such as currency keep growing. We will continue to allow agency securities to run off our balance sheet and will reinvest the proceeds from those securities in Treasury bills, furthering progress toward a portfolio consisting primarily of Treasury securities. This reinvestment strategy will also help move the weighted average maturity of our portfolio closer to that of the outstanding stock of Treasury securities, thus furthering the normalization of the composition of our balance sheet. The Fed has been assigned two goals for monetary policy, maximum employment and stable prices. We remain committed to supporting our maximum employment, bringing our inflation sustainably to our 2% goal, and keeping longer-term inflation expectations well anchored. Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals. Thank you. I look forward to your questions.

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Nick Timmeros2:51:49

Nick. Nick Timmeros, the Wall Street Journal. Chairman, are you uncomfortable with how market pricing has assumed a rate cut is a foregone conclusion at your next meeting?

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Jerome Powell2:52:04

Well, I, as I just mentioned, a further reduction in the policy rate at the December meeting is not a foregone conclusion, as I've just said. So, I would say that that needs to be taken on board. We had, you know, I would just say this, 19 participants on the committee. Everyone works very hard at this and takes their obligations to serve the American people very seriously. And at a time when we have tension between our two goals, we have strong views across the committee. And as I mentioned, there were strongly differing views today. And the takeaway from that is that we haven't made a decision about December and we're going to be looking at the data that we have, how that affects the outlook and the balance of risks. And I'll just say that.

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Nick Timmeros2:52:49

You and some of your colleagues have framed last month and maybe today, I won't put words in your mouth, there's a risk management exercise. At what point do you conclude that you've taken out enough insurance? Are you looking for some kind of improvement in the outlook or could this unfold along the lines of last year where you made a sequence of adjustments and then waited to gather more information?

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Jerome Powell2:53:12

So the way we have been thinking, the way I've been thinking about it is the risks to the two goals. For a very long time the risk was clearly of higher inflation and then that has changed now. And as we saw, particularly after we saw after the July meeting, we saw the downward revisions in job creation, we saw a very different picture of the labor market and suggested that there were higher downside risks to the labor market than we had thought and that suggested that policy which we had been holding at a, I would say modestly, others would say moderately restrictive level needed to move more in the direction over time of neutral. If the two goals are sort of equally at risk then you ought to be at neutral because one of them's calling for you to hike and one of them is calling for you to cut. So if that got back into balance then you'd want to be roughly at neutral. So in that sense it was a risk management exercise and I would say the same about today, sort of the same logic but as I mentioned going forward is a different thing.

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Claire Jones2:54:18

Claire. Claire Jones, Financial Times. Thank you for taking this question. We've just heard from you that the discussion in December and the conclusion of the discussion is not a foregone conclusion. And I'd like to just dig into that a little bit more about what sort of arguments were brought up. Was there any consideration for instance of the investment we're seeing in AI and some of the generation of household wealth through rises in stock prices related to the AI boom. Thank you.

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Jerome Powell2:54:56

You know, I wouldn't say that's a factor in everyone's assessment of the economy. I wouldn't say it's the driving factor, I don't think, for anybody. You know, I guess I would say it this way. Once again, I would just point out that we have a situation where the risks are to the upside for inflation and to the downside for employment. We have one tool. You can't do both of those. You can't address both of those at once. You've got a very different situation. So, you have some people, people have different forecasts, right? So they'll forecast faster or slower progress on one or the other. And they also have different levels of risk aversion. And some will be more averse to inflation overruns and some will be more averse to underruns of employment. And so you put that together and as you can see from the SEP and from the public discussion that goes on between the meetings when participants go out and talk, they're very disparate views and they were reflected in strongly differing views in today's meeting as I pointed out in my remarks and that's what leads me to say that we haven't made a decision about December. You know, I always say that it's a fact that we don't make decisions in advance, but this is, I'm saying something in addition here, is that it's not to be seen as a foregone conclusion. In fact, far from it.

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Claire Jones2:56:15

Can I just ask a quick follow-up on QT? How much of the funding pressures we've seen in money markets are related to the US Treasury issuing more short-term debt?

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Jerome Powell2:56:24

You know, that could be one of the factors, but the reality is we've seen, you know, the things that we've seen, higher repo rates and federal funds rate moving up. These are the very things that we look for. We actually have a framework for looking at, you know, the place we're trying to reach. What we said for a long time now is that when we feel like we're a little bit or a bit above what we consider a level that's ample, that we would freeze the size of the balance sheet. Of course, reserves will continue to decline from that point forward as non-reserve liabilities grow. So this happened, some things have been happening for some time now showing a gradual tightening in money market conditions. Really in the last, call it three weeks or so, you've seen more significant tightening and I think a clear assessment that we're at that place. The other thing is the balance sheet is shrinking at a very, very slow pace now. We've reduced it by half twice. And so there's not a lot of benefit to be holding on for the last few dollars because again, the reserves are going to continue to shrink as non-reserves grow. So there was support on the committee as we thought about it to go ahead with this and announce effective December 1.

that we will be freezing the size of the balance sheet and that the December 1 date gives the markets a little bit of time to adapt.

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Colby Smith2:57:57

Thank you. Colby Smith with the New York Times. So much of the rationale for cutting interest rates even as inflation moves away from the 2% target seems to be that there are these mounting downside risks to the labor market. But if those don't materialize and the labor market either stabilizes around current employment levels or even starts to strengthen somewhat, how would that change your perception of how much interest rates need to fall from here? Would you then be a bit more concerned about underlying inflation and the possibility of second-round effects from tariffs?

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Jerome Powell2:58:27

Yeah, I mean in principle if you were to see data that suggested that the labor market's strengthening or even that it's stabilizing, that would certainly play into our decisions going forward. We do get some data. The labor market is a place where we get, for example, state-level data on initial claims which are sending a signal of more of the same. We also get job openings. And we'll get lots of survey data. We'll get the Beige Book and things like that. So we'll have a picture of what's going on in the labor market. And the fact that we're not seeing an uptick in claims or a downtick really in openings suggests that you're seeing maybe continued very gradual cooling, but nothing more than that. So that does give you some comfort.

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Colby Smith2:59:13

But if this shutdown lasts a while longer and you don't have that data in hand, I'm just wondering how that hinders the committee's ability to assess the state of the labor market and make the right policy decisions and also how much is that factoring into the debate about December?

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Jerome Powell2:59:29

Yeah. So, we get what I mentioned in the labor area. We get some data in inflation, some data in economic activity. And we'll have a picture of what's going on. We also will have the Beige Book. Again, I would say we're not going to be able to have the detailed feel of things, but I think if there were a significant or material change in the economy one way or another, I think we'd pick that up through this. So, in terms of how it might affect December, it's really hard to say. December's meeting is I guess six weeks away. We just don't know what we're going to get. If there is a very high level of uncertainty then that could be an argument in favor of caution about moving but we'll have to see how it unfolds.

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Steve Liesman3:00:23

Steve Liesman, CNBC. Mr. Chairman, can you characterize the meeting in terms of you said strongly differing views. Was this a close call this cut or was it a close call maybe the other way because you had dissents on both sides?

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Jerome Powell3:00:39

So I was referring to the discussion to the extent it related to December. You saw we had two dissents, one for 50 and one for no cut. So that was a strong, solid vote in favor of this cut. The strongly differing views were really about the future. What does that look like? And I think people are noticing stronger economic activity. Forecasters generally have raised their economic growth forecast for this year and next year in some cases quite materially. In the meantime, we see a labor market that's kind of, I don't want to say stable, but it's not clearly in motion. It's not clearly declining quickly. In any case, it may be just continuing to gradually cool. And again, people have different forecasts and expectations about the economy and different risk tolerances. And so there's a, you read the SEP, you read the speeches, there are different views on the committee and to the point where I said what I said.

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Steve Liesman3:01:45

And just to follow up on the balance sheet, if you stop the runoff now, does that mean you have to go back to actually adding assets sometime next year so that the balance sheet doesn't shrink as a percentage of GDP and become a tightening factor?

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Jerome Powell3:02:00

So you're right. The place we'll be on December 1 is that the size of the balance sheet is frozen. And as mortgage-backed securities mature, we'll reinvest those in Treasury bills, which will foster both a more Treasury balance sheet and also a shorter duration. So that's what, in the meantime, if you freeze the size of the balance sheet, the non-reserve liabilities, currency for example, they're going to continue to grow organically. And because the size of the balance sheet is frozen, you have further shrinkage in reserves. And reserves is the thing that we're managing that has to be ample. So that'll happen for a time but not a tremendously long time. We don't know exactly how long but at a certain point you'll want to start reserves to start gradually growing to keep up with the size of the banking system and the size of the economy. So we'll be adding reserves at a certain point and that's the last point. Even then we didn't make decisions about this today but we did talk today about the composition of the balance sheet and there's a desire that the balance sheet be, right now it's got a lot more duration than the outstanding universe of Treasury securities and we want to move to a place where we're closer to that duration. That'll take some time. We haven't made a decision about the ultimate end point, but we all agree that we want to move more in the direction of a balance sheet that more closely reflects the outstanding Treasuries, and that means a shorter duration balance sheet. Now, this is something that's going to take a long time and move very, very gradually. I don't think you'll notice it in market conditions, but that's the direction of things.

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Janelle Marte3:03:45

Janelle Marte with Bloomberg. How are officials interpreting the latest CPI report? So some components came in lower than expected but core inflation was still at 3%. So at this moment, what are you learning about the drivers and also do you view that the risks are greater that the Fed makes a mistake on employment or inflation?

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Jerome Powell3:04:09

So the September CPI report, we didn't get PPI after that which is important for translation into what we look at which is PCE inflation but we can still make a pretty good assessment of what that will be. When we get PPI there might be some adjustments but so directionally it was a little softer than expected and we always break it down into the three components. So basically you've seen goods prices increasing and that's really due to tariffs and that's in compared to a longer-run trend of very, very mild deflation in goods. So that's moving inflation up. On the other side of that good news, housing services inflation has been coming down and is expected to continue to come down. So if you remember a couple years ago that's the one that we kept expecting it to do that. Now, it's been doing that for some time and we expect to continue that. That leaves the biggest category is services other than housing services and that's kind of been moving sideways over the last few months, but a significant part of that is non-market services and we don't take a lot of signal about the tightness of the economy from that. So, if you add all that up, a couple things to say. One is that inflation away from tariffs is actually not so far from our 2% goal. We estimate, people have different estimates of what that is, but it might be, you know, five or six tenths so that if it's 2.8 then core PCE not including tariffs might be 2.3 or 2.4 in that range something like that. So that's not so far from your goal. So we look at that and the thing about tariff inflation is the base case is that it will come and it probably will increase further but it is that it will be a one-time increase. And we've been very focused for all of this year at making sure that that's the case and thinking carefully about what are the pathways through which it could become something else troublesome inflation. One of those would be a really tight labor market. We don't see that. Another could be inflation expectations moving. We don't see that. So, I think we're watching this very carefully. I think it's not the case that we're just assuming that it's going to be a one-time inflation. We understand fully that this is a risk we have to monitor and ultimately manage.

J

Janelle Marte3:06:39

With a stubborn services inflation, what are some of the things that the Fed could do to address that? And especially when we're seeing potentially labor supply challenges.

J

Jerome Powell3:06:50

Sorry, say the first part.

J

Janelle Marte3:06:52

The stubborn services inflation that you mentioned.

J

Jerome Powell3:06:54

Service inflation. Yeah. Well, again, the part of services inflation that isn't coming down as we would like it to is the non-market part of non-housing services. And overall that's just something that we expect will come down. The non-market part of it should come down. It largely reflects higher stock prices and financial services that are imputed rather than actually paid is a big part of that. But also just we think policy is still modestly restrictive in my telling. So that's the kind of thing that should lead to a gradually cooling economy. That's one of the reasons you see a gradually cooling labor market is because Fed policy is modestly restrictive. So that should also help get that. I want to say though, we're absolutely committed to returning inflation to 2%. If you look at longer-term surveys or market pricing, you will see that that's a credible commitment and there should be no question that that's where we're going.

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Chris Rugaber3:08:05

Chris Rugaber, Associated Press. So there's a big investment boom in AI infrastructure right now as you know and wondering if the existence of such a boom would indicate that rates are not that restrictive after all and could further rate cuts at this point perhaps fuel an excess level of investment there or market bubbles. How is the Fed thinking about that?

J

Jerome Powell3:08:30

So I don't think that, you're right there are a lot of data centers being built and other investments being made around the country and around the world. And big US companies are just investing a lot of resources in thinking about how AI which will be based on those data centers run through those data centers is going to affect their businesses. So it's a big deal. I don't think that the spending that happens to build data centers all over the country is especially interest-sensitive. It's based on longer-run assessments that this is an area where there's going to be a lot of investment and that's going to drive higher productivity and that sort of thing. I don't know how those investments will work out but I don't think they're particularly interest-sensitive compared to some of the other sectors.

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Chris Rugaber3:09:26

And then just a quick follow-up, you mentioned that you do have data that you're looking at for inflation and growth in the absence of government data. Could you give us a sense? I think we know a lot about the jobs data that's out there. Can you give us a sense of what you're looking at to track inflation in the absence of government data?

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Jerome Powell3:09:43

So it's a lot of things and it doesn't replace government data but you know all of these, I'll just mention some of the many, many names, PriceStats, Adobe and others. And for wage inflation there's ADP data. On spending, you're going to ask about spending at some point, there are lots of other things that we look at but it's again it's many different sources and again including what we get out of the Beige Book which will be sort of come out mid-cycle as always and it doesn't replace the government data but it gives us a picture. Again I think if something material were happening if there were material developments I think we would pick that up. I don't think we'll be able to have the very granular understanding of the economy while this data is not available.

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Howard Schneider3:10:42

Howard Schneider with Reuters. Thank you. I just wanted you to elaborate a little bit on what you said a moment ago about the continued shutdown making it more difficult to make a move in December. And that may make you more cautious to the degree you are relying on private data that isn't the gold standard or that you're relying on your own surveys or the Beige Book. Do you worry at some point you're going to have to start making policy by anecdote?

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Jerome Powell3:11:08

You know, this is a temporary state of affairs and we're going to do our jobs. We're going to collect every scrap of data we can find, evaluate it, and think carefully about it. And that's our job. So, that's what we're going to do. If you ask me, could it affect the December meeting? I'm not saying it's going to, but yeah, you could imagine that what do you do when you're driving in the fog? You slow down. So, that could or could not. I don't know how that's going to play into things. We may get the data may come back, but there's a possibility that it would make sense to be more cautious about moving. I'm not committing to that. I'm just saying it's certainly a possibility that you would say we really can't see, so let's slow down.

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Howard Schneider3:11:55

As a follow-up in the debate on this meeting, we saw recently some pretty big layoff announcements coming from Amazon and others. Wondering if that figured into the discussion at all that you're starting to see the turn, this tension between growth and employment starting to be resolved, to the detriment of employment. And secondly, some of the stress is starting to appear in the bottom spur of the K as they call it, household health premiums that are going to be possibly going up quite substantially, things like that. Has that started to become a factor in your policy discussion?

J

Jerome Powell3:12:28

So those are both things that we're watching very, very carefully. To start with the layoffs. You're right. You see a significant number of companies either announcing that they are not going to be doing much hiring or actually doing layoffs and much of the time they're talking about AI and what it can do. So, we're watching that very carefully and yes, it could absolutely have implications for job creation. We don't really see it in the initial claims data yet. Now, it's not a surprise that we don't. It takes some time for it to get in there, but we're watching that really carefully. But again, don't see it yet in the initial claims data. On the K-shaped economy thing, I would say the same thing or similar thing. We are, if you listen to the earnings calls or the reports of big public consumer-facing companies many of them are saying that there's a bifurcated economy there and that consumers at the lower end are struggling and buying less and shifting to lower cost products but that at the top people are spending at the higher income and wealth. And so you have much anecdotal data on that and so we think there's something there.

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Edward Lawrence3:14:01

Edward Lawrence with Fox Business. So Mr. Chairman, I want to take another crack at the further reduction in rates is not a foregone conclusion. So in December you said far from it. So if a cut might not be on the table for December because of lack of data, what does the other concerns then stem from? So if it's not lack of data as the reason December is not a foregone conclusion, what other things could be the concern then?

J

Jerome Powell3:14:29

Well, the perspectives of people on the committee that we've now moved 150 basis points and that we're down into the range between three and four where most estimates of the neutral rate live in that 3 to 4% area. You're there now. You're above the median number for the committee, but I think there are people on the committee who have higher estimates of the neutral rate, and that's a, you can argue these positions since it can't be directly observed the neutral rate. So, I think for some part of the committee, it's time to maybe take a step back and see whether there really are downside risks to the labor market or see whether in fact the stronger growth that we're seeing is real. Ordinarily, the labor market is a better indicator of the momentum of the economy than the spending data. That's the lore. In this case that gives a more downbeat read. So people just have, again we've cut 50 more basis points in the last two meetings and there was a sense like let's, from some let's pause here kind of thing and a sense from others wanting to go ahead but that's why I say differing views, strongly differing views.

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Edward Lawrence3:15:56

So on that division then you're talking about going forward so what's more important in this division is it inflation risks is it employment risk or is there a deeper philosophy division among the board?

J

Jerome Powell3:16:06

Look, everybody on the committee is deeply committed to doing the right thing to achieve our goals maximum employment and stable prices. You have differences on how to do that and as I mentioned some of that is different forecasts but a lot of it is also different risk aversions to the two different variables which is common through all Federal Reserves. People just have different risk tolerances let's say. So that leads you to people with disparate views. You will know that from the speeches you've been listening to from my colleagues. And so we're at a place now where we have in fact cut two more times. And we're now 150 basis points closer to neutral wherever that may be than we were a year ago. And so there's a growing chorus now of feeling like maybe this is where we should at least wait a cycle, something like that. That's what it is. It's just what you think it would be. And again, you've seen it in the September Summary of Economic Projections. You've seen this in the public remarks of FOMC participants. And now I'm telling you that's what you can expect in the minutes. And I'm just telling you that's what happened in the meeting.

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Elizabeth Schulze3:17:22

Thank you so much. Elizabeth Schulze with ABC News. What is your explanation for why the job market is weakening right now and what will this rate cut do to improve the job market?

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Jerome Powell3:17:34

So I think there are two things affecting the job market and one of them is just a dramatic reduction in the supply of new workers. So, and that's two things. That's declining labor force participation, which is a cyclical thing, and then there's declining immigration, which is just a big policy change that actually began in the last administration and it has been accelerated now. So, a big part of the whole story is that supply side story. Okay. In addition, labor demand has declined and so the unemployment rate has gone down meaning that demand for workers has gone down a little more than supply. So that's what's going on and but it is mostly a supply function, it's mostly a function of the change in supply I think and many people think. So the question then is what does our tool do which supports demand and I would just say when you're in a situation where job creation if you adjust for likely overcounting in the way that BLS does its work is pretty close to zero. So maximum employment doesn't on a sustainable basis, if you're creating zero jobs, if it's in equilibrium, if it's in balance it's a pretty, as I said before, a pretty curious balance. So I thought many of my colleagues thought in fact you've seen the last two meetings that it was appropriate for us to react by supporting demand with our rates and we've done that. We've reduced so that rates are looser there. I wouldn't say that they're accommodative right now, but they're meaningfully less tight than they were. And that should help so that at least the labor market doesn't get worse. So, it's a complicated situation. And some people argue that this is supply and we really can't affect it much with our tools, but others argue, as I do, that there is an effect from demand and that we should use our tools to support the labor market when we see this happening.

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Elizabeth Schulze3:19:45

You also talked about tariffs causing a one-time price increase. Should American households, consumers expect that inflation will continue to go up this year because of those tariffs?

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Jerome Powell3:19:55

So the basic expectation is that there will be some additional increase in inflation because it takes a while for tariffs to work their way through the production chain and finally get to consumers. And we see this now from the tariffs that were put in place now many months ago. We see those effects. But if you put tariffs in effect and they've been coming into effect consistently in February, March, April, May, and that's all happening. So that'll continue to happen for some time, probably into the spring. These are not big increases, though. These are a tenth or so on inflation. They may be big increases on a particular product that's been tariffed. But overall, these are fairly modest. I think, you know, some projections go we're 2.8% inflation. You might get two or three more tenths or four more tenths maybe. But then as all the tariffs are in, they stop generating inflation. You've had a one-time price increase. As long as you're not, at least this is the theory. This is how we believe and hope that it will work out. Once the last tariff is put on something, at that point it becomes a higher price level, but it stops going up, if you will. Prices stop going up, they'll just be at that level. And then measured inflation will come back down to non-tariff inflation. And as I mentioned, non-tariff inflation is not so far from 2%. Now, consumers are not interested in that story. Their prices are higher. More than that, the reason they're so unhappy about inflation is the inflation that we had in 2021, 22, and 23 because you can say that prices aren't going up as much, but that doesn't mean people aren't feeling those higher prices from the inflation we had 2 or 3 years ago. They are. And that's I think a large part of why the public views inflation as still very much making people quite unhappy even though it's nice that prices are not going up as fast as they were but they're still much higher than they were and it'll take some time for that effect to wear off as real incomes rise. It will feel better over time but that's going to take time.

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Michael McKee3:22:09

Michael McKee from Bloomberg Television Radio. Do you have any concerns that equity markets are or are close to being overvalued at this point?

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Jerome Powell3:22:19

You know, we don't look at any one asset price and say, 'Hey, that's wrong.' You know, it's not our job to do that. We look at the overall financial system and we ask whether it's stable, whether it could withstand shocks. Right? So banks are well capitalized while some households are clearly under stress, in the aggregate households are in good shape financially relatively manageable levels of debt. At the lower income spectrum you are seeing rising defaults particularly around subprime auto but nonetheless in the aggregate pretty good. And you don't see too much leverage in the banking system or the financial system. It's a mixed picture, but it's not an overly troubling picture. And again, it's not appropriate. We don't set asset prices. Markets do that.

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Michael McKee3:23:14

Well, you must be well aware that by lowering interest rates, you're contributing to additional asset price increases. And I wonder how you balance the idea that lowering rates would help the labor market with the reality that it seems more likely to be stimulating increased investment in AI, which is the rationale for thousands of job cuts that have been announced in the last few weeks.

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Jerome Powell3:23:37

Yeah, I don't think interest rates are an important part of the AI of the data center story. I think people think they're great economics in building these data centers and they're making a lot of money building them and they think they have very high present value and all that sort of thing. It's not really about 25 basis points here or there. We use our tools to support the labor market and to create price stability. That's what we do. That's our two jobs, right? So we're here to, by lowering rates at the margin that will support demand and that will support more hiring and that's why we do it. Now no 25 basis point or even 50 basis point hike is going to be a dispositive thing but ultimately lower rates will support more demand and that'll support hiring over time. Now, of course, we also have to be careful about this, which is what we've been doing because we know where inflation is and we know that, I've told you the story. It's a complicated story, but this is the best assessment that we can make and but because there's uncertainty around inflation and the path ahead for inflation. That's why we're going, the pace we're going has been a careful one.

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Victoria Guida3:25:02

Hi, Victoria Guida from Politico. On AI, I'm just wondering, it seems like a lot of the economic growth that we've been seeing is fed by investments in AI. So, how worried are you about what a sudden contraction in tech investment would mean for the overall economy? Is there enough strength in other sectors? And specifically, are there any lessons that you take from the 1990s in how you might approach what's happening right now?

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Jerome Powell3:25:27

Yeah, this is different. In the sense that these companies, the companies that are so highly valued actually have earnings and stuff like that. So if you go back to the '90s and the dot-com they were these are ideas rather than companies and so there's a clear bubble there whereas the, I won't go into particular names but they actually have earnings and it looks like they have business models and profits and that kind of thing. So it's really a different thing. The investment we're getting in equipment and in all those things that go into creating data centers and feeding the AI it's clearly part one of the big sources of growth in the economy. Consumer spending also though has been, is much bigger than that and has been growing and has defied a lot of negative forecasts continuing to do so this year. Consumers are still spending. Now, it may be mostly higher-end consumers or may be skewed that way, but the consumer is spending and that's a big, big chunk of what's going on in the economy, substantially bigger than AI. You could point to growth, I mean actually maybe growth as opposed to level, but consumer spending is a much bigger part of the economy.

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Victoria Guida3:26:45

And why do you think that the labor market is slowing so much even though consumer spending is strong?

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Jerome Powell3:26:51

Why is it slowed so much? Well, what's happened is that the supply of workers has dropped very, very sharply due to mainly immigration but also lower labor force participation. So, and that means there's less need for new jobs because there isn't this flow into the pool of labor where people need jobs because those people aren't there now. So, there's not a supply of workers showing up for jobs. In addition, demand has also gone down and so has labor force participation has declined, which is more of a sign in this case of demand as well as trend. So I think you're seeing some softening. The economy is growing at a slower rate than it was 2.4% last year. We think around 1.6% this year. It could have been a couple of tenths higher if not for the shutdown. And of course that will reverse, but you still got the economy growing at a moderate pace.

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Andrew Ackerman3:27:58

Andrew Ackerman with the Washington Post. I wanted to ask if you could elaborate on how you think about policy in the context of the data drought. Does it make you inclined to stick with your plans as set out in September in the absence of the data that might change your mind or does it make you inclined to proceed with added caution because of uncertainty?

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Jerome Powell3:28:18

Yeah. Well, we'll know when we face that question if we face that question. It'll probably be argued both ways, right? But I've said a couple times here that if you really aren't getting information, you really don't know and the economy looks like it's solid and stable and hasn't really changed, there will be an argument. I don't know how persuasive it will be, but there will be an argument that you slow down when you can't see as far ahead. Others may argue, I mean, I'm not sure where this argument will come, but you're perfectly right that you could also argue, well, things haven't really changed, but you might not know that. So, I don't know whether we'll face this or not. I hope we don't. I hope by the time of the December meeting, we're getting a better flow of data, but we're going to have to do our jobs one way or the other.

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Andrew Ackerman3:29:10

Okay. I also just wanted to ask a Fed question. I think several years ago, you said the overall amount of capital in the system was about right. As the Fed moves forward with a revised Basel proposal, potentially changes to the G-SIB surcharge, has that changed at all and or are you planning to significantly reduce the amount of capital in the system?

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Jerome Powell3:29:31

So there's discussions going on I think among the agencies and I don't want to get ahead of those discussions. I continue to think that the level of capital when I said that in 2020 was about right and of course there's been much capital added since then through various mechanisms but I look forward to, I know those discussions are really just getting going. They haven't come to the point where they've got a whole plan and that kind of thing. So I really don't have much to say on that.

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Brian Chung3:30:08

Hi Chairman Powell. Brian Chung with NBC News. Is the weakness in the jobs market accelerating and who's at risk if the interest rate cuts are not the effective medicine for a further slowdown in the labor?

