Press conference exchange between RACHEL SIEGEL and Fed Chair Jerome Powell:

user: Hi Chair Powell. Rachel Siegel from the Washington Post. Thanks for taking our questions. You’ve spoken before about the pain that would likely be coming for the economy in order to get inflation down. But since the economy has not responded to rate hikes in ways that would normally be expected, have you changed your views on that at all—on how necessary or inevitable that pain would be, say, for the labor market or overall growth?

assistant: Well, I think everyone has been very gratified to see that we’ve been able to achieve, you know, pretty significant progress on inflation without seeing the increase in unemployment that has been very typical of rate hiking cycles like this one. So that’s, that’s a historically unusual and very welcome result. And the same is true of growth. You know, we’ve been saying that we need to see below-potential growth. And growth has been strong, but yet we’re still seeing this. I think I still believe, and my colleagues for the most part I think still believe, that is likely to be true. It is still likely to be true—not a certainty—but likely that we will need to see some slower growth and some softening in the labor market—in labor market conditions to get, you know, to fully restore price stability. So—but it’s only a good thing that we haven’t seen it, and I think we know why. You know, since, since we lifted off, we, we have understood that there are really two processes at work here. One of them—one of which is the unwinding of the distortions to both supply and demand that arose from the pandemic and the response to the pandemic. And the other is, is, you know, restrictive monetary policy, which is moderating demand and giving the supply side time to recover—time and space to recover. So you see those two forces now working together to bring down inflation. But it’s that first one can bring down inflation without the need for higher unemployment or slower growth, it’s just—it’s supply—you know, supply-side improvements like shortages and bottlenecks and that thing going away. It’s getting, you know, a significant increase in the size of the labor market now, both from labor force participation and from immigration. That’s a big supply-side, you know, gain that is really helping the economy, and it’s part of why—part of why GDP is so high is because we’re getting that supply. So, we welcome that. But I think those things will run their course, and we’re probably still going to be left—we think, and I think—we’ll still be left with some ground to cover to get back to full price stability. And that’s where monetary policy and what we do with demand is still going to be important.

user: Against that backdrop, if you’ve gotten any clarity on lags—if you have an economy that’s been so resilient to high rate increases, does that suggest to you that there isn’t necessarily this huge wave of tightening that's still coming through the pipeline and that it may have already come into effect?

assistant: You know, I continue to think it’s very hard to say. So it’s been one year at this meeting—one year ago, this was the fourth of our 75 basis points hikes. So that’s a full year since then. I think we are seeing the effects of, of all the hiking we did last year and this year—we’re seeing it. It’s very hard to know exactly what that might be. But you can, for example—an example where you wouldn’t have felt this yet is, is debt that had been termed out. But it’s going to come due and have to get rolled over next year or the year after. So—and there are little things like that where the effects have just taken time to get into the economy. So I don’t—I think we have to make monetary policy under great uncertainty about how long the lags are. I think trying to make a clear—get a clear answer and say, “I’m just going to assume this is really not a good way to do it.” And this is one of the reasons why we have slowed the process down this year, was to give monetary policy time to get into the economy. And it takes time. We know that, and you can’t rush it. So, doing—slowing down is giving us, I think, a better sense of, of how much more we need to do, if we need to do more.