Federal Reserve press conference, 2023-09-20 — Chair Jerome Powell

Question (Colby Smith, Financial Times): So, right now, it’s still an open question about “sufficiently restrictive”—you’re not saying today that we’ve reached this level?
Answer: We’re not saying—yeah, no, no—clearly, we’re just—what we decided to do is maintain a policy rate and await further data. We want to see convincing evidence, really, that we have reached the appropriate level, and then, you know, we’re— we’ve—we’ve seen progress, and, and we welcome that. But, you know, we need to see more progress before we’ll be willing to—to reach that conclusion.

Question (Steve Liesman, CNBC): Steve Liesman, CNBC. Mr. Chairman, I want to return to Colby’s question here. What is it saying about the Committee’s view of the inflation dynamic in the economy that you achieve the same forecast inflation rate for next year but need another half a point of the funds rate on it? Does it tell you that—does it tell us that the Committee believes inflation to be more persistent—requires more medicine, effectively? And I guess a related question is, if you’re going to project a funds rate above the longer-run rate for four years in a row, at what point do we start to think, “Hey, maybe the longer rate or the neutral rate is actually higher”? Thank you.
Answer: So I, I guess I would point more to—rather than pointing to a sense of inflation having become more persistent, I wouldn’t think—that’s not—we’ve, we’ve seen inflation be more persistent over the course of the past year, but I wouldn’t say that’s something that’s appeared in the recent data. It’s more about stronger economic activity, I would say. So if, if I had to attribute one thing—again, we’re, we’re picking medians here and trying to attribute one explanation. But I think, broadly, stronger economic activity means, means rates— we have to do more with rates, and that’s what—that’s what that meaning is, is telling you. In terms of, of what the neutral rate can be—you know, we—we know it by its works. We only know it by its works, really. We can’t—we can’t—you know, the, the models and, and—that we use, you—ultimately, you only know when you get there and by, by the way the economy reacts. And, again, that’s another reason why we’re—why we’re moving carefully now, because, you know, there are lags here. So it, it may—it may, of course, be that the—that the neutral rate has risen. You do see people—you don’t see the median moving—but you do see people raising their estimates of, of the neutral rate, and it’s certainly plausible that the neutral rate is higher than, than the longer-run rate. Remember—what we write down in the SEP is the longer-run rate. It is certainly possible that, you know, that the—that the neutral rate at this moment is higher than that, and that—that’s part of the explanation for why the economy has been more resilient than, than expected.

Question (Nick Timiraos, Wall Street Journal): Nick Timiraos, the Wall Street Journal. Chair Powell, both you and Vice Chair Williams have indicated that “sufficiently restrictive” will be judged on a real rather than nominal basis, implying some scope for nominal rate cuts next year—provided further compelling evidence that price pressures will continue to subside. Is the FOMC focused on targeting a real level of policy restriction? And can you explain what would constitute enough evidence that will allow the FOMC to normalize the nominal stance of policy while keeping real policy settings sufficiently restrictive?
Answer: I mean, yes—we, we understand that it’s a real rate that will matter and that needs to be sufficiently restrictive. And, again, I would say, you know—you know “sufficiently restrictive” only when you see it. You—it’s not something you can arrive at with confidence in a model or, or in various estimates, you know. And so what are we seeing? We’re, we’re seeing, you know, through a combination of the, you know, the unwinding of the pandemic-related demand and supply distortions and monetary policy’s work in suppressing demand or, or, you know, alleviating very high demand—the combination of those two things is actually working. You’re seeing, you know, inflation coming down. It’s principally now in goods—also in housing services. You begin to see effects of it in nonhousing services as well. So I think—we think that that is working. And I, I think, you know—as we’ve said, we, we want to reach that—we want to reach something that we’re confident gets us to that level. And I think confidence comes from seeing, you know, enough data that you feel like, “Yes, okay, this feels like it—we can—we can, for now, decide that this is the right level and just agree to stay here.” We’re not permanently deciding not to go higher, but, but we would—let’s say, if we get to that level—and then the question is, how long do you stay at that level? And that’s a whole other set of questions. For now, the question is trying to find that level where we think we can stay there. And we haven’t—we haven’t gotten to a point of confidence about that yet. That’s, that’s what we’re—that’s, that’s the stage we’re at, though.