Federal Reserve press conference, 2018-03-21 — Chair Jerome Powell

Question (Steve Liesman, CNBC): And your biggest concern or your biggest risk here—is it doing too much, doing too little?
Answer: You know, I think we’re trying to, we’re trying to be, to take the middle ground there. So, you know, on the one hand, the risk would be that we wait too long, and then we have to raise rates quickly, and that foreshortens the expansion. We don’t want to do that. The—on the other side, if we—if we raise rates too quickly, inflation, then, really doesn’t get sustainably up to 2 percent, and, that will hurt us going forward. We need that, and it’s, you know, we need to make sure that inflation expectations are anchored at 2 percent. So we’re trying to take that middle ground, and the Committee continues to believe that the middle ground consists of further gradual increases in the federal funds rate as long as the economy is broadly on this path.

Question (Greg Robb, MarketWatch): Over here. Thank you, Chairman. Thank you very much. Greg Robb from MarketWatch. Several of your colleagues recently have been speaking and expressing concern about financial imbalances and rising signs of financial imbalances. I was wondering if you could give us your view on the asset markets. Are—do you see any bubbles? And do you have the tools you need, you think, to combat those? Thank you very much.
Answer: Since the financial crisis, we’ve been monitoring financial conditions and financial stability issues very carefully, and the FOMC receives regular briefings about the staff framework and, sort of, measures of various aspects of financial—financial stability risks, and the current view of the Committee is that financial stability vulnerabilities are moderate, let’s say. And I’ll go through a couple of pieces of that. So, if you look at the banking system, particularly the large financial institutions, you see higher capital. You see much higher liquidity. You see them more aware of their risks and better able to manage them with stress testing. And if one—if something does go wrong, you’ve got—you’ve got better ability to deal with the failure of those institutions. So, therefore, you don’t see high leverage. You don’t see excess risk-taking in great quantity the way you did see before the crisis. If you look at households, household balance sheets are in much better condition. If you look at nonfinancial corporations, you see—you do see relatively elevated levels of borrowing, but nothing that suggests, you know, serious risks. And, of course, default rates are very low. So those readings look okay. I should mention also that for large financial institutions, they’re no longer funded by a lot of short-term wholesale funding, which can disappear very quickly, so they’re far less vulnerable to liquidity issues. Overall, those aspects, I think, suggest low levels of vulnerability. You identified the—really, one area where—which is an area of focus, which is asset prices. So, in some areas, asset prices are elevated relative to their longer-run historical norms. You can think of some equity prices. You can think of commercial real estate prices in certain markets. But we don’t see it in housing, which is key. And so, overall, if you put all of that into a pie, what you have is moderate vulnerabilities, in our view. In terms of whether we have the tools, you know, we have some tools, and I think we certainly—we use them. We have—I think the stress test is a really important tool that we have for the largest financial institutions and for the smaller financial institutions. We regularly use that to—as a way to test against various, you know, market shocks, certainly for the larger institutions.