Jerome H Powell: Opening remarks - Economic Club of New York
luncheon
Opening remarks by Mr Jerome H Powell, Chair of the Board of Governors of the
Federal Reserve System, at the Economic Club of New York Luncheon, New York City,
19 October 2023.
* * *
Before our discussion, I will take a few minutes to discuss recent economic data and
the outlook for monetary policy.
Recent Economic Data
Incoming data over recent months show ongoing progress toward both of our dual
mandate goals-maximum employment and stable prices.
Inflation
By the time the Federal Open Market Committee (FOMC) raised rates in March 2022, it
was clear that restoring price stability would require both the unwinding of
pandemicrelated distortions to supply and demand, and also restrictive monetary policy to cool
strong demand and give supply time to catch up. These forces are now working
together to bring inflation down.
After peaking at 7.1 percent in June 2022, 12-month headline PCE (personal
consumption expenditure) inflation is estimated at 3.5 percent through September.1
Core PCE inflation, which omits the volatile food and energy components, provides a
better indicator of where inflation is heading. Twelve-month core PCE inflation peaked
at 5.6 percent in February 2022 and is estimated at 3.7 percent through September.
Inflation readings turned lower over the summer, a very favorable development. The
September inflation data continued the downward trend but were somewhat less
encouraging. Shorter-term measures of core inflation over the most recent three and six
months are now running below 3 percent. But these shorter-term measures are often
volatile. In any case, inflation is still too high, and a few months of good data are only
the beginning of what it will take to build confidence that inflation is moving down
sustainably toward our goal. We cannot yet know how long these lower readings will
persist, or where inflation will settle over coming quarters. While the path is likely to be
bumpy and take some time, my colleagues and I are united in our commitment to
bringing inflation down sustainably to 2 percent.
The labor market
In the labor market, strong job creation has met a welcome increase in the supply of
workers, due to both higher participation and a rebound of immigration to pre-pandemic
2
levels. Many indicators suggest that, while conditions remain tight, the labor market is
gradually cooling. Job openings have moved well down from their highs and are now
only modestly above pre-pandemic levels. Quits are back to pre-pandemic levels, and
3
the same is true of the wage premium earned by those who change jobs. Surveys of
workers and employers show a return to pre-pandemic levels of tightness. And
indicators of wage growth show a gradual decline toward levels that would be
consistent with 2 percent inflation over time.5
Growth
To date, declining inflation has not come at the cost of meaningfully higher
unemployment-a highly welcome development, but a historically unusual one. Healing
of supply chains in conjunction with the rebalancing of demand and supply in the labor
market has allowed disinflation without substantially weaker economic activity. Indeed,
economic growth has consistently surprised to the upside this year, as most recently
seen in the strong retail sales data released earlier this week. Forecasters generally
expect gross domestic product to come in very strong for the third quarter before
cooling off in the fourth quarter and next year. Still, the record suggests that a
sustainable return to our 2 percent inflation goal is likely to require a period of
belowtrend growth and some further softening in labor market conditions.6
Geopolitical tensions are highly elevated and pose important risks to global economic
activity. Our institutional role at the Federal Reserve is to monitor these developments
for their economic implications, which remain highly uncertain. Speaking for myself, I
found the attack on Israel horrifying, as is the prospect for more loss of innocent lives.
Monetary Policy
Turning to monetary policy, the FOMC has tightened policy substantially over the past
18 months, increasing the federal funds rate by 525 basis points at a historically fast
pace and decreasing our securities holdings by roughly $1 trillion. The stance of policy
is restrictive, meaning that tight policy is putting downward pressure on economic
activity and inflation. Given the fast pace of the tightening, there may still be meaningful
tightening in the pipeline.
My colleagues and I are committed to achieving a stance of policy that is sufficiently
restrictive to bring inflation sustainably down to 2 percent over time, and to keeping
policy restrictive until we are confident that inflation is on a path to that objective. We
are attentive to recent data showing the resilience of economic growth and demand for
labor. Additional evidence of persistently above-trend growth, or that tightness in the
labor market is no longer easing, could put further progress on inflation at risk and could
warrant further tightening of monetary policy.
Along with many other factors, actual and expected changes in the stance of monetary
policy affect broader financial conditions, which in turn affect economic activity,
employment and inflation. Financial conditions have tightened significantly in recent
months, and longer-term bond yields have been an important driving factor in this
tightening. We remain attentive to these developments because persistent changes in
financial conditions can have implications for the path of monetary policy.
Conclusion
My colleagues and I remain resolute in our commitment to returning inflation to 2
percent over time. A range of uncertainties, both old and new, complicate our task of
balancing the risk of tightening monetary policy too much against the risk of tightening
too little. Doing too little could allow above-target inflation to become entrenched and
ultimately require monetary policy to wring more persistent inflation from the economy
at a high cost to employment. Doing too much could also do unnecessary harm to the
economy.
Given the uncertainties and risks, and how far we have come, the Committee is
proceeding carefully. We will make decisions about the extent of additional policy
firming and how long policy will remain restrictive based on the totality of the incoming
data, the evolving outlook, and the balance of risks.
Thank you. I look forward to our conversation.
1
Descriptions of PCE inflation include Board staff estimates of the September 2023
values based on available information, including the September 2023 consumer price
index and producer price index data. The September 2023 PCE inflation data will be
published by the Bureau of Economic Analysis on October 27, 2023.
2
The labor force participation rate has increased by about one-half percentage point
since the end of last year.
3
For example, according to the Atlanta Fed's Wage Growth Tracker, the median wage
growth for job switchers is now only slightly higher than that of job stayers. The size of
this gap is now similar to what was normal pre-pandemic after being elevated in recent
years.
4
A measure of job availability drawn from Conference Board data-showing the
difference between the share of consumers saying that jobs are plentiful and the share
saying that jobs are hard to get-was elevated in 2021-22 but is now below its 2019
average. In data from the National Federation of Independent Businesses, the share of
small business owners reporting difficulty filling job openings has likewise declined
considerably in the last two years and is now only slightly above its 2019 average.
5
One recent indicator, average hourly earnings, grew 0.2 percent in September,
resulting in an annualized 3-month growth rate of 3.4 percent and a 12-month growth
rate of 4.2 percent. By comparison, 12-month average hourly earnings growth peaked
at 5.9 percent in early 2022.
6
For example, the October Blue Chip consensus estimate for annualized real gross
domestic product (GDP) growth in the third quarter is 3.5 percent. Some projections
anticipate even stronger growth, such as GDPNow, which currently anticipates 5.4
percent annualized growth in the third quarter, additional information is available on the
Federal Reserve Bank of Atlanta's website at https://www.atlantafed.org/cqer/research
/gdpnow. The Bureau of Economic Analysis will release its advance estimate of third
quarter real GDP on October 26.