Federal Reserve press conference, 2021-04-28 — Chair Jerome Powell

Question (Victoria Guida, Politico): Hi, Chair Powell. I wanted to ask, you’ve talked a lot during this crisis about the need to have a lot of help from fiscal policy and monetary policy to make sure that there’s not long-term scarring in the economy. And I was just wondering, you know, given all of the policies that have been put in place, do you expect there to still be some long-term scarring? And, if so, you know, what are you most worried about? Where are you most worried about that showing up?
Answer: So I would say that we were very worried about scarring, both in the labor market from people being out of—out of the labor market for an extended period of time. The evidence is clear that it becomes much more difficult if you’re out for a long time to get back in and get back to the life that you had. Same thing with these small businesses, many of which are the work of generations. Were we going to wipe out many of those unnecessarily? That was a big concern. I would say that, so far, you know, here we are in late April of 2021. We haven’t experienced that level of scarring either in the labor market or among smaller businesses. So we’re not living that, that downside case that we were very concerned about a year ago. Notwithstanding that, we’re a long way from full employment. We’re—you know, payroll jobs are 8.4 million below where they were in February of 2020. We’ve got a long ways to go. And also, it’s going to be a different economy. So we’ve been hearing a lot from companies that they are—they’ve been looking at deploying better technology and perhaps fewer people, including in some of the service industries that have been employing a lot of people. You know, it, it may well be—it seems quite likely that a number of the people who, who had those service-sector jobs will struggle to find the same job and may need time to find work and get back to the working life they had. These were people who were working in February of 2020. They clearly want to work. So those people are going to need—they’re going to need help. And so, while I would say we haven’t seen really highly elevated levels of unemployment for—you know, up in the teens that we thought we might have for an extended period of time, we’ve still got a lot of people who are out to—out of work. We want to get them back to work as quickly as possible, and that’s really one of the things we’re trying to achieve with our policy.

Question (James Politi, Financial Times): Chair Powell, you said a few weeks ago that it would—thank you, Chair Powell. You said a few weeks ago that it would take a string of months of job creation of about a million to achieve progress towards your goal. Can you define what your, what your definition of “a string of months” is more specifically? And, on inflation, the FOMC said the rise in inflation we’re beginning to see largely reflects transitory factors, as you just described. But why use the word “largely,” and what are the factors driving higher prices that may not be transitory, based on the initial data that you’re seeing?
Answer: So, what is “a string”? What do I mean by “a string”? Well, I would say, what we have right now is one really good—I can tell you what it’s not. It’s not one really good employment reading, which is what we got in March. We got close to a million jobs in March and a very strong labor market reading. And I was just suggesting that we’d want to see more like that. We’re 8½ million jobs below where we were in February of 2020, and that doesn’t account for growth in the labor force and growth in the economy, that trend we were on. So we have—we’re a long way from our, our goals. And we don’t have to get all the way to our goals to taper asset purchases, we just need to make substantial further progress. It’s going to take some time. On, on “largely,” there are a bunch of factors. I was really thinking—we were thinking of the base effects and also the energy effects. I wasn’t meaning to say there are some real effects. I mean, there are always—there are always relative prices going up and down within inflation. You know, there’s a basket for CPI or PCE. There are, you know, many, many, many factors that go into it. Relative prices are always moving up and down. This, this—we think it’s, it’s very fair to say that the increases we see and, frankly, are about to see later this week are largely due to base effects. It would have been more contentious to say “entirely due to base effects” because there are some things that are always going up, and so we just said “largely.”

Question (Nancy Marshall-Genzer, Marketplace): And is there anything specifically that you would be looking to learn there?
Answer: Not really. I mean, I, I think I know what I’ll find there. I, I think you, you connect with these people and what you—again, what you find is, they’re like you. That could be you. I mean, that could be your sister. That could be, you know, your kid. You, you always feel that way in that sort of an encounter, and, you know, it just is a—it’s a—it’s an important thing to engage in, I think. And I think, you know, we bring that understanding into our lives and, frankly, into our work—the work that we do as well.