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Jerome Powell3:30:22

So we do not see the weakness as you put it the weakness in the job market accelerating. I would say then again we didn't get the September employment report payroll report but we do get, we look at unemployment insurance claims, initial claims are reported at the state level and we still get those and we can cumulate them and get the national number and there's really, I mean no story you can look at the numbers. Same thing with the job openings we get from Indeed. There's just no story over the last four weeks. It's kind of stable. So you don't see anything that says that the job market or really any part of the economy is making a significant deterioration. Don't see that. You see more things like I mentioned though which is that you see big companies making announcements of either of layoffs or of the idea that they won't need to hire and their number of employees is not expected to go up over a number of years. There may be different people working there. They say that too but they don't need a bigger headcount. So you see those kinds of things. You don't see it in the aggregate numbers. The layoff numbers have not gone up but job creation is very low. And the job finding rate for people who are unemployed is very low. But the unemployment rate is very low as well 4.3% is a low unemployment rate.

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Brian Chung3:31:50

So as you make these cuts is it the lower income workers that you're thinking about or those who might have their jobs automated? Is there a particular part of the market that you're particularly...

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Jerome Powell3:32:00

So we can't, our tools don't allow us to target any demographic or any income level and that kind of thing. I do think that people, we saw this during the global financial crisis and the long recovery, if you have a long period of very strong labor market conditions, it benefits people at the lower end the most. The last two or three years of that long expansion people at the lower part of the income spectrum were getting the biggest benefits and lots of things were happening in that space demographically which were very constructive and we're not at that place right now but so yeah, a stronger labor market is the best thing we can do for the public. It's also part of our job. It is half of our job but it is absolutely the best thing we can do for people along with keeping prices stable. Those two things, inflation also hurts people on fixed incomes more than other people.

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Courtney Brown3:33:03

Hi Chair Powell. Courtney Brown from Axios. As you know the 12 Reserve Bank presidents' terms are up for renewal at the end of February. I'm wondering if you can give us a timeline for when the board will consider those reappointments and whether we can expect everyone to be reappointed or if we can expect some changes.

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Jerome Powell3:33:22

So, it's a process that we go through under the law. The way the law works is we have a reappointment process every 5 years for each of them and all of them. We're in the middle of that process and we're going to complete it in a timely way and that's really all I can say.

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Daniel Flatley3:33:46

Daniel Flatley with AFP. You've now had dissents in three consecutive FOMC meetings but in this meeting you had dissents going in both directions and you've just mentioned there's strong disagreement over the future path of rate cuts. Have these disagreements complicated your role presiding over the FOMC meetings and if so how?

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Jerome Powell3:34:02

I wouldn't say that no. I think you have to take what comes and what comes right now is a pretty challenging situation where we have first of all we have 4.3% unemployment we have an economy that's growing close to 2% so overall it's a good picture. But in terms of our policy we have upside risks to inflation, downside risks to employment and this is a very difficult thing for a central bank because one of those calls for rates to be lower one calls for rates to be higher we can't do both so we have to balance the two. And so it's a challenging thing and as we have worked our way through this process you would expect that there would be a range of views across the committee on what to do and the speed with which we should do it and that's what we have. That makes a lot of sense to me. These are all people who take their jobs very seriously, work very hard at this and just want to do what's right for the American people but they have different views on what that is. And it's an honor to work among people who care that much. It is. But I don't feel that it's unfair or anything like that. It's just a time when we're making quite difficult judgments in real time. And I believe we'll get through this. And I think we've done sort of the right thing so far this year. I think it was appropriate for us to be careful about this. I think it would not be appropriate to just ignore or assume away the inflation issue. At the same time, I think the risk of higher, more persistent inflation has declined significantly since April. And if we do wind up resuming rate cuts at some point, we will at some point, I think we're trying to get to the end of this cycle with the labor market in a good place and with inflation on its way to 2% or at 2%. So that's all we're trying to do and we're doing it under quite challenging circumstances and doing the best we can.

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Jennifer Schonberger3:36:10

Thank you so much, Chair Powell. Jennifer Schonberger with Yahoo Finance. Both regional and large banks have taken losses on loans given delinquencies on subprime auto loans. JP Morgan CEO Jamie Dimon warned, 'When you see one cockroach, there may be more likely.' I'm curious how the Fed's looking at these loan losses and if it poses risks to the financial system or the outlook for the economy. Is it a warning sign?

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Jerome Powell3:36:36

So, we're obviously we watch these things very carefully, credit conditions very carefully. You're right. You've seen rising defaults in subprime credit for some time now. And now you've seen a number of subprime credit automobile credit institutions having significant losses and some of those losses are now showing up on the books of banks. We're looking at it carefully. We're paying close attention. I don't see at this point a broader credit issue. It doesn't seem to be something that has very broad application across financial institutions but we're going to be monitoring this quite carefully and making sure that that is the case.

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Jennifer Schonberger3:37:22

And then separately, you yourself have said that we're in a bifurcated economy right now with high net worth individuals continuing to spend with the lower income pulling back. How much of consumer spending continuing hinges on the stock market remaining strong? In some odd way, does the market help keep the economy buoyant?

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Jerome Powell3:37:43

So there is some relationship there, but remember the more wealth someone has, the lower an additional dollar of wealth matters. So your marginal propensity to consume declines quite dramatically as you reach levels of stock market wealth. So the stock market, it would affect spending if the stock market went down, but it wouldn't drop sharply unless there were quite a sharp drop in the stock market. People at the lower end of income and wealth have a much higher marginal propensity to consume of an incremental dollar of income or wealth, but they don't have the stock market wealth. So I think it's certainly a factor supporting consumption right now. And you would see it if you saw a material correction in spending but it wouldn't be, you shouldn't think that it'll dollar for dollar stop consumption because that wouldn't be the case.

Good afternoon. My colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people. Although some important federal government data have been delayed due to the shutdown, the public and private sector data that have remained available suggest that the outlook for employment and inflation has not changed much since our meeting in September. Conditions in the labor market appear to be gradually cooling and inflation remains somewhat elevated. In support of our goals and in light of the balance of risks to employment and inflation, today the Federal Open Market Committee decided to lower our policy interest rate by a quarter percentage point. We also decided to conclude the reduction of our aggregate securities holdings as of December 1. I will have more to say about monetary policy after briefly reviewing economic developments. Available indicators suggest that economic activity has been expanding at a moderate pace. GDP rose at a 1.6% pace in the first half of the year, down from 2.4% last year. Data available prior to the shutdown show that growth in economic activity may be on a somewhat firmer trajectory than expected, primarily reflecting stronger consumer spending. Business investment in equipment and intangibles has continued to expand, while activity in the housing sector remains weak. The shutdown of the federal government will weigh on economic activity while it persists, but these effects should reverse after the shutdown ends. In the labor market, the unemployment rate remained relatively low through August. Job gains have slowed significantly since earlier in the year. A good part of the slowing likely reflects a decline in the growth of the labor force due to lower immigration and labor force participation. Though labor demand has clearly softened as well. Although official employment data for September are delayed, available evidence suggests that both layoffs and hiring remain low and that both households' perceptions of job availability and firms' perceptions of hiring difficulty continue to decline. In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months. Inflation has eased significantly from its highs in mid-2022, but remains somewhat elevated relative to our 2% longer-run goal. Estimates based on the consumer price index suggest that total PCE prices rose 2.8% over the 12 months ending in September and that excluding the volatile food and energy categories, core PCE prices rose 2.8% as well. These readings are higher than earlier in the year as inflation for goods has picked up. In contrast, disinflation appears to be continuing for services. Near-term measures of inflation expectations have moved up on balance over the course of this year on news about tariffs as reflected in both market and survey-based measures. Beyond the next year or two or so, however, most measures of longer-term expectations remain consistent with our 2% inflation goal. Our monetary policy actions are guided by our dual mandate to promote maximum

employment and stable prices for the American people. At today's meeting, the committee decided to lower the target range for the federal funds rate by a quarter percentage point to 3 and 3/4 to 4%. Higher tariffs are pushing up prices in some categories of goods, resulting in higher overall inflation. A reasonable base case is that the effects on inflation will be relatively short-lived, a one-time shift in the price level. But it is also possible that the inflationary effects could instead be more persistent, and that is a risk to be assessed and managed. Our obligation is to ensure that a one-time increase in the price level does not become an ongoing inflation problem. In the near term, risks to inflation are tilted to the upside and risks to employment to the downside. A challenging situation. There is no risk-free path for policy as we navigate this tension between our employment and inflation goals. Our framework calls for us to take a balanced approach in promoting both sides of our dual mandate. With downside risks to employment having increased in recent months, the balance of risks has shifted. Accordingly, we judged it appropriate at this meeting to take another step toward a more neutral policy stance. With today's decision, we remain well positioned to respond in a timely way to potential economic developments. We will continue to determine the appropriate stance of monetary policy based on the incoming data, the evolving outlook, and the balance of risks. We continue to face two-sided risks. In the committee's discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it. Policy is not on a preset course. At today's meeting, the committee also decided to conclude the reduction of our aggregate securities holdings as of December 1. Our long-stated plan has been to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions. Signs have clearly emerged that we have reached that standard. In money markets, repo rates have moved up relative to our administered rates, and we have seen more notable pressures on selected dates along with more use of our standing repo facility. In addition, the effective federal funds rate has begun to move up relative to the rate of interest on reserve balances. These developments are what we expected to see as the size of our balance sheet declined and warrant today's decision to cease runoff. Over the three and a half years that we've been shrinking our balance sheet, our securities holdings have declined by $2.2 trillion. As a share of nominal GDP, our balance sheet has fallen from 35% to about 21%. In December, we'll enter the next phase of our normalization plans by holding the size of our balance sheet steady for a time while reserve balances continue to move gradually lower as other non-reserve liabilities such as currency keep growing. We will continue to allow agency securities to run off our balance sheet and will reinvest the proceeds from those securities in Treasury bills, furthering progress toward a portfolio consisting primarily of Treasury securities. This reinvestment strategy will also help move the weighted average maturity of our portfolio closer to that of the outstanding stock of Treasury securities, thus furthering the normalization of the composition of our balance sheet. The Fed has been assigned two goals for monetary policy, maximum employment and stable prices. We remain committed to supporting our maximum employment, bringing our inflation sustainably to our 2% goal, and keeping longer-term inflation expectations well anchored. Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals. Thank you. I look forward to your questions.

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Nick Timmeros3:46:42

Chair Powell, are you uncomfortable with how market pricing has assumed a rate cut is a foregone conclusion at your next meeting?

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Jerome Powell3:46:57

Well, as I just mentioned, a further reduction in the policy rate at the December meeting is not a foregone conclusion, as I've just said. So, I would say that that needs to be taken on board. We had, you know, I would just say this, 19 participants on the committee. Everyone works very hard at this and takes their obligations to serve the American people very seriously. And at a time when we have tension between our two goals, we have, you know, strong views across the committee. And as I mentioned, there were strongly differing views today. And the takeaway from that is that we haven't made a decision about December and, you know, we're going to be looking at the data that we have, how that affects the outlook and the balance of risks.

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Nick Timmeros3:47:42

You and some of your colleagues have framed last month and maybe today, I won't put words in your mouth, as a risk management exercise. At what point do you conclude that you've taken out enough insurance? Are you looking for some kind of improvement in the outlook? Or could this unfold along the lines of last year where you made a sequence of adjustments and then waited to gather more information?

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Jerome Powell3:48:05

So the way we have been thinking about it is the risks to the two goals. For a very long time the risk was clearly of higher inflation and then that has changed now. And as we saw, particularly after the July meeting, we saw the downward revisions in job creation, we saw a very different picture of the labor market and suggested that there were higher downside risks to the labor market than we had thought. And that suggested that policy, which we had been holding at a, I would say modestly, others people would say moderately restrictive level, needed to move more in the direction over time of neutral. If the two goals are sort of equally at risk then you ought to be at neutral because one of them's calling for you to hike and one of them is calling for you to cut. So if that got back into balance then you'd want to be roughly at neutral. So in that sense it was a risk management exercise. And I would say the same about today, sort of the same logic, but as I mentioned going forward is a different thing.

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Claire Jones3:49:11

Thank you for taking this question. We've just heard from you that the discussion in December and the conclusion of the discussion is not a foregone conclusion. I'd like to just dig into that a little bit more about what sort of arguments were brought up. Was there any consideration for instance of the investment we're seeing in AI and some of the generation of household wealth through rises in stock prices related to the AI boom?

J

Jerome Powell3:49:49

You know, I wouldn't say that's a factor in everyone's assessment of the economy. I wouldn't say it's a driving factor, I don't think, for anybody. You know, I guess I would say it this way. Once again, I would just point out that we have the situation where the risks are to the upside for inflation and to the downside for employment. We have one tool. They can't do both of those. So, you can't address both of those at once. You've got a very different situation. So, you have some people, people have different forecasts, right? So, they'll feel they'll forecast faster or slower progress on one or the other. And they also have different levels of risk aversion. And, you know, some will be more averse to inflation overruns and some will be more averse to underruns of employment. And so you put that together and as you can see from the SEP and from the public discussion that goes on between the meetings when participants go out and talk, they're very disparate views and they were reflected in strongly differing views in today's meeting as I pointed out in my remarks. And that's what leads me to say that we haven't made a decision about December. You know, I always say that it's a fact that we don't make decisions in advance, but this is, I'm saying something in addition here, is that it's not to be seen as a foregone conclusion. In fact, far from it.

C

Claire Jones3:51:08

Can I just ask a quick follow up on QT? How much of the frictions we've seen in money markets are related to the US Treasury issuing more short-term debt?

J

Jerome Powell3:51:20

You know, that could be one of the factors, but the reality is we've seen, you know, the things that we've seen, higher repo rates and federal funds rate moving up. These are the very things that we look for. We actually have a framework for looking at, you know, what the place we're trying to reach. What we said for a long time now is that when we feel like we're a little bit or a bit above what we consider a level that's ample that we would freeze the size of the balance sheet. Of course, reserves will continue to decline from that point forward as non-reserve liabilities grow. So, this happened, some things have been happening for some time now showing a gradual tightening in money market conditions. Really in the last call it 3 weeks or so you've seen more significant tightening and I think a clear assessment that we're at that place. The other thing is, you know, the balance sheet is shrinking at a very, very slow pace now. We've reduced it by half twice. And so there's not a lot of benefit to be, you know, holding on for to get the last few dollars because, you know, again the reserves are going to continue to shrink as non-reserves grow. So, you know, there was support on the committee as we thought about it to go ahead with this and announce effective December 1 that we will be, you know, freezing the size of the balance sheet and that the December 1 date gives the markets a little bit of time to adapt.

C

Colby Smith3:52:46

So much of the rationale for cutting interest rates even as inflation moves away from the 2% target seems to be, you know, that there are these mounting downside risks to the labor market. But if those don't materialize and the labor market either stabilizes around current employment levels or even starts to strengthen somewhat, how would that change your perception of how much interest rates need to fall from here? Would you then be a bit more concerned about underlying inflation and the possibility of second round effects from tariffs?

J

Jerome Powell3:53:18

Yeah, I mean in principle if you were to see data that suggested that the labor market is strengthening or even that it's stabilizing, you know, that would certainly play into our decisions going forward. So and we do have, you know, we get some data, the labor market is a place where we get for example we get the state level data on initial claims which are sending sort of a signal of more of the same. We also get job openings and we'll get lots of survey data. We'll get the beige book and things like that. So, we'll have a picture of what's going on in the labor market. And, you know, the fact that we're not seeing an uptick in claims or a downtick really in openings suggests that you're seeing maybe continued very gradual cooling, but nothing more than that. So, that does give you some comfort.

C

Colby Smith3:54:06

But if this shutdown lasts a while longer and you don't have that data in hand, I'm just wondering how that hinders the committee's ability to assess the state of the labor market and make the right policy decisions and also how much is that factoring into the debate about December.

J

Jerome Powell3:54:22

Yeah. So, you know, we get like I mentioned what we get in the labor area. We get some data in inflation, some data in economic activity. And we'll have a picture of what's going on. We also will have the beige book. Again, I would say we're not going to be able to have the, you know, the detailed feel of things, but I think if there were a significant or material change in the economy one way or another, I think we'd pick that up through this. So, in terms of how it might affect December, it's really hard to say. December's, you know, the meeting is I guess 6 weeks away. We just don't know what we're going to get. If there is a very high level of uncertainty then, you know, that could be an argument in favor of caution about moving but we'll have to see how it unfolds.

S

Steve Liesman3:55:13

Mr. Chairman can you characterize the meeting in terms of you said strongly differing views. Was this a close call this cut or was it a close call maybe the other way because you had dissents on both sides.

J

Jerome Powell3:55:32

So I was referring to the discussion about, to the extent it related to December. You saw we had two dissents, one for 50 and one for no cut. So, you know, that was a strong solid vote in favor of this cut. The strongly differing views were really about the future. What does that look like? And I think people are saying, you know, they're noticing stronger economic activity. You know, forecasters generally broadly have raised their economic growth forecast for this year and next year in some cases quite materially. In the meantime we see, you know, a labor market that's kind of, I don't want to say stable but it's not clearly in motion, it's not clearly declining quickly. In any case, it may be just continuing to gradually cool. And again, people have different forecasts and expectations about the economy and different risk tolerances. And so there's, you know, you read the SEP, you read the speeches, you know, there are different views on the committee and to the point where I said what I said.

S

Steve Liesman3:56:37

And just to follow up on the balance sheet, if you stop the runoff now, does that mean you have to go back to actually adding assets sometime next year so that the balance sheet doesn't shrink as a percentage of GDP and become a tightening factor?

J

Jerome Powell3:56:53

So, you're right. The place we'll be on December 1 is that the size of the balance sheet is frozen. And as mortgage backed securities mature, we'll reinvest those in treasury bills, which will foster both a more treasury balance sheet and also a shorter duration. So that's what, in the meantime, if you freeze the size of the balance sheet, the non-reserve liabilities, currency for example, they're going to continue to grow organically. And because the size of the balance sheet is frozen, you have further shrinkage in reserves. And reserves is the thing that we're managing that has to be ample. So that'll happen for a time but not a tremendously long time. We don't know exactly how long but at a certain point you'll want to start reserves to start gradually growing to keep up with, you know, the size of the banking system and the size of the economy. So we'll be adding reserves at a certain point and that's the last point. Even then, we'll be, we didn't make decisions about this today, but we did talk today about the composition of the balance sheet and there's a desire that the balance sheet be, right now it's got a lot more duration than the outstanding universe of Treasury securities and we want to move to a place where we're closer to that duration. That'll take some time. We haven't made a decision about the ultimate end point, but we all agree that we want to move more in the direction of a balance sheet that more closely reflects the outstanding treasuries, and that means a shorter duration balance sheet. Now, this is something that's going to take a long time and move very, very gradually. I don't think you'll notice it in market conditions, but that's the direction of things.

J

Janelle Marte3:58:33

How are officials interpreting the latest CPI report? So some components came in lower than expected but core inflation was still at 3%. So at this moment what are you learning about the drivers and also do you view that the risks are greater that the Fed makes a mistake on employment or inflation?

J

Jerome Powell3:59:02

So okay so the September CPI report we didn't get PPI after that which is important for translation into what we look at which is PCE inflation but we can still make a pretty good assessment of what that will be. When we get PPI there might be some adjustments but so directionally, you know, it was a little softer than expected and we always break it down into the three components. So basically, you've seen goods prices increasing and that's really due to tariffs and that's in compared to a longer run trend of very, very mild deflation in goods. So that's moving. Housing services inflation has been coming down and is expected to continue to come down. So if you remember a year, a couple years ago that's the one that we kept expecting it to do that. Now it's doing it, it's been doing that for some time and we expect to continue that. That leaves the biggest category is services other than housing services and that's kind of been moving sideways over the last few months, but a significant part of that is non-market services and we don't take a lot of signal about the tightness of the economy from that. So if you add all that up, a couple things to say. One is that inflation away from tariffs is actually not so far from our 2% goal. We estimate, people have different estimates of what that is but it might be, you know, five or six tenths and so that, you know, if it's 2.8 then core PCE not including tariffs might be 2.3 or 2.4 in that range something like that so that's not so far from your goal. So that we look at that and the thing about tariff inflation is the base case is that it will come and it probably will increase further but it is that it will be a one-time increase. And, you know, we've been very focused for all of this year at making sure that that's the case and thinking carefully about what are the pathways through which it could become something else, troublesome inflation. One of those would be, you know, a really tight labor market. We don't see that. Another could be inflation expectations moving. We don't see that. So, I think, you know, we're watching this very carefully. I think it's not the case that we're just assuming that it's going to be a one-time inflation. We understand fully that this is a risk we have to monitor and ultimately manage.

J

Janelle Marte4:01:28

With the stubborn services inflation, what are some of the things that the Fed could do to address that? And especially when we're seeing potentially labor supply challenges.

J

Jerome Powell4:01:39

Sorry, say the first part again.

J

Janelle Marte4:01:41

The stubborn services inflation.

J

Jerome Powell4:01:43

Service inflation. Yeah. Well, again, the part of services inflation that isn't coming down as we would like it to is the non-market part of non-housing services. And, you know, overall that's just something that we expect will come down. The non-market part of it should come down. It largely reflects higher stock prices and, I mean, financial services that are imputed rather than actually paid is a big part of that. But also just, you know, we think policy is still modestly restrictive in my telling and so that's the kind of thing that should lead to a gradually cooling economy. That's one of the reasons you see a gradually cooling labor market is because, you know, Fed policy is modestly restrictive. So that should also help get that. I want to say though, we're absolutely committed to returning inflation to 2%. If you look at longer-term surveys or market pricing, you will see that that's a credible commitment and there should be no question that that's where we're going.

C

Chris Rugaber4:02:50

So there's a big investment boom in AI infrastructure right now as you know and wondering if the existence of such a boom would indicate that rates are not that restrictive after all and could further rate cuts at this point perhaps fuel an excess level of investment there or market bubbles. How is the Fed thinking about that?

J

Jerome Powell4:03:19

So I don't think that the, you're right there are a lot of data centers being built and other investments being made around the country and around the world. And big US companies are just investing a lot of resources in thinking about how AI which will be based on those data centers run through those data centers is going to affect their businesses. So it's a big deal. I don't think that the spending that happens to build data centers all over the country is especially interest sensitive. It's based on longer run, it's, you know, longer run assessments that this is an area where there's going to be a lot of investment and that's going to drive higher productivity and that sorts of things. I don't know how those investments will work out but I don't think they're particularly interest sensitive compared to some of the other sectors.

C

Chris Rugaber4:04:14

And then just a quick follow-up, you mentioned that you do have data that you're looking at for inflation and growth in the absence of government data. Could you give us a sense, I think we know a lot about the jobs data that's out there. Can you give us a sense of what you're looking at to track inflation in the absence of government data?

J

Jerome Powell4:04:30

So it's a lot of things and it doesn't replace government data but, you know, and you know all of these, it's, you know, I'll just mention some of the many, many names, PriceStats, Adobe and others. And for wage inflation there's ADP data. On spending, you're going to ask about spending at some point, you know, there are lots of other things that we look at but it's again, it's many different sources and again including what we get out of the beige book which will be sort of come out mid-cycle as always and it doesn't replace the government data but it gives us a picture. Again, I think if something material were happening, if there were material developments I think we would pick that up. I don't think we'll be able to have the very granular understanding of the economy while this data is not available.

H

Howard Schneider4:05:31

I just wanted you to elaborate a little bit on what you said a moment ago about the continued shutdown making it more difficult to make a move in December. And that may make you more cautious to the degree you are relying on private data that isn't the gold standard or that you're relying on your own surveys or the beige book. Do you worry at some point you're going to have to start making policy by anecdote?

J

Jerome Powell4:05:58

You know, this is a temporary state of affairs and, you know, we're going to do our jobs. We're going to collect every scrap of data we can find, evaluate it, and think carefully about it. And that's our jobs. That's what we're going to do. If you ask me, could it affect the December meeting? I'm not saying it's going to, but yeah, you could imagine that, you know, what do you do if you're driving in the fog? You slow down. So, that could or could not. I don't know how that's going to play into things. We may get the data may come back, but there's a possibility that it would make sense to be more cautious about moving. I'm not committing to that. I'm just saying it's certainly a possibility that you would say we really can't see, so let's slow down.

H

Howard Schneider4:06:42

As a follow-up in the debate on this meeting, we saw recently some pretty big layoff announcements coming from Amazon and others. Wondering if that figured into the discussion at all that you're starting to see the turn, this tension between growth and employment starting to be resolved to the detriment of employment. And secondly, some of the stress is starting to appear in the bottom spur of the K as they call it, household health premiums that are going to be possibly going up quite substantially, things like that. Has that started to become a factor in your policy discussion?

J

Jerome Powell4:07:18

So those are both things, you know, that we're watching very, very carefully. To start with the layoffs. You're right. You see a significant number of companies either announcing that they are not going to be doing much hiring or actually doing layoffs and much of the time they're talking about AI and what it can do. So, we're watching that very carefully and, you know, yes, it could absolutely have implications for job creation. We don't really see it in the initial claims data yet. Now, it's not a surprise that we don't. It takes some time for it to get in there, but we're watching that really carefully. But again, don't see it yet in the initial claims data. On the K-shaped economy thing, I would say the same thing or similar thing. We are, if you listen to the earnings calls or the reports of, you know, big public consumer-facing companies many of them are saying that there's a bifurcated economy there and that consumers at the lower end are struggling and buying less and shifting to lower cost products but that at the top people are spending at the higher income and wealth. And so you have much anecdotal data on that and so we think there's something there.

E

Edward Lawrence4:08:48

So Mr. Chairman, I want to take another crack at the further reduction in rates is not a foregone conclusion. So in December, you said far from it. So if a cut might not be on the table for December because of lack of data, what does the other concerns then stem from? So if it's not lack of data as the reason December is not a foregone conclusion, what other things could be the concern then?

J

Jerome Powell4:09:18

Well, the perspectives of people on the committee that, you know, we've now moved 150 basis points and that we're down into, you know, you're into that range between three and four where most estimates of the neutral rate live in that 3 to 4% area. You're there now. You're above the median number for the committee, but I think there are people on the committee who have higher estimates of the neutral rate and that's a, you know, you can argue these positions since it can't be directly observed, the neutral rate. So, you know, I think for some part of the committee, you know, it's time to maybe take a step back and see whether there really are downside risks to the labor market or see whether in fact the stronger growth that we're seeing is real. Ordinarily the labor market is a better indicator of the momentum of the economy than the spending data. That's the lore, in this case that gives a more downbeat read. So people just have, you know, there again we've cut 50 more basis points in the last two meetings and there was a sense like let's, from some, let's pause here kind of thing and a sense from others wanting to go ahead but that's why I say differing views, strongly differing views.

E

Edward Lawrence4:10:44

Yeah. So on that division then you're talking about going forward. So what's more important in this division? Is it inflation risks? Is it employment risk? Or is there a deeper philosophy division among the board?

