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

user: Hey, Chairman Powell. Thanks for taking our questions. I wonder if you could talk a little bit about what prompted your recent pivot toward greater wariness around inflation.

assistant: Sure. So I guess I would go back and—you know, it’s been a continual process, really. Inflation really popped up, right? In the late spring last year. And we had a view—it was very, very widely held in the forecasting community—that this would be temporary. It was quite narrow, you know, a limited number of factors were causing it. And there was a decent amount of evidence to support that view, that it would be temporary or transitory, as we said. Certainly, we had five months of declining month on month—monthly readings of inflation, but we didn’t see much in the way of progress on labor supply or on other supply-side issues. Then in September, I’d say after Labor Day, we started to see—it started to become clear that this was both larger in its effect on inflation and more persistent. And, of course, I said so on many occasions, and one of the consequences of that is that we move the taper forward. We moved the taper forward and we—and it’s a much faster taper than had been planned. So we’ve been adapting—I’ve been saying we’re adapting our policy. So coming to your real question, we got the ECI reading on the eve of the November meeting—it was the Friday before the November meeting—and it was very high, 5.7 percent reading for the employment compensation index for the third quarter, not annualized, for the third quarter, just before the meeting. And I thought for a second there whether we—whether we should increase our taper, We decided to go ahead with what we had—what we had “socialized.” Then, right after that, we got the next Friday after the meeting, two days after the meeting, we got a very strong employment report and, you know, revisions to prior readings and, and no increase in labor supply. And the Friday after that, we got the CPI, which was a very hot, high reading. And I, honestly, at that point, really decided that I thought we needed to—we needed to look at, at speeding up the taper. And we went to work on that. So that’s, that’s really what happened. It was essentially higher inflation and faster—turns out much faster progress in the labor market. Really, what’s happening is the unemployment rate is catching up—seems to be catching up—with a lot of the other readings of a tight labor market, 6/10 decline over one cycle. So that’s really what happened and, you know, widely supported in the Committee today, as you can see—unanimous vote—but beyond that I think widely, widely supported, you know, this, this move.

user: If I could just follow up quickly, you noted that the ECI was one of the things that made you nervous, but you also said earlier that you don’t see signs that wages are actually factoring into inflation yet. And I guess I wonder how you think about the wage picture as, as you’re making these assessments.

assistant: Right. So—but I said—you, you quoted me correctly. It’s, it’s—so far, we don’t see—wages are not a big part of the high-inflation story that we’re seeing. As you look forward, let’s assume that the goods economy does sort itself out, and supply chains get working again, and maybe there’s a rebalancing back to services and all that thing. But what, what that leaves behind is the other things that can lead to persistent inflation. In particular—we don’t see this yet, but if you had something where wages were persistently— increases in real wages were persistently above productivity growth, that puts upward pressure on, on firms, and they raise prices. It would take something that was persistent and material for that to happen. And we don’t see that yet. But with the hot labor market readings— wages we’re seeing, it’s something that we’re—that we’re watching. And the other thing, of course, is, is rents, which are very important. You know, owners’ equivalent rent. That’s another thing which is very economically sensitive. Unlike the things that are causing the inflation now, this is economically sensitive—and so would be expected to move up. And so as the—as some things go down, the question is: Where will we be when we come out the other side of this? And we need to keep our eyes on those things.