Press conference exchange between HOWARD SCHNEIDER and Fed Chair Jerome Powell:

user: Howard Schneider with Reuters, and thanks for the opportunity to ask you a question. So this does seem similar to the dynamic in 2016 during the last transition to a Trump Administration, where the Committee saw slightly tighter policy in part in expected anticipation of the fiscal policy stance that was seen evolving over the year. Some of it was a data mark-to-market exercise, and some of it was anticipation of fiscal. What’s the split on this one? How much of this was accounting for inflation data that was coming in, and how much of it is expecting that there will be inflationary fiscal policy next year?

assistant: I, I’d say—I’d, I’d point to five or six things, and, and I’d start—let me start by saying that we think the economy’s in a really good place, and we think policy’s in a really good place. Let’s remember that the economy’s growing 2½ percent this year, that inflation has come down by 50 percent to, to—from 5.6 percent to 2.6 percent. Headline inflation is 2.5 percent on a 12-month basis. We’re actually in a really good starting place here. But since, you know—so, so what’s really driving the, the slower rate-cut path? First thing is growth is stronger, right? We, the economy grew faster in the second half of 2024, so far, than we had expected and is expected to be above what our expectations in September next year as well. Unemployment is lower, and, you know, in the SEP, you’ll see that participants think that the—that the downside risks are less and uncertainty is less. And so that’s, that’s more strength, right? Inflation is higher, as we talked about. Inflation’s higher this year. It’s also higher in the forecast next year. I’d also point out that we’re, we’re closer to the neutral rate, which is another reason to be cautious about, about further moves. And—but then getting to your—to your point, there’s also, there’s uncertainty—uncertainty around inflation, I pointed out, is actually higher. It’s also—it’s also, in the case of some people, some people—the way I’d say it is this: Some people did take a very preliminary step and start to incorporate highly conditional estimates of economic effects of policies into their forecast at this meeting and said so in the meeting. Some people said they didn’t do so, and some people didn’t, didn’t say whether they did or not. So we have people making a bunch of different approaches to that. But some did identify policy uncertainty as one of the reasons for their, their writing down more uncertainty around inflation. And, you know, the point of that uncertainty is, it’s commonsense thinking that when the path is uncertain you go a little bit slower. It’s not unlike driving on a foggy night or walking into a dark room full of furniture. You just slow down. And so that may have affected some of the people. But as, as I said, there’s a range of—range of approaches on the Committee.

user: If I could follow up on that: You mentioned the risk and uncertainty indexes toward the back of the document. The upside risk to inflation jumped quite substantially. The only thing, really, that’s happened—you, you mentioned that the disinflationary story remains intact, yet the risk weighting has jumped to the upside. The only real thing that’s happened is November 5th, in the meantime. Is it fair to say ’s what’s driving the higher sense of upside risk on inflation?

assistant: Actually, that’s not the only thing that’s happened. What’s happened is that our forecast for inflation for this year, I think, are five-tenths higher than they were in September. So, you’ve got—you had two months of higher inflation, September and October. As I mentioned, November is, is back on track. But, you know, once again we’ve, you know, we’ve had a year-end projection for inflation and it’s fallen apart as we’ve approached the end of the year. So that is certainly a large factor in people’s thinking. I can tell you that might be the single biggest factor is inflation has once again underperformed relative to expectations. It’s still, you know, going to be between 2½ and 3 percent. It’s way below where it was. But, you know, we really want to see progress on inflation, to, to, you know, as I mentioned, as we think about further cuts, we’re going to be looking for progress on inflation. We have been moving sideways on 12-month inflation as the 12-month window moves. That’s in part because inflation was very, very low measured in, in the 4th quarter of 2023. Nonetheless, as we go forward, we’re going to want to be seeing further progress on bringing inflation down and keeping a solid labor market.