Fed Chair Powell Holds Press Conference #business

Thank you. Yeah, no, I mean, I think we've said that we don't think it'll be appropriate to reduce rates and begin to loosen policy until we have more confidence that inflation is moving back down to 2% on a sustainable basis. That's the test we've applied. I don't know that this rules that in or out. It's a forecast, a fairly conservative forecast month by month that would lead to slightly higher 12-month rates by the end of the year. If we get better readings than that, then you will see that come down or remain the same. If you're at 2.6, 2.7, that's a really good place to be.

As far as the SEP part of that is concerned, as you know, I talk to all the other participants on the FOMC every cycle, and we talk about their Summary of Economic Projections and the dot plot. What I hear and see is that people are looking at a range of plausible outcomes, and in many cases they're thinking, 'I can't really distinguish between two of these, they're so close for me. These are very close calls, but we're asked to write down the most likely one, so they do.' I think, as you've said, there's 15 of the 19 clustered around one or two. I would look at all of them as plausible. I think that does tell you what the committee thinks, but what everyone agrees on is it's going to be data dependent. No one brings to this or takes away from it a really strong commitment to a particular rate path. It's just their forecast and their own reaction function. But again, everyone would say that this is very data dependent, and I don't hold it with high confidence. They're not trying to send a strong signal that this is the right thing; it's just what they think at a given moment in time, subject to data. In terms of future meetings, we don't make decisions about future meetings until we get there. In terms of what we need to see, I mentioned it earlier: we want to gain further confidence. Certainly more good inflation readings will help with that. I'm not going to be specific about how many, because it's going to be not just the inflation readings, but the totality of the data: what's happening in the labor market, the balance of risks, the forecast, growth. You look at all of that and ask, 'Are we confident? Have we reached an appropriate level of confidence that inflation is moving down sustainably to 2%?' Or alternatively, do we see really unexpected signs of weakness in the labor market that would call for a response? That's another thing that could happen, but we don't see that. We see today's report as progress and as building confidence, but we don't see ourselves as having the confidence that would warrant beginning to loosen policy this time.

This happens too often, but it does happen. Data came in, I think it happened a couple of meetings ago, a few meetings ago. When there's an important data print during the meeting, first day or second day, what we do is we make sure people remember that they have the ability to update. We tell them how to do that, and some people do, some people don't. Most people don't. I'm not going to get into the specifics, but you have the ability to do that, so what's in the SEP actually does reflect the data that we got today, to the extent you can reflect it in one day. We'll see PPI tomorrow, we'll know more about the PCE reading as the month goes on, but the initial CPI reading and its first-level translation to PCE we did have this morning. We were briefed about it, and people were able to consider whether they should make changes. As I said, some people generally do, but most people generally don't.

Sure. By so many measures, the labor market was kind of overheated two years ago, and we've seen it gradually move back into much better balance between supply and demand. What have we seen? We've seen labor force supply come up quite a bit through immigration and through recovering participation. That's ongoing, mostly now through the immigration channel, but still we've had some increases in prime-age labor force. On the demand side, we've seen quits moving down, job openings moving down, wage increases moving from very high levels a couple of years ago back down to more sustainable levels. We have seen unemployment creep up, now 6/10 over the course of a year or so, very gradually. Put all that together, what you have is still low unemployment, still 4% unemployment, historically low, but it's moved up a bit, softened a bit. That's an important statistic, but more than that, you've got strong job creation, payroll jobs still coming in strong, even though there's an argument that they may be a bit overstated, but still they're strong. That's what we see. We watch the labor market and the economy as a whole, but the labor market very carefully. We see gradual cooling, gradual moving toward better balance. We're monitoring it carefully for signs of something more than that, but we really don't see that.

Sometimes you can't reconcile the differences; you just have to look at it and try to understand. That's why it always makes sense to look at a series over six and 12 months rather than just one report. But you're right to point to the last report where there were job losses in the household survey and job gains in the establishment survey. We're left with ambiguous results, and we have to deal with that uncertainty around data. Nonetheless, the overall picture is one of a strong and gradually cooling, gradually rebalancing labor market. Job openings, while they've come way down, are still greater than the number of unemployed people. The jobs-workers gap is still a significantly positive number, greater than it was before the pandemic. Overall, we're looking at what is still a very strong labor market, but not the superheated labor market of two years ago or even one year ago.

The big thing that changed was the inflation forecast. The inflation forecast moved up several tenths for the end of the year. As I mentioned earlier, we had really good inflation data in the second half of last year, then a pause in progress in the first quarter. What we took away from that was that it's probably going to take longer to get the confidence we need to begin to loosen policy. The sense of that is that rate cuts that might have taken place this year take place next year. There are fewer rate cuts in the median this year, but there's one more next year. If you look at year-end 2025 and 2026, you're almost exactly where you would have been; it's just moved later because of that progress. Now we get different data today, so we'll have to see where the data lead. The economy has repeatedly surprised forecasters in both directions, and today was certainly a better inflation report than almost anybody expected. We'll just have to see what the incoming data flow brings and how that affects the outlook and the balance of risks.

