Press conference exchange between SIMON RABINOVITCH and Fed Chair Jerome Powell:

user: Thank you, Chair Powell. Simon Rabinovitch with the Economist. One of the factors in the economic resilience to date appears to be a lesser degree of rate sensitivity than in the past. Obviously, we’ve talked about households with long fixed-rate mortgages—also companies that refinanced before last year. What is your thinking about the efficacy of rates and how that’s changed? And then, related to that, how do you think about the distributional consequences in the sense that if you’re a relatively wealthy household with a long fixed-rate mortgage, the past year has not been all that tough with rates going up, whereas if you’re relying on your credit card for supporting your consumption, in fact, times are getting a lot tougher a lot more quickly? Thanks.

assistant: So, what—I guess it’s fair—it’s fair to say that the economy has been stronger than many expected, given, given what’s been happening with, with interest rates. Why is that? Many candidate explanations—possibly—a number of them make sense. One, one is just that household balance sheets and business balance sheets have been stronger than we had understood, and so that, that spending has held up—and that thing. We’re not sure about that. The savings rate for consumers has come down a lot. The question is whether that’s sustainable. That could—it could just mean that the—that the date of effect is, is later. It could also be that for other reasons, the neutral rate of interest is, is higher for—for various reasons. We don’t know that. It could also just be that policy hasn’t been restrictive enough for long enough. And it’s—there are many candidate explanations. We have to, in, in all this uncertainty, make policy, and I, you know, I feel like what we have right now is what’s still a very strong labor market—but that’s coming back into balance. We were making progress on inflation. Growth is strong. But I think by many forecasts—many, many, many forecasts call for growth to, to moderate over the course of the next year. So that’s where we are, and, you know, we have to—we have to deal with what comes. On your second question, which was— sorry, your second question was distributional, but can you—can you be a little clearer about that?

user: Yeah. My point there was that if you’re somebody who has a long fixed-rate mortgage, you’ve been able to endure the higher rates relatively easily. If you’re somebody who’s living month to month off of your credit card, current financing rates are, are punitive.

assistant: Yes. And so the point I would make there is that we’re trying to get inflation back down. The people who are most hurt by inflation are the people who are on a fixed income. If you’re a person who spends all of your income, you don’t really have any meaningful savings. You spend all your income on the basics of life—clothing, food, transportation, heating—the basics—and prices go up by 5, 6, 7 percent, you’re in trouble right away, whereas even, even middle-class people have some savings and some ability to absorb that. So it is for those people as much as for anybody that we need to restore price stability, and, and we, we want to do it as quickly as possible. Obviously, we—we’d like to do that. We’d like the current trend to continue, which is that we’re making progress without seeing the increase in unemployment that we’ve seen past—in past things. But you’re right, though. When we raise rates, people who are, you know, living on credit cards and, and borrowing are going to feel that more. They are. And, of course, people with, with lots of savings also have a—have a much lower marginal propensity to consume, and so they’re not going to—it’s not going to affect them as much.