Federal Reserve press conference, 2024-07-31 — Chair Jerome Powell

Question (Nick Timiraos, Wall Street Journal): And when you talk about seeing something that’s more than whatever softness or slowdown you expect, in the past you’ve said that stronger growth wouldn’t, wouldn’t override better news on inflation. I wonder how that cuts the other way. If you’re seeing more softness in the labor market than what you would expect, does that change the calculus on what you’re looking for out of the inflation numbers to recalibrate policy?
Answer: So we have, we have—growth isn’t one of our three. We have two mandates, as you know. The labor market, maximum employment is one, and stable prices is another. So we weigh—we weigh those two things equally under the law. When we were far away from our inflation mandate, we had to focus on that. Now we’re back, back to a closer to even focus, so we’ll be looking at labor market conditions and asking whether we’re getting what we’re seeing. And, as I said, we’re prepared to respond if we see that it’s—that it’s not what we wanted to see, which was, you know, a gradual normalization of conditions—if we see more than that. And it wouldn’t be any one statistic, although, of course, the unemployment rate is generally thought to be, you know, a single—a good single statistic. But we’d be looking at wages, we’d be looking at participation, we’d be looking at all the things—surveys, quits, hires, all of those things—to determine the overall status of the labor market. But we’re looking at it now. I would say, again, I think you’re back to conditions that are close to 2019 conditions, and that was not an inflationary economy—broadly similar labor markets then. I think inflation was actually—core inflation was actually running below 2 percent. So we don’t think—I don’t now think of the labor market in its current state as a likely source of significant inflationary pressures. So I would—I would not like to see a material further cooling in the labor market, and that’s part of what’s behind our thinking. The other part, of course, is that we have made real progress on inflation. And we’re—we’ve got growing confidence there that we are not quite there yet, but we’re more confident that we’re on a—that we’re on a sustainable path down to 2 percent. So those two things are working together, and we’re factoring those both into our policy.

Question (Victoria Guida, Politico): Is there reason to think that the labor market might behave differently this time than it has historically?
Answer: I think, you know, history doesn’t repeat itself; it rhymes. That statement is very true about the economy. You never assume it’s going to be just the same. An example would be, is there a trend increase in the level of vacancies? There are many, many examples, so it’s never exactly the same. Also, let’s remember that this pandemic era has been one in which so many, you know, apparent rules have been flouted, like the inverted yield curve for starters. So, many, many received—pieces of received wisdom just haven’t worked, and it’s because this situation really is unusual or unique in that so much of this inflation came from the shutdown of the economy and the resulting supply problems in the face of, admittedly, very strong demand. So the whole—the whole situation is not the same as many of the other prior inflation or downturns that we’ve seen or business cycles that we’ve seen. So we’re having to learn. We’re having to, to be very careful about the judgments that we make, I would say. So we don’t assume that these regularities will, will just repeat themselves automatically.

Question (Nancy Marshall-Genzer, Marketplace): Hi, Chair Powell. Nancy Marshall-Genzer with Marketplace. Former New York president Bill Dudley wrote an op-ed in Bloomberg earlier this month, which you probably saw, in which he said, “It might already be too late to fend off a recession by cutting rates, dawdling now unnecessarily increases the risk.” Is he wrong?
Answer: So this is the judgment that we have to make, and we’re, we’re well aware of the judgment. We’re—as I’ve said, we have to weigh the risk of going too soon against the risk of going too late. If we go too soon, we can—we had a lot of advice, you know, to go ahead and cut after the seven good months of last year. We didn’t. We said we needed to see more. Then we saw some higher inflation. We’ve seen one quarter of good inflation, and we’ve seen the labor market move quite a bit. And, as I mentioned, I don’t think it needs to cool off anymore for us to get the inflation results that are related to the labor market—not all inflation is, of course. So I think it’s a difficult judgment to make, and what you see is the judgment of the Committee is that that time is drawing near. That time could be in September if, if the data support that.

Question (Greg Robb, MarketWatch): Thank you so much. In the—in the minutes of the June meeting that came out a few weeks ago, there was a discussion about communications, and some Fed officials said maybe the Fed wasn’t as clear enough about its reaction function. And, and when I talked to the commentators who bless you with their comments [laughter], they say that they really don’t have a sense of what is going to judge, maybe not the first cut, but the pace of the cuts going forward. They don’t have a good sense of that. Is there anything you can say, like how will we judge that?
Answer: Yeah, I mean, I think the reality is that, that forecasters—and this isn’t just the Fed by any means—forecasters have been continually surprised by, for example, the strength of the economy last year. So I think we had to be pretty humble about, about giving forward guidance about this, that, and the other thing. We need to be pretty careful about that. And, you know, when you’re saying you’re going to be data driven, of course, it’s always what the data—how they affect the outlook and the balance of risks, but it’s—nobody has great vision deep into the future. In terms of a reaction function, that’s a—that’s a long-time discussion that people have had forever. I think people have understood for a long time, actually, that we were very focused on bringing down inflation. Nobody was really confused about that. The data have, you know— again, we’ve seen significant improvement in inflation just for the last quarter. Markets move around on that—on the data, really. Not so much—it’s not really what we’re going to do. It’s more just that the data keep coming in, and markets are very, very responsive to that data right now.