Press conference exchange between COLBY SMITH and Fed Chair Jerome Powell:

user: Thank you so much for taking our questions. Colby Smith with the Financial Times. On the “clear and convincing” threshold for the inflation trajectory, what is the level of realized inflation that meets that criteria? And how is the Committee thinking about the potential tradeoff of much higher unemployment than even in what’s forecasted in the SEP if inflation is not moderating at this acceptable pace?

assistant: The second part I didn’t get.

user: What’s the potential tradeoff with higher unemployment than even what’s forecasted in the SEP if inflation is not moderating at an acceptable pace?

assistant: Right. So, what we want to see is a series of declining monthly readings for inflation, and we’d like to see inflation headed down. But, you know—and right now, our policy rate is well below neutral, right? So, soon enough, we’ll have our policy rate— let’s assume the world works out about like the SEP says: The policy rate will be up where we think it should be. And then the question would be: Do you slow down? Does it make you— you’ll be making these judgments about, is it appropriate now to slow down—from 50 to 25, let’s say—or speed up? So that’s the thinking we’ll be doing, and, again, we’re looking—ultimately, we’re not going to declare victory until we see a series of these, really see convincing evidence, compelling evidence, that inflation is coming down. And that’s what by—that’s what it would take for us to say, “Okay, we think this job is done.” Because we saw—and, frankly, we saw last year—inflation came down over the course of the summer and then turned right around and went back up. So I think we’re going to be careful about declaring victory. But our—again, the implementation of our policy is going to be flexible and sensitive to incoming data.

user: Are you more concerned now that to bring down inflation, it’s going to require more than just some pain at this point?

assistant: Again, I think that—I do think that our objective, and this is what’s reflected in the SEP, but our objective, really, is to bring inflation down to 2 percent while the labor market remains strong. I think that what’s becoming more clear is that many factors that we don’t control are going to play a very significant role in deciding whether that’s possible or not. And there I’m thinking, of course, of commodity prices, the war in Ukraine, supply chain developments, things like that, where we really—the monetary policy stance doesn’t affect those things. But having said that, there is a path for us to get there—it’s not getting easier; it’s getting more challenging because of these external forces—and that path is to move demand down, and you have a lot of surplus demand. Take, for example, in the labor market. So you have two job vacancies, essentially, for every person actively seeking a job, and that has led to a real imbalance in wage negotiating. You could get to a place where that ratio was at a more normal level, and you wouldn’t—you would expect to see those wage pressures move back down to a level where people are still getting healthy wage increases, real wage increases, but at a level that’s consistent with 2 percent inflation. So that’s a possibility. And you could say the same thing about some of the product markets where there’s just excess capacity and really where the strong demand has gone into—sorry, where they’re capacity constrained, right? So you have, effectively, what we think of as a vertical supply curve or close to it. So demand comes in, and it’s very strong, and it shows up in higher prices—not higher quantities, not more cars, because they can’t make the cars because they don’t have the semiconductors. So in principle, that could work in reverse. When demand comes down, you could see—and it’s not guaranteed—but you could see prices coming down more than the typical economic relationships that you see in the textbooks would suggest, because of the unusual situation we’re in on the supply side. So there’s a pathway there. It is not going to be easy, and there—again, it’s our objective, but, as I mentioned, it’s going to depend to some extent on factors we don’t control.