Press conference exchange between HOWARD SCHNEIDER and Fed Chair Jerome Powell:

user: Thanks. Howard Schneider with Reuters. I was just wondering if you could help us understand the, the narrative here because it feels like there’s been a level shift in the—in the dots, stronger GDP, less of a hit to unemployment, slower progress on inflation. And I’m wondering in, in this sort of—where’s the disinflation coming from?

assistant: Sure.

user: The labor market’s going to be stronger it looks like—it’s not coming from there. Demand’s not coming down all that fast. According to GDP—you’ve doubled your, your estimate of GDP. So what’s the—what’s the narrative here? It seems like it’s getting more “immaculate,” rather than more messy.

assistant: So you’re, you’re right that the data came in, I would say, consistent with, but on the high side of, expectations. And if you go back to the old—the former SEP—the last SEP in March, you will see that compared with March, projected real GDP growth moved up. These are not huge moves, but growth estimates moved up a bit. Unemployment estimates moved down a bit. Inflation estimates moved up a bit. And, you know, all three of those point in the same direction—which is, you know, that perhaps more monetary policy restraint will be necessary than we had thought at the last meeting. So although the level, frankly, is, is pretty—the level of 5.6 percent is pretty consistent, if you think about it, where the expected federal funds rate was trading before the bank incidents of early March. So—but so we’ve gone back to that. So your question is, where’s the—where’s the disinflation going to come from? And I, you know, I don’t think the story has really changed. We—the Committee has consistently said and believed that the process of getting inflation down is going to be a gradual one. It’s going to take some time. And I think you go back to the—to the three-part framework for analyzing core PCE inflation—which is, we think, as good an indicator as you can have for where inflation is going forward. You start with goods. With goods, we need to see continued healing in supply conditions—supply-side conditions. They’ve definitely improved a substantial amount, but if you talk to people in business, they will say it’s not back to where it was. So that’s, that’s one thing. And that should enable goods prices to continue—goods, goods inflation to continue to come down over time. In terms of housing services inflation—that’s another big piece. And, and you are seeing there that new rents in new, new leases are, are coming in at low levels. And it’s really a matter of time as that goes through the pipeline. In fact, I think any forecast that people are making right now about inflation coming down this year will, will contain a big dose of—this year and next year—will contain a, a good amount of, of disinflation coming from that source. And, and that’s, again, probably going to come slower than we would previously have expected it to come into effect. That leaves, you know, the big sector, which is a little more than half, pardon me, of the—of core PCE inflation that’s not housing services. And, you know, we see only the earliest signs of disinflation there. It’s a sector—it’s a very broad and diverse sector. I would say that, in a number of the parts of that sector, the largest cost would be wage cost. It’s the service sector, so it’s, it’s heavily labor intensive. And I think many analysts would say that the key to getting inflation down there is to have a continuing loosening in labor market conditions—which we have seen. We have actually seen, you know—I go through a number of indicators suggesting there has been some loosening in labor market conditions. We need to see that continue. I would almost say that the, the conditions that we need to see in place to get inflation down are, are coming into place. And that would be real GDP growth meaningfully below trend. It would be a labor market that’s loosening. It would be goods pipelines getting healthier and healthier and that kind of thing. There, there—the things are in place that we need to see, but the process of that actually working on inflation is going to take some time.