Press conference exchange between MATTHEW BOESLER and Fed Chair Jerome Powell:

user: Hi, Chair Powell. Matthew Boesler with Bloomberg News. So, many analysts noted at the time of the March FOMC meeting that at least half of Fed officials’ projections did imply or seemed to imply that a recession was in their baseline forecast as well, given the strong first-quarter GDP tracking estimates. And so I’m just wondering if you could elaborate on, you know, why you’re optimistic that a recession can be avoided, given ’s the Fed staff’s forecast—possibly also the broader Committee’s forecast as well—and, and also, of course, most private-sector forecasters’.

assistant: Yeah. I don’t think—you know, I know what’s printed in the Summary of Economic Projections and all that. I don’t think you can deduce exactly what you said about what participants think, because you don’t know what they were thinking for first- quarter GDP at that point. They could have been thinking about a fairly low number. Anyway, in any case, I’ll just say, I, I continue to think that it’s possible that this time is really different. And the reason is, there’s just so much excess demand, really, in the labor market. It’s, it’s interesting, as, you know, we’ve raised rates by 5 percentage points in 14 months, and the unemployment rate is 3½ percent, pretty much where it was—even lower than where it was when we started. So job openings are still very, very high. We see—by surveys and much, much other evidence—that, that conditions are cooling gradually. But it’s—it really is different. You know, it wasn’t supposed to be possible for job openings to decline by as much of the—as they’ve declined without unemployment going up. Well, that’s what we’ve seen. So we—there are no promises in this. But it just seems that, to me, that it’s possible that we can continue to have a cooling in the labor market without having the big increases in unemployment that have gone with many, you know, prior episodes. Now, that would be against history. I, I fully appreciate that. That would be against the, the pattern. But I do think that it—that this, that the situation in the labor market, with so much excess demand, yet, you know, wages are actually—wages have been moving down. Wage increases have been moving down, and that’s a good sign—down to a more sustainable level. So I think that—I think it’s still possible. I—you know, I think, you know, the, the case of, of avoiding a recession is, in my view, more likely than that of having, having a recession. But it’s not—it’s not that the case of having a recession is—I don’t rule that out, either. It’s, it’s possible that we will have what I hope would be a mild recession.

user: The Committee also noted in March that wage growth was still well above levels that would be consistent with 2 percent inflation. Do you see that as well? And could you explain, you know, how you come to that judgment?

assistant: Sure. So we look at a range of wage, wage measures. And then that’s in nominal. And then—so you assume wages should be equal to productivity increases plus inflation. And so you can—you can look at, you know, the employment compensation index, average hourly earnings, the Atlanta wage tracker, compensation per hour—basically, those four and many others. And you can—you can look at, at what the—what they would have to run at over a long period of time for that to be consistent with 2 percent inflation. They can deviate. You know, corporate margins can go up and down. And there is a feature of long expansions where they do go down—where labor gets a bigger share toward later, later in a recession—sorry, later in an expansion. So, yeah. The, the—you know, and we calculate those, and you have to take the precision with a degree of—a degree of salt. But I would say that what they will show is that, you know, if, if the—if wages are running at 5 percent, 3 percent is closer to where they need to be. Wage increases and closer to 3 percent, roughly, is what it would take to get—to be consistent with inflation over a longer period of time. I—by the way, I don’t want to—I do not think that wages are the principal driver of inflation. You’re asking me a very specific question. I think there are many things. I think wages and prices tend to move together. And it’s very hard to say what’s causing what. But, you know, I’ve never said that, you know, that—that wages are really the principal driver, because I don’t think that’s really right.