Two things about that. One, you're right, it did move up, but I want to point out that the long-run neutral rate of interest is a long-run concept. It's a theoretical concept that can't be directly observed. It's the interest rate that would hold the economy at equilibrium, maximum employment and price stability, potentially years in the future where there are no shocks. It's not something we observe today. Today we've got a very specific economy with all kinds of shocks we're still getting over from the pandemic. I don't think that the concept of the neutral rate is very important in economics and in what we do, but honestly, it doesn't get you where you need to be to think about what appropriate policy is in the near term. But back to your original question, people have been gradually writing it up because I think people are coming to the view that rates are less likely to go down to their pre-pandemic levels, which were very low by recent history. We can't really know that; that's an interesting dispute and discussion to have. Ultimately, we think that things like the neutral rate are driven by longer-run, slow-moving forces. There's a really good question about whether those really have changed or whether instead rates in the economy are experiencing a series of persistent but ultimately temporary shocks. That's been the debate, and we can't know. In the meantime, we're making policy with the economy that we have, with the distortions that we have. To your other point, I think it is the case that as time has gone by, the question of how restrictive policy is has become one that everyone's asking, and we're asking it too. My answer has been that policy is restrictive. The question of whether it's sufficiently restrictive is one we'll know over time. But for the reasons I talked about at the last press conference and other places, I think the evidence is pretty clear that policy is restrictive and is having the effects that we would hope for.

I'd be reluctant to try to draw that conclusion. I think this is about looking at the incoming data and asking how much progress we're making on inflation and how the rest of the economy is doing. Is the labor market still strong? That's what we're thinking about. You can translate it into the language you're talking about, but to me, the focus is more on: we have a goal which is price stability and another goal which is maximum employment. How are we doing there? We think we've got a good, strong labor market still. We think we've been making progress toward the price stability goal, and then for a while that was a pause. We look at today's reading and think that's a good reading, and we hope we get more like that. In the meantime, we're asking, 'Is our policy stance about right?' I think we think yes, it's about right. We're prepared to adjust as appropriate, but we think we're getting the things that we would want to get, broadly speaking. That's why we've been at this policy right now for almost a year.

Well, it's been coming from where? Let's start with that. Clearly, a lot of what we've been getting is just the reversal, the unwinding of the pandemic-related distortions to both supply and demand. That is complemented and amplified and supported by restrictive monetary policy. Those two things have been working together. We've also had a very positive supply shock on the labor side, and you get a positive supply shock when the supply conditions unwind and return to normal. So you've had above-trend potential growth and high growth, and yet you've had the benefit of inflation coming down really fast last year. We'll see what the rest of this year brings. These dynamics can continue as long as they continue. Ultimately, the question is, are you down to demand? We don't know that. We look at today's report; if we see more like that, we can't know what the future holds. But in the meantime, we've made pretty good progress on inflation with our current stance.

Well, we think policy is restrictive, and we think ultimately that if you set policy at a restrictive level, eventually you will see real weakening in the economy. That's always been the thought: since we raised rates this far, we've always been pointing to cuts at a certain point, not to eliminate the possibility of, but no one has that as their base case. No one on the committee does. So that's how we think about it. That's what we've been getting: good progress on inflation with growth at a good level and a strong labor market. Ultimately, we think rates will have to come down to continue to support that, but so far they haven't had to. That's why we're watching so carefully for signs of weakness. We don't really see that; we kind of see what we wanted to see, which was gradual cooling in demand, gradual rebalancing in the labor market, while we're continuing to make progress on inflation. We're getting good results here.

On housing, the housing situation is a complicated one. You can see that's a place where rates are really having a significant effect. Ultimately, the best thing we can do for the housing market is to bring inflation down so that we can bring rates down, so that the housing market can continue to normalize. There will still be a national housing shortage, as there was before the pandemic, but the distortions we see now with lock-ins and low mortgages will ease. As for banks, the banking system has been solid, strong, well-capitalized. We've seen good performance by the banks. We had the turmoil early last year, but banks have been focusing on bringing up their liquidity, bringing up their capital, and having risk management plans in place. The banking system seems to be in good shape.