Question (Michael Derby, Wall Street Journal): Thank you for taking my question. I wanted to ask you another question about inflation, and it has to do with inflation expectations. A number of different surveys and, and market indicators are showing, you know, multiyear highs in inflation expectations ratings. So I wondered, you know, if, if that was something that you saw consistent with your inflation outlook. Is that something that worries you, or do you see that as, maybe, you know, the success of the Fed’s new inflation framework, you know, making it out to the, to the broader public?
Answer: Right. Inflation expectations before the pandemic hit—and here we think of survey, market based—survey being either households or, or economists and, and market based. You look at all of those, and I would say that they were at the low end of what would have been consistent with a 2 percent inflation target, particularly our 2 percent inflation target, which calls for 2 percent average inflation. So they’re at the low end. Inflation expectations actually went down a bit at the beginning of the pandemic, and now they’ve just moved back up to levels broadly—that, that are where they were in 2018, or in some cases 2014, and, I would say, more consistent with our mandate. And we want them to be—we want them to be higher and—you know, on a persistent basis. We want inflation to run a little bit higher than it has been running for the last quarter of a century. We want it to average 2 percent, not 1.7 percent. And for that, we need to see inflation expectations that are consistent with that, really well anchored at 2 percent. We don’t really see that yet, but I would say that, that, you know, breakevens have moved up, in a way. Breakevens are based on CPI, of course, but they’re, they’re now at levels that are—that are pretty close to mandate consistent, whereas before, they were below. We monitor inflation expectations very, very carefully, as you would obviously know. So that’s where—that’s where I would say it is.

Question (Jean Yung, MNI): Hi, Chair Powell. I wanted to ask a, a similar question. We are seeing elevated market valuations, and some economists are concerned that the economy might overheat, at least for a period of time. So should the Fed and other regulators be thinking about tightening capital requirements or extending oversight to the nonbank sector so that financial stability risks stay as low as they have been? Thank you.
Answer: So I think capital requirements for banks are, to me—went up tremendously, really, over the course of the 10 years between the financial crisis and the arrival of the pandemic. And the banks really made it through a real stress test very well and passed three, three of our—two of our stress tests, and that is another one that’s pending. So capital is, is in a good place, as far as I’m concerned, in the banking system. But, to your point, what we saw was—so what, what kind of happened during the pandemic crisis that, that requires attention, and number one is money market funds and corporate bond funds where we saw run dynamics again, and we need to—we’re, we’re looking at that. So we’re looking at ways, and people around the world are looking at ways, to make those vehicles resilient so that they don’t have to be, you know, supported by the government whenever there’s, you know, severely stressed market conditions. It’s a private business. They, they need to have the wherewithal to stay in business and not just count on the Fed and others to—around the world to come in. So that was that. The other one is Treasury market structure. Dealers are committing less capital to that activity now than they were 10 or 15 years ago, and the need for capital is higher because there’s so much more supply of Treasuries. And so there are some questions about Treasury market structure, and there’s a lot of careful work going on to understand whether there’s something we can do about this, because we—you know, the U.S. Treasury market is probably the most single important—single most important market in, in the economy and the world. It needs to be liquid. It needs to function well for the good of our economy and the good of our citizens. So it’s not clear what, what—where that takes you, but we, we are taking a careful look—and the Treasury Department is, is really going to be leading this—at, at Treasury market structure and all of the various aspects of that to make sure that we do have a resilient, strong Treasury market that can work even in difficult times. As, as you know, at the very beginning of the financial—of the—of this recent crisis, there was such a demand for selling Treasuries, including by foreign central banks, that, really, the dealers couldn’t handle the volume. And so what was happening was, the market was really starting to lose function, and that’s—that was a really serious problem which we had to solve through really massive asset purchases. And, you know, so we’d like to, we’d like to see if there isn’t something we can do to—is—do we need to build against that kind of an extreme tail risk, and if so, what would that look like?