Press conference exchange between JEANNA SMIALEK and Fed Chair Jerome Powell:

user: Jeanna Smialek, New York Times. Thanks for taking our questions. The SEP, like you mentioned, suggests that the Fed will be making another ¾ percentage points worth of rate increases in 2023. I wonder if you would foresee that being in 25 basis point increments, 50 basis point increments— how you see the speed playing out going forward. And then I wonder what you’re looking at as you determine when to stop.

assistant: So, as I’ve been saying, as we’ve gone through the course of this year, as we lifted off and got into the course of the year and we saw the—how strong inflation was and how persistent, it was very important to move quickly. In fact, the speed—the pace with which we’re moving was the most important thing. I think now that we’re coming to the end of this year, we’ve raised 425 basis points this year, and we’re into restrictive territory. It’s now not so important how fast we go. It’s far more important to think, what is the ultimate level? And then it’s—at a certain point, the question will become, how long do we remain restrictive? That will become the most important question. But I would say the most important question now is no longer the speed. So—and that applies to February as well. So I think we’ll make the February decision based on the incoming data and where we see financial conditions, where we see the economy. And that’ll be the key thing, but—I mean, for that decision. But, ultimately, that question about how high to raise rates is going to be one that we make looking at our progress on inflation, looking at where financial conditions are, and making an assessment of whether policy is restrictive enough. As I’ve told you today, we have an assessment that we’re not at a restrictive enough stance, even with today’s move. And we’ve laid out our own—our individual assessments of what we would need to do to get there. At a certain point, though, we’ll get to that point. And then the question will be, how long do we stay there? And there, the strong view on the Committee is that we’ll need to stay there, you know, until we’re really confident that inflation is coming down in a sustained way. And we think will be some time. Now, why do I say that? If you look at—you can break inflation down into three, sort of, buckets. The first is goods inflation, and we see now, as we’ve been expecting, really, for a year and a half, that supply conditions would get better. And, ultimately, supply chains get fixed, and demand settles down a little bit and maybe goes back to services a little bit. And we start to see goods inflation coming down. We’re now starting to see that in this report and the last one. Then you go to housing services. We know the story there is that housing services inflation has been very, very high and will continue to go up, actually. As rents expire and have to be renewed, they’re going to be renewed into a market where rates are higher than they were when the original leases were signed. But we see that the new leases that are—that the rate for new leases is coming down. So, once we work our way through that backlog, that inflation will come down sometime next year. The third piece, which is something like 55 percent of the index, PCE core inflation index, is non-housing-related core services. And that’s really a function of the labor market, largely. The biggest cost, by far, in that sector is labor. And we do see a very, very strong labor market, one where we haven’t seen much softening, where job growth is very high, where wages are very high. Vacancies are quite elevated, and, really, there’s an imbalance in the labor market between supply and demand. So that part of it, which is the biggest part, is likely to take a substantial period to get down. The other—you know, the goods inflation has turned pretty quickly now after not turning at all for a year and a half. Now it seems to be turning. But there’s an expectation, really, that the services inflation will not move down so quickly, so that we’ll have to stay at it, so that we may have to raise rates higher to get to where we want to go. And that’s really why we are writing down those high rates and why we’re expecting that they’ll have to remain high for a time.