Press conference exchange between MICHAEL MCKEE and Fed Chair Jerome Powell:

user: Michael McKee from Bloomberg Radio and Television. Even though you’ve cut rates by 100 basis points this year, we haven’t seen much change in mortgages, auto loan rates, or credit card rates. You say you’re significantly restrictive. Are you running a risk that the markets are fighting against you and the economy could be more at risk of a slowdown than you anticipate?

assistant: So the, the risks that you—sorry, the rates that you talked about are, are really longer-run rates, and they’re affected, they are affected to some extent by Fed policy, but they’re also affected by many other things. And longer rates have actually gone up quite a bit since September, as, as you well know, and those are the things that drive, for example, mortgage rates more than short-term rates do. So we look at that, but we look at all financial conditions, and then we look at what’s happening in the economy. So what we see happening in the economy, again, is, you know, most forecasters have been calling for a slowdown in growth for a very long time, and it keeps not happening. So we have—we’re now well into another year of growth. It looks like it might be 2½ percent. Third and—second and third quarters were right about at the same level. So the U.S. economy is just performing very, very well. Substantially better than our global peer group. And I, I—there’s no reason to think a downturn is, is any more likely than it—than it usually is. So, the outlook is pretty bright for our economy. We have to stay on task, though, and continue to have restrictive policies so that we can get inflation down to 2 percent. We’re also going to be looking out for the labor market. We want to keep the labor market pretty close to where it is. We’re pretty close to estimates of the, the natural rate of unemployment. Job creation is, is a little below the, the level that would keep it there but, nonetheless, close. And so that’s what our policy’s trying to achieve.

user: If I could follow up by asking about—your formulation for beginning rate cuts included the phrase “we need to have confidence that inflation is moving down towards our target.” Given the fact that you’ve raised your forecast for next year, do you have confidence or are you uncertain about the path of inflation going forward?

assistant: So confidence was our test for raising rates, and, you know, we’ve made—look, look at the broader suite: We’ve made just a great deal of progress. We’re, you know, we’re well into the 2’s in, in core inflation and around 2½ percent—or even lower than that, we have been—for headline inflation. So I, I would say I’m confident that inflation has come down a great deal, and I, I’m confident in the story about why it’s come down and why that portends well. And I’ll—and I’ll tell you why. You, again, you do see with housing services inflation, which is one that we’ve really worried, worried about, it really has come down now quite steadily, at a slower pace than we thought, you know, two years ago, but it’s nonetheless steadily coming down as, as market rents, you know, market rents start to equilibrate better with, you know, new leases that turn over. Not, not new tenants, but new leases. Market rents is new leases. So that, that’s happening; that process is ongoing pretty much as we expect. Goods inflation, which is another big piece of it, has returned right to the range where it was before the pandemic. Just for some months this year it moved up in a bumpy way because of used cars and things like that. But we think, overall, that should generally be in the range it was in. Then that leaves nonhousing services, and market-based nonhousing services are in, in good shape. It’s nonmarket services, and those are—those are services that are imputed rather than measured directly, and they, they don’t, we, we think they don’t really tell us much about the, you know, about tightness in the economy. They don’t really reflect that. I mean, a good example is financial services, which is really done off of asset prices, and that just—so that, that’s how that inflation works. So the overall picture, the story of why inflation should be coming down, is still intact. In particular, the labor market—look at the labor market. It’s, it is cooler by so many measures now—modestly cooler than it was in 2019, a year when inflation was well under 2 percent. So it’s not a source of inflationary pressures. Not to say there aren’t regional and, and, you know, particular professions where labor is tight. But, overall, you’re not getting inflationary impulses of any significance from the labor market. So what’s the story? The story is still just, we’re unwinding from these large shocks that the economy got in 2021 and ’22 in, for example, housing services, and now also in, in insurance, in particular, where costs went up, and those are now being reflected later in housing insurance. It’s real inflation, but it doesn’t portend persistently high inflation. So we and most other forecasters still feel that we’re on track to, you know, to get down to 2 percent. It might take another year or two from here, but I, I’m confident ’s the path we’re on. And, you know, our policy will do everything it can to assure is the case.