Press conference exchange between NICK TIMIRAOS and Fed Chair Jerome Powell:

user: Nick Timiraos, the Wall Street Journal. Chair Powell, both you and Vice Chair Williams have indicated that “sufficiently restrictive” will be judged on a real rather than nominal basis, implying some scope for nominal rate cuts next year—provided further compelling evidence that price pressures will continue to subside. Is the FOMC focused on targeting a real level of policy restriction? And can you explain what would constitute enough evidence that will allow the FOMC to normalize the nominal stance of policy while keeping real policy settings sufficiently restrictive?

assistant: I mean, yes—we, we understand that it’s a real rate that will matter and that needs to be sufficiently restrictive. And, again, I would say, you know— “sufficiently restrictive” only when you see it. You—it’s not something you can arrive at with confidence in a model or, or in various estimates, you know. And so what are we seeing? We’re, we’re seeing, you know, through a combination of the, you know, the unwinding of the pandemic-related demand and supply distortions and monetary policy’s work in suppressing demand or, or, you know, alleviating very high demand—the combination of those two things is actually working. You’re seeing, you know, inflation coming down. It’s principally now in goods—also in housing services. You begin to see effects of it in nonhousing services as well. So I think—we think is working. And I, I think, you know—as we’ve said, we, we want to reach that—we want to reach something that we’re confident gets us to that level. And I think confidence comes from seeing, you know, enough data that you feel like, “Yes, okay, this feels like it—we can—we can, for now, decide that this is the right level and just agree to stay here.” We’re not permanently deciding not to go higher, but, but we would—let’s say, if we get to that level—and then the question is, how long do you stay at that level? And that’s a whole other set of questions. For now, the question is trying to find that level where we think we can stay there. And we haven’t—we haven’t gotten to a point of confidence about that yet. That’s, that’s what we’re—that’s, that’s the stage we’re at, though.

user: But it looks like there was—because there was an across-the-board drop in the core PCE projection—core PCE inflation projection for this year, and even then it seems possible that core PCE inflation could come in even lower than the median at 3.7 percent. Would you see a case to raise rates still if it turned out that you were going to achieve the same real rate this year because the decline in inflation proceeds somewhat better than you—than you currently anticipate?

assistant: The decision that we make at, you know, at each meeting and, certainly, at the—at the last two meetings this year—it’s going to depend on the totality of all the data: so, the inflation data, the labor market data, the growth data, the, the balance of risks, and the other events that are happening out there. We’ll make—we take all of that into account, so I can’t really answer a hypothetical about one piece of that. It’ll—it’ll be trying to reach a judgment over whether we should move forward with another rate hike overall and whether that would increase our confidence that, that, yes, this is an appropriate move, and it will help, help us be more confident that we’ve gotten to the level that we need to get to.