It's true that inflationary pressures have come down, but we're still getting high inflation readings. You can see it in various places. In some parts of non-housing services, you see elevated inflation still, and that's probably to do with wages. Goods prices have fluctuated; there's been a surprising increase in import prices on goods, which is kind of hard to understand, and we've taken some signal from that. Of course, housing services, you're continuing to see high readings there. To some extent, that's catch-up inflation from earlier pressures. But overall, you're right, inflationary pressures have come down. The labor market has come into better balance. Wages are still running, I would say, above a sustainable path, which would be out of trend inflation and trend productivity. You're still seeing wage increases moving above that. We haven't thought of wages as being the principal cause of inflation, but at the same time, getting back to 2% inflation is likely to require a return to a more sustainable level, which is somewhat below the current level of increases in the aggregate.

I think if you look back in five or ten years and try to pull out the significance to the US economy of one 25 basis point rate cut, you'd have quite a job on your hands. So that's not how we look at it. Really, the whole rate path matters. I do continue to think that when we do start to loosen policy, that will show up in a significant loosening in financial market conditions, and the market will price in what it prices in. I have no way of saying; we're not at that stage, so I don't know what we'll be thinking about at that time. But it's a consequential decision for the economy, and you want to get it right. Fortunately, we have a strong economy, and we have the ability to approach this carefully, and we will approach it carefully, while we're very much keeping an eye on downside economic risks should they emerge.

You always want to avoid the tendency to dismiss the parts of inflation that we don't like and just make it go away. But we had a quarter where inflation was running higher. Yes, I could stand here and say it's stuff we shouldn't have taken signal from, but it is what it is. Low inflation is low inflation, high inflation is high inflation. If you have a quarter where it's higher, we tried not to take signal from the first couple of months, but we got a third month and we said, 'Okay, the signal we're taking is that we think it's going to take longer to get confidence that inflation is moving sustainably to 2%.' That's what we said. I think that was the right thing to do. I still think that's the right thing to do. Now we have today's inflation reading, which is very different, much more positive. We're going to have to see what the trend is, what the data going forward will be. We're looking for something that gives us confidence that inflation is moving sustainably down to 2%. Readings like today's are a step in the right direction, but one reading isn't enough. You don't want to be too motivated by any single data point.

I don't think anyone has a definitive answer why people are not as happy about the economy as they might be. We don't tell people how they should think or feel about the economy; that's not our job. People experience what they experience. All I can tell you is what the data show, which is we've got an economy that's growing at a solid pace, we've got a very strong labor market with unemployment at 4%. It's been a long time since we've had a long stretch of time with unemployment at or below 4%. We had a period of high inflation; now inflation has come down really significantly, and we're doing everything we can to bring that inflationary episode fully to a halt and fully restore price stability. We're confident that we'll get there. In the meantime, it's going to be painful for people, but the ultimate pain would be a long period of high inflation. It is people who are lower income, people at the margins of the economy, who experience the most pain from inflation. So for those people, for all Americans, but particularly for those people, we're doing everything we can to bring inflation back down under control.

I don't have a precise date for you, but what we've said is that we want to make sure that we're confident that inflation is actually moving back down to 2%. When we are, then we can look at loosening policy. Having that kind of confidence that inflation will be at 2% pays benefits to the whole economy, to all Americans, for a long period of time. We had that period for a very long time. We very much want to get back to a place where people can not think about inflation; it's just not a concern in the everyday economic decisions they make. We were there for a long time, and our goal is to get back to that place. We've made good progress, and we're just in the phase now of sticking with it until we get it done.

Encouraging has been that growth, clearly the growth we had last year, particularly the second half of last year, and we continue to see still strong or solid growth this year. That's been very encouraging. If you go back a year, there was a real concern about very much slowing growth and a recession. Many forecasters had that, and that's not what happened. Instead, we got, in the US anyway, in sharp distinction with many other advanced economies around the world, so that's been encouraging. I would say that today's inflation report is encouraging, but it comes after several reports that were not so encouraging. Your second question was really about shelter inflation. I think if you go back a couple of years, we know that there are renters and people who own their houses, and we have OER, owners' equivalent rent. When market-based rents go up sharply, as they did at the beginning of the economy reopening, they really went up sharply. Those play into rollover rents much more slowly for existing tenants than they do for new tenants. So we found that there are big lags. There's a bulge of high past increases in market rents that has to get worked off, and that may take several years. Nonetheless, as long as market rents are going up at relatively low levels, and they still are, this is just going to happen more slowly than we thought. We also do this thing where we impute a rental value to owned homes. Many countries around the world do that; some do it differently than us. It's something that price experts have regularly looked at. It's not something we're looking at changing anytime soon. But it's true, it's one of the very hardest things in inflation and in prices: how to think about the services that someone is getting by living in a home that they could rent but they're actually living in it. Some countries just ignore that, but that's not how we do inflation here. We do it the way we do it, and we've been very transparent about it. It's true that we're seeing delays in realizing what's happening economically, but we understand that very well.

