Federal Reserve press conference, 2023-06-14 — Chair Jerome Powell

Question (Howard Schneider, Reuters): Thanks. Howard Schneider with Reuters. I was just wondering if you could help us understand the, the narrative here because it feels like there’s been a level shift in the—in the dots, stronger GDP, less of a hit to unemployment, slower progress on inflation. And I’m wondering in, in this sort of—where’s the disinflation coming from? The labor market’s going to be stronger it looks like—it’s not coming from there. Demand’s not coming down all that fast. According to GDP—you’ve doubled your, your estimate of GDP. So what’s the—what’s the narrative here? It seems like it’s getting more “immaculate,” rather than more messy.
Answer: So you’re, you’re right that the data came in, I would say, consistent with, but on the high side of, expectations. And if you go back to the old—the former SEP—the last SEP in March, you will see that [compared with March, projected real GDP] growth moved up. These are not huge moves, but growth estimates moved up a bit. Unemployment estimates moved down a bit. Inflation estimates moved up a bit. And, you know, all three of those kind of point in the same direction—which is, you know, that perhaps more [monetary policy] restraint will be necessary than we had thought at the last meeting. So although the level, frankly, is, is pretty—the level of 5.6 [percent] is pretty consistent, if you think about it, where the [expected] federal funds rate was trading before the bank incidents of early March. So—but so we’ve kind of gone back to that. So your question is, where’s the—where’s the disinflation going to come from? And I, you know, I don’t think the story has really changed. We—the Committee has consistently said and believed that the process of getting inflation down is going to be a gradual one. It’s going to take some time. And I think you go back to the—to the three-part framework for [analyzing] core PCE inflation—which is, we think, as good an indicator as you can have for where inflation is going forward. You start with goods. With goods, we need to see continued healing in supply conditions—supply-side conditions. They’ve definitely improved a substantial amount, but if you talk to people in business, they will say it’s not back to where it was. So that’s, that’s one thing. And that should enable goods prices to continue—goods, goods inflation to continue to come down over time. In terms of housing services inflation—that’s another big piece. And, and you are seeing there that new rents in new, new leases are, are coming in at low levels. And it’s really a matter of time as that goes through the pipeline. In fact, I think any forecast that people are making right now about inflation coming down this year will, will contain a big dose of—this year and next year—will contain a, a good amount of, of disinflation [coming] from that source. And, and that’s, again, probably going to come slower than we would [previously have expected it to come into] effect. That leaves, you know, the big sector, which is a little more than half, pardon me, of the—of core PCE inflation that’s not housing services. And, you know, we see only the earliest signs of disinflation there. It’s a sector—it’s a very broad and diverse sector. I would say [that,] in a number of the parts of that sector, the largest cost would be wage cost. It’s the service sector, so it’s, it’s heavily labor intensive. And I think many analysts would say that the key to getting inflation down there is to have a continuing loosening in labor market conditions—which we have seen. We have actually seen, you know—I go through a number of indicators suggesting there has been some loosening in labor market conditions. We need to see that continue. I would almost say that the, the conditions that we need to see in place to get inflation down are, are coming into place. And that would be [real GDP] growth meaningfully below trend. It would be a labor market that’s loosening. It would be goods pipelines getting healthier and healthier and that kind of thing. There, there—the things are in place that we need to see, but the process of that actually working on inflation is going to take some time.

Question (Christopher Rugaber, Associated Press): Thanks. Chris Rugaber at Associated Press. You mentioned that many of the trends are in place that you want to see—core services ex. housing has come in pretty low in the past couple of months. And, as you noted, a significant portion of core inflation is now housing prices. And then we’ve had some quirks in used-car prices. So given that these trends are in place, I guess I’m sort of asking the flip side of Nick’s question: Why signal additional rate hikes? Aren’t things headed in the direction you need? Why not simply give it even more time? Or—it’s surprising to see so much hawkishness in the dots, given what we’re seeing recently.
Answer: Yeah. So, you know, we’ve—remember, we’ve—we’re two and a half years into this—or two and a quarter years into this. And forecasters, including Fed forecasters, have consistently thought that inflation was about to turn down and, you know, traditional—you know, typically forecasted that it would and been wrong. So I think if you—I think if you look at the—at core PCE inflation overall—look at it over the last six months—you’re just not seeing a lot of progress. It’s running, and it’s running at a level, you know, over 4½ percent—far above our, our target and not really, you know, moving down. We want to see it moving down decisively. That’s all. We’re, you know, of course, we’re going to get inflation down to 2 percent over time. We, we don’t want to do—we, we want to do that with the minimum damage we can to the economy, of course. But we have to get inflation down to 2 percent, and we will. And we just don’t see that yet. So, hence, you see today’s policy decision: both, both to write down further rate hikes by the end of this year but also to, you know, to take—to, to moderate somewhat the pace with which we’re moving.

Question (Jonnelle Marte, Bloomberg): Do you think you’ll have to target that with further rate increases?
Answer: Well, I think we, we look at everything. We don’t just look at housing. So I think, you know, the way it works is the individual participants sit in their offices all over the country, and they write down their forecast and—including their most likely forecasts—including their rate forecast. And then they send it in on Friday afternoon, and we cumulate it, and then we publish it for you. So that’s how—that’s how they do that. Well, I don’t know that housing is, is itself going to be driving the rates picture, but it’s part of it.