J

Jerome Powell4:10:56

I look, everybody on the committee is deeply committed to doing the right thing to achieve our goals, maximum employment and stable prices. You have differences on how to do that and as I mentioned some of that is different forecasts but a lot of it is also different risk aversions to the two different variables which is common through all Federal Reserves. People just have different risk tolerances let's say. So that leads you to people with disparate views. You will know that from the speeches you've been listening to from my colleagues. And so we're at a place now where we have in fact cut two more times. And, you know, we're now 150 basis points closer to neutral, wherever that may be, than we were a year ago. And so there's a growing chorus now of feeling like maybe this is where we should at least wait a cycle, something like that. That's what it is. It's just what you think it would be. And again, you've seen it in the September summary of economic projections. You've seen this in the public remarks of FOMC participants. And now I'm telling you that's what you can expect in the minutes and I'm just telling you that's what happened in the meeting.

E

Elizabeth Schulze4:12:09

What is your explanation for why the job market is weakening right now and what will this rate cut do to improve the job market?

J

Jerome Powell4:12:23

So I think there are two things affecting the job market and one of them is just a dramatic reduction in the supply of new workers. So and that's two things, that's declining labor force participation which is a cyclical thing and then there's declining immigration which is just a big policy change that actually began in the last administration and it has been accelerated now. So a big part of the whole story is that supply side story. Okay. In addition, labor demand has declined and so the unemployment rate has gone down meaning that demand for workers has gone down a little more than supply. So that's what's going on and but it is mostly a supply function, you know, it's mostly a function of the change in supply I think and many people think. So the question then is what does our tool do which supports demand. And I would just say when you're in a situation where job creation, if you adjust for likely overcounting in the way that BLS does its work, is pretty close to zero. So maximum employment doesn't on a sustainable basis, if you're creating zero jobs, if it's in equilibrium, if it's in balance, it's a pretty, as I said before, a pretty curious balance. So I thought and many of my colleagues thought, in fact you've seen the last two meetings, that it was appropriate for us to react by supporting demand with our rates and we've done that. We've reduced so that rates are looser, I wouldn't say that they're accommodative right now, but they're meaningfully less tight than they were. And that should help so that at least the labor market doesn't get worse. So, it's a complicated situation. And some people argue that this is supply and we really can't affect it much with our tools, but others argue, as I do, that there is an effect from demand and that we should use our tools to support the labor market when we see this happening.

E

Elizabeth Schulze4:14:34

You also talked about tariffs causing a one-time price increase. Should American households, consumers expect that inflation will continue to go up this year because of those tariffs?

J

Jerome Powell4:14:44

So the basic expectation is that there will be some additional increase in inflation because it takes a while for tariffs to work their way through the production chain and finally get to consumers. And we see this now from the tariffs that were put in place now many months ago. We see those effects. But if you put tariffs in effect and they've been coming into effect consistently in, you know, February, March, April, May, and that's all happening. So that'll continue to happen for some time, probably into the spring. These are not big increases, though. These are a tenth or so on inflation. They may be big increases on a particular product that's been tariffed. But overall, these are fairly modest. I think, you know, some projections go we're 2.8% inflation. You might get two or three more tenths or four more tenths maybe. But then as all the tariffs are in, they stop generating inflation. You've had a one-time price increase. As long as you're not, at least this is the theory. This is how we believe and hope that it will work out. Once the last tariff is put on something, at that point it becomes a higher price level, but it stops going up, if you will. Prices stop going up. They'll just be at that level. And then measured inflation will come back down to non-tariff inflation. As I mentioned, non-tariff inflation is not so far from 2%. Now, consumers are not interested in that story. Their prices are higher. More than that, the reason they're so unhappy about inflation is the inflation that we had in 2021, 22, and 23 because, you know, you can say that prices aren't going up as much, but that doesn't mean people aren't feeling those higher prices from the inflation we had 2 or 3 years ago. They are and that's I think a large part of why the public, if you sample people, inflation is still very much making people quite unhappy even, you know, and it's nice that prices are not going up as fast as they were but they're still much higher than they were and it'll take some time for that effect to wear off. As real incomes rise it will feel better over time but that's going to take time.

M

Michael McKee4:16:58

Do you have any concerns that equity markets are or are close to being overvalued at this point?

J

Jerome Powell4:17:08

You know, we don't look at any one asset price and say, 'Hey, that's wrong.' You know, it's not our job to do that. We look at the overall financial system and we ask whether it's stable, whether it could withstand shocks, right? So, you know, banks are well capitalized. While some households are clearly under stress, in the aggregate, you know, households are in good shape financially, relatively manageable levels of debt. At the lower income spectrum you are seeing rising defaults particularly around subprime auto but nonetheless in the aggregate pretty good. And you don't see too much leverage in the banking system or the financial system. It's a mixed picture, but it's not an overly troubling picture. And again, it's not appropriate. You know, we don't set asset prices. Markets do that.

M

Michael McKee4:18:03

Well, you must be well aware that by lowering interest rates, you're contributing to additional asset price increases. And I wonder how you balance the idea that lowering rates would help the labor market, with the reality that it seems more likely to be stimulating increased investment in AI, which is the rationale for thousands of job cuts that have been announced in the last few weeks.

J

Jerome Powell4:18:27

Yeah, I don't think interest rates are an important part of the AI, of the data center story. I think, you know, people think there's great economics in building these data centers and they're making a lot of money building them and they think they have very high present value and all that sort of thing. It's not really about, it's not, you know, about 25 basis points here or there. You know, we use our tools to support the labor market and to create price stability. That's what we do. That's our two jobs, right? So we're here to, by lowering rates at the margin that will support demand and that will support more hiring and that's why we do it. Now no 25 basis point or even 50 basis point hike is going to be a dispositive thing but ultimately, you know, lower rates will support more demand and that'll support hiring over time. Now, of course, we also have to be careful about this, which is what we've been doing because we know where inflation is and we know that, you know, I've told you the story. It's a complicated story, but this is the best assessment that we can make. And but, you know, because there's uncertainty around inflation and the path ahead for inflation. That's why we're going, that's why the pace we're going has been a careful one.

V

Victoria Guida4:19:46

On AI, I'm just wondering, you know, it seems like a lot of the economic growth that we've been seeing is fed by investments in AI. So, how worried are you about what a sudden contraction in tech investment would mean for the overall economy? Is there enough strength in other sectors? And, specifically, are there any lessons that you take from the 1990s in how you might approach what's happening right now?

J

Jerome Powell4:20:16

Yeah, this is different in the sense that these companies, the companies that are so highly valued actually have earnings and stuff like that. So if you go back to the 90s and the dotcom, they were ideas rather than companies and, you know, there's a clear bubble there whereas the, you know, I won't go into particular names but they actually have earnings and, you know, it looks like they have business models and profits and that kind of thing. So it's really a different thing. You know, the investment we're getting in equipment and in all those things that go into creating data centers and feeding the AI, it's clearly one of the big sources of growth in the economy. Consumer spending also though has been, you know, is much bigger than that and has been growing and has defied a lot of negative forecasts continuing to do so this year. Consumers are still spending. Now it may be mostly higher-end consumers or may be skewed that way but the consumer is spending and that's a big, big chunk of what's going on in the economy, substantially bigger than AI. You could point to growth, I mean actually growth as opposed to level, but consumer spending is a much bigger part of the economy.

V

Victoria Guida4:21:35

And why do you think that the labor market is slowing so much even though consumer spending is strong?

J

Jerome Powell4:21:40

Why has it slowed so much? Well, what's happened is that the supply of workers has dropped very, very sharply due to mainly immigration but also lower labor force participation. So, and that means there's less need for new jobs because there isn't this flow into the pool of labor where people need jobs because those people aren't there now. So there's not a supply of workers showing up for jobs. In addition, demand has also gone down and so has labor force participation has declined which is more of a sign in this case of demand as well as trend. So I think you're seeing some softening. You know, the economy is growing at a slower rate than it was, 2.4% last year. We think around 1.6% this year. It could have been a couple of tenths higher if not for the shutdown. And of course that will reverse, but, you know, you still got the economy growing at a moderate pace.

A

Andrew Ackerman4:22:43

Hey there. I wanted to ask if you could elaborate on how you think about policy in the context of the data drought. Does it make you inclined to stick with your plans as set out in September in the absence of the data that might change your mind or does it make you inclined to proceed with added caution because of uncertainty?

J

Jerome Powell4:23:08

Yeah. Well, we'll know when we face that question if we face that question. You know, it'll probably be argued both ways, right? But I've said a couple times here that, you know, if you really aren't getting information and you really don't know and the economy looks like it's solid and stable and hasn't really changed, you know, there will be an argument. I don't know how persuasive it will be, but there will be an argument that, you know, you slow down when you can't see as far ahead. Others may argue, I mean, I'm not sure where this argument will come, but you're perfectly right that you could also argue, well, things haven't really changed, but you might not know that, you know. So, I don't know whether we'll face this or not. I hope we don't. I hope by the time of the December meeting, we're getting, you know, a better flow of data, but we're going to have to do our jobs one way or the other.

A

Andrew Ackerman4:23:59

Okay. I also just wanted to ask a capital question. I think several years ago, you said the overall amount of capital in the system was about right. As the Fed moves forward with a revised Basel proposal, potentially changes to the G-SIB surcharge, has that changed at all and or are you planning to significantly reduce the amount of capital in the system?

J

Jerome Powell4:24:20

So there's discussions going on I think among the agencies and I don't want to get ahead of those discussions. I continue to think that the level of capital when I said that in 2020 was about right and of course there's been much capital added since then through various mechanisms but I look forward to, I know those discussions are really just getting going. They haven't come to the point where they've got a whole plan and that kind of thing. So I really don't have much to say on that.

B

Brian Chung4:24:54

Hi Chairman Powell. Is the weakness in the jobs market accelerating and who's at risk if the interest rate cuts are not the effective medicine for a further slowdown in the labor market?

J

Jerome Powell4:25:11

So we do not see the weakness as you put it, the weakness in the job market accelerating. I would say then again we don't have, we didn't get the September employment report, payroll report but we do get, we look at, you know, the unemployment insurance claims, initial claims are reported at the state level and we still get those and we can accumulate them and get the national number and there's really, I mean there's no story. You can look at the numbers. Same thing with the job openings we get from Indeed. There's just no story over the last four weeks. It's kind of stable. So you don't see anything that says that the job market is or really any part of the economy is making a significant deterioration. Don't see that. You see more things like I mentioned though which is that, you know, you see big companies making announcements of either layoffs or of the idea that they won't need to hire, their number of employees is not expected to go up over a number of years. There may be different people working there, they say that too but they don't need a bigger headcount. So you see those kinds of things. You don't see it in the aggregate numbers. The layoff numbers have not gone up, but job creation is very low.

The job finding rate for people who are unemployed is very low, but the unemployment rate is very low as well. 4.3% is a low unemployment rate.

So, as you make these cuts, is it the lower income workers that you're thinking about or those who might have their jobs automated? Is there a particular labor market that you're particularly...

So we can't, our tools don't allow us to target any demographic or any income level and that kind of thing. I do think that people, you know, we saw this during the global financial crisis and the long recovery. If you have a long period of very strong labor market conditions, it benefits people at the lower end the most. The last two or three years of that long expansion, people at the lower part of the income spectrum were getting the biggest benefits and lots of things were happening in that space demographically which were very constructive. And you know, we're not at that place right now, but so yeah, you know, I mean a stronger labor market is the best thing we can do for the public. It's also part of our job, it is half of our job, but it is absolutely the best thing we can do for people, you know, along with keeping prices stable. Those two things, I mean inflation also hurts people on fixed incomes more than other people.

Courtney.

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Courtney Brown4:27:52

Hi Chair Powell. Courtney Brown from Axios. As you know the 12 Reserve Bank presidents' terms are up for renewal at the end of February. I'm wondering if you can give us a timeline for when the board will consider those reappointments and whether we can expect everyone to be re-upped or if we can expect some changes.

J

Jerome Powell4:28:11

So, it's a process that we go through under the law. The way the law works is we have a reappointment process every 5 years for each of them and all of them. We're in the middle of that process and we're going to complete it in a timely way and I really, that's really all I can say.

C

Courtney Brown4:28:29

Okay. Thank you.

J

Jerome Powell4:28:31

Daniel.

D

Daniel4:28:35

Daniel, AFP. You've now had dissents in three consecutive FOMC meetings but in this meeting you had dissents going in both directions and you've just mentioned there's strong disagreement over the future path of rate cuts. Have these disagreements complicated your role presiding over the FOMC meetings and if so how?

J

Jerome Powell4:28:51

I wouldn't say that. No, I think you know you have to take what comes and what comes right now is a pretty challenging situation where we have, first of all, we have 4.3% unemployment. We have an economy that's growing close to 2%. So you know overall it's a good picture. It's a good picture. But in terms of our policy we have upside risks to inflation, downside risks to employment. And this is a very difficult thing for a central bank because you know one of those calls for rates to be lower, one calls for rates to be higher. We can't do both. So we have to balance the two. And so it's a challenging thing. And you know as we have worked our way through this process, you would expect that there would be a range of views across the committee on what to do and the speed with which we should do it. And that's what we have. That makes a lot of sense to me. These are all of these people are, you know, people who take their jobs very seriously, work very hard at this and just want to do what's right for the American people, but they have different views on what that is. And, you know, it's an honor to work among people who care that much. It is, but I don't feel that it's unfair or anything like that. It's just a time when we're making quite difficult judgments in real time. And I believe we'll get through this. And I think we've done sort of the right thing so far this year. I think it was appropriate for us to be careful about this. I think it would not be appropriate to just ignore or assume away the inflation issue. At the same time, I think the risk of higher, more persistent inflation has declined significantly since April. And if we do wind up resuming rate cuts at some point, we will at some point. You know, I think we're trying to get to the end of this cycle with the labor market in a good place and with inflation, you know, on its way to 2% or at 2%. So, that's all we're trying to do and we're doing it under, you know, quite challenging circumstances and doing the best we can.

We'll go to Jennifer for the last.

J

Jennifer Schonberger4:30:59

Thank you so much, Chair. Jennifer Schonberger with Yahoo Finance. Both regional and large banks have taken losses on loans given delinquencies on subprime auto loans. JP Morgan CEO Jamie Dimon warned, 'When you see one cockroach, there may be more likely.' I'm curious how the Fed is looking at these loan losses and if it poses risks to the financial system or the outlook for the economy. Is it a warning sign?

J

Jerome Powell4:31:25

So, you know, we're obviously we watch these things very carefully, credit conditions very carefully. You're right. You've seen rising defaults in subprime credit for some time now. And now you've seen a number of subprime credit, automobile credit institutions having significant losses and some of those losses are now showing up on the books of banks. You know, we're looking at it carefully. We're paying close attention. I don't see at this point a broader credit issue. It doesn't seem to be something that has very broad application across financial institutions, but you know, we're going to be monitoring this quite carefully and making sure that that is the case.

J

Jennifer Schonberger4:32:11

And then separately, many, you yourself have said that we're in a bifurcated economy right now with high net worth individuals continuing to spend with a lower income pulling back. How much of consumer spending continuing hinges on the stock market remaining strong? In some odd way, does the market help keep the economy buoyant?

J

Jerome Powell4:32:32

So there is some relationship there, but remember the more wealth someone has, the lower an additional dollar of wealth matters. So your marginal propensity to consume declines quite dramatically as you reach levels of stock market wealth. So, you know, the stock market, it would affect spending if the stock market went down, but it wouldn't drop sharply unless there were quite a sharp drop in the stock market. People at the lower end of income and wealth have a much higher marginal propensity to consume of an incremental dollar of income or wealth, but they don't have the stock market wealth. So, I think it's certainly a factor supporting consumption right now. But and you would see it if you saw a material correction in spending but it wouldn't be, you shouldn't think that it'll, you know, dollar for dollar stop consumption because that wouldn't be the case. Thanks very much.

Good afternoon. My colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people. Although some important federal government data have been delayed due to the shutdown, the public and private sector data that have remained available suggest that the outlook for employment and inflation has not changed much since our meeting in September. Conditions in the labor market appear to be gradually cooling and inflation remains somewhat elevated. In support of our goals and in light of the balance of risks to employment and inflation, today the Federal Open Market Committee decided to lower our policy interest rate by a quarter percentage point. We also decided to conclude the reduction of our aggregate securities holdings as of December 1. I will have more to say about monetary policy after briefly reviewing economic developments. Available indicators suggest that economic activity has been expanding at a moderate pace. GDP rose at a 1.6% pace in the first half of the year, down from 2.4% last year. Data available prior to the shutdown show that growth in economic activity may be on a somewhat firmer trajectory than expected, primarily reflecting stronger consumer spending. Business investment in equipment and intangibles has continued to expand, while activity in the housing sector remains weak. The shutdown of the federal government will weigh on economic activity while it persists, but these effects should reverse after the shutdown ends. In the labor market, the unemployment rate remained relatively low through August. Job gains have slowed significantly since earlier in the year. A good part of the slowing likely reflects a decline in the growth of the labor force due to lower immigration and labor force participation, though labor demand has clearly softened as well. Although official employment data for September are delayed, available evidence suggests that both layoffs and hiring remain low and that both households' perceptions of job availability and firms' perceptions of hiring difficulty continue to decline. In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months. Inflation has eased significantly from its highs in mid-2022, but remains somewhat elevated relative to our 2% longer-run goal. Estimates based on the consumer price index suggest that total PCE prices rose 2.8% over the 12 months ending in September and that excluding the volatile food and energy categories, core PCE prices rose 2.8% as well. These readings are higher than earlier in the year as inflation for goods has picked up. In contrast, disinflation appears to be continuing for services. Near-term measures of inflation expectations have moved up on balance over the course of this year on news about tariffs as reflected in both market and survey-based measures. Beyond the next year or two or so, however, most measures of longer-term expectations remain consistent with our 2% inflation goal. Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. At today's meeting, the committee decided to lower the target range for the federal funds rate by a quarter percentage point to 3 and 3/4 to 4%. Higher tariffs are pushing up prices in some categories of goods resulting in higher overall inflation. A reasonable base case is that the effects on inflation will be relatively short-lived, a one-time shift in the price level. But it is also possible that the inflationary effects could instead be more persistent. And that is a risk to be assessed and managed. Our obligation is to ensure that a one-time increase in the price level does not become an ongoing inflation problem. In the near term, risks to inflation are tilted to the upside and risks to employment to the downside. A challenging situation. There is no risk-free path for policy as we navigate this tension between our employment and inflation goals. Our framework calls for us to take a balanced approach in promoting both sides of our dual mandate. With downside risks to employment having increased in recent months, the balance of risks has shifted. Accordingly, we judged it appropriate at this meeting to take another step toward a more neutral policy stance. With today's decision, we remain well positioned to respond in a timely way to potential economic developments. We will continue to determine the appropriate stance of monetary policy based on the incoming data, the evolving outlook, and the balance of risks. We continue to face two-sided risks. In the committee's discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it. Policy is not on a preset course. At today's meeting, the committee also decided to conclude the reduction of our aggregate securities holdings as of December 1. Our long-stated plan has been to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions. Signs have clearly emerged that we have reached that standard. In money markets, repo rates have moved up relative to our administered rates and we have seen more notable pressures on selected dates along with more use of our standing repo facility. In addition, the effective federal funds rate has begun to move up relative to the rate of interest on reserve balances. These developments are what we expected to see as the size of our balance sheet declined and warrant today's decision to cease runoff. Over the three and a half years that we've been shrinking our balance sheet, our securities holdings have declined by $2.2 trillion. As a share of nominal GDP, our balance sheet has fallen from 35% to about 21%. In December, we'll enter the next phase of our normalization plans by holding the size of our balance sheet steady for a time while reserve balances continue to move gradually lower as other non-reserve liabilities such as currency keep growing. We will continue to allow agency securities to run off our balance sheet and will reinvest the proceeds from those securities in Treasury bills, furthering progress toward a portfolio consisting primarily of Treasury securities. This reinvestment strategy will also help move the weighted average maturity of our portfolio closer to that of the outstanding stock of Treasury securities, thus furthering the normalization of the composition of our balance sheet. The Fed has been assigned two goals for monetary policy, maximum employment and stable prices. We remain committed to supporting our maximum employment, bringing our inflation sustainably to our 2% goal, and keeping longer-term inflation expectations well anchored. Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals. Thank you. I look forward to your questions.

N

Nick Timmeros4:41:36

Nick Timmeros of the Wall Street Journal. Chair Powell, are you uncomfortable with how market pricing has assumed a rate cut is a foregone conclusion in your next meeting?

J

Jerome Powell4:41:46

Well, as I just mentioned, a further reduction in the policy rate at the December meeting is not a foregone conclusion as I've just said. So, I would say that that needs to be taken on board. We had, you know, I would just say this, 19 participants on the committee. Everyone works very hard at this and takes their obligations to serve the American people very seriously. And at a time when we have tension between our two goals, we have strong views across the committee. And as I mentioned, there were strongly differing views today. And the takeaway from that is that we haven't made a decision about December. And you know, we're going to be looking at the data that we have, how that affects the outlook and the balance of risks. And I'll just say that...

N

Nick Timmeros4:42:31

You and some of your colleagues have framed last month and maybe today, I won't quote you about there's a risk management exercise. At what point do you conclude that you've taken out enough insurance? Are you looking for some kind of improvement in the outlook or could this unfold along the lines of last year where you made a sequence of adjustments and then waited to gather more information?

J

Jerome Powell4:42:55

So the way we have been thinking, way I've been thinking about it is the risks to the two goals, for a very long time the risk was clearly of higher inflation and then that has changed now and as we saw, particularly after we saw after the July meeting we saw the downward revisions in job creation we saw a very different picture of the labor market and suggested that there were higher downside risks to the labor market than we had thought and that suggested that policy which we had been holding at a, I would say modestly, others people would say moderately restrictive level needed to move more in the direction over time of neutral. If the two goals are sort of equally at risk then you ought to be at neutral because one of them's calling for you to hike and one of them is calling for you to cut. So if that got back into balance then you'd want to be roughly at neutral. So in that sense it was a risk management and I would say the same about today, sort of the same logic but as I mentioned going forward is a different thing.

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Claire Jones4:44:00

Claire Jones, Financial Times. Thank you for taking this question. You know, we've just heard from you that the discussion in December and the conclusion of the discussion is not a foregone conclusion. I'd like to just dig into that a little bit more about what sort of arguments were brought up. Was there any consideration for instance of the investment we're seeing in AI and some of the generation of household wealth through rises in stock prices related to the AI boom? Thank you.

J

Jerome Powell4:44:38

You know, I wouldn't say that's a factor in everyone's assessment of the economy. I wouldn't say it's a driving factor, I don't think, for anybody. You know, I guess I would say it this way. Once again, I would just point out that we have the situation where the risks are to the upside for inflation and to the downside for employment. We have one tool. It can't do both of those. So, you can't address both of those at once. You've got a very different situation. So, you have some people, people have different forecasts, right? So, they'll feel they'll forecast faster or slower progress on one or the other. And they also have different levels of risk aversion. And you know, some will be more averse to inflation overruns and some will be more averse to underruns of employment. And so you put that together and as you can see from the SEP and from the public discussion that goes on between the meetings when participants go out and talk they're very disparate views and they were reflected in strongly differing views in today's meeting as I pointed out in my remarks and that's what leads me to say that we haven't made a decision about December. You know, I always say that it's a fact that we don't make decisions in advance, but this is I'm saying something in addition here is that it's not to be seen as a foregone conclusion. In fact, far from it.

C

Claire Jones4:45:57

Can I just ask a quick follow up on QT? How much of the fund impressions we've seen in money markets are related to the US Treasury issuing more short-term debt?

J

Jerome Powell4:46:06

You know, that could be one of the factors, but the reality is we've seen, you know, the things that we've seen, higher repo rates and federal funds rate moving up. These are the very things that we look for. We actually have a framework for looking at, you know, what the place we're trying to reach. What we said for a long time now is that when we feel like we're a little bit or a bit above what we consider a level that's ample that we would freeze the size of the balance sheet. Of course, reserves will continue to decline from that point forward as non-reserve liabilities grow. So, this happened, some things have been happening for some time now, showing a gradual tightening in money market conditions. Really, in the last, call it 3 weeks or so, you've seen more significant tightening and I think a clear assessment that we're at that place. The other thing is, you know, the balance sheet is shrinking at a very very slow pace now. We've reduced it by half twice. And so there's not a lot of benefit to be holding on for to get the last few dollars because again the reserves are going to continue to shrink as non-reserves grow. So, you know, there was support on the committee as we thought about it to go ahead with this and announce effective December 1 that we will be freezing the size of the balance sheet and that the December 1 date gives the markets a little bit of time to adapt.

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Colby Smith4:47:36

Colby Smith with the New York Times. So much of the rationale for cutting interest rates even as inflation moves away from the 2% target seems to be, you know, that there are these mounting downside risks to the labor market. But if those don't materialize and the labor market either stabilizes around current employment levels or even starts to strengthen somewhat, how would that change your perception of how much interest rates need to fall from here? Would you then be a bit more concerned about underlying inflation and the possibility of second round effects from tariffs?

J

Jerome Powell4:48:08

Yeah, I mean in principle if you were to see data that suggested the labor market strengthening or even that it's stabilizing, you know, that would certainly play into our decisions going forward. So, and we do have, you know, we get some data. The labor market is a place where we get, for example, we get the state level data on initial claims which are sending sort of a signal of more of the same. We also get job openings and we'll get lots of survey data. We'll get the Beige Book and things like that. So, we'll have a picture of what's going on in the labor market. And, you know, the fact that we're not seeing an uptick in claims or a downtick really in openings suggests that you're seeing maybe continued very gradual cooling, but nothing more than that. So, that does give you some comfort.

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Colby Smith4:48:55

But if this shutdown lasts a while longer and you don't have that data in hand, I'm just wondering how that hinders the committee's ability to assess the state of the labor market and make the right policy decisions and also how much is that factoring into the debate about December.

J

Jerome Powell4:49:11

Yeah. So, you know, we get like I mentioned what we get in the labor area. We get some data in inflation, some data in economic activity. And we'll have a picture of what's going on. We also will have the Beige Book. Again, I would say we're not going to be able to have the, you know, the detailed feel of things, but I think if there were a significant or material change in the economy one way or another, I think we'd pick that up through this. So, in terms of how it might affect December, it's really hard to say. December's, you know, the meeting is I guess 6 weeks away. We just don't know what we're going to get. If there is a very high level of uncertainty then you know that could be an argument in favor of caution about moving but we'll have to see how it unfolds.

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Steve Liesman4:50:03

Steve Liesman, CNBC. Mr. Chairman can you characterize the meeting in terms of you said strongly differing views. Was this a close call this cut or was it a close call maybe the other way because you had dissents on both sides? Thanks.

