Press conference exchange between COLBY SMITH and Fed Chair Jerome Powell:

user: Thank you so much for taking our questions. Colby Smith with the Financial Times. As the Committee considers the policy path forward, how will it weigh the expected decline in headline inflation, which might come as a result of the drop in commodity prices, against the fact that we are likely to see some persistence in core readings, in particular? And given that potential tension and signs of, you know, any activity weakening here, how has the Committee’s thinking changed on how far into restrictive territory rates might need to go?

assistant: So I guess I’d start by saying we’ve been saying we would move expeditiously to get to the range of neutral. And I think we’ve done that now. We’re at—we’re at 2.25 to 2.5 percent, and that’s right in the range of what we think is neutral. So the question is, how are we thinking about the path forward? So one thing that hasn’t changed is that—won’t change—is that our focus is continuing to—is going to continue to be on using our tools to bring demand back into better balance with supply in order to bring inflation back down. That’ll continue to be our overarching focus. We also said that we expect ongoing rate hikes will be appropriate and that we’ll make decisions meeting by meeting. So what are we going to be looking at? You know, we’ll be looking at the incoming data, as I mentioned, and that’ll start with economic activity. Are we seeing the slowdown that we—the slowdown in economic activity—that we think we need? And there’s some evidence that we are at this time. Of course, we’ll be looking at labor market conditions. And we’ll be asking whether we see the alignment between supply and demand getting better, getting closer. Of course, we’ll be looking closely at inflation. You mentioned headline and core. Our mandate is for headline, of course; it’s not for core. But we look at core because core is, is actually a better indicator of headline and of all inflation going forward. So we’ll be—we’ll be looking at both. And we’ll be looking at them for—at those both, really—for what they’re saying about the outlook rather than just simply for, for what they say. But we’ll be asking: Do we see inflationary pressures declining? Do we see actual readings of inflation coming down? So, in light of all that data, the question we’ll be asking is whether the stance of policy we have is sufficiently restrictive to bring inflation back down to our 2 percent target. And it’s also worth noting that these rate hikes have been large, and they’ve come—they’ve come quickly. And it’s likely that their full effect has not been felt by the economy. So there’s probably some additional tightening, significant additional tightening, in the pipeline. So where are we going with this? I think the best—I think the Committee broadly feels that we need to get policy to at least to a moderately restrictive level. And maybe the best data point for that would be what we wrote down in our SEP at the—at the June meeting. So I think the median federal funds rate for the end of this year, the median would’ve been between 3¼ and 3½ percent. And, then, people wrote down 50 basis points higher than that for 2023. So that’s—even though that’s now six weeks old, I guess, that’s—that’s the most recent reading. Of course, we’ll update that reading at the—at the September meeting in eight weeks. So that’s how we’re thinking about it. As I mentioned, as it relates to September, I said that another unusually large increase could be appropriate, but that’s not a decision we’re making now. It’s one that we’ll make based on the data we see. And we’re going to be making decisions meeting by meeting. We think it’s—we think it’s time to just go to a meeting-by-meeting basis and not provide, you know, the clear guidance that we had provided on the way to neutral.