Federal Reserve press conference, 2022-06-15 — Chair Jerome Powell

Question (Colby Smith, Financial Times): 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?
Answer: 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 kind of 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 I mean 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.

Question (Matthew Boesler, Bloomberg): Hi, Chair Powell. Matthew Boesler with Bloomberg. So, as you just mentioned, the Committee is now projecting a ½ percentage point rise in the unemployment rate and the SEPs over the next couple of years, and it removed a line from its policy statement about thinking that the labor market can remain strong while it tightens policy. You just mentioned that that is still your objective, though, so I’m wondering if you could explain why that line was removed from the statement—also whether this means the FOMC is trying to induce a recession now to bring inflation down.
Answer: Not trying to induce a recession now. Let’s be clear about that. We’re trying to achieve 2 percent inflation consistent with a strong labor market. That’s what we’re trying to do. So let me talk about that sentence. Clearly, it’s our goal to bring about 2 percent inflation while keeping the labor market strong, right? And that’s kind of what the SEP says. The SEP has inflation getting down to 2, a little above 2 percent in 2024, with unemployment at 4.1 percent. And this is a strong labor market—this is a good labor market. And, as I mentioned, there are pathways to do it. But those pathways have become much more challenging due to factors that are not under our control. Again, thinking here of the fallout from the war in Ukraine, which has brought a spike in prices of energy, food, fertilizer, industrial chemicals, and also just the supply chains more broadly, which have been larger and longer lasting than anticipated. So the sentence that we deleted said that we believe that appropriate monetary policy, effectively alone, can bring about the result of 2 percent inflation with a strong labor market. And so much of it is really not down to monetary policy. It just didn’t—the sentence isn’t—it kind of says on its face that monetary policy alone can do this. And that’s not—that just didn’t seem appropriate, so we took the sentence out.