J

Jerome Powell4:50:19

So I was referring to the discussion about to the extent it related to December. You saw we had two dissents, one for 50 and one for no cut. So you know that was a strong solid vote in favor of this cut. The strongly differing views were really about the future. What does that look like? And I think people are saying, you know, they're noticing stronger economic activity. You know, forecasters generally broadly have raised their economic growth forecast for this year and next year in some cases quite materially. In the meantime, we see, you know, a labor market that's kind of, I don't want to say stable, but it's not clearly in motion. It's not clearly declining quickly. In any case, it may be just continuing to gradually cool. And again, people have different forecasts and expectations about the economy and different risk tolerances. And so there's a, you know, you read the SEP, you read the speeches, you know, there are different views on the committee and to the point where I said what I said.

S

Steve Liesman4:51:25

And just to follow up on the balance sheet, if you stop the runoff now, does that mean you have to go back to actually adding assets sometime next year so that the balance sheet doesn't shrink as a percentage of GDP and become a tightening factor?

J

Jerome Powell4:51:42

So you're right, the place we'll be on December 1 is that the size of the balance sheet is frozen. And as mortgage-backed securities mature, we'll reinvest those in Treasury bills, which will foster both a more Treasury balance sheet and also a shorter duration. So that's what, in the meantime, if you freeze the size of the balance sheet, the non-reserve liabilities, currency for example, they're going to continue to grow organically. And because the size of the balance sheet is frozen, you have further shrinkage in reserves. And reserves is the thing that we're managing that has to be ample. So that'll happen for a time but not a tremendously long time. We don't know exactly how long but at a certain point you'll want to start reserves to start gradually growing to keep up with the size of the banking system and the size of the economy. So we'll be adding reserves at a certain point and that's the last point. Even then we'll be, we didn't make decisions about this today but we did talk today about the composition of the balance sheet and there's a desire that the balance sheet be, right now it's got a lot more duration than the outstanding universe of Treasury securities and we want to move to a place where we're closer to that duration. That'll take some time. We haven't made a decision about the ultimate end point, but we all agree that we want to move more in the direction of a balance sheet that more closely reflects the outstanding Treasuries, and that means a shorter duration balance sheet. Now, this is something that's going to take a long time and move very very gradually. I don't think you'll notice it in market conditions, but that's the direction of things.

J

Janelle Marte4:53:22

Janelle Marte with Bloomberg. How are officials interpreting the latest CPI report? So some components came in lower than expected but core inflation was still at 3%. So at this moment what are you learning about the drivers and also do you view that the risks are greater that the Fed makes a mistake on employment or inflation?

J

Jerome Powell4:53:51

So okay so the September CPI report we didn't get PPI after that which is important for translation into what we look at which is PCE inflation but we can still make a pretty good assessment of what that will be. When we get PPI there might be some adjustments but so directionally it was a little softer than expected and we always break it down into the three components. So basically you've seen goods prices increasing and that's really due to tariffs and that's in compared to a longer run trend of very very mild deflation in goods. So that's moving inflation up. On the other side of that good news that housing services inflation has been coming down and is expected to continue to come down. So if you remember a couple years ago that's the one that we kept expecting it to do that. Now, it's been doing that for some time and we expect to continue that. That leaves the biggest category is services other than housing services and that's kind of been moving sideways over the last few months, but a significant part of that is non-market services and we don't take a lot of signal about the tightness of the economy from that. So, if you add all that up, a couple things to say. One is that inflation away from tariffs is actually not so far from our 2% goal. We estimate, people have different estimates of what that is, but it might be, you know, five or six tenths. And so that, you know, if it's 2.8, then core PCE not including tariffs might be 2.3 or 2.4 in that range, something like that. So that's not so far from your goal. So that we look at that and the thing about tariff inflation is the base case is that it will come and it probably will increase further but it is that it will be a one-time increase. And you know we've been very focused for all of this year at making sure that that's the case and thinking carefully about what are the pathways through which it could become something else, troublesome inflation. One of those would be, you know, a really tight labor market. We don't see that. Another could be inflation expectations moving. We don't see that. So, I think, you know, we're watching this very carefully. I think it's not the case that we're just assuming that it's going to be a one-time inflation. We understand fully that this is a risk we have to monitor and ultimately manage.

J

Janelle Marte4:56:21

With the stubborn services inflation, what are some of the things that the Fed could do to address that? And especially when we're seeing potentially labor supply challenges.

J

Jerome Powell4:56:32

Sorry, say the first...

J

Janelle Marte4:56:34

The stubborn services inflation that you...

J

Jerome Powell4:56:36

Service inflation. Yeah. Well, again, the part of services inflation that isn't coming down as we would like it to is the non-market part of non-housing services. And you know, overall that's just something that we expect will come down. The non-market part of it should come down. It largely reflects higher stock prices and I mean financial services that are imputed rather than actually paid is a big part of that. But also just you know we think policy is still modestly restrictive in my telling. So that's the kind of thing that should lead to a gradually cooling economy. That's one of the reasons you see a gradually cooling labor market is because Fed policy is modestly restrictive. So that should also help get that. I want to say though, we're absolutely committed to returning inflation to 2%. If you look at longer-term surveys or market pricing, you will see that that's a credible commitment and there should be no question that that's where we're going.

C

Chris Rugaber4:57:43

Chris Rugaber, Associated Press. So there's a big investment boom in AI infrastructure right now as you know and wondering if the existence of such a boom would indicate that rates are not that restrictive after all and could further rate cuts at this point perhaps fuel an excess level of investment there or market bubbles. How is the Fed thinking about that?

J

Jerome Powell4:58:12

So I don't think that the, you're right there's a lot of data centers being built and other investments being made around the country and around the world. And big US companies are just investing a lot of resources in thinking about how AI, which will be based on those data centers, run through those data centers, is going to affect their businesses. So it's a big deal. I don't think that the spending that happens to build data centers all over the country is especially interest sensitive. It's based on longer run assessments that this is an area where there's going to be a lot of investment and that's going to drive higher productivity and those sorts of things. I don't know how those investments will work out but I don't think they're particularly interest sensitive compared to some of the other sectors.

C

Chris Rugaber4:59:07

And then just a quick follow-up, could you, you mentioned that you do have data that you're looking at for inflation and growth in the absence of government data. Could you give us a sense? I think we know a lot about the jobs data that's out there. Can you give us a sense of what you're looking at to track inflation in the absence of government data? Thank you.

J

Jerome Powell4:59:24

So, it's a lot of things and it doesn't replace government data, but you know, all of these, it's, I'll just mention some of the many many names. Price Stats, Adobe and others. And for wage inflation, there's ADP data. On spending, you're going to ask about spending at some point. You know, there are lots of other things that we look at, but it's again, it's many different sources and again, including what we get out of the Beige Book, which will be sort of come out mid-cycle as always. And it doesn't replace the government data, but it gives us a picture. Again, I think if something material were happening, if there were material developments, I think we would pick that up. I don't think we'll be able to have the very granular understanding of the economy while this data is not available.

H

Howard Schneider5:00:19

Howard Schneider with Reuters. Thank you. I just want you to elaborate a little bit on what you said a moment ago about the lack, a continued shutdown making it more difficult to make a move in December and that may make you more cautious to the degree you are relying on private data that isn't the gold standard or that you're relying on your own surveys or the Beige Book. Do you worry at some point you're going to have to start making policy by anecdote?

J

Jerome Powell5:00:51

You know this is a temporary state of affairs and you know we're going to do our jobs. We're going to collect every scrap of data we can find, evaluate it, and think carefully about it. And that's our job. So that's what we're going to do. If you ask me, could it affect the December meeting, I'm not saying it's going to, but yeah, you could imagine that, you know, what do you do if you're driving in the fog? You slow down. So that could or could not. I don't know how that's going to play into things. We may get the data may come back, but there's a possibility that it would make sense to be more cautious about moving. I'm not committing to that. I'm just saying it's certainly a possibility that you would say we really can't see, so let's slow down.

H

Howard Schneider5:01:37

As a follow-up in the debate on this meeting, we saw recently some pretty big layoff announcements coming from Amazon and others. Wondering if that figured into the discussion at all that you're starting to see the turn, this tension between growth and employment starting to be resolved to the detriment of employment. And secondly, some of the stress is starting to appear in the bottom spur of the K as they call it, household health premiums that are going to be possibly going up quite substantially things like that. Has that started to become a factor in your policy discussion?

J

Jerome Powell5:02:10

So those are both things that we're watching very very carefully. To start with the layoffs. You're right. You see a significant number of companies either announcing that they are not going to be doing much hiring or actually doing layoffs and much of the time they're talking about AI and what it can do. So, we're watching that very carefully and you know, yes, it could absolutely have implications for job creation. We don't really see it in the initial claims data yet. Now, it's not a surprise that we don't. It takes some time for it to get in there, but we're watching that really carefully. But again, don't see it yet in the initial claims data. On the K-shaped economy thing, I would say the same thing or similar thing. We are, if you listen to the earnings calls or the reports of big public consumer-facing companies many of them are saying that there's a bifurcated economy there and that consumers at the lower end are struggling and buying less and shifting to lower cost products but that at the top people are spending at the higher income and wealth and so you have much anecdotal data on that and so we think there's something there.

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Edward Lawrence5:03:41

Edward Lawrence with Fox Business. So Mr. Chairman, I want to take another crack at the further reduction in rates is not a foregone conclusion. So in December, you said far from it. So if a cut might not be on the table for December because of lack of data, what does the other concerns then stem from? So if it's not lack of data as the reason December is not a foregone conclusion, what other things could be the concern then?

J

Jerome Powell5:04:11

Well, perspectives of people on the committee that, you know, we've now moved 150 basis points and that we're down into, you know, you're into the range between three and four where most estimates of many estimates of the neutral rate live in that 3 to 4% area. You're there now. You're above the median number for the committee, but I think there are people on the committee who have higher estimates of the neutral rate, and that's a, you know, you can argue these positions since it can't be directly observed the neutral rate. So, you know, I think for some part of the committee, you know, it's time to maybe take a step back and see whether there really are downside risks to the labor market or see whether in fact the stronger growth that we're seeing is real. Ordinarily the labor market is a better indicator of the momentum of the economy than the spending data. That's the lore, in this case that gives a more downbeat read. So people just have, you know, there again we've cut 50 more basis points in the last two meetings and there's a sense like let's, from some, let's pause here kind of thing and a sense from others wanting to go ahead but that's why I say differing views, strongly differing views.

E

Edward Lawrence5:05:36

So on that division then you're talking about going forward. So what's more important in this division? Is it inflation risks? Is it employment risk? Or is there a deeper philosophy division among the board?

J

Jerome Powell5:05:49

I look, everybody on the committee is deeply committed to doing the right thing to achieve our goals maximum employment and stable prices. You have differences on how to do that and as I mentioned some of that is different forecasts but a lot of it is also different risk aversions to the two different variables which is common through all Federal Reserves. People just have different risk tolerances let's say so that leads you to people with disparate views. You will know that from the speeches you've been listening to from my colleagues and so we're at a place now where we have in fact cut two more times. And you know, we're now 150 basis points closer to neutral, wherever that may be, than we were a year ago. And so there's a growing chorus now of feeling like maybe this is where we should at least wait a cycle, something like that. That's what it is. It's just what you think it would be. And again, you've seen it in the September summary of economic projections. You've seen this in the public remarks of FOMC participants. And now I'm telling you that's what you can expect in the minutes and I'm just telling you that's what happened in the meeting.

E

Elizabeth Schulze5:07:02

Elizabeth Schulze with ABC News. What is your explanation for why the job market is weakening right now and what will this rate cut do to improve the job market?

J

Jerome Powell5:07:16

So I think there are two things affecting the job market and one of them is just a dramatic reduction in the supply of new workers. So and that's two things, that's declining labor force participation which is a cyclical thing and then there's declining immigration which is just a big policy change that actually began in the last administration and it has been accelerated now. So a big part of the whole story is that supply side story. Okay. In addition, labor demand has declined and you know so the unemployment rate has gone down meaning that demand for workers has gone down a little more than supply. So that's what's going on and but it is mostly a supply function, it's mostly a function of the change in supply I think and many people think. So the question then is what does our tool do which supports demand and you know so and I would just say when you're in a situation where job creation if you adjust for likely overcounting in the way that BLS does its work is pretty close to zero. So maximum employment doesn't on a sustainable basis, if you're creating zero jobs, if it's in equilibrium, if it's in balance it's a pretty, as I said before, a pretty curious balance. So you know I thought many of my colleagues thought in fact you've seen the last two meetings that it was appropriate for us to react by supporting demand with our rates and we've done that. We've reduced so that rates are looser there. I wouldn't say that they're accommodative right now, but they're meaningfully less tight than they were. And that should help so that at least the labor market doesn't get worse. So, it's a complicated situation. And some people argue that this is supply and we really can't affect it much with our tools, but others argue, as I do, that there is an effect from demand and that we should use our tools to support the labor market when we see this happening.

E

Elizabeth Schulze5:09:27

You also talked about tariffs causing a one-time price increase. Should American households, consumers expect that inflation will continue to go up this year because of those tariffs?

J

Jerome Powell5:09:37

So, the basic expectation is that there will be some additional increase in inflation because it takes a while for tariffs to work their way through the production chain and finally get to consumers. And we see this now from the tariffs that were put in place now many months ago. We see those effects. But if you put tariffs in effect and they've been coming into effect consistently in, you know, February, March, April, May, and that's all happening. So that'll continue to happen for some time, probably into the spring. These are not big increases, though. These are a tenth or so on inflation. They may be big increases on a particular product that's been tariffed, but overall, these are fairly modest. I think you know some projections go, we're at 2.8% inflation. You might get two or three more tenths or four more tenths maybe. But then as all the tariffs are in, they stop generating inflation. You've had a one-time price increase. As long as you're not, at least this is the theory. This is how we believe and hope that it will work out. Once the last tariff is put on something at that point, it becomes a higher price level, but it stops going up, if you will. Prices stop going up. They'll just be at that level.

Then measured inflation will come back down to non-tariff inflation. As I mentioned, non-tariff inflation is not so far from 2%. Now, consumers are not interested in that story. Their prices are higher. More than that, the reason they're so unhappy about inflation is the inflation that we had in 2021, 22, and 23. Because you know, you can say that prices aren't going up as much, but that doesn't mean people aren't feeling those higher prices from the inflation we had two or three years ago. They are. And that's, I think, a large part of why the public, if you sample people, inflation is still very much making people quite unhappy. Even, you know, and it's nice that prices are not going up as fast as they were, but they're still much higher than they were. And it'll take some time for that effect to wear off. As real incomes rise, it will feel better over time, but that's going to take time.

M

Michael McKee5:11:48

Michael McKee from Bloomberg Television Radio. Do you have any concerns that equity markets are or are close to being overvalued at this point?

J

Jerome Powell5:12:01

You know, we don't look at any one asset price and say, 'Hey, that's wrong.' It's not our job to do that. We look at the overall financial system and we ask whether it's stable and whether it could withstand shocks. So, you know, banks are well capitalized. While some households are clearly under stress, in the aggregate, households are in good shape financially, relatively manageable levels of debt. At the lower income spectrum, you are seeing rising defaults, particularly around subprime auto, but nonetheless in the aggregate, pretty good. And you don't see too much leverage in the banking system or the financial system. It's a mixed picture but it's not an overly troubling picture. And again, it's not appropriate. We don't set asset prices, markets do that.

M

Michael McKee5:12:56

Well, you must be well aware that by lowering interest rates you're contributing to additional asset price increases. And I wonder how you balance the idea that lowering rates would help the labor market, with the reality that it seems more likely to be stimulating increased investment in AI, which is the rationale for thousands of job cuts that have been announced in the last few weeks.

J

Jerome Powell5:13:20

Yeah, I don't think interest rates are an important part of the AI data center story. I think, you know, people think there's great economics in building these data centers and they're making a lot of money building them and they think they have very high present value and all that sort of thing. It's not really about 25 basis points here or there. You know, we use our tools to support the labor market and to create price stability. That's what we do. That's our two jobs, right? So we're here to, by lowering rates at the margin, that will support demand and that will support more hiring and that's why we do it. Now, no 25 basis point or even 50 basis point hike is going to be this positive thing but ultimately, you know, lower rates will support more demand and that'll support hiring over time. Now, of course, we also have to be careful about this, which is what we've been doing because we know where inflation is and we know that, you know, I've told you the story. It's a complicated story, but this is the best assessment that we can make. And but you know, because there's uncertainty around inflation and the path ahead for inflation, that's why the pace we're going has been a careful one.

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Victoria Guida5:14:39

Hi, Victoria Guida from Politico. On AI, I'm just wondering, you know, it seems like a lot of the economic growth that we've been seeing is fed by investments in AI. So, how worried are you about what a sudden contraction in tech investment would mean for the overall economy? Is there enough strength in other sectors? And specifically, are there any lessons that you take from the 1990s in how you might approach what's happening right now?

J

Jerome Powell5:15:09

Yeah, this is different in the sense that these companies, the companies that are so highly valued, actually have earnings and stuff like that. So if you go back to the 90s and the dotcom, they were ideas rather than companies and you know, there was a clear bubble there whereas the, you know, I won't go into particular names but they actually have earnings and you know, it looks like they have business models and profits and that kind of thing. So it's really a different thing. You know, the investment we're getting in equipment and all those things that go into creating data centers and feeding the AI, it's clearly one of the big sources of growth in the economy. Consumer spending also though has been, you know, is much bigger than that and has been growing and has defied a lot of negative forecasts, continuing to do so this year. Consumers are still spending. Now it may be mostly higher-end consumers or may be skewed that way but the consumer is spending and that's a big, big chunk of what's going on in the economy, bigger than, substantially bigger than AI. You could point to growth, I mean actually, you may be growth as opposed to level, but consumer spending is a much bigger part of the economy.

V

Victoria Guida5:16:28

And why do you think that the labor market is slowing so much even though consumer spending is strong?

J

Jerome Powell5:16:33

Why has it slowed so much? Well, what's happened is that the supply of workers has dropped very, very sharply due to mainly immigration but also lower labor force participation. So, and that means there's less need for new jobs because there isn't this flow into the pool of labor where people need jobs because those people aren't there now. So there's not a supply of workers showing up for jobs. In addition, demand has also gone down and so has labor force participation, which is more of a sign in this case of demand as well as trend. So I think you're seeing some softening. You know, the economy is growing at a slower rate than it was, 2.4% last year. We think around 1.6% this year. It could have been a couple of tenths higher if not for the shutdown. And of course that will reverse but you know, you still got the economy growing at a moderate pace.

A

Andrew Ackerman5:17:36

Andrew Ackerman with the Washington Post. I wanted to ask if you could elaborate on how you think about policy in the context of the data drought. Does it make you inclined to stick with your plans as set out in September in the absence of the data that might change your mind or does it make you inclined to proceed with added caution because of uncertainty?

J

Jerome Powell5:18:01

Yeah. Well, we'll know when we face that question if we face that question. You know, it'll probably be argued both ways, right? But I've said a couple times here that, you know, if you really aren't getting information and you really don't know and the economy looks like it's solid and stable and hasn't really changed, you know, there will be an argument. I don't know how persuasive it will be, but there will be an argument that you know, you slow down when you can't see as far ahead. Others may argue, I mean, I'm not sure where this argument will come, but you're perfectly right that you could also argue, well, things haven't really changed, but you might not know that. So, I don't know whether we'll face this or not. I hope we don't. I hope by the time of the December meeting, we're getting, you know, a better flow of data, but we're going to have to do our jobs one way or the other.

A

Andrew Ackerman5:18:52

Okay. I also just wanted to ask a FINRA question. I think several years ago, you said the overall amount of capital in the system was about right. As the Fed moves forward with a revised Basel proposal, potentially changes to the G-SIB surcharge, has that changed at all and or are you planning to significantly reduce the amount of capital in the system? Thanks.

J

Jerome Powell5:19:13

So there's discussions going on, I think, among the agencies and I don't want to get ahead of those discussions. I continue to think that the level of capital when I said that in 2020 was about right and of course there's been much capital added since then through various mechanisms. But I look forward to, I know those discussions are really just getting going. They haven't come to the point where they've got a whole plan and that kind of thing. So I really don't have much to say on that.

B

Brian Chung5:19:47

Hi Chairman Powell. Brian Chung with NBC News. Is the weakness in the jobs market accelerating and who's at risk if the interest rate cuts are not the effective medicine for a further slowdown in the labor?

J

Jerome Powell5:20:04

So we do not see the weakness as you put it, the weakness in the job market accelerating. I would say then again we don't have, we didn't get the September employment report, payroll report, but we do get, we look at, you know, the unemployment insurance claims, initial claims are reported at the state level and we still get those and we can accumulate them and get the national number and there's really, I mean, there's no story. You can look at the numbers. Same thing with the job openings we get from Indeed. There's just no story over the last four weeks. It's kind of stable. So you don't see anything that says that the job market or really any part of the economy is making a significant deterioration. You don't see that. You see more things like I mentioned though which is that, you know, you see big companies making announcements of either layoffs or of the idea that they won't need to hire. Their number of employees is not expected to go up over a number of years. There may be different people working there, they say that too, but they don't need a bigger headcount. So you see those kinds of things. You don't see it in the aggregate numbers. The layoff numbers have not gone up, but job creation is very low. And the job finding rate for people who are unemployed is very low. But the unemployment rate is very low as well. 4.3% is a low unemployment rate.

B

Brian Chung5:21:33

So, as you make these cuts, is it the lower income workers that you're thinking about or those who might have their jobs automated? Is there a particular labor market that you're particularly...

J

Jerome Powell5:21:42

So we can't, our tools don't allow us to target any demographic or any income level and that kind of thing. I do think that people, you know, we saw this during the global financial crisis and the long recovery, if you have a long period of very strong labor market conditions, it benefits people at the lower end the most. The last two or three years of that long expansion, people at the lower part of the income spectrum were getting the biggest benefits and lots of things were happening in that space demographically which were very constructive and you know, we're not at that place right now. But so yeah, you know, I mean, a stronger labor market is the best thing we can do for the public. It's also part of our job, it is half of our job, but it is absolutely the best thing we can do for people, you know, along with keeping prices stable. Those two things, I mean, inflation also hurts people on fixed incomes more than other people.

C

Courtney Brown5:22:42

Hi Chair Powell. Courtney Brown from Axios. As you know the 12 Reserve Bank presidents' terms are up for renewal at the end of February. I'm wondering if you can give us a timeline for when the board will consider those reappointments and whether we can expect everyone to be re-upped or if we can expect some changes.

J

Jerome Powell5:23:04

So, it's a process that we go through under the law. The way the law works is we have a reappointment process every five years for all of the Reserve Banks, each of them and all of them. We're in the middle of that process and we're going to complete it in a timely way and I really, that's really all I can say.

D

Daniel5:23:24

Daniel from AFP. You've now had dissents in three consecutive FOMC meetings but in this meeting you had dissents going in both directions and you've just mentioned there's strong disagreement over the future path of rate cuts. Have these disagreements complicated your role presiding over the FOMC meetings and if so how?

J

Jerome Powell5:23:44

I wouldn't say that. No, I think you have to take what comes and what comes right now is a pretty challenging situation where we have, first of all, we have 4.3% unemployment. We have an economy that's growing close to 2%. So, you know, overall it's a good picture. It's a good picture. But in terms of our policy we have upside risks to inflation, downside risks to employment. And this is a very difficult thing for a central bank because you know, one of those calls for rates to be lower, one calls for rates to be higher. We can't do both. So we have to balance the two. And so it's a challenging thing. And you know, as we have worked our way through this process, you would expect that there would be a range of views across the committee on what to do and the speed with which we should do it. And that's what we have. That makes a lot of sense to me. These are all of these people are, you know, people who take their jobs very seriously, work very hard at this and just want to do what's right for the American people, but they have different views on what that is. And, you know, it's an honor to work among people who care that much. It is, but I don't feel that it's unfair or anything like that. It just, it's a time when we're making quite difficult judgments in real time. And I believe we'll get through this. And I think we've done sort of the right thing so far this year. I think it was appropriate for us to be careful about this. I think it would not be appropriate to just ignore or assume away the inflation issue. At the same time, I think the risk of higher, more persistent inflation has declined significantly since April. And if we do wind up resuming rate cuts at some point, we will at some point. You know, I think we're trying to get to the end of this cycle with the labor market in a good place and with inflation, you know, on its way to 2% or at 2%. So, that's all we're trying to do and we're doing it under, you know, quite challenging circumstances and doing the best we can.

J

Jennifer Schonberger5:25:49

Thank you so much, Chair. Jennifer Schonberger with Yahoo Finance. Both regional and large banks have taken losses on loans given delinquencies on subprime auto loans. JP Morgan CEO Jamie Dimon warned, 'When you see one cockroach, there may be more likely.' I'm curious how the Fed's looking at these loan losses and if it poses risks to the financial system or the outlook for the economy. Is it a warning sign?

J

Jerome Powell5:26:18

So, you know, we're obviously we watch these things very carefully, credit conditions very carefully. You're right. You've seen rising defaults in subprime credit for some time now. And now you've seen a number of subprime credit, automobile credit institutions having significant losses and some of those losses are now showing up on the books of banks. You know, we're looking at it carefully. We're paying close attention. I don't see at this point a broader credit issue. It doesn't seem to be something that has very broad application across financial institutions, but you know, we're going to be monitoring this quite carefully and making sure that that is the case.

J

Jennifer Schonberger5:27:04

And then separately, many, you yourself have said that we're in a bifurcated economy right now with high net worth individuals continuing to spend with a lower income pulling back. How much of consumer spending continuing hinges on the stock market remaining strong? In some odd way, does the market help keep the economy buoyant?

J

Jerome Powell5:27:25

So there is some relationship there, but remember, the more wealth someone has, the lower an additional dollar of wealth matters. So your marginal propensity to consume declines quite dramatically as you reach levels of stock market wealth. So, you know, the stock market, it would affect spending if the stock market went down, but it wouldn't drop sharply unless there were quite a sharp drop in the stock market. People at the lower end of income and wealth have a much higher marginal propensity to consume of an incremental dollar of income or wealth, but they don't have the stock market wealth. So, I think it's certainly a factor supporting consumption right now. And you would see it if you saw a material correction in spending but it wouldn't be, you shouldn't think that it'll, you know, dollar for dollar stop consumption because that wouldn't be the case. Thanks very much.

