Federal Reserve press conference, 2023-02-01 — Chair Jerome Powell

Question (Rachel Siegel, Washington Post): Hi, Chair Powell, thank you for taking our questions. Rachel Siegel from the Washington Post. Over the last quarter, we’ve seen a deceleration in prices, in wages, and a fall in consumer spending, all while the unemployment rate has been able to stay at a historic low. Does this, at all, change your view of how much the unemployment rate would need to go up, if at all, to see inflation come down to the levels you’re looking for?
Answer: So I would say it is a good thing that the disinflation that we have seen so far has not come at the expense of a weaker labor market. But I would also say that that disinflationary process that you now see under way is really at an early stage. What you see is, really, in the goods sector you see inflation now coming down because supply chains have been fixed, demand is shifting back to services, and shortages have been abated. So you see that. In the other—in the housing services sector, we expect inflation to continue moving up for a while but then to come down, assuming that [rent increases associated with] new leases continue to be lower. So, in those two sectors, you’ve got a good story. The issue is that we have a large sector called nonhousing service—core nonhousing services, where we don’t see disinflation yet. But I would say that, so far, what we see is progress but without any weakening in labor market conditions.

Question (Simon Rabinovitch, The Economist): Thank you, Chair Powell. Simon Rabinovitch with the Economist. May I ask a further question about the language around “ongoing increases?” That, of course, implies at least two further rate rises. If you look at fed fund and futures pricing, the implication is that you’ll raise rates one more time and then pause. Are you concerned about that divergence or do you think, if everything breaks right, is that a plausible outcome?
Answer: I’m not particularly concerned about the divergence, no, because it is largely due to the market’s expectation that inflation will move down more quickly. I think that’s the bigger part of that. So, again, as I just mentioned, we—you know, our forecasts— different participants have different forecasts, but, generally, those forecasts are for continued subdued growth, some softening in the labor market but not a recession, not a recession. And we have inflation moving down, you know, into the—somewhere in the mid-threes or maybe lower than that this year. We’ll update that in March, but that’s what we thought in December. Markets are past that. They show inflation coming down, in some cases, much quicker than that. So we’ll just have to see. And we have a different view and—a different view, it’s a different forecast, really. And given our outlook, I just—I don’t see us cutting rates this year if we get—if our outlook turns true, as I mentioned just now. If we do see inflation coming down much more quickly, that’ll play into our policy setting, of course.