Press conference exchange between NICK TIMIRAOS and Fed Chair Jerome Powell:

user: Nick Timiraos, Wall Street Journal. Chair Powell, the argument around the end of last year and the beginning of this year to slow down the pace of increases was to give yourself time to study the effects of those moves. After the bank failures in March, as you’ve discussed, the Fed staff projected a recession starting later this year. So my question is why it was necessary to raise interest rates today. Or, put, put differently: If the whole point of slowing down the pace was to see the effects of your moves, and now you’ve, for the last two meetings, been seeing the effects of those moves, why did the Committee feel it was necessary to keep moving?

assistant: Well, we—the reason is that we—again, with our monetary policy we’re try—trying to reach and then—and then stay at a, for an extended period, a level of policy—a policy stance that’s sufficiently restrictive to bring inflation down to 2 percent over time. And, you know, that’s what we’re trying to do with our—with our tool. I think slowing down was the right move. I, I think it’s enabled us to see more data, and it will continue to do so. So I, I—you know, we really—you know, we have to balance. We always have to balance the risk of not doing enough and, and not getting inflation under control against the risk of maybe slowing down economic activity too much. And we thought that this rate hike, along with the meaningful change in, in our policy statement, was the right way to balance that.

user: And just to follow up, you know, what you said in response to Howard’s question—you’ll need data to accumulate to determine if this is a sufficiently restrictive stance. Does that data need to accumulate, or could it accumulate over a longer period than a six-week intermeeting cycle?

assistant: Yeah. I mean, as I mentioned, I would just say that this assessment will be an ongoing one. You—you know, you can’t—with, with economic data, you, you can’t—you’ve, you’ve seen—take inflation for a minute. Look, look back. We’ve seen inflation come down—move back up two or three times since March of 2021. We’ve seen inflation have a few months of coming down and then come right back up. So I think you’re going to want to see that—you know, that a few months of data will, will persuade you that you’ve—that you’ve got this right, thing. And, you know, we, we have the luxury: We’ve raised 500 basis points. I think that policy is tight. I think real rates are probably—that you can calculate them many different ways. But one way is to look at the nominal rate and then subtract a, a reasonable estimate of, of, let’s say, one-year inflation, which might be 3 percent. So you’ve got 2 percent real rates. That’s meaningfully above what most people would—many people, anyway, would, would assess as, you know, the neutral rate. So policy is tight. And you see that in interest— interest-sensitive activities. And you also begin to see it more and more in, in other activities. And if you—if you put the—you put the credit tightening on top of that and the QT that’s, that’s ongoing, I think, I think you feel like, you know, we’re, we may not be far off—we’re possibly even at—that level.