Good afternoon. My colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people. Although some important federal government data have been delayed due to the shutdown, the public and private sector data that have remained available suggest that the outlook for employment and inflation has not changed much since our meeting in September. Conditions in the labor market appear to be gradually cooling and inflation remains somewhat elevated. In support of our goals and in light of the balance of risks to employment and inflation, today the Federal Open Market Committee decided to lower our policy interest rate by a quarter percentage point. We also decided to conclude the reduction of our aggregate securities holdings as of December 1. I will have more to say about monetary policy after briefly reviewing economic developments. Available indicators suggest that economic activity has been expanding at a moderate pace. GDP rose at a 1.6% pace in the first half of the year, down from 2.4% last year. Data available prior to the shutdown show that growth in economic activity may be on a somewhat firmer trajectory than expected, primarily reflecting stronger consumer spending. Business investment in equipment and intangibles has continued to expand, while activity in the housing sector remains weak. The shutdown of the federal government will weigh on economic activity while it persists. But these effects should reverse after the shutdown ends. In the labor market, the unemployment rate remained relatively low through August. Job gains have slowed significantly since earlier in the year. A good part of the slowing likely reflects a decline in the growth of the labor force due to lower immigration and labor force participation. Though labor demand has clearly softened as well. Although official employment data for September are delayed, available evidence suggests that both layoffs and hiring remain low and that both households' perceptions of job availability and firms' perceptions of hiring difficulty continue to decline. In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months. Inflation has eased significantly from its highs in mid-2022, but remains somewhat elevated relative to our 2% longer-run goal. Estimates based on the consumer price index suggest that total PCE prices rose 2.8% over the 12 months ending in September and that excluding the volatile food and energy categories, core PCE prices rose 2.8% as well. These readings are higher than earlier in the year as inflation for goods has picked up. In contrast, disinflation appears to be continuing for services. Near-term measures of inflation expectations have moved up on balance over the course of this year on news about tariffs as reflected in both market and survey-based measures. Beyond the next year or two or so, however, most measures of longer-term expectations remain consistent with our 2% inflation goal. Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. At today's meeting, the committee decided to lower the target range for the federal funds rate by a quarter percentage point to 3 and 3/4 to 4%. Higher tariffs are pushing up prices in some categories of goods, resulting in higher overall inflation. A reasonable base case is that the effects on inflation will be relatively short-lived, a one-time shift in the price level. But it is also possible that the inflationary effects could instead be more persistent. And that is a risk to be assessed and managed. Our obligation is to ensure that a one-time increase in the price level does not become an ongoing inflation problem. In the near term, risks to inflation are tilted to the upside and risks to employment to the downside. A challenging situation. There is no risk-free path for policy as we navigate this tension between our employment and inflation goals. Our framework calls for us to take a balanced approach in promoting both sides of our dual mandate. With downside risks to employment having increased in recent months, the balance of risks has shifted. Accordingly, we judged it appropriate at this meeting to take another step toward a more neutral policy stance. With today's decision, we remain well positioned to respond in a timely way to potential economic developments. We will continue to determine the appropriate stance of monetary policy based on the incoming data, the evolving outlook, and the balance of risks. We continue to face two-sided risks. In the committee's discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it. Policy is not on a preset course. At today's meeting, the committee also decided to conclude the reduction of our aggregate securities holdings as of December 1. Our long-stated plan has been to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions. Signs have clearly emerged that we have reached that standard. In money markets, repo rates have moved up relative to our administered rates and we have seen more notable pressures on selected dates along with more use of our standing repo facility. In addition, the effective federal funds rate has begun to move up relative to the rate of interest on reserve balances. These developments are what we expected to see as the size of our balance sheet declined and warrant today's decision to cease runoff. Over the three and a half years that we've been shrinking our balance sheet, our securities holdings have declined by $2.2 trillion. As a share of nominal GDP, our balance sheet has fallen from 35% to about 21%. In December, we'll enter the next phase of our normalization plans by holding the size of our balance sheet steady for a time while reserve balances continue to move gradually lower as other non-reserve liabilities such as currency keep growing. We will continue to allow agency securities to run off our balance sheet and will reinvest the proceeds from those securities in Treasury bills, furthering progress toward a portfolio consisting primarily of Treasury securities. This reinvestment strategy will also help move the weighted average maturity of our portfolio closer to that of the outstanding stock of Treasury securities, thus furthering the normalization of the composition of our balance sheet. The Fed has been assigned two goals for monetary policy, maximum employment and stable prices. We remain committed to supporting our maximum employment, bringing our inflation sustainably to our 2% goal, and keeping longer-term inflation expectations well anchored. Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals. Thank you. I look forward to your questions.

N

Nick Timiraos5:36:24

Nick Timiraos of the Wall Street Journal. Chairman Powell, are you uncomfortable with how market pricing has assumed a rate cut is a foregone conclusion in your next meeting?

J

Jerome Powell5:36:39

Well, as I just mentioned, a further reduction in the policy rate at the December meeting is not a foregone conclusion, as I've just said. So, I would say that that needs to be taken on board. We had, you know, I would just say this, 19 participants on the committee. Everyone works very hard at this and takes their obligations to serve the American people very seriously. And at a time when we have tension between our two goals, we have, you know, strong views across the committee. And as I mentioned, there were strongly differing views today. And the takeaway from that is that we haven't made a decision about December and you know, we're going to be looking at the data that we have, how that affects the outlook and the balance of risks and I'll just say that.

N

Nick Timiraos5:37:24

You and some of your colleagues have framed last month and maybe today, I won't put words in your mouth, as a risk-management exercise. At what point do you conclude that you've taken out enough insurance? Are you looking for some kind of improvement in the outlook or could this unfold along the lines of last year where you made a sequence of adjustments and then waited to gather more information?

J

Jerome Powell5:37:51

So the way we have been thinking, the way I've been thinking about it is, the risks to the two goals for a very long time, the risk was clearly of higher inflation and then that has changed now. And as we saw, particularly after we saw after the July meeting, we saw the downward revisions in job creation, we saw a very different picture of the labor market and suggested that there were higher downside risks to the labor market than we had thought and that suggested that policy which we had been holding at a, I would say modestly, others people would say moderately restrictive level needed to move more in the direction over time of neutral. If the two goals are sort of equally at risk then you ought to be at neutral because one of them's calling for you to hike and one of them is calling for you to cut. So if that got back into balance then you'd want to be roughly at neutral. So in that sense it was a risk-management exercise. And I would say the same about today, sort of the same logic but as I mentioned going forward is a different thing.

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Claire Jones5:38:57

Claire Jones, Financial Times. Thank you for taking this question. We've just heard from you that the discussion in December and the conclusion of the discussion is not a foregone conclusion. I'd like to just dig into that a little bit more about what sort of arguments were brought up. Was there any consideration for instance of the investment we're seeing in AI and some of the generation of household wealth through rises in stock prices related to the AI boom? Thank you.

J

Jerome Powell5:39:31

You know, I wouldn't say that's a factor in everyone's assessment of the economy. I wouldn't say it's the driving factor, I don't think, for anybody. You know, I guess I would say it this way. But once again, I would just point out that we have the situation where the risks are to the upside for inflation and to the downside for employment. We have one tool. You can't do both of those. So, you can't address both of those at once. You've got a very different situation. So, you have some people, people have different forecasts, right? So, they'll feel they'll forecast faster or slower progress on one or the other. And they also have different levels of risk aversion. And you know, some will be more averse to inflation overruns and some will be more averse to underruns of employment. And so you put that together and as you can see from the SEP and from the public discussion that goes on between the meetings when participants go out and talk, they're very disparate views and they were reflected in strongly differing views in today's meeting as I pointed out in my remarks and that's what leads me to say that we haven't made a decision about December. You know, I always say that it's a fact that we don't make decisions in advance, but this is I'm saying something in addition here is that it's not to be seen as a foregone conclusion. In fact, far from it.

C

Claire Jones5:40:50

Can I just ask a quick follow-up on QT? How much of the fund impressions we've seen in money markets are related to the US Treasury issuing more short-term debt?

J

Jerome Powell5:41:02

You know, that could be one of the factors, but the reality is we've seen, you know, the things that we've seen, higher repo rates and federal funds rate moving up. These are the very things that we look for. We actually have a framework for looking at, you know, what the place we're trying to reach. What we said for a long time now is that when we feel like we're a little bit or a bit above what we consider a level that's ample that we would freeze the size of the balance sheet. Of course, reserves will continue to decline from that point forward as non-reserve liabilities grow. So, this happened, some things have been happening for some time now showing a gradual tightening in money market conditions. Really in the last, call it three weeks or so you've seen more significant tightening and I think a clear assessment that we're at that place. The other thing is, you know, the balance sheet is shrinking at a very, very slow pace now. We've reduced it by half twice. And so there's not a lot of benefit to be holding on for the last few dollars because, you know, again, the reserves are going to continue to shrink as non-reserves grow. So, you know, there was support on the committee as we thought about it to go ahead with this and announce effective December 1 that we will be, you know, freezing the size of the balance sheet and that the December 1 date gives the markets a little bit of time to adapt.

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Colby Smith5:42:29

Thank you. Colby Smith with the New York Times. So much of the rationale for cutting interest rates even as inflation moves away from the 2% target seems to be, you know, that there are these mounting downside risks to the labor market. But if those don't materialize and the labor market either stabilizes around current employment levels or even starts to strengthen somewhat, how would that change your perception of how much interest rates need to fall from here? Would you then be a bit more concerned about underlying inflation and the possibility of second-round effects from tariffs?

J

Jerome Powell5:43:01

Yeah, I mean in principle if you were to see data that suggested that the labor market is strengthening or even that it's stabilizing, you know, that would certainly play into our decisions going forward. So and we do have, you know, we get some data, the labor market is a place where we get, for example, we get the state-level data on initial claims which are sending a sort of a signal of more of the same. We also get job openings and we'll get lots of survey data. We'll get the beige book and things like that. So, we'll have a picture of what's going on in the labor market. And, you know, the fact that we're not seeing an uptick in claims or a downtick really in openings suggests that you're seeing maybe continued very gradual cooling, but nothing more than that. So, that does give you some comfort.

C

Colby Smith5:43:48

But if this shutdown lasts a while longer and you don't have that data in hand, I'm just wondering how that hinders the committee's ability to assess the state of the labor market and make the right policy decisions and also how much is that factoring into the debate about December.

J

Jerome Powell5:44:04

Yeah. So, you know, we get, like I mentioned, what we get in the labor area. We get some data in inflation, some data in economic activity. And we'll have a picture of what's going on. We also will have the beige book. Again, I would say we're not going to be able to have the, you know, the detailed feel of things, but I think if there were a significant or material change in the economy one way or another, I think we'd pick that up through this. So, in terms of how it might affect December, it's really hard to say. December's, you know, this meeting is I guess six weeks away. We just don't know what we're going to get. If there is a very high level of uncertainty then, you know, that could be an argument in favor of caution about moving but we'll have to see how it unfolds.

S

Steve Liesman5:44:56

Steve Liesman, CNBC. Mr. Chairman, can you characterize the meeting in terms of, you said strongly differing views. Was this a close call this cut or was it a close call maybe the other way because you had dissents on both sides? Thanks.

J

Jerome Powell5:45:14

So I was referring to the discussion about, to the extent it related to December. You saw we had two dissents, one for 50 and one for no cut. So, you know, that was a strong, solid vote in favor of this cut. The strongly differing views were really about the future. What does that look like? And I think people are saying, you know, they're noticing stronger economic activity. You know, forecasters generally broadly have raised their economic growth forecast for this year and next year in some cases quite materially. In the meantime, we see, you know, a labor market that's kind of, I don't want to say stable, but it's not clearly in motion. It's not clearly declining quickly. In any case, it may be just continuing to gradually cool. And again, people have different forecasts and expectations about the economy and different risk tolerances. And so there's a, you know, you read the SEP, you read the speeches, you know, there are different views on the committee and to the point where I said what I said.

S

Steve Liesman5:46:19

And just to follow up on the balance sheet, if you stop the runoff now, does that mean you have to go back to actually adding assets sometime next year so that the balance sheet doesn't shrink as a percent of GDP and become a tightening factor?

J

Jerome Powell5:46:35

So, you're right. The place we'll be on December 1 is that the size of the balance sheet is frozen. And as mortgage-backed securities mature, we'll reinvest those in Treasury bills, which will foster both a more Treasury balance sheet and also a shorter duration. So that's what, in the meantime, if you freeze the size of the balance sheet, the non-reserve liabilities, currency for example, they're going to continue to grow organically. And because the size of the balance sheet is frozen, you have further shrinkage in reserves. And reserves is the thing that we're managing that has to be ample. So that'll happen for a time but not a tremendously long time. We don't know exactly how long but at a certain point you'll want to start reserves to start gradually growing to keep up with, you know, the size of the banking system and the size of the economy. So we'll be adding reserves at a certain point and that's the last point. Even then we'll be, we didn't make decisions about this today but we did talk today about the composition of the balance sheet and there's a desire that the balance sheet be, right now it's got a lot more duration than the outstanding universe of Treasury securities and we want to move to a place where we're closer to that duration. That'll take some time. We haven't made a decision about the ultimate end point, but we all agree that we want to move more in the direction of a balance sheet that more closely reflects the outstanding Treasuries, and that means a shorter duration balance sheet. Now, this is something that's going to take a long time and move very, very gradually. I don't think you'll notice it in market conditions, but that's the direction of things.

J

Janelle Marte5:48:15

Janelle Marte with Bloomberg. How are officials interpreting the latest CPI report? So some components came in lower than expected but core inflation was still at 3%. So at this moment, what are you learning about the drivers and also do you view that the risks are greater that the Fed makes a mistake on employment or inflation?

J

Jerome Powell5:48:44

So okay, so the September CPI report, we didn't get PPI after that which is important for translation into what we look at which is PCE inflation but we can still make a pretty good assessment of what that will be. When we get PPI there might be some adjustments but so directionally, you know, it was a little softer than expected and we always break it down into the three components. So basically, you've seen goods prices increasing and that's really due to tariffs and that's in compared to a longer-run trend of very, very mild deflation in goods. So that's moving inflation up. On the other side of that, good news that housing services inflation has been coming down and is expected to continue to come down. So if you remember a year, a couple years ago, that's the one that we kept expecting it to do that. Now it's been doing that for some time and we expect to continue that. That leaves the biggest category is services other than housing services and that's kind of been moving sideways over the last few months but a significant part of that is non-market services and we don't take a lot of signal about the tightness of the economy from that. So, if you add all that up, a couple things to say. One is that inflation away from tariffs is actually not so far from our 2% goal. We estimate, people have different estimates of what that is, but it might be, you know, five or six tenths. And so that, you know, if it's 2.8, then core PCE not including tariffs might be 2.3 or 2.4 in that range, something like that. So, that's not so far from your goal. So that we look at that and the thing about tariff inflation is the base case is that it will come and it probably will increase further but it is that it will be a one-time increase. And you know, we've been very focused for all of this year at making sure that that's the case and thinking carefully about what are the pathways through which it could become something else troublesome and inflation. One of those would be, you know, a really tight labor market. We don't see that. Another could be inflation expectations moving. We don't see that. So, I think, you know, we're watching this very carefully. I think it's not the case that we're just assuming that it's going to be a one-time inflation. We understand fully that this is a risk we have to monitor and ultimately manage.

J

Janelle Marte5:51:14

With a stubborn services inflation, what are some of the things that the Fed could do to address that? And especially when we're seeing potentially labor supply challenges.

J

Jerome Powell5:51:25

Sorry, say the first part.

J

Janelle Marte5:51:27

The stubborn services inflation that you...

J

Jerome Powell5:51:29

Service inflation. Yeah. Well, again, the part of services inflation that isn't coming down as we would like it to is the non-market part of non-housing services. And you know, overall that's just something that we expect will come down. The non-market part of it should come down. It largely reflects higher stock prices and financial services that are imputed rather than actually paid is a big part of that. But also just, you know, we think policy is still modestly restrictive in my telling. So that's the kind of thing that should lead to a gradually cooling economy. That's one of the reasons you see a gradually cooling labor market is because, you know, Fed policy is modestly restrictive. So that should also help get that. I want to say though, we're absolutely committed to returning inflation to 2%. If you look at longer-term surveys or market pricing, you will see that that's a credible commitment and there should be no question that that's where we're going.

C

Chris Rugaber5:52:36

Great. Thank you. Chris Rugaber, Associated Press. So there's a big investment boom in AI infrastructure right now as you know and wondering if the existence of such a boom would indicate that rates are not that restrictive after all and could further rate cuts at this point perhaps fuel an excess level of investment there or market bubbles. How is the Fed thinking about that?

J

Jerome Powell5:53:05

So I don't think that, you're right there are a lot of data centers being built and other investments being made around the country and around the world. And big US companies are just investing a lot of resources in thinking about how AI, which will be based on those data centers, run through those data centers, is going to affect their businesses. So it's a big deal. I don't think that the spending that happens to build data centers all over the country is especially interest-sensitive. It's based on longer-run, you know, longer-run assessments that this is an area where there's going to be a lot of investment and that's going to drive higher productivity and that sort of thing. I don't know how those investments will work out but I don't think they're particularly interest-sensitive compared to some of the other sectors.

C

Chris Rugaber5:54:01

And then just a quick follow-up, you mentioned that you do have data that you're looking at for inflation and growth in the absence of government data. Could you give us a sense? I think we know a lot about the jobs data that's out there. Can you give us a sense of what you're looking at to track inflation in the absence of government data? Thank you.

J

Jerome Powell5:54:16

So it's a lot of things and it doesn't replace government data but you know, all of these, it's, I'll just mention some of the many, many names, PriceStats, Adobe and others. And for wage inflation there's ADP data. On spending, you're going to ask about spending at some point, you know, there are lots of other things that we look at but it's again, it's many different sources and again including what we get out of the beige book which will be sort of come out mid-cycle as always and it doesn't replace the government data but it gives us a picture. Again, I think if something material were happening, if there were material developments, I think we would pick that up. I don't think we'll be able to have the very granular understanding of the economy while this data is not available.

H

Howard Schneider5:55:17

Howard Schneider with Reuters. Thank you. I just wanted you to elaborate a

S

Steve Liesman5:55:21

A little bit on what you said a moment ago about the continued shutdown making it more difficult to make a move in December, and that may make you more cautious to the degree you are relying on private data that isn't the gold standard, or that you're relying on your own surveys or the Beige Book. Do you worry at some point you're going to have to start making policy by anecdote?

J

Jerome Powell5:55:44

You know, this is a temporary state of affairs and, you know, we're going to do our jobs. We're going to collect every scrap of data we can find, evaluate it, and think carefully about it. And that's our job. That's what we're going to do. If you ask me, could it affect the December meeting? I'm not saying it's going to, but yeah, you could imagine that. What do you do when you're driving in the fog? You slow down. So, that could or could not. I don't know how that's going to play into things. We may get the data, it may come back, but there's a possibility that it would make sense to be more cautious about moving. I'm not committing to that. I'm just saying it's certainly a possibility that you would say we really can't see, so let's slow down.

S

Steve Liesman5:56:30

As a follow-up, in the debate in this meeting, we saw recently some pretty big layoff announcements coming from Amazon and others. Wondering if that figured into the discussion at all, that you're starting to see the turn, this tension between growth and employment starting to be resolved, you know, to the detriment of employment. And secondly, some of the stress is starting to appear in the bottom spur of the K, as they call it, household health premiums that are going to be possibly going up quite substantially, things like that. Has that started to become a factor in your policy discussion?

J

Jerome Powell5:57:05

So those are both things, you know, that we're watching very, very carefully. To start with, the layoffs. You're right. You see a significant number of companies either announcing that they are not going to be doing much hiring or actually doing layoffs, and much of the time they're talking about AI and what it can do. So, we're watching that very carefully and, you know, yes, it could absolutely have implications for job creation. We don't really see it in the initial claims data yet. Now, it's not a surprise that we don't. It takes some time for it to get in there, but we're watching that really carefully. But again, don't see it yet in the initial claims data. On the K-shaped economy thing, I would say the same thing or similar thing. If you listen to the earnings calls or the reports of big public consumer-facing companies, many of them are saying that there's a bifurcated economy there and that consumers at the lower end are struggling and buying less and shifting to lower-cost products, but that at the top, people are spending at the higher income and wealth. So you have much anecdotal data on that and so we think there's something there.

E

Edward Lawrence5:58:36

Thank you. Edward Lawrence with Fox Business. So Mr. Chairman, I want to take another crack at the further reduction in rates is not a foregone conclusion. So in December, you said far from it. So if a cut might not be on the table for December because of lack of data, what does the other concern then stem from? So if it's not lack of data as the reason December is not a foregone conclusion, what other things could be the concern then?

J

Jerome Powell5:59:04

Well, the perspectives of people on the committee that, you know, we've now moved 150 basis points and that we're down into, you know, you're into that range between three and four where most estimates, many estimates of the neutral rate live in that 3 to 4% area. You're there now. You're above the median number for the committee, but I think there are people on the committee who have higher estimates of the neutral rate, and that's a, you know, you can argue these positions since it can't be directly observed, the neutral rate. I think for some part of the committee, you know, it's time to maybe take a step back and see whether there really are downside risks to the labor market or see whether in fact the stronger growth that we're seeing is real. Ordinarily the labor market is a better indicator of the momentum of the economy than the spending data. That's the lore. In this case, that gives a more downbeat read. So people just have, you know, there again, we've cut 50 more basis points in the last two meetings and there was a sense like, let's, from some, let's pause here kind of thing, and a sense from others wanting to go ahead. But that's why I say differing views, strongly differing views.

E

Edward Lawrence6:00:31

So on that division then you're talking about going forward. So what's more important in this division? Is it inflation risks? Is it employment risk? Or is there a deeper philosophy division among the board?

J

Jerome Powell6:00:42

I look, everybody on the committee is deeply committed to doing the right thing to achieve our goals: maximum employment and stable prices. You have differences on how to do that. And as I mentioned, some of that is different forecasts, but a lot of it is also different risk aversions to the two different variables, which is common through all Federal Reserves. People just have different risk tolerances, let's say. So that leads you to people with disparate views. You will know that from the speeches you've been listening to from my colleagues. And so we're at a place now where we have in fact cut two more times. And, you know, we're now 150 basis points closer to neutral, wherever that may be, than we were a year ago. And so there's a growing chorus now of feeling like maybe this is where we should at least wait a cycle, something like that. That's what it is. It's just what you think it would be. And again, you've seen it in the September summary of economic projections. You've seen this in the public remarks of FOMC participants and now I'm telling you that's what you can expect in the minutes and I'm just telling you that's what happened in the meeting.

E

Elizabeth Schulze6:01:57

Thank you so much. Elizabeth Schulze with ABC News. What is your explanation for why the job market is weakening right now and what will this rate cut do to improve the job market?

J

Jerome Powell6:02:09

So I think there are two things affecting the job market and one of them is just a dramatic reduction in the supply of new workers. So that's two things: that's declining labor force participation, which is a cyclical thing, and then there's declining immigration, which is just a big policy change that actually began in the last administration and it has been accelerated now. So a big part of the whole story is that supply-side story. In addition, labor demand has declined and, you know, so the unemployment rate has gone down meaning that demand for workers has gone down a little more than supply. So that's what's going on and but it is mostly a supply function, it's mostly a function of the change in supply I think and many people think. So the question then is what does our tool do which supports demand. And I would just say when you're in a situation where job creation, if you adjust for likely overcounting in the way that BLS does its work, is pretty close to zero. So maximum employment doesn't, on a sustainable basis, if you're creating zero jobs, if it's in equilibrium, if it's in balance, it's a pretty, as I said before, a pretty curious balance. So I thought and many of my colleagues thought, in fact you've seen the last two meetings, that it was appropriate for us to react by supporting demand with our rates and we've done that. We've reduced so that rates are looser there. I wouldn't say that they're accommodative right now, but they're meaningfully less tight than they were, and that should help. So that at least the labor market doesn't get worse. So it's a complicated situation. And some people argue that this is supply and we really can't affect it much with our tools, but others argue, as I do, that there is an effect from demand and that we should use our tools to support the labor market when we see this happening.

E

Elizabeth Schulze6:04:20

You also talked about tariffs causing a one-time price increase. Should American households, consumers, expect that inflation will continue to go up this year because of those tariffs?

J

Jerome Powell6:04:30

So, the basic expectation is that there will be some additional increase in inflation because it takes a while for tariffs to work their way through the production chain and finally get to consumers. And we see this now from the tariffs that were put in place now many months ago. We see those effects. But if you put tariffs in effect and they've been coming into effect consistently in, you know, February, March, April, May, and that's all happening. So that'll continue to happen for some time, probably into the spring. These are not big increases, though. These are a tenth or so on inflation. They may be big increases on a particular product that's been tariffed, but overall, these are fairly modest. I think, you know, some projections go we're at 2.8% inflation. You might get two or three more tenths or four more tenths maybe. But then as all the tariffs are in, they stop generating inflation. You've had a one-time price increase. As long as you're not, at least this is the theory. This is how we believe and hope that it will work out. Once the last tariff is put on something, at that point it becomes a higher price level, but it stops going up, if you will. Prices stop going up. They'll just be at that level. And then measured inflation will come back down to non-tariff inflation. As I mentioned, non-tariff inflation is not so far from 2%. Now, consumers are not interested in that story. Their prices are higher. More than that, the reason they're so unhappy about inflation is the inflation that we had in 2021, 2, and 3. Because, you know, you can say that prices aren't going up as much, but that doesn't mean people aren't feeling those higher prices from the inflation we had 2 or 3 years ago. They are. And that's, I think, a large part of why the public, if you sample people, inflation is still very much making people quite unhappy. Even, you know, and it's nice that prices are not going up as fast as they were, but they're still much higher than they were. And it'll take some time for that effect to wear off. As real incomes rise, it will feel better over time, but that's going to take time.

M

Michael McKee6:06:44

Michael McKee from Bloomberg Television and Radio. Do you have any concerns that equity markets are or are close to being overvalued at this point?

J

Jerome Powell6:06:54

You know, we don't look at any one asset price and say, 'Hey, that's wrong.' You know, it's not our job to do that. We look at the overall financial system and we ask whether it's stable and whether it could withstand shocks, right? So, you know, banks are well capitalized. While some households are clearly under stress, in the aggregate, you know, households are in good shape financially, relatively manageable levels of debt. At the lower income spectrum you are seeing rising defaults, particularly around subprime auto, but nonetheless in the aggregate pretty good. And you don't see too much leverage in the banking system or the financial system. It's a mixed picture but it's not an overly troubling picture. And again, it's not appropriate, you know, we don't set asset prices, markets do that.

M

Michael McKee6:07:50

Well, you must be well aware that by lowering interest rates you're contributing to additional asset price increases. And I wonder how you balance the idea that lowering rates would help the labor market with the reality that it seems more likely to be stimulating increased investment in AI, which is the rationale for thousands of job cuts that have been announced in the last few weeks.

J

Jerome Powell6:08:13

Yeah, I don't think interest rates are an important part of the AI, of the data center story. I think, you know, people think they're great economics in building these data centers and they're making a lot of money building them and they think they have very high present value and all that sort of thing. It's not really about, it's not about 25 basis points here or there. You know, we use our tools to support the labor market and to create price stability. That's what we do. That's our two jobs, right? So we're here to, by lowering rates at the margin that will support demand and that will support more hiring and that's why we do it. Now, no 25 basis point or even 50 basis point hike is going to be a dispositive thing but ultimately, you know, lower rates will support more demand and that'll support hiring over time. Now, of course, we also have to be careful about this, which is what we've been doing because we know where inflation is and we know that, you know, I've told you the story. It's a complicated story, but this is the best assessment that we can make. And but, you know, because there's uncertainty around inflation and the path ahead for inflation, that's why the pace we're going has been a careful one.