We monitor all the things you mentioned and more. What we're seeing is that spending was going up faster than disposable income during big parts of last year. What you'd expect to see is people spending more on their credit cards. That has been happening; credit card balances have been going up, credit card defaults have been going up. They're not at high levels. Remember that after the pandemic, people were cooped up, they couldn't spend money, but households were in very strong, historically strong financial shape. They've now worked off a lot of that. So we're watching that carefully. What do we see? We see the same data that everybody else sees. But you've still got a household sector that's in pretty good shape. Nonetheless, it's not in the kind of shape it was in a year or two ago, and we're carefully watching that.

Consumer spending is still growing. It's not growing at the pace it was growing at a year or so ago, but it's still growing solidly. By the way, other parts of the economy are picking up. Spending on equipment and intangibles has picked up quite a bit in the wake of all the construction of new tech plants. So overall, the economy is exhibiting solid growth, something around 2%, which is a good pace of growth for the US economy. But you're right, we do see the same thing other people see: increasing financial pressures on lower-income people. The best thing we can do is to foster a very strong jobs economy, which we think we have done, ultimately to get inflation under control, because those people experience inflation very directly and very painfully. Once we get inflation under control, rates can come down, which will also improve things.

When I say unexpectedly, the first thing is more than is in our forecast or in common forecast. Something more than that. But we'll be looking at everything. The labor market has the tendency sometimes to weaken quickly. Waiting for that to happen is not what we're doing. We're watching very carefully. We're looking at the balance of risks. I always point out the balance of risks. A decision to begin to loosen policy could have several reasons associated with it at a given time. We monitor all the labor market data, and if we saw troubling weakening, more than expected, then that would be something we'd consider responding to. But we look at the broader context of what's going on too. Something like negative payroll numbers would be on that list, but I won't list them all here.

I don't actually have that kind of mechanical thing in my thinking. I get that you know as many good ones as we had bad ones, but no, it's not like that. It's the totality of the data: the labor market data, the growth data, in terms of inflation. You'd want to see real progress that builds your confidence that we are on a path down to 2%. I don't want to try to give you specific numbers of things, because that points to dates, and I just don't think we're at a point of being able to do that.

We don't actually manage the dollar. It's our finance ministry, the Treasury Department, that has responsibility for thinking about and, if it sees fit, doing things about the level of the dollar. For us, it's just another financial variable. You're right, the dollar has exhibited some strength over the course of the last year or so because the US economy is very strong. We don't think of it as benefiting or hurting the US. We don't manage the level of the dollar; that's not our job. For our economy, what we're trying to foster is maximum employment and price stability, and we feel like we've made good progress on both of those goals over the course of the past year.

We are well aware of the two-sided risks here. We understand that if we wait too long, that could come at the cost of economic activity, employment, the expansion. We understand that if we move too quickly, we could end up undoing a lot of the good that we've done and have to start over, and it could be very disruptive. So we're extremely aware of both of those risks and just basically trying to manage them. What we've said is that we don't think it'll be appropriate to begin to loosen policy until we're more confident that inflation is moving down to 2% over time on a sustainable basis. That's been our test. Or there's another test: an unexpected deterioration in labor market conditions. I think that's the right way for us to think about it. That's our dual mandate. We have a strong economy; we've got growth, all forecasts are commonly around 2%, that's a strong growth rate for our economy. The labor market continues to print jobs at a pretty high rate, unemployment still low. So we have the ability now to approach this question carefully, and that's what we're doing.

We completely understand that that's the risk. That's not our plan, to wait for things to break and then try to fix them. We're trying to balance these two goals in a way that is consistent with our framework, and we think we're doing that.

What we've been thinking is that we would announce and commence the review later or late in the year. In the meantime, as that time approaches, we will be devoting a lot of careful thought and planning to the contours of it. Within scope would certainly be communications generally. I'm not going to say that we'll look at this or that particular thing. All the other details, we don't want to get prematurely into a conversation until it's really time to have it. So I'm going to leave pretty much everything else to later in the year.

I wouldn't say there isn't any one thing, one variable like housing prices moderating, that would really decide for or against what we're doing. We've got an overall test: greater confidence that inflation is moving down to 2% on a sustainable basis. That's our overall test. Or alternatively, we see unexpected weakening in the labor market. Those are two different tests. We're not looking at any one price in any one sector and saying that's the one. We don't target housing prices, for example, and we don't target wages. We target aggregate prices and overall employment. But if housing prices remain sticky, could that slow down the pace of rate cuts? I think you look at the aggregate numbers and ask ourselves what's going on with inflation at the aggregate level. Of course, if any price contributed to ongoing inflation, it would matter. Any price that contributed to ongoing disinflation would matter too. But I wouldn't single out housing as having a special role there. Thank you very much.