Federal Reserve press conference, 2024-01-31 — Chair Jerome Powell

Question (Nick Timiraos, Wall Street Journal): Nick Timiraos of the Wall Street Journal. Chair Powell, it seems to me you raised rates rapidly over the last two years for two reasons. One was the risk of a wage– price spiral. Two, there were risks of inflation expectations becoming unanchored. This morning’s ECI report for the fourth quarter shows private-sector payroll growth running at a sub–4 percent pace. Inflation expectations are very close to where they were before the inflation emergency of the last three years. And, given that you appear to have substantially cut off these two tail risks and that you’ve judged here today current policy as well into restrictive territory, what good reason is there to keep policy rates above 5 percent? Are you really going to learn more waiting six weeks versus three months from now that you have avoided those two risks?
Answer: So, as you know, almost every participant on the Committee does believe that it will be appropriate to reduce rates and for, for—partly for the reasons that you say. You know, we, we feel like inflation is coming down. Growth has been strong. The labor market is strong. We’re—what we’re trying to do is identify a place where we’re really confident about inflation getting back down to 2 percent so that we can then begin the process of dialing back the restrictive level. So, overall, I think—I think people do believe—and, as you know, the median participant wrote down three rate cuts this year. But I think to get to that place where we feel comfortable starting the process, we need some confirmation that inflation is, in fact, coming down sustainably to 2 percent.

Question (Edward Lawrence, Fox Business): Edward Lawrence from Fox Business. Thank you, Mr. Chairman, for taking this. So, as I’ve—as I’ve heard from some District Fed presidents, is it, in your view, a little premature to think that rate cuts are right around the corner? And then when we do see that first rate cut, is that—should we interpret that as the beginning of a rate-cut cycle, or is it a one-off?
Answer: So I’ll point you to that language on your first question. We, we included that language in the statement to signal clearly that—with strong growth, strong labor market, inflation coming down—the Committee intends to move carefully as we consider when to begin to dial back the restrictive stance that we have in place. So if you take that to the current context—current context, we’re going to be data dependent. We’re going to be looking at this meeting by meeting. Based on the meeting today, I would tell you that I don’t think it’s likely that the Committee will reach a level of confidence by the time of the March meeting to identify March as the time to do that. But that’s, that’s to be seen. So I wouldn’t call—you know, when you say—when you ask me about “in the near term,” I’m hearing that as March. I would say I don’t think that’s—that’s, that’s probably not the most likely case or what we would call the base case. And your second question is—

Question (Evan Ryser, MNI): Hi, Chair Powell. Evan Ryser with MNI Market News. Can you explain a little bit more on what you’re considering when tapering QT? Do you need to see the overnight reverse repo facility all the way down to zero, or is it something that you can start with a couple hundred billion dollars there?
Answer: Not a decision that we’ve made, but I, I wouldn’t think we’d, we’d be—we wouldn’t be taking a position that it’s got to go to zero. I mean, if it—if it were to stabilize at a different level—but that’s, that’s not a decision that we’ve made. That’s, that’s what we’ll be talking about at the March meeting. A whole range of issues will be briefed up, and the Committee will get into—get into all of the issues that will be arising over the course of the next, let’s say, year or so.

Question (Jennifer Schonberger, Yahoo Finance): But just to follow—if inflation stays where it is currently, that would probably mean that the real interest rate becomes more restrictive. Would that mean you’d have to trim more, perhaps, than you already have factored in?
Answer: Well, I think if we—if we came to the view that, that inflation were—that the six-month inflation numbers, which are very close to 2 [percent], were, in “PCE world”—if we came to—if that’s—if we thought that is really where we’re going to be, then, yes, our policy would be in a different place. It would. But, you know, that’s the whole point is, we’re trying to get comfortable and gain confidence that that is where—that inflation is on a sustainable path down to 2 percent or toward 2 percent.

Question (Jeff Cox, CNBC): Thank you, sir. Jeff Cox from CNBC.com. Just kind of looking to put it all together: You talked about basically the, the economy looking strong with 3.3 percent annualized growth in the fourth quarter. Does the strength of the economy speak more loudly to you now than any inflation threat might? That, you know—you’re in a position, in other words, to keep rates elevated as long as the economy stays strong, and you’re more—you’re more tilted towards that. And also, perhaps, are you worried at all that the economy is maybe a little too strong right now and that inflation could come back at some point?
Answer: I’m not so worried about that. You know, it’s—again, we’ve had inflation come down without a slow economy and without, you know, important increases in, in unemployment, and there’s no reason why we should want to get in the way of that process, if it’s going to continue. So I, I am—you know, I think—I think declining inflation—continued declines in inflation are, are really the main thing we’re looking at. Of course, we want the labor market to remain strong, too. We don’t have a growth mandate. We’ve got a, a maximum-employment mandate and a, a price-stability mandate, and those are the two things we look at. Growth only matters to the extent it influences our achievement of those two—of those two mandates. Thank you very much.