V

Victoria Guida6:09:37

Hi, Victoria Guida from Politico. On AI, I'm just wondering, you know, it seems like a lot of the economic growth that we've been seeing is fed by investments in AI. So, how worried are you about what a sudden contraction in tech investment would mean for the overall economy? Is there enough strength in other sectors? And, specifically, are there any lessons that you take from the 1990s in how you might approach what's happening right now?

J

Jerome Powell6:10:02

Yeah, this is different in the sense that these companies, the companies that are so highly valued, actually have earnings and stuff like that. So if you go back to the '90s and the dot-com, they were ideas rather than companies and, you know, there's a clear bubble there whereas, you know, I won't go into particular names but they actually have earnings and, you know, it looks like they have business models and profits and that kind of thing. So it's really a different thing. You know, the investment we're getting in equipment and all those things that go into creating data centers and feeding the AI, it's clearly one of the big sources of growth in the economy. Consumer spending also though has been, you know, is much bigger than that and has been growing and has defied a lot of negative forecasts, continuing to do so this year. Consumers are still spending. Now, it may be mostly higher-end consumers or maybe skewed that way, but the consumer is spending and that's a big, big chunk of what's going on in the economy, bigger than, substantially bigger than AI. You can point to the growth, I mean actually, maybe growth as opposed to level, but consumer spending is a much bigger part of the economy.

V

Victoria Guida6:11:21

And why do you think that the labor market is slowing so much even though consumer spending is strong?

J

Jerome Powell6:11:26

Why has it slowed so much? Well, what's happened is that the supply of workers has dropped very, very sharply due to mainly immigration but also lower labor force participation. So, and that means there's less need for new jobs because there isn't this flow into the pool of labor where people need jobs because those people aren't there now. So there's not a supply of workers showing up for jobs. In addition, demand has also gone down and so has labor force participation, which is more of a sign in this case of demand as well as trend. So I think you're seeing some softening. You know, the economy is growing at a slower rate than it was, 2.4% last year. We think around 1.6% this year. It could have been a couple of tenths higher if not for the shutdown. And of course that will reverse, but, you know, you still got the economy growing at a moderate pace.

A

Andrew Ackerman6:12:33

Hey there, Andrew Ackerman with the Washington Post. I wanted to ask if you could elaborate on how you think about policy in the context of the data drought. Does it make you inclined to stick with your plans as set out in September in the absence of the data that might change your mind, or does it make you inclined to proceed with added caution because of uncertainty?

J

Jerome Powell6:12:54

Yeah. Well, we'll know when we face that question, if we face that question. You know, it'll probably be argued both ways, right? But I've said a couple times here that, you know, if you really aren't getting information and you really don't know and the economy looks like it's solid and stable and hasn't really changed, you know, there will be an argument. I don't know how persuasive it will be, but there will be an argument that you slow down when you can't see as far ahead. Others may argue, I mean, I'm not sure where this argument will come, but you're perfectly right that you could also argue, well, things haven't really changed, but you might not know that. So, I don't know whether we'll face this or not. I hope we don't. I hope by the time of the December meeting, we're getting, you know, a better flow of data, but we're going to have to do our jobs one way or the other.

A

Andrew Ackerman6:13:45

Okay. I also just wanted to ask a fin question. I think several years ago, you said the overall amount of capital in the system was about right. As the Fed moves forward with a revised Basel proposal, potentially changes to the G-SIB surcharge, has that changed at all and or are you planning to significantly reduce the amount of capital in the system? Thanks.

J

Jerome Powell6:14:06

So there's discussions going on, I think, among the agencies and I don't want to get ahead of those discussions. I continue to think that the level of capital when I said that in 2020 was about right and of course there's been much capital added since then through various mechanisms. But I, you know, I look forward to, I know those discussions are really just getting going. They haven't come to the point where they've got a whole plan and that kind of thing. So I really don't have much to say on that.

B

Brian Shung6:14:43

Hi Chairman Powell. Brian Shung with NBC News. Is the weakness in the jobs market accelerating and who's at risk if the interest rate cuts are not the effective medicine for a further slowdown in the labor?

J

Jerome Powell6:14:57

So we do not see the weakness, as you put it, the weakness in the job market accelerating. I would say then again we don't have, we didn't get the September employment report, payroll report, but we do get, we look at, you know, the unemployment insurance claims, initial claims are reported at the state level and we still get those and we can accumulate them and get the national number and there's really, I mean, no story, you can look at the numbers. Same thing with the job openings we get from Indeed. There's just no story over the last four weeks. It's kind of stable. So you don't see anything that says that the job market or really any part of the economy is making a significant deterioration. Don't see that. You see more things like I mentioned though which is that, you know, you see big companies making announcements of either layoffs or of the idea that they won't need to hire and their number of employees is not expected to go up over a number of years. There may be different people working there, they say that too, but they don't need a bigger headcount. So you see those kinds of things. You don't see it in the aggregate numbers. The layoff numbers have not gone up, but job creation is very low. And the job finding rate for people who are unemployed is very low. But the unemployment rate is very low as well, 4.3%. Is it a low unemployment rate?

B

Brian Shung6:16:26

So, as you make these cuts, is it the lower income workers that you're thinking about or those who might have their jobs automated? Is there a particular labor market that you're particularly...

J

Jerome Powell6:16:35

So we can't, our tools don't allow us to target any demographic or any income level and that kind of thing. I do think that people, you know, we saw this during the global financial crisis and the long recovery, if you have a long period of very strong labor market conditions, it benefits people at the lower end the most. The last two or three years of that long expansion, people at the lower part of the income spectrum were getting the biggest benefits and lots of things were happening in that space demographically which were very constructive and, you know, we're not at that place right now. But so yeah, you know, I mean, a stronger labor market is the best thing we can do for the public. It's also part of our job, it is half of our job, but it is absolutely the best thing we can do for people, you know, along with keeping prices stable. Those two things, I mean, inflation also hurts people on fixed incomes more than other people.

C

Courtney Brown6:17:38

Hi Chair Powell. Courtney Brown from Axios. As you know, the 12 Reserve Bank presidents' terms are up for renewal at the end of February. I'm wondering if you can give us a timeline for when the board will consider those reappointments and whether we can expect everyone to be re-upped or if we can expect some changes.

J

Jerome Powell6:17:57

So, it's a process that we go through under the law. The way the law works is we have a reappointment process every 5 years for all of the Reserve Banks, each of them and all of them. We're in the middle of that process and we're going to complete it in a timely way and I really, that's really all I can say.

D

Daniel6:18:21

Daniel with France Press. You've now had dissents in three consecutive FOMC meetings, but in this meeting you had dissents going in both directions and you've just mentioned there's strong disagreement over the future path of rate cuts. Have these disagreements complicated your role presiding over the FOMC meetings and if so, how?

J

Jerome Powell6:18:37

I wouldn't say that, no. I think you have to take what comes and what comes right now is a, you know, pretty challenging situation where we have, first of all, we have 4.3% unemployment, we have an economy that's growing close to 2%, so, you know, overall it's a good picture. It's a good picture. But in terms of our policy, we have upside risks to inflation, downside risks to employment, and this is a very difficult thing for a central bank because, you know, one of those calls for rates to be lower, one calls for rates to be higher. We can't do both. So we have to balance the two. And so it's a challenging thing and, you know, as we have worked our way through this process, you would expect that there would be a range of views across the committee on what to do and the speed with which we should do it. And that's what we have. That makes a lot of sense to me. These are all of these people are, you know, people who take their jobs very seriously, work very hard at this and just want to do what's right for the American people but they have different views on what that is. And, you know, it's an honor to work among people who care that much. It is. But I, you know, I don't feel that it's unfair or anything like that. It just, it's a time when we're making quite difficult judgments in real time. And I believe we'll get through this. And I think we've done sort of the right thing so far this year. I think it was appropriate for us to be careful about this. I think it would not be appropriate to just ignore or assume away the inflation issue. At the same time, I think the risk of higher, more persistent inflation has declined significantly since April. And if we do wind up resuming rate cuts at some point, we will at some point. You know, I think we're trying to get to the end of this cycle with a labor market in a good place and with inflation, you know, on its way to 2% or at 2%. So that's all we're trying to do and we're doing it under, you know, quite challenging circumstances and doing the best we can.

J

Jennifer Schonberger6:20:45

Thank you so much, Chair Powell. Jennifer Schonberger with Yahoo Finance. Both regional and large banks have taken losses on loans given delinquencies on subprime auto loans. JP Morgan CEO Jamie Dimon warned, 'When you see one cockroach, there may be more likely.' I'm curious how the Fed's looking at these loan losses and if it poses risks to the financial system or the outlook for the economy. Is it a warning sign?

J

Jerome Powell6:21:11

So, you know, we're obviously, we watch these things very carefully, credit conditions very carefully. You're right. You've seen rising defaults in subprime credit for some time now. And now you've seen a number of subprime credit, automobile credit institutions having significant losses and some of those losses are now showing up on the books of banks. You know, we're looking at it carefully. We're paying close attention. I don't see at this point a broader credit issue. It doesn't seem to be something that has very broad application across financial institutions but, you know, we're going to be monitoring this quite carefully and making sure that that is the case.

J

Jennifer Schonberger6:21:57

And then separately, many, you yourself have said that we're in a bifurcated economy right now with high net worth individuals continuing to spend with a lower income pulling back. How much of consumer spending continuing hinges on the stock market remaining strong? In some odd way, does the market help keep the economy buoyant?

J

Jerome Powell6:22:18

So there is some relationship there, but remember, the more wealth someone has, the lower an additional dollar of wealth matters. So your marginal propensity to consume declines quite dramatically as you reach levels of stock market wealth. So, you know, the stock market, it would affect spending if the stock market went down, but it wouldn't drop sharply unless there were quite a sharp drop in the stock market. People at the lower end of income and wealth have a much higher marginal propensity to consume of an incremental dollar of income or wealth, but they don't have the stock market wealth. So I think it's certainly a factor supporting consumption right now. And you would see it if you saw a material correction in spending, but it wouldn't be, you shouldn't think that it'll, you know, dollar for dollar stop consumption because that wouldn't be the case. Thanks very much.

Good afternoon. My colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people. Although some important federal government data have been delayed due to the shutdown, the public and private sector data that have remained available suggest that the outlook for employment and inflation has not changed much since our meeting in September. Conditions in the labor market appear to be gradually cooling and inflation remains somewhat elevated. In support of our goals and in light of the balance of risks to employment and inflation, today the Federal Open Market Committee decided to lower our policy interest rate by a quarter percentage point. We also decided to conclude the reduction of our aggregate securities holdings as of December 1. I will have more to say about monetary policy after briefly reviewing economic developments. Available indicators suggest that economic activity has been expanding at a moderate pace. GDP rose at a 1.6% pace in the first half of the year, down from 2.4% last year. Data available prior to the shutdown show that growth in economic activity may be on a somewhat firmer trajectory than expected, primarily reflecting stronger consumer spending. Business investment in equipment and intangibles has continued to expand, while activity in the housing sector remains weak. The shutdown of the federal government will weigh on economic activity while it persists, but these effects should reverse after the shutdown ends. In the labor market, the unemployment rate remained relatively low through August. Job gains have slowed significantly since earlier in the year. A good part of the slowing likely reflects a decline in the growth of the labor force due to lower immigration and labor force participation, though labor demand has clearly softened as well. Although official employment data for September are delayed, available evidence suggests that both layoffs and hiring remain low, and that both households' perceptions of job availability and firms' perceptions of hiring difficulty continue to decline. In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months. Inflation has eased significantly from its highs in mid-2022, but remains somewhat elevated relative to our 2% longer-run goal. Estimates based on the consumer price index suggest that total PCE prices rose 2.8% over the 12 months ending in September and that, excluding the volatile food and energy categories, core PCE prices rose 2.8% as well. These readings are higher than earlier in the year as inflation for goods has picked up. In contrast, disinflation appears to be continuing for services. Near-term measures of inflation expectations have moved up on balance over the course of this year on news about tariffs as reflected in both market and survey-based measures. Beyond the next year or two or so, however, most measures of longer-term expectations remain consistent with our 2% inflation goal. Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. At today's meeting, the committee decided to lower the target range for the federal funds rate by a quarter percentage point to 3 and 3/4 to 4%. Higher tariffs are pushing up prices in some categories of goods, resulting in higher overall inflation. A reasonable base case is that the effects on inflation will be relatively short-lived, a one-time shift in the price level. But it is also possible that the inflationary effects could instead be more persistent and that is a risk to be assessed and managed. Our obligation is to ensure that a one-time increase in the price level does not become an ongoing inflation problem. In the near term, risks to inflation are tilted to the upside and risks to employment to the downside. A challenging situation. There is no risk-free path for policy as we navigate this tension between our employment and inflation goals. Our framework calls for us to take a balanced approach in promoting both sides of our dual mandate. With downside risks to employment having increased in recent months, the balance of risks has shifted. Accordingly, we judged it appropriate at this meeting to take another step toward a more neutral policy stance. With today's decision, we remain well positioned to respond in a timely way to potential economic developments. We will continue to determine the appropriate stance of monetary policy based on the incoming data, the evolving outlook, and the balance of risks. We continue to face two-sided risks. In the committee's discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it. Policy is not on a preset course. At today's meeting, the committee also decided to conclude the reduction of our aggregate securities holdings as of December 1. Our long-stated plan has been to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions. Signs have clearly emerged that we have reached that standard. In money markets, repo rates have moved up relative to our administered rates, and we have seen more notable pressures on selected dates along with more use of our standing repo facility. In addition, the effective federal funds rate has begun to move up relative to the rate of interest on reserve balances. These developments are what we expected to see as the size of our balance sheet declined and warrant today's decision to cease runoff. Over the three and a half years that we've been shrinking our balance sheet, our securities holdings have declined by 2.2 trillion. As a share of nominal GDP, our balance sheet has fallen from 35% to about 21%. In December, we'll enter the next phase of our normalization plans by holding the size of our balance sheet steady for a time. While reserve balances continue to move gradually lower as other non-reserve liabilities such as currency keep growing, we will continue to allow agency securities to run off our balance sheet and will reinvest the proceeds from those securities in Treasury bills, furthering progress toward a portfolio consisting primarily of Treasury securities. This reinvestment strategy will also help move the weighted average maturity of our portfolio closer to that of the outstanding stock of Treasury securities, thus furthering the normalization of the composition of our balance sheet. The Fed has been assigned two goals for monetary policy, maximum employment and stable prices. We remain committed to supporting our maximum employment, bringing our inflation sustainably to our 2% goal, and keeping longer-term inflation expectations well anchored. Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals. Thank you. I look forward to your questions.

N

Nick Timmeros6:31:22

Nick Timmeros of the Wall Street Journal. Chair Powell, are you uncomfortable with how market pricing has assumed a rate cut is a foregone conclusion in your next meeting?

J

Jerome Powell6:31:32

Well, as I just mentioned, a further reduction in the policy rate at the December meeting is not a foregone conclusion, as I've just said. So, I would say that that needs to be taken on board. We had, you know, I would just say this, 19 participants on the committee. Everyone works very hard at this and takes their obligations to serve the American people very seriously. And at a time when we have tension between our two goals, we have strong views across the committee. And as I mentioned, there were strongly differing views today and the takeaway from that is that we haven't made a decision about December and, you know, we're going to be looking at the data that we have, how that affects the outlook and the balance of risks. And I'll just say that...

N

Nick Timmeros6:32:17

You and some of your colleagues have framed last month and maybe today, I won't put words in your mouth, as a risk-management exercise. At what point do you conclude that you've taken out enough insurance? Are you looking for some kind of improvement in the outlook or could this unfold along the lines of last year where you made a sequence of adjustments and then waited to gather more information?

J

Jerome Powell6:32:42

So the way we have been thinking, the way I've been thinking about it is the risks to the two goals for a very long time...

...or so on inflation. They may be big increases on 8% inflation. You might get two or three more tenths or four more tenths maybe. But then as all the tariffs are in, they stop generating inflation. You've had a one-time price increase. As long as you're not, at least this is the theory. This is how we believe and hope that it will work out. Once the last tariff is put on something, at that point it becomes a higher price level but it stops going up, if you will, prices stop going up, they'll just be at that level and then measured inflation will come back down to non-tariff inflation. As I mentioned, non-tariff inflation is not so far from 2%. Now, consumers are not interested in that story. Their prices are higher. More than that, the reason they're so unhappy about inflation is the inflation that we had in 2021, 2, and 3. Because, you know, you can say that prices aren't going up as much but that doesn't mean people aren't feeling those higher prices from the inflation we had 2 or 3 years ago. They are. And that's, I think, a large part of why the public, if you sample people, inflation is still very much making people quite unhappy. Even, you know, and it's nice that prices are not going up as fast as they were but they're still much higher than they were. And it'll take some time for that effect to wear off. As real incomes rise, it will feel better over time, but that's going to take time.

M

Michael McKee6:34:50

Michael McKee from Bloomberg Television and Radio. Do you have any concerns that equity markets are or are close to being overvalued at this point?

J

Jerome Powell6:35:00

You know, we don't look at any one asset price and say, 'Hey, that's wrong.' You know, it's not our job to do that. We look at the overall financial system and we ask whether it's stable, whether it could withstand shocks, right? So, you know, banks are well capitalized. While some households are clearly under stress, in the aggregate, you know, households are in good shape financially, relatively manageable levels of debt. At the lower income spectrum you are seeing rising defaults, particularly around subprime auto, but nonetheless in the aggregate pretty good. And you don't see too much leverage in the banking system or the financial system. It's a mixed picture but it's not an overly troubling picture. And again, it's not appropriate, you know, we don't set asset prices, markets do that.

M

Michael McKee6:35:56

Well, you must be well aware that by lowering interest rates you're contributing to additional asset price increases. And I wonder how you balance the idea that lowering rates would help the labor market with the reality that it seems more likely to be stimulating increased investment in AI, which is the rationale for thousands of job cuts that have been announced in the last few weeks.

J

Jerome Powell6:36:20

Yeah, I don't think interest rates are an important part of the AI, of the data center story. I think, you know, people think they're great economics in building these data centers and they're making a lot of money building them and they think they have very high present value and all that sort of thing. It's not really about, it's not about 25 basis points here or there. You know, we use our tools to support the labor market and to create price stability. That's what we do. That's our two jobs, right? So we're here to, by lowering rates at the margin that will support demand and that will support more hiring and that's why we do it. Now, no 25 basis point or even 50 basis point hike is going to be a dispositive thing but ultimately, you know, lower rates will support more demand and that'll support hiring over time. And of course we also have to be careful about this which is what we've been doing because we know where inflation is and we know that, you know, I've told you the story. It's a complicated story but this is the best assessment that we can make. And but, you know, because there's uncertainty around inflation and the path ahead for inflation, that's why the pace we're going has been a careful one.

V

Victoria Guida6:37:43

Hi, Victoria Guida from Politico. On AI, I'm just wondering, you know, it seems like a lot of the economic growth that we've been seeing is fed by investments in AI. So, how worried are you about what a sudden contraction in tech investment would mean for the overall economy? Is there enough strength in other sectors? And, specifically, are there any lessons that you take from the 1990s in how you might approach what's happening right now?

J

Jerome Powell6:38:08

Yeah, this is different in the sense that these companies, the companies that are so highly valued, actually have earnings and stuff like that. So if you go back to the '90s and the dot-com, they were ideas rather than companies and, you know, there's a clear bubble there whereas, you know, I won't go into particular names but they actually have earnings and, you know, it looks like they have business models and profits and that kind of thing. So it's really a different thing. You know, the investment we're getting in equipment and all those things that go into creating data centers and feeding the AI, it's clearly one of the big sources of growth in the economy. Consumer spending also though has been, you know, is much bigger than that and has been growing and has defied a lot of negative forecasts, continuing to do so this year. Consumers are still spending. Now, it may be mostly higher-end consumers or may be skewed that way, but the consumer is spending and that's a big, big chunk of what's going on in the economy, bigger than, substantially bigger than AI. You can point to the growth, I mean actually, maybe growth as opposed to level, but consumer spending is a much bigger part of the economy.

V

Victoria Guida6:39:27

And why do you think that the labor market is slowing so much even though consumer spending is strong?

J

Jerome Powell6:39:32

Why has it slowed so much? Well, what's happened is that the supply of workers has dropped very, very sharply due to mainly immigration but also lower labor force participation. So, and that means there's less need for new jobs because there isn't this flow into the pool of labor where people need jobs because those people aren't there now. So there's not a supply of workers showing up for jobs. In addition, demand has also gone down and so has labor force participation, which is more of a sign in this case of demand as well as trend. So I think you're seeing some softening. You know, the economy is growing at a slower rate than it was, 2.4% last year. We think around 1.6% this year. It could have been a couple of tenths higher if not for the shutdown. And of course that will reverse, but, you know, you still got the economy growing at a moderate pace.

A

Andrew Ackerman6:40:35

Hey there, Andrew Ackerman with the Washington Post. I wanted to ask if you could elaborate on how you think about policy in the context of the data drought. Does it make you inclined to stick with your plans as set out in September in the absence of the data that might change your mind, or does it make you inclined to proceed with added caution because of uncertainty?

J

Jerome Powell6:41:00

Yeah. Well, we'll know when we face that question if we face that question. It'll probably be argued both ways, right? But I've said a couple times here that if you really aren't getting information, you really don't know, and the economy looks like it's solid and stable and hasn't really changed, there will be an argument. I don't know how persuasive it will be, but there will be an argument that you slow down when you can't see as far ahead. Others may argue, I mean, I'm not sure where this argument will come, but you're perfectly right that you could also argue, well, things haven't really changed, but you might not know that. So, I don't know whether we'll face this or not. I hope we don't. I hope by the time of the December meeting, we're getting a better flow of data, but we're going to have to do our jobs one way or the other.

A

Andrew Ackerman6:41:51

Okay. I also just wanted to ask a FINRA question. I think several years ago, you said the overall amount of capital in the system was about right. As the Fed moves forward with a revised Basel proposal, potentially changes to the G-SIB surcharge, has that changed at all and or are you planning to significantly reduce the amount of capital in the system?

J

Jerome Powell6:42:12

So there's discussions going on I think among the agencies and I don't want to get ahead of those discussions. I continue to think that the level of capital when I said that in 2020 was about right and of course there's been much capital added since then through various mechanisms. But I look forward to those discussions. I know those discussions are really just getting going. They haven't come to the point where they've got a whole plan and that kind of thing. So I really don't have much to say on that.

Brian.

B

Brian Chung6:42:50

Hi Chairman Powell. Brian Chung with NBC News. Is the weakness in the jobs market accelerating and who's at risk if the interest rate cuts are not the effective medicine for a further slowdown in the labor market?

J

Jerome Powell6:43:03

So we do not see the weakness as you put it, the weakness in the job market accelerating. I would say then again we didn't get the September employment report, payroll report, but we do get, we look at the unemployment insurance claims, initial claims are reported at the state level and we still get those and we can cumulate them and get the national number and there's really no story, you can look at the numbers. Same thing with the job openings we get from Indeed. There's just no story over the last four weeks. It's kind of stable. So you don't see anything that says that the job market or really any part of the economy is making a significant deterioration. Don't see that. You see more things like I mentioned though, which is that you see big companies making announcements of either layoffs or of the idea that they won't need to hire and their number of employees is not expected to go up over a number of years. There may be different people working there, they say that too, but they don't need a bigger headcount. So you see those kinds of things. You don't see it in the aggregate numbers. The layoff numbers have not gone up, but job creation is very low. And the job finding rate for people who are unemployed is very low. But the unemployment rate is very low as well, 4.3%. It is a low unemployment rate.

B

Brian Chung6:44:32

So, as you make these cuts, is it the lower income workers that you're thinking about or those who might have their jobs automated? Is there a particular labor market that you're particularly...

J

Jerome Powell6:44:41

So we can't, our tools don't allow us to target any demographic or any income level and that kind of thing. I do think that people, you know, we saw this during the global financial crisis and the long recovery, if you have a long period of very strong labor market conditions it benefits people at the lower end the most. The last two or three years of that long expansion, people at the lower part of the income spectrum were getting the biggest benefits and lots of things were happening in that space demographically which were very constructive. And we're not at that place right now but so yeah, you know, a stronger labor market is the best thing we can do for the public, it's also part of our job, it is half of our job. But it is absolutely the best thing we can do for people, along with keeping prices stable. Those two things, I mean inflation also hurts people on fixed incomes more than other people.

Courtney.

C

Courtney Brown6:45:44

Hi Chairman Powell. Courtney Brown from Axios. As you know the 12 Reserve Bank presidents' terms are up for renewal at the end of February. I'm wondering if you can give us a timeline for when the board will consider those reappointments and whether we can expect everyone to be re-upped or if we can expect some changes.

J

Jerome Powell6:46:03

So, it's a process that we go through under the law. The way the law works is we have a reappointment process every 5 years for each of them and all of them. We're in the middle of that process and we're going to complete it in a timely way and that's really all I can say.

C

Courtney Brown6:46:21

Okay. Thank you.

J

Jerome Powell6:46:23

Daniel.

D

Daniel Levis6:46:28

Daniel Levis, Agence France-Presse. You've now had dissents in three consecutive FOMC meetings but in this meeting you had dissents going in both directions and you've just mentioned there's strong disagreement over the future path of rate cuts. Have these disagreements complicated your role presiding over the FOMC meetings and if so how?

J

Jerome Powell6:46:43

I wouldn't say that, no. I think you have to take what comes and what comes right now is a pretty challenging situation where we have, first of all, we have 4.3% unemployment, we have an economy that's growing close to 2% so overall it's a good picture. But in terms of our policy, we have upside risks to inflation, downside risks to employment and this is a very difficult thing for a central bank because one of those calls for rates to be lower, one calls for rates to be higher, we can't do both. So we have to balance the two and so it's a challenging thing. And as we have worked our way through this process, you would expect that there would be a range of views across the committee on what to do and the speed with which we should do it and that's what we have. That makes a lot of sense to me. These are all people who take their jobs very seriously, work very hard at this and just want to do what's right for the American people but they have different views on what that is. And it's an honor to work among people who care that much. It is, but I don't feel that it's unfair or anything like that. It's just a time when we're making quite difficult judgments in real time. And I believe we'll get through this. And I think we've done sort of the right thing so far this year. I think it was appropriate for us to be careful about this. I think it would not be appropriate to just ignore or assume away the inflation issue. At the same time, I think the risk of higher, more persistent inflation has declined significantly since April. And if we do wind up resuming rate cuts at some point, we will at some point. I think we're trying to get to the end of this cycle with the labor market in a good place and with inflation on its way to 2% or at 2%. So that's all we're trying to do and we're doing it under quite challenging circumstances and doing the best we can.

