Press conference exchange between MEGAN CASSELLA and Fed Chair Jerome Powell:

user: Hi, Chair Powell. Megan Cassella with Barron’s. Thanks for taking our questions. I wanted to see if you could talk about the neutral rate. You mentioned today that you’re still debating whether rates are sufficiently restrictive, and you’ve recently said that evidence is suggesting policy is not too tight right now. So I was curious if you could elaborate on that at all and whether that means the neutral rate, in your view, has risen.

assistant: Yeah. So first thing to say is that it’s very important. It’s a very important variable in, in the way we think about monetary policy, but you can’t identify it with any precision in real time. And we know that. So you have to just take that—you have to take your estimate of it with a grain of salt. What we know now is, you know, within a range of estimates of the neutral rate policy, is restrictive, and it’s therefore putting downward pressure on economic activity, hiring, and inflation. So we do—we do talk about this. There’s not any debate or attempt to, you know, to agree as a group on what—whether r* has moved or not. Some people think it has, some people haven’t said—that don’t think it has. Ultimately, it’s unknowable, and so really again, what we’re focused on is, you know, looking at the data and giving ourselves a little more time now to look carefully at the data by being careful in our moves. Does it—does it feel like monetary policy is restrictive enough to bring inflation down to 2 percent over time? That’s the question we’re asking ourselves. I think, you know, years from now economists will be revising their estimates of r* as it existed on November 1, 2023. You can’t—we can’t really wait for that in making policy. We have to look—we have to have those models and look at them and think about them, and, ultimately, we’ve got to look at the effects that policy is having, accounting for the lags, which makes it difficult.

user: If I could follow up on a wages point. Earlier you talked about the inflation outlook, but I’m curious if you have any concerns whether wage inflation at its current level could be—could risk pushing up overall inflation or re-acceleration?

assistant: So, if you look at the—look at the broad range of wages, they have— wage increases have really come down significantly over the course of the last 18 months to a level where they’re substantially closer to that level that would be consistent with 2 percent inflation over time, making standard assumptions about productivity over time. So it’s much closer than it was. And that’s true of the ECI, which is the one that’s—the one that we got this week. It’s true of average hourly earnings and compensation per hour, too. So—and all of them are saying that, which is great. And you have to look at a group of them because any one of them can be idiosyncratic from—in any given reading. So that’s what you see. And so what you saw with the ECI reading was, if you look back a couple—it comes out four times a year—if you look back a couple of quarters, you’ll see it was much higher, then it came down substantially in June. And then the September reading was more or less at the same level as the June reading. So, in a way, it’s just validating that decline, and it was very close to our expectations internally, too. So I think we feel good about that. Also I would say it isn’t—in my thinking, it’s not the case that, that wages have been the principal driver of inflation so far, although I think it’s all—I do think it’s fair to say that, as we go forward, as monetary policy becomes more important relative to the supply-side issues I’ve talked about in the unwinding of the pandemic effects, it may be that the labor market becomes more important over time, too.