Press conference exchange between STEVE MATTHEWS and Fed Chair Jerome Powell:

user: Steve Matthews with Bloomberg News. A number of your colleagues have said that the rates will need to go above neutral into a restrictive territory to bring down inflation. One, do you agree with that? And, two, you’ve recently spoken in great praise of Paul Volcker, who had the courage to bring inflation down with recessions in the 1980s. And while it’s certainly not your desire—the soft landing is the big hope of everyone— would this FOMC have the courage to endure recessions to bring inflation down if that were the only way necessary?

assistant: So I think it’s certainly possible that we’ll need to move policy to levels that we see as restrictive as opposed to just neutral. We can’t know that today. That decision is not in front of us today. If we do conclude that we need to do that, then we won’t hesitate to do it. I’ll say again, there’s no bright line, you know, that you’re stepping over. You’re really looking at what our policy stance is and what the market is forecasting for it. You’re looking at financial conditions and how that’s affecting the economy and making a judgment. You know, we won’t be arguing about whose model of the neutral rate is better than the other one. It’s much more about a practical application of our policy tools. And we’re absolutely prepared to do that. It—wouldn’t hesitate if that’s what it takes. So I am, of course—who isn’t an admirer of Paul Volcker? I shouldn’t be singled out in this respect. But I knew him just a little bit and have tremendous admiration for him. And I— But I would phrase it this way: He had the courage to do what he thought was the right thing. That’s what it was. It wasn’t a particular thing. It was that he always did—he always did—what he thought was the right thing. If you read his last autobiography, that really comes through. So that’s what the test is. It isn’t, will we do one particular thing? I would say, we do see, though—we see restoring price stability as absolutely essential for the country in coming years. Without price stability, the economy doesn’t work for anybody, really. And so it’s really essential, particularly for the labor market. If you think about it, like if you look at the last cycle, we had a very, very—longest expansion cycle in our recorded history. In the last two, three years, you had the benefits of this tight labor market going to people in the lower quartiles. And it was, you know, racial, wealth, and income—not wealth, but income gaps were coming down, wage gaps. So it’s a really great thing. We’d all love to get back to that place. But to get back to anything like that place, you need price stability. So, basically, we’ve been hit by historically large inflationary shocks since the pandemic. This isn’t anything like regular business. This is, we have a pandemic, we have the highest unemployment, you know, in—since the Depression. Then we have this outsized response from fiscal policy and monetary policy. Then we have inflation. Then we have a war in Ukraine, which is cutting the commodity, you know, patch in half. And now we have these shutdowns in China. So it’s been a series of inflationary shocks that are really different from anything people have seen in 40 years. So we have to look through that and look at the economy that’s coming out the other side. And we need to somehow find price stability out of this. And it’s obviously going to be very challenging, I think, because you do have, you know, numerous supply shocks, which are famously difficult to deal with. So I guess that’s how I think about it.