We'll go to Jennifer for the last.

J

Jennifer Schonberger6:48:51

Thank you so much, Chair. Jennifer Schonberger with Yahoo Finance. Both regional and large banks have taken losses on loans given delinquencies on subprime auto loans. JP Morgan CEO Jamie Dimon warned, 'When you see one cockroach, there may be more likely.' I'm curious how the Fed is looking at these loan losses and if it poses risks to the financial system or the outlook for the economy. Is it a warning sign?

J

Jerome Powell6:49:17

So, you know, we're obviously we watch these things very carefully, credit conditions very carefully. You're right. You've seen rising defaults in subprime credit for some time now. And now you've seen a number of subprime credit, automobile credit institutions having significant losses and some of those losses are now showing up on the books of banks. We're looking at it carefully. We're paying close attention. I don't see at this point a broader credit issue. It doesn't seem to be something that has very broad application across financial institutions, but we're going to be monitoring this quite carefully and making sure that that is the case.

J

Jennifer Schonberger6:50:04

And then separately, many, you yourself have said that we're in a bifurcated economy right now with high net worth individuals continuing to spend with the lower income pulling back. How much of consumer spending continuing hinges on the stock market remaining strong? In some odd way, does the market help keep the economy buoyant?

J

Jerome Powell6:50:24

So there is some relationship there, but remember the more wealth someone has, the lower an additional dollar of wealth matters. So your marginal propensity to consume declines quite dramatically as you reach levels of stock market wealth. So, the stock market, it would affect spending if the stock market went down, but it wouldn't drop sharply unless there were quite a sharp drop in the stock market. People at the lower end of income and wealth have a much higher marginal propensity to consume of an incremental dollar of income or wealth, but they don't have the stock market wealth. So, I think it's certainly a factor supporting consumption right now. And you would see it if you saw a material correction in spending but it wouldn't be, you shouldn't think that it'll dollar for dollar stop consumption because that wouldn't be the case. Thanks very much.

Good afternoon. My colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people. Although some important federal government data have been delayed due to the shutdown, the public and private sector data that have remained available suggest that the outlook for employment and inflation has not changed much since our meeting in September. Conditions in the labor market appear to be gradually cooling and inflation remains somewhat elevated. In support of our goals and in light of the balance of risks to employment and inflation, today the Federal Open Market Committee decided to lower our policy interest rate by a quarter percentage point. We also decided to conclude the reduction of our aggregate securities holdings as of December 1. I will have more to say about monetary policy after briefly reviewing economic developments. Available indicators suggest that economic activity has been expanding at a moderate pace. GDP rose at a 1.6% pace in the first half of the year, down from 2.4% last year. Data available prior to the shutdown show that growth in economic activity may be on a somewhat firmer trajectory than expected, primarily reflecting stronger consumer spending. Business investment in equipment and intangibles has continued to expand, while activity in the housing sector remains weak. The shutdown of the federal government will weigh on economic activity while it persists, but these effects should reverse after the shutdown ends. In the labor market, the unemployment rate remained relatively low through August. Job gains have slowed significantly since earlier in the year. A good part of the slowing likely reflects a decline in the growth of the labor force due to lower immigration and labor force participation. Though labor demand has clearly softened as well. Although official employment data for September are delayed, available evidence suggests that both layoffs and hiring remain low and that both households' perceptions of job availability and firms' perceptions of hiring difficulty continue to decline. In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months. Inflation has eased significantly from its highs in mid-2022, but remains somewhat elevated relative to our 2% longer-run goal. Estimates based on the consumer price index suggest that total PCE prices rose 2.8% over the 12 months ending in September and that excluding the volatile food and energy categories, core PCE prices rose 2.8% as well. These readings are higher than earlier in the year as inflation for goods has picked up. In contrast, disinflation appears to be continuing for services. Near-term measures of inflation expectations have moved up on balance over the course of this year on news about tariffs as reflected in both market and survey-based measures. Beyond the next year or two or so, however, most measures of longer-term expectations remain consistent with our 2% inflation goal. Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. At today's meeting, the committee decided to lower the target range for the federal funds rate by a quarter percentage point to 3 and 3/4 to 4%. Higher tariffs are pushing up prices in some categories of goods, resulting in higher overall inflation. A reasonable base case is that the effects on inflation will be relatively short-lived, a one-time shift in the price level. But it is also possible that the inflationary effects could instead be more persistent and that is a risk to be assessed and managed. Our obligation is to ensure that a one-time increase in the price level does not become an ongoing inflation problem. In the near term, risks to inflation are tilted to the upside and risks to employment to the downside. A challenging situation. There is no risk-free path for policy as we navigate this tension between our employment and inflation goals. Our framework calls for us to take a balanced approach in promoting both sides of our dual mandate. With downside risks to employment having increased in recent months, the balance of risks has shifted. Accordingly, we judged it appropriate at this meeting to take another step toward a more neutral policy stance. With today's decision, we remain well positioned to respond in a timely way to potential economic developments. We will continue to determine the appropriate stance of monetary policy based on the incoming data, the evolving outlook, and the balance of risks. We continue to face two-sided risks. In the committee's discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it. Policy is not on a preset course. At today's meeting, the committee also decided to conclude the reduction of our aggregate securities holdings as of December 1. Our long-stated plan has been to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions. Signs have clearly emerged that we have reached that standard. In money markets, repo rates have moved up relative to our administered rates, and we have seen more notable pressures on selected dates along with more use of our standing repo facility. In addition, the effective federal funds rate has begun to move up relative to the rate of interest on reserve balances. These developments are what we expected to see as the size of our balance sheet declined and warrant today's decision to cease runoff. Over the three and a half years that we've been shrinking our balance sheet, our securities holdings have declined by $2.2 trillion. As a share of nominal GDP, our balance sheet has fallen from 35% to about 21%. In December, we'll enter the next phase of our normalization plans by holding the size of our balance sheet steady for a time while reserve balances continue to move gradually lower as other non-reserve liabilities such as currency keep growing. We will continue to allow agency securities to run off our balance sheet and will reinvest the proceeds from those securities in Treasury bills, furthering progress toward a portfolio consisting primarily of Treasury securities. This reinvestment strategy will also help move the weighted average maturity of our portfolio closer to that of the outstanding stock of Treasury securities, thus furthering the normalization of the composition of our balance sheet. The Fed has been assigned two goals for monetary policy, maximum employment and stable prices. We remain committed to supporting our maximum employment, bringing our inflation sustainably to our 2% goal, and keeping longer-term inflation expectations well anchored. Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals. Thank you. I look forward to your questions.

N

Nick Timmeros6:59:32

Nick Timmeros of the Wall Street Journal. Chair Powell, are you uncomfortable with how market pricing has assumed a rate cut is a foregone conclusion in your next meeting?

J

Jerome Powell6:59:41

Well, as I just mentioned, a further reduction in the policy rate at the December meeting is not a foregone conclusion as I've just said. So, I would say that that needs to be taken on board. We had, you know, I would just say this, 19 participants on the committee. Everyone works very hard at this and takes their obligations to serve the American people very seriously. And at a time when we have tension between our two goals, we have strong views across the committee and as I mentioned there were strongly differing views today and the takeaway from that is that we haven't made a decision about December and we're going to be looking at the data that we have, how that affects the outlook and the balance of risks and I'll just say that.

N

Nick Timmeros7:00:26

You and some of your colleagues have framed last month and maybe today, I won't put words in your mouth, there's a risk management exercise. At what point do you conclude that you've taken out enough insurance? Are you looking for some kind of improvement in the outlook or could this unfold along the lines of last year where you made a sequence of adjustments and then waited to gather more information?

J

Jerome Powell7:00:50

So the way we have been thinking, the way I've been thinking about it is the risks to the two goals, for a very long time the risk was clearly of higher inflation and then that has changed now. And as we saw, particularly after we saw after the July meeting, we saw the downward revisions in job creation, we saw a very different picture of the labor market and suggested that there were higher downside risks to the labor market than we had thought and that suggested that policy which we had been holding at a, I would say modestly, others would say moderately restrictive level needed to move more in the direction over time of neutral. If the two goals are sort of equally at risk then you ought to be at neutral because one of them's calling for you to hike and one of them is calling for you to cut. So if that got back into balance then you'd want to be roughly at neutral. So in that sense it was a risk management. And I would say the same about today, sort of the same logic but as I mentioned going forward is a different thing.

Claire.

C

Claire Jones7:02:00

Claire Jones, Financial Times. Thank you for taking this question. We've just heard from you that the discussion in December and the conclusion of the discussion is not a foregone conclusion. I'd like to just dig into that a little bit more about what sort of arguments were brought up. Was there any consideration for instance of the investment we're seeing in AI and some of the generation of household wealth through rises in stock prices related to the AI boom?

J

Jerome Powell7:02:34

You know, I wouldn't say that's a factor in everyone's assessment of the economy. I wouldn't say it's the driving factor, I don't think, for anybody. You know, I guess I would say it this way. Once again, I would just point out that we have the situation where the risks are to the upside for inflation and to the downside for employment. We have one tool. You can't do both of those. You can't address both of those at once. You've got a very different situation. So, you have some people, people have different forecasts, right? So they'll forecast faster or slower progress on one or the other. And they also have different levels of risk aversion and people, some will be more averse to inflation overruns and some will be more averse to underruns of employment. And so you put that together and as you can see from the SEP and from the public discussion that goes on between the meetings when participants go out and talk, they're very disparate views and they were reflected in strongly differing views in today's meeting as I pointed out in my remarks and that's what leads me to say that we haven't made a decision about December. You know, I always say that it's a fact that we don't make decisions in advance, but this is, I'm saying something in addition here is that it's not to be seen as a foregone conclusion. In fact, far from it.

C

Claire Jones7:03:52

Can I just ask a quick follow up on QT? How much of the fund impressions we've seen in money markets are related to the US Treasury issuing more short-term debt?

J

Jerome Powell7:04:01

You know, that could be one of the factors, but the reality is we've seen, you know, the things that we've seen, higher repo rates and federal funds rate moving up. These are the very things that we look for. We actually have a framework for looking at, you know, what the place we're trying to reach. What we said for a long time now is that when we feel like we're a little bit or a bit above what we consider a level that's ample that we would freeze the size of the balance sheet. Of course, reserves will continue to decline from that point forward as non-reserve liabilities grow. So, this happened, some things have been happening for some time now, showing a gradual tightening in money market conditions. Really, in the last, call it 3 weeks or so, you've seen more significant tightening and I think a clear assessment that we're at that place. The other thing is, you know, the balance sheet is shrinking at a very, very slow pace now. We've reduced it by half twice. And so there's not a lot of benefit to be holding on for to get the last few dollars because again the reserves are going to continue to shrink as non-reserves grow. So, there was support on the committee as we thought about it to go ahead with this and announce effective December 1 that we will be freezing the size of the balance sheet and that the December 1 date gives the markets a little bit of time to adapt.

Colby.

C

Colby Smith7:05:34

Thank you. Colby Smith with the New York Times. So much of the rationale for cutting interest rates even as inflation moves away from the 2% target seems to be that there are these mounting downside risks to the labor market. But if those don't materialize and the labor market either stabilizes around current employment levels or even starts to strengthen somewhat, how would that change your perception of how much interest rates need to fall from here? Would you then be a bit more concerned about underlying inflation and the possibility of second round effects from tariffs?

J

Jerome Powell7:06:05

Yeah. I mean, in principle, if you were to see data that suggested the labor market strengthening or even that it's stabilizing, that would certainly play into our decisions going forward. So, and we do have, you know, we get some data. The labor market is a place where we get, for example, we get the state level data on initial claims which are sending sort of a signal of more of the same. We also get job openings and we'll get lots of survey data. We'll get the Beige Book and things like that. So, we'll have a picture of what's going on in the labor market. And the fact that we're not seeing an uptick in claims or a downtick really in openings suggests that you're seeing maybe continued very gradual cooling, but nothing more than that. So that does give you some comfort.

C

Colby Smith7:06:51

But if this shutdown lasts a while longer and you don't have that data in hand, I'm just wondering how that hinders the committee's ability to assess the state of the labor market and make the right policy decisions and also how much is that factoring into the debate about December.

J

Jerome Powell7:07:06

Yeah. So, you know, we get like I mentioned what we get in the labor area. We get some data in inflation, some data in economic activity. And we'll have a picture of what's going on. We also will have the Beige Book. Again, I would say we're not going to be able to have the detailed feel of things, but I think if there were a significant or material change in the economy one way or another, I think we'd pick that up through this. So, in terms of how it might affect December, it's really hard to say. December's, you know, the meeting is I guess 6 weeks away. We just don't know what we're going to get. If there is a very high level of uncertainty then that could be an argument in favor of caution about moving but we'll have to see how it unfolds.

Steve.

S

Steve Liesman7:08:01

Steve Liesman, CNBC. Mr. Chairman can you characterize the meeting in terms of, you said strongly differing views, was this a close call this cut or was it a close call maybe the other way because you had dissents on both sides?

J

Jerome Powell7:08:14

So I was referring to the discussion about, to the extent it related to December. You saw we had two dissents, one for 50 and one for no cut. So that was a strong solid vote in favor of this cut. The strongly differing views were really about the future. What does that look like? And I think people are saying, you know, they're noticing stronger economic activity. Forecasters generally broadly have raised their economic growth forecast for this year and next year in some cases quite materially. In the meantime, we see a labor market that's kind of, I don't want to say stable, but it's not clearly in motion. It's not clearly declining quickly. In any case, it may be just continuing to gradually cool. And again, people have different forecasts and expectations about the economy and different risk tolerances. And so there's, you know, you read the SEP, you read the speeches, there are different views on the committee and to the point where I said what I said.

S

Steve Liesman7:09:21

And just to follow up on the balance sheet, if you stop the runoff now, does that mean you have to go back to actually adding assets sometime next year so that the balance sheet doesn't shrink as a percentage of GDP and become a tightening factor?

J

Jerome Powell7:09:37

So, you're right, the place we'll be on December 1 is that the size of the balance sheet is frozen. And as mortgage-backed securities mature, we'll reinvest those in Treasury bills, which will foster both a more Treasury balance sheet and also a shorter duration. So that's what, in the meantime, if you freeze the size of the balance sheet, the non-reserve liabilities, currency for example, they're going to continue to grow organically. And because the size of the balance sheet is frozen, you have further shrinkage in reserves. And reserves is the thing that we're managing that has to be ample. So that'll happen for a time but not a tremendously long time. We don't know exactly how long but at a certain point you'll want to start reserves to start gradually growing to keep up with the size of the banking system and the size of the economy. So we'll be adding reserves at a certain point and that's the last point. Even then we'll be, we didn't make decisions about this today but we did talk today about the composition of the balance sheet and there's a desire that the balance sheet be, right now it's got a lot more duration than the outstanding universe of Treasury securities and we want to move to a place where we're closer to that duration. That'll take some time. We haven't made a decision about the ultimate end point, but we all agree that we want to move more in the direction of a balance sheet that more closely reflects the outstanding Treasuries, and that means a shorter duration balance sheet. Now, this is something that's going to take a long time and move very, very gradually. I don't think you'll notice it in market conditions, but that's the direction of things.

Janelle.

J

Janelle Marte7:11:22

Janelle Marte with Bloomberg. How are officials interpreting the latest CPI report? So some components came in lower than expected but core inflation was still at 3%. So at this moment, what are you learning about the drivers and also do you view that the risks are greater that the Fed makes a mistake on employment or inflation?

J

Jerome Powell7:11:46

So okay so the September CPI report, we didn't get PPI after that which is important for translation into what we look at which is PCE inflation but we can still make a pretty good assessment of what that will be. When we get PPI there might be some adjustments but so directionally it was a little softer than expected and we always break it down into the three components. So basically you've seen goods prices increasing and that's really due to tariffs and that's in compared to a longer run trend of very, very mild deflation in goods. So that's moving inflation up. On the other side of that, good news that housing services inflation has been coming down and is expected to continue to come down. So if you remember a couple years ago that's the one that we kept expecting it to do that. Now, it's been doing that for some time and we expect to continue that. That leaves the biggest category is services other than housing services and that's kind of been moving sideways over the last few months. But a significant part of that is non-market services and we don't take a lot of signal about the tightness of the economy from that. So, if you add all that up, a couple things to say. One is that inflation away from tariffs is actually not so far from our 2% goal. We estimate, people have different estimates of what that is, but it might be, you know, five or six tenths. And so that, if it's 2.8, then core PCE not including tariffs might be 2.3 or 2.4 in that range, something like that. So that's not so far from your goal. So we look at that and the thing about tariff inflation is the base case is that it will come and it probably will increase further but it is that it will be a one-time increase. And we've been very focused for all of this year at making sure that that's the case and thinking carefully about what are the pathways through which it could become something else, troublesome inflation. One of those would be a really tight labor market. We don't see that. Another could be inflation expectations moving. We don't see that. So, I think we're watching this very carefully. I think it's not the case that we're just assuming that it's going to be a one-time inflation. We understand fully that this is a risk we have to monitor and ultimately manage.

J

Janelle Marte7:14:16

With the stubborn services inflation, what are some of the things that the Fed could do to address that? And especially when we're seeing potentially labor supply challenges.

J

Jerome Powell7:14:28

Sorry, say the first...

J

Janelle Marte7:14:29

The stubborn services inflation that you mentioned.

J

Jerome Powell7:14:32

Service inflation. Yeah. Well, again, the part of services inflation that isn't coming down as we would like it to is the non-market part of non-housing services. And overall that's just something that we expect will come down. The non-market part of it should come down. It largely reflects higher stock prices and financial services that are imputed rather than actually paid is a big part of that. But also just we think policy is still modestly restrictive in my telling. So that's the kind of thing that should lead to a gradually cooling economy. That's one of the reasons you see a gradually cooling labor market is because Fed policy is modestly restrictive. So that should also help get that. I want to say though, we're absolutely committed to returning inflation to 2%. If you look at longer-term surveys or market pricing, you will see that that's a credible commitment and there should be no question that that's where we're going.

Chris.

C

Chris Rugaber7:15:42

Great. Thank you. Chris Rugaber, Associated Press. So there's a big investment boom in AI infrastructure right now as you know and wondering if the existence of such a boom would indicate that rates are not that restrictive after all and could further rate cuts at this point perhaps fuel an excess level of investment there or market bubbles. How is the Fed thinking about that?

J

Jerome Powell7:16:07

So I don't think that the, you're right there are a lot of data centers being built and other investments being made around the country and around the world. And big US companies are just investing a lot of resources in thinking about how AI which will be based on those data centers, run through those data centers, is going to affect their businesses. So it's a big deal. I don't think that the spending that happens to build data centers all over the country is especially interest sensitive. It's based on longer run assessments that this is an area where there's going to be a lot of investment and that's going to drive higher productivity and that sort of thing. I don't know how those investments will work out but I don't think they're particularly interest sensitive compared to some of the other sectors.

C

Chris Rugaber7:17:02

And then just a quick follow-up, can you, you mentioned that you do have data that you're looking at for inflation and growth in the absence of government data. Could you give us a sense, I think we know a lot about the jobs data that's out there. Can you give us a sense of what you're looking at to track inflation in the absence of government data?

J

Jerome Powell7:17:20

So it's a lot of things and it doesn't replace government data, but you know, all of these, it's, I'll just mention some of the many, many names, PriceStats, Adobe and others. And for wage inflation, there's ADP data. On spending, you're going to ask about spending at some point. You know, there are lots of other things that we look at, but it's again, it's many different sources and again, including what we get out of the Beige Book, which will be sort of come out mid-cycle as always. And it doesn't replace the government data, but it gives us a picture. Again, I think if something material were happening, if there were material developments, I think we would pick that up. I don't think we'll be able to have the very granular understanding of the economy while this data is not available.

Howard.

H

Howard Schneider7:18:20

Howard Schneider with Reuters. Thank you. I just want you to elaborate a little bit on what you said a moment ago about the lack, a continued shutdown making it more difficult to make a move in December and that may make you more cautious. To the degree you are relying on private data that isn't the gold standard or that you're relying on your own surveys or the Beige Book, do you worry at some point you're going to have to start making policy by anecdote?

J

Jerome Powell7:18:46

You know this is a temporary state of affairs and we're going to do our jobs. We're going to collect every scrap of data we can find, evaluate it, and think carefully about it. And that's our job. So, that's what we're going to do. If you ask me, could it affect the December meeting? I'm not saying it's going to, but yeah, you could imagine that, what do you do when you're driving in the fog? You slow down. So, that could or could not. I don't know how that's going to play into things. We may get the data may come back, but there's a possibility that it would make sense to be more cautious about moving. I'm not committing to that. I'm just saying it's certainly a possibility that you would say we really can't see, so let's slow down.

H

Howard Schneider7:19:32

As a follow-up in the debate on this meeting, we saw recently some pretty big layoff announcements coming from Amazon and others. Wondering if that figured into the discussion at all that you're starting to see the turn, this tension between growth and employment starting to be resolved to the detriment of employment. And secondly, some of the stress is starting to appear in the bottom spur of the K as they call it, household health premiums that are going to be possibly going up quite substantially, things like that. Has that started to become a factor in your policy discussion?

J

Jerome Powell7:20:06

So those are both things that we're watching very, very carefully. To start with the layoffs. You're right. You see a significant number of companies either announcing that they are not going to be doing much hiring or actually doing layoffs and much of the time they're talking about AI and what it can do. So, we're watching that very carefully and yes, it could absolutely have implications for job creation. We don't really see it in the initial claims data yet. Now, it's not a surprise that we don't. It takes some time for it to get in there, but we're watching that really carefully. But again, don't see it yet in the initial claims data. On the K-shaped economy thing, I would say the same thing or similar thing. We are, if you listen to the earnings calls or the reports of big public consumer-facing companies many of them are saying that there's a bifurcated economy there and that consumers at the lower end are struggling and buying less and shifting to lower cost products but that at the top people are spending at the higher income and wealth. And there you have so much anecdotal data on that and so we think there's something there.

Edward.

E

Edward Lawrence7:21:39

Thank you. Edward Lawrence with Fox Business. So Mr. Chairman, I want to take another crack at the further reduction in rates is not a foregone conclusion. So in December, you said far from it. So if a cut might not be on the table for December because of lack of data, what does the other concerns then stem from? So if it's not lack of data as the reason December is not a foregone conclusion, what other things could be the concern then?

J

Jerome Powell7:22:06

Well, perspectives of people on the committee that we've now moved 150 basis points and that we're down into, you know, you're into that range between three and four where most estimates, many estimates of the neutral rate live in that 3 to 4% area. You're there now. You're above the median number for the committee, but I think there are people on the committee who have higher estimates of the neutral rate and that's a, you know, you can argue these positions since it can't be directly observed, the neutral rate. So, I think for some part of the committee, it's time to maybe take a step back and see whether there really are downside risks to the labor market or see whether in fact the stronger growth that we're seeing is real. Ordinarily the labor market is a better indicator of the momentum of the economy than the spending data. That's the lore, in this case that gives a more downbeat read. So people just have, you know, there again we've cut 50 more basis points in the last two meetings and there's a sense like let's, from some, let's pause here kind of thing and a sense from others wanting to go ahead but that's why I say differing views, strongly differing views.

E

Edward Lawrence7:23:32

So on that division then you're talking about going forward. So what's more important in this division? Is it inflation risks? Is it employment risk? Or is there a deeper philosophy division among the board?

J

Jerome Powell7:23:44

I look, everybody on the committee is deeply committed to doing the right thing to achieve our goals, maximum employment and stable prices. You have differences on how to do that and as I mentioned some of that is different forecasts but a lot of it is also different risk aversions to different variables which is common through all Federal Reserves. People just have different risk tolerances let's say. So that leads you to people with disparate views. You will know that from the speeches you've been listening to from my colleagues. And so we're at a place now where we have in fact cut two more times. And we're now 150 basis points closer to neutral, wherever that may be, than we were a year ago. And so there's a growing chorus now of feeling like maybe this is where we should at least wait a cycle, something like that. That's what it is. It's just what you think it would be. And again, you've seen it in the September summary of economic projections. You've seen this in the public remarks of FOMC participants.

And now I'm telling you that's what you can expect in the minutes, and I'm just telling you that's what happened in the meeting.

E

Elizabeth Schulze7:25:00

Thank you so much. Elizabeth Schulze with ABC News. What is your explanation for why the job market is weakening right now, and what will this rate cut do to improve the job market?

J

Jerome Powell7:25:11

I think there are two things affecting the job market. One is a dramatic reduction in the supply of new workers. That's declining labor force participation, which is a cyclical thing, and then there's declining immigration, which is a big policy change that began in the last administration and has been accelerated now. So a big part of the whole story is that supply side story. In addition, labor demand has declined, and the unemployment rate has gone down, meaning that demand for workers has gone down a little more than supply. So that's what's going on, but it is mostly a supply function, mostly a function of the change in supply, I think, and many people think. So the question then is, what does our tool do, which supports demand? I would just say when you're in a situation where job creation, if you adjust for likely overcounting in the way that BLS does its work, is pretty close to zero. So maximum employment doesn't, on a sustainable basis, if you're creating zero jobs, if it's in equilibrium, if it's in balance, it's a pretty curious balance. So I thought, and many of my colleagues thought, in fact, you've seen the last two meetings, that it was appropriate for us to react by supporting demand with our rates, and we've done that. We've reduced so that rates are looser. I wouldn't say that they're accommodative right now, but they're meaningfully less tight than they were. And that should help so that at least the labor market doesn't get worse. So it's a complicated situation. And some people argue that this is supply and we really can't affect it much with our tools, but others argue, as I do, that there is an effect from demand and that we should use our tools to support the labor market when we see this happening.

E

Elizabeth Schulze7:27:22

You also talked about tariffs causing a one-time price increase. Should American households and consumers expect that inflation will continue to go up this year because of those tariffs?

J

Jerome Powell7:27:32

So the basic expectation is that there will be some additional increased inflation because it takes a while for tariffs to work their way through the production chain and finally get to consumers. And we see this now from the tariffs that were put in place many months ago. We see those effects. But if you put tariffs in effect, and they've been coming into effect consistently in February, March, April, May, and that's all happening, so that'll continue to happen for some time, probably into the spring. These are not big increases though. These are a tenth or so on inflation. They may be big increases on a particular product that's been tariffed, but overall these are fairly modest. I think some projections go we're at 2.8% inflation. You might get two or three more tenths or four more tenths maybe. But then as all the tariffs are in, they stop generating inflation. You've had a one-time price increase. As long as you're not, at least this is the theory, this is how we believe and hope that it will work out. Once the last tariff is put on something, at that point it becomes a higher price level, but it stops going up, if you will. Prices stop going up. They'll just be at that level, and then measured inflation will come back down to non-tariff inflation. As I mentioned, non-tariff inflation is not so far from 2%. Now, consumers are not interested in that story. Their prices are higher. More than that, the reason they're so unhappy about inflation is the inflation that we had in 2021, 22, and 23. Because you can say that prices aren't going up as much, but that doesn't mean people aren't feeling those higher prices from the inflation we had two or three years ago. They are. And that's, I think, a large part of why the public views inflation as still very much making people quite unhappy. It's nice that prices are not going up as fast as they were, but they're still much higher than they were. And it'll take some time for that effect to wear off. As real incomes rise, it will feel better over time, but that's going to take time.

M

Michael McKee7:29:46

Michael McKee from Bloomberg Television and Radio. Do you have any concerns that equity markets are or are close to being overvalued at this point?

J

Jerome Powell7:29:57

You know, we don't look at any one asset price and say, 'Hey, that's wrong.' It's not our job to do that. We look at the overall financial system and we ask whether it's stable and whether it could withstand shocks. So banks are well capitalized. While some households are clearly under stress, in the aggregate, households are in good shape financially, relatively manageable levels of debt. At the lower income spectrum, you are seeing rising defaults, particularly around subprime auto, but nonetheless in the aggregate, pretty good. And you don't see too much leverage in the banking system or the financial system. It's a mixed picture but it's not an overly troubling picture. And again, it's not appropriate. We don't set asset prices, markets do that.

M

Michael McKee7:30:54

Well, you must be well aware by lowering interest rates you're contributing to additional asset price increases. And I wonder how you balance the idea that lowering rates would help the labor market with the reality that it seems more likely to be stimulating increased investment in AI, which is the rationale for thousands of job cuts that have been announced in the last few weeks.

J

Jerome Powell7:31:16

Yeah, I don't think interest rates are an important part of the AI data center story. I think people think there's great economics in building these data centers and they're making a lot of money building them and they think they have very high present value and all that sort of thing. It's not really about 25 basis points here or there. We use our tools to support the labor market and to create price stability. That's what we do. That's our two jobs. So we're here to, by lowering rates at the margin, support demand and that will support more hiring and that's why we do it. Now, no 25 basis point or even 50 basis point hike is going to be this positive thing, but ultimately lower rates will support more demand and that'll support hiring over time. And of course we also have to be careful about this, which is what we've been doing, because we know where inflation is and we know that I've told you the story. It's a complicated story but this is the best assessment that we can make. And because there's uncertainty around inflation and the path ahead for inflation, that's why the pace we're going has been a careful one.

V

Victoria Guida7:32:35

Hi, Victoria Guida from Politico. On AI, I'm just wondering, it seems like a lot of the economic growth that we've been seeing is fed by investments in AI. So, how worried are you about what a sudden contraction in tech investment would mean for the overall economy? Is there enough strength in other sectors? And specifically, are there any lessons that you take from the 1990s in how you might approach what's happening right now?

J

Jerome Powell7:33:05

Yeah, this is different in the sense that these companies, the companies that are so highly valued, actually have earnings and stuff like that. So if you go back to the 90s and the dotcom, they were ideas rather than companies, and so there was a clear bubble there, whereas the, I won't go into particular names, but they actually have earnings and it looks like they have business models and profits and that kind of thing. So it's really a different thing. The investment we're getting in equipment and in all those things that go into creating data centers and feeding the AI, it's clearly one of the big sources of growth in the economy. Consumer spending also though has been, is much bigger than that and has been growing and has defied a lot of negative forecasts, continuing to do so this year. Consumers are still spending. Now it may be mostly higher-end consumers or may be skewed that way, but the consumer is spending and that's a big chunk of what's going on in the economy, substantially bigger than AI. You could point to growth, but consumer spending is a much bigger part of the economy.

V

Victoria Guida7:34:23

And why do you think that the labor market is slowing so much even though consumer spending is strong?

J

Jerome Powell7:34:28

Why has it slowed so much? Well, what's happened is that the supply of workers has dropped very, very sharply due to mainly immigration but also lower labor force participation. So that means there's less need for new jobs because there isn't this flow into the pool of labor where people need jobs, because those people aren't there now. So there's not a supply of workers showing up for jobs. In addition, demand has also gone down, and labor force participation has declined, which is more of a sign in this case of demand as well as trend. So I think you're seeing some softening. The economy is growing at a slower rate than it was, 2.4% last year. We think around 1.6% this year. It could have been a couple of tenths higher if not for the shutdown. And of course that will reverse, but you still got the economy growing at a moderate pace.

A

Andrew Ackerman7:35:31

Andrew Ackerman with the Washington Post. I wanted to ask if you could elaborate on how you think about policy in the context of the data drought. Does it make you inclined to stick with your plans as set out in September in the absence of the data that might change your mind, or does it make you inclined to proceed with added caution because of uncertainty?

J

Jerome Powell7:35:56

Yeah. Well, we'll know when we face that question, if we face that question. It'll probably be argued both ways, right? But I've said a couple times here that if you really aren't getting information and you really don't know and the economy looks like it's solid and stable and hasn't really changed, there will be an argument. I don't know how persuasive it will be, but there will be an argument that you slow down when you can't see as far ahead. Others may argue, I mean, I'm not sure where this argument will come, but you're perfectly right that you could also argue, well, things haven't really changed, but you might not know that. So I don't know whether we'll face this or not. I hope we don't. I hope by the time of the December meeting, we're getting a better flow of data, but we're going to have to do our jobs one way or the other.

A

Andrew Ackerman7:36:47

Okay. I also just wanted to ask a final question. I think several years ago, you said the overall amount of capital in the system was about right. As the Fed moves forward with a revised Basel proposal, potentially changes to the G-SIB surcharge, has that changed at all, and or are you planning to significantly reduce the amount of capital in the system? Thanks.

J

Jerome Powell7:37:09

So there's discussions going on, I think, among the agencies, and I don't want to get ahead of those discussions. I continue to think that the level of capital when I said that in 2020 was about right, and of course there's been much capital added since then through various mechanisms. But I look forward to, I know those discussions are really just getting going. They haven't come to the point where they've got a whole plan and that kind of thing. So I really don't have much to say on that.

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Brian Chung7:37:43

Brian Chung with NBC News. Is the weakness in the jobs market accelerating, and who's at risk if the interest rate cuts are not the effective medicine for a further slowdown in the labor market?

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Jerome Powell7:37:59

So we do not see the weakness, as you put it, in the job market accelerating. I would say then again, we didn't get the September employment report, payroll report, but we do get, we look at the initial claims in unemployment insurance, which are reported at the state level, and we still get those and we can accumulate them and get the national number. And there's really, I mean, no story. You can look at the numbers. Same thing with the job openings we get from Indeed. There's just no story over the last four weeks. It's kind of stable. So you don't see anything that says that the job market or really any part of the economy is making a significant deterioration. Don't see that. You see more things like I mentioned though, which is that you see big companies making announcements of either layoffs or of the idea that they won't need to hire and their number of employees is not expected to go up over a number of years. There may be different people working there, they say that too, but they don't need a bigger headcount. So you see those kinds of things. You don't see it in the aggregate numbers. The layoff numbers have not gone up, but job creation is very low. And the job finding rate for people who are unemployed is very low, but the unemployment rate is very low as well, 4.3% is a low unemployment rate.

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Brian Chung7:39:28

So as you make these cuts, is it the lower income workers that you're thinking about, or those who might have their jobs automated? Is there a particular part of the market that you're particularly focused on?

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Jerome Powell7:39:37

So we can't, our tools don't allow us to target any demographic or any income level and that kind of thing. I do think that people, we saw this during the global financial crisis and the long recovery. If you have a long period of very strong labor market conditions, it benefits people at the lower end the most. The last two or three years of that long expansion, people at the lower part of the income spectrum were getting the biggest benefits and lots of things were happening in that space demographically which were very constructive. And we're not at that place right now, but so yeah, I mean, a stronger labor market is the best thing we can do for the public. It's also part of our job, it is half of our job, but it is absolutely the best thing we can do for people, along with keeping prices stable. Those two things, I mean, inflation also hurts people on fixed incomes more than other people.

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Courtney Brown7:40:37

Hi Chair Powell. Courtney Brown from Axios. As you know, the 12 Reserve Bank presidents' terms are up for renewal at the end of February. I'm wondering if you can give us a timeline for when the board will consider those reappointments and whether we can expect everyone to be re-upped or if we can expect some changes.

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Jerome Powell7:40:59

So, it's a process that we go through under the law. The way the law works is we have a reappointment process every five years for all of the Reserve Bank presidents. We're in the middle of that process and we're going to complete it in a timely way, and that's really all I can say.

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Daniel7:41:20

Daniel from Agence France-Presse. You've now had dissents in three consecutive FOMC meetings, but in this meeting you had dissents going in both directions, and you've just mentioned there's strong disagreement over the future path of rate cuts. Have these disagreements complicated your role presiding over the FOMC meetings, and if so, how?

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Jerome Powell7:41:39

I wouldn't say that, no. I think you have to take what comes, and what comes right now is a pretty challenging situation where we have, first of all, we have 4.3% unemployment, we have an economy that's growing close to 2%, so overall it's a good picture. But in terms of our policy, we have upside risks to inflation, downside risks to employment, and this is a very difficult thing for a central bank because one of those calls for rates to be lower, one calls for rates to be higher. We can't do both, so we have to balance the two. And so it's a challenging thing, and as we have worked our way through this process, you would expect that there would be a range of views across the committee on what to do and the speed with which we should do it, and that's what we have. That makes a lot of sense to me. These are all people who take their jobs very seriously, work very hard at this, and just want to do what's right for the American people, but they have different views on what that is. And it's an honor to work among people who care that much. It is, but I don't feel that it's unfair or anything like that. It's just a time when we're making quite difficult judgments in real time. And I believe we'll get through this. And I think we've done sort of the right thing so far this year. I think it was appropriate for us to be careful about this. I think it would not be appropriate to just ignore or assume away the inflation issue. At the same time, I think the risk of higher, more persistent inflation has declined significantly since April. And if we do wind up resuming rate cuts at some point, we will at some point. I think we're trying to get to the end of this cycle with the labor market in a good place and with inflation on its way to 2% or at 2%. So that's all we're trying to do, and we're doing it under quite challenging circumstances and doing the best we can.

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Jennifer Schonberger7:43:45

Thank you so much, Chair. Jennifer Schonberger with Yahoo Finance. Both regional and large banks have taken losses on loans given delinquencies on subprime auto loans. JP Morgan CEO Jamie Dimon warned, 'When you see one cockroach, there may be more likely.' I'm curious how the Fed's looking at these loan losses and if it poses risks to the financial system or the outlook for the economy. Is it a warning sign?

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Jerome Powell7:44:13

So, you know, we're obviously watching these things very carefully, credit conditions very carefully. You're right. You've seen rising defaults in subprime credit for some time now. And now you've seen a number of subprime credit, automobile credit institutions having significant losses, and some of those losses are now showing up on the books of banks. We're looking at it carefully. We're paying close attention. I don't see at this point a broader credit issue. It doesn't seem to be something that has very broad application across financial institutions, but we're going to be monitoring this quite carefully and making sure that that is the case.

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Jennifer Schonberger7:45:00

And then separately, many, you yourself have said that we're in a bifurcated economy right now with high net worth individuals continuing to spend with a lower income pulling back. How much of consumer spending continuing hinges on the stock market remaining strong? In some odd way, does the market help keep the economy buoyant?

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Jerome Powell7:45:20

So there is some relationship there, but remember, the more wealth someone has, the lower an additional dollar of wealth matters. So your marginal propensity to consume declines quite dramatically as you reach levels of stock market wealth. So, you know, the stock market, it would affect spending if the stock market went down, but it wouldn't drop sharply unless there were quite a sharp drop in the stock market. People at the lower end of income and wealth have a much higher marginal propensity to consume of an incremental dollar of income or wealth, but they don't have the stock market wealth. So, I think it's certainly a factor supporting consumption right now. And you would see it if you saw a material correction in spending, but it wouldn't be, you shouldn't think that it'll dollar for dollar stop consumption because that wouldn't be the case. Thanks very much.

Good afternoon. My colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people. Although some important federal government data have been delayed due to the shutdown, the public and private sector data that have remained available suggest that the outlook for employment and inflation has not changed much since our meeting in September. Conditions in the labor market appear to be gradually cooling and inflation remains somewhat elevated. In support of our goals and in light of the balance of risks to employment and inflation, today the Federal Open Market Committee decided to lower our policy interest rate by a quarter percentage point. We also decided to conclude the reduction of our aggregate securities holdings as of December 1. I will have more to say about monetary policy after briefly reviewing economic developments. Available indicators suggest that economic activity has been expanding at a moderate pace. GDP rose at a 1.6% pace in the first half of the year, down from 2.4% last year. Data available prior to the shutdown show that growth in economic activity may be on a somewhat firmer trajectory than expected, primarily reflecting stronger consumer spending. Business investment in equipment and intangibles has continued to expand, while activity in the housing sector remains weak. The shutdown of the federal government will weigh on economic activity while it persists, but these effects should reverse after the shutdown ends. In the labor market, the unemployment rate remained relatively low through August. Job gains have slowed significantly since earlier in the year. A good part of the slowing likely reflects a decline in the growth of the labor force due to lower immigration and labor force participation. Though labor demand has clearly softened as well. Although official employment data for September are delayed, available evidence suggests that both layoffs and hiring remain low and that both households' perceptions of job availability and firms' perceptions of hiring difficulty continue to decline. In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months. Inflation has eased significantly from its highs in mid-2022, but remains somewhat elevated relative to our 2% longer-run goal. Estimates based on the consumer price index suggest that total PCE prices rose 2.8% over the 12 months ending in September and that excluding the volatile food and energy categories, core PCE prices rose 2.8% as well. These readings are higher than earlier in the year as inflation for goods has picked up. In contrast, disinflation appears to be continuing for services. Near-term measures of inflation expectations have moved up on balance over the course of this year on news about tariffs as reflected in both market and survey-based measures. Beyond the next year or two or so, however, most measures of longer-term expectations remain consistent with our 2% inflation goal. Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. At today's meeting, the committee decided to lower the target range for the federal funds rate by a quarter percentage point to 3 and 3/4 to 4%. Higher tariffs are pushing up prices in some categories of goods, resulting in higher overall inflation. A reasonable base case is that the effects on inflation will be relatively short-lived, a one-time shift in the price level. But it is also possible that the inflationary effects could instead be more persistent. And that is a risk to be assessed and managed. Our obligation is to ensure that a one-time increase in the price level does not become an ongoing inflation problem. In the near term, risks to inflation are tilted to the upside and risks to employment to the downside. A challenging situation. There is no risk-free path for policy as we navigate this tension between our employment and inflation goals. Our framework calls for us to take a balanced approach in promoting both sides of our dual mandate. With downside risks to employment having increased in recent months, the balance of risks has shifted. Accordingly, we judged it appropriate at this meeting to take another step toward a more neutral policy stance. With today's decision, we remain well positioned to respond in a timely way to potential economic developments. We will continue to determine the appropriate stance of monetary policy based on the incoming data, the evolving outlook, and the balance of risks. We continue to face two-sided risks. In the committee's discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it. Policy is not on a preset course. At today's meeting, the committee also decided to conclude the reduction of our aggregate securities holdings as of December 1. Our long-stated plan has been to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions. Signs have clearly emerged that we have reached that standard. In money markets, repo rates have moved up relative to our administered rates and we have seen more notable pressures on selected dates along with more use of our standing repo facility. In addition, the effective federal funds rate has begun to move up relative to the rate of interest on reserve balances. These developments are what we expected to see as the size of our balance sheet declined and warrant today's decision to cease runoff. Over the three and a half years that we've been shrinking our balance sheet, our securities holdings have declined by $2.2 trillion. As a share of nominal GDP, our balance sheet has fallen from 35% to about 21%. In December, we'll enter the next phase of our normalization plans by holding the size of our balance sheet steady for a time while reserve balances continue to move gradually lower as other non-reserve liabilities such as currency keep growing. We will continue to allow agency securities to run off our balance sheet and will reinvest the proceeds from those securities in Treasury bills, furthering progress toward a portfolio consisting primarily of Treasury securities. This reinvestment strategy will also help move the weighted average maturity of our portfolio closer to that of the outstanding stock of Treasury securities, thus furthering the normalization of the composition of our balance sheet. The Fed has been assigned two goals for monetary policy, maximum employment and stable prices. We remain committed to supporting our maximum employment, bringing our inflation sustainably to our 2% goal, and keeping longer-term inflation expectations well anchored. Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals. Thank you. I look forward to your questions.

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Nick Timmeros7:54:25

Nick Timmeros of the Wall Street Journal. Chair Powell, are you uncomfortable with how market pricing has assumed a rate cut is a foregone conclusion at your next meeting?

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Jerome Powell7:54:34

Well, as I just mentioned, a further reduction in the policy rate at the December meeting is not a foregone conclusion, as I've just said. So I would say that that needs to be taken on board. We had, I would just say this, 19 participants on the committee. Everyone works very hard at this and takes their obligations to serve the American people very seriously. And at a time when we have tension between our two goals, we have strong views across the committee. And as I mentioned, there were strongly differing views today. And the takeaway from that is that we haven't made a decision about December and we're going to be looking at the data that we have, how that affects the outlook and the balance of risks. And I'll just say that.

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Nick Timmeros7:55:19

You and some of your colleagues have framed last month and maybe today, I won't put words in your mouth, as a risk management exercise. At what point do you conclude that you've taken out enough insurance? Are you looking for some kind of improvement in the outlook, or could this unfold along the lines of last year where you made a sequence of adjustments and then waited to gather more information?

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Jerome Powell7:55:44

So the way we have been thinking, the way I've been thinking about it is, the risks to the two goals, for a very long time the risk was clearly of higher inflation, and then that has changed now. And as we saw, particularly after the July meeting, we saw the downward revisions in job creation, we saw a very different picture of the labor market, and it suggested that there were higher downside risks to the labor market than we had thought. And that suggested that policy, which we had been holding at a, I would say modestly, others would say moderately restrictive level, needed to move more in the direction over time of neutral. If the two goals are sort of equally at risk, then you ought to be at neutral, because one of them's calling for you to hike and one of them is calling for you to cut. So if that got back into balance, then you'd want to be roughly at neutral. So in that sense it was a risk management. And I would say the same about today, sort of the same logic, but as I mentioned, going forward is a different thing.

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Claire Jones7:56:49

Claire Jones, Financial Times. Thank you for taking this question. We've just heard from you that the discussion in December and the conclusion of the discussion is not a foregone conclusion. I'd like to just dig into that a little bit more about what sort of arguments were brought up. Was there any consideration, for instance, of the investment we're seeing in AI and some of the generation of household wealth through rises in stock prices related to the AI boom? Thank you.

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Jerome Powell7:57:26

You know, I wouldn't say that's a factor in everyone's assessment of the economy. I wouldn't say it's the driving factor, I don't think, for anybody. I guess I would say it this way once again. I would just point out that we have the situation where the risks are to the upside for inflation and to the downside for employment. We have one tool. You can't do both of those. So you can't address both of those at once. You've got a very different situation. So you have some people, people have different forecasts, right? So they'll forecast faster or slower progress on one or the other. And they also have different levels of risk aversion. And people, some will be more averse to inflation overruns and some will be more averse to underruns of employment. And so you put that together and as you can see from the SEP and from the public discussion that goes on between the meetings when participants go out and talk, they're very disparate views and they were reflected in strongly differing views in today's meeting, as I pointed out in my remarks. And that's what leads me to say that we haven't made a decision about December. I always say that it's a fact that we don't make decisions in advance. But this is, I'm saying something in addition here, is that it's not to be seen as a foregone conclusion. In fact, far from it.

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Claire Jones7:58:45

Can I just ask a quick follow-up on QT? How much of the funding pressures we've seen in money markets are related to the US Treasury issuing more short-term debt?

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Jerome Powell7:58:57

You know, that could be one of the factors. But the reality is we've seen, you know, the things that we've seen, higher repo rates and federal funds rate moving up. These are the very things that we look for. We actually have a framework for looking at, you know, what the place we're trying to reach. What we said for a long time now is that when we feel like we're a little bit or a bit above what we consider a level that's ample, that we would freeze the size of the balance sheet. Of course, reserves will continue to decline from that point forward as non-reserve liabilities grow. So, this happened, some things have been happening for some time now, showing a gradual tightening in money market conditions. Really, in the last, call it three weeks or so, you've seen more significant tightening and I think a clear assessment that we're at that place. The other thing is, you know, the balance sheet is shrinking at a very, very slow pace now. We've reduced it by half twice. And so there's not a lot of benefit to be holding on for the last few dollars because, again, the reserves are going to continue to shrink as non-reserves grow. So, there was support on the committee as we thought about it to go ahead with this and announce effective December 1 that we will be freezing the size of the balance sheet, and that the December 1 date gives the markets a little bit of time to adapt.

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Colby Smith8:00:24

Thank you. Colby Smith with the New York Times. So much of the rationale for cutting interest rates even as inflation moves away from the 2% target seems to be that there are these mounting downside risks to the labor market. But if those don't materialize and the labor market either stabilizes around current employment levels or even starts to strengthen somewhat, how would that change your perception of how much interest rates need to fall from here? Would you then be a bit more concerned about underlying inflation and the possibility of second-round effects from tariffs?

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Jerome Powell8:00:58

Yeah, I mean, in principle, if you were to see data that suggested that the labor market is strengthening or even that it's stabilizing, that would certainly play into our decisions going forward. So, and we do have, we get some data. The labor market is a place where we get, for example, we get the state-level data on initial claims, which are sending sort of a signal of more of the same. We also get job openings and we'll get lots of survey data. We'll get the Beige Book and things like that. So, we'll have a picture of what's going on in the labor market. And the fact that we're not seeing an uptick in claims or a downtick really in openings suggests that you're seeing maybe continued very gradual cooling, but nothing more than that. So, that does give you some comfort.

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Colby Smith8:01:44

But if this shutdown lasts a while longer and you don't have that data in hand, I'm just wondering how that hinders the committee's ability to assess the state of the labor market and make the right policy decisions, and also how much is that factoring into the debate about December.

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Jerome Powell8:01:59

Yeah. So, you know, we get, like I mentioned, what we get in the labor area. We get some data in inflation, some data in economic activity. And we'll have a picture of what's going on. We also will have the Beige Book. Again, I would say we're not going to be able to have the detailed feel of things, but I think if there were a significant or material change in the economy one way or another, I think we'd pick that up through this. So, in terms of how it might affect December, it's really hard to say. December's, you know, the meeting is like I guess six weeks away. We just don't know what we're going to get. If there is a very high level of uncertainty, then that could be an argument in favor of caution about moving, but we'll have to see how it unfolds.

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Steve Liesman8:02:51

Steve Liesman, CNBC. Mr. Chairman, can you characterize the meeting in terms of, you said strongly differing views. What was this, a close call, this cut, or was it a close call maybe the other way because you had dissents on both sides? Thanks.

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Jerome Powell8:03:07

So I was referring to the discussion about, to the extent it related to December. You saw we had two dissents, one for 50 and one for no cut. So that was a strong, solid vote in favor of this cut. The strongly differing views were really about the future. What does that look like? And I think people are saying, they're noticing stronger economic activity. Forecasters generally broadly have raised their economic growth forecast for this year and next year, in some cases quite materially. In the meantime we see a labor market that's kind of, I don't want to say stable, but it's not clearly in motion, it's not clearly declining quickly. In any case, it may be just continuing to gradually cool. And again, people have different forecasts and expectations about the economy and different risk tolerances. And so there's a, you read the SEP, you read the speeches, there are different views on the committee and to the point where I said what I said.

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Steve Liesman8:04:14

And just to follow up on the balance sheet, if you stop the runoff now, does that mean you have to go back to actually adding assets sometime next year so that the balance sheet doesn't shrink as a percent of GDP and become a tightening factor?

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Jerome Powell8:04:31

So you're right. The place we'll be on December 1 is that the size of the balance sheet is frozen, and as mortgage-backed securities mature, we'll reinvest those in Treasury bills, which will foster both a more Treasury balance sheet and also a shorter duration. So that's what, in the meantime, if you freeze the size of the balance sheet, the non-reserve liabilities, currency for example, they're going to continue to grow organically, and because the size of the balance sheet is frozen, you have further shrinkage in reserves, and reserves is the thing that we're managing that has to be ample. So that'll happen for a time, but not a tremendously long time. We don't know exactly how long, but at a certain point, you'll want to start, you want reserves to start gradually growing to keep up with the size of the banking system and the size of the economy. So, we'll be adding reserves at a certain point. And that's the last point. Even then, we'll be, we didn't make decisions about this today, but we did talk today about the composition of the balance sheet. And there's a desire that the balance sheet be, right now it's got a lot more duration than the outstanding universe of Treasury securities. And we want to move to a place where we're closer to that duration. That'll take some time. We haven't made a decision about the ultimate end point. But we all agree that we want to move more in the direction of a balance sheet that more closely reflects the outstanding Treasuries, and that means a shorter duration balance sheet. Now, this is something that's going to take a long time and move very, very gradually. I don't think you'll notice it in market conditions, but that's the direction of things.

J

Janelle Marte8:06:10

Janelle Marte with Bloomberg. How are officials interpreting the latest CPI report? So, some components came in lower than expected, but core inflation was still at 3%. So at this moment, what are you learning about the drivers, and also do you view that the risks are greater that the Fed makes a mistake on employment or inflation?

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Jerome Powell8:06:39

So okay, so the September CPI report, we didn't get PPI after that, which is important for translation into what we look at, which is PCE inflation, but we can still make a pretty good assessment of what that will be. When we get PPI, there might be some adjustments, but so directionally, it was a little softer than expected, and we always break it down into the three components. So basically, you've seen goods prices increasing, and that's really due to tariffs, and that's in compared to a longer-run trend of very, very mild deflation in goods. So that's moving inflation up. On the other side of that, good news that housing services inflation has been coming down and is expected to continue to come down. So, if you remember a couple years ago, that's the one that we kept expecting it to do that. Now, it's been doing that for some time and we expect to continue that. That leaves the biggest category, which is services other than housing services, and that's kind of been moving sideways over the last few months, but a significant part of that is non-market services and we don't take a lot of signal about the tightness of the economy from that. So if you add all that up, a couple things to say. One is that inflation away from tariffs is actually not so far from our 2% goal. We estimate, people have different estimates of what that is, but it might be five or six tenths, and so if it's 2.8, then core PCE not including tariffs might be 2.3 or 2.4 in that range, something like that. So that's not so far from your goal. So we look at that, and the thing about tariff inflation is the base case is that it will come, and it probably will increase further, but it is that it will be a one-time increase. And we've been very focused for all of this year at making sure that that's the case and thinking carefully about what are the pathways through which it could become something else, troublesome inflation. One of those would be a really tight labor market. We don't see that. Another could be inflation expectations moving. We don't see that. So, I think we're watching this very carefully. I think it's not the case that we're just assuming that it's going to be a one-time inflation. We understand fully that this is a risk we have to monitor and ultimately manage.

J

Janelle Marte8:09:09

With the stubborn services inflation...

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