Federal Reserve press conference, 2021-12-15 — Chair Jerome Powell

Question (Nick Timiraos, Wall Street Journal): If I could—if I could follow up, you’ve talked recently about risk management. And so does that mean that the Committee might feel compelled to raise interest rates before you’re convinced that you’ve achieved the employment test in your forward guidance?
Answer: So this is—this is not at all a decision that the Committee has made. But you’re really asking a question about how our framework works. And, yes, there is a— there’s a provision, it used to be called the “balanced approach” provision, that says, in effect, that in situations in which the pursuit of the maximum-employment goal and [the pursuit of] the price-stability goal are not complementary, we have to take account of the distance from the goal and the—and the speed at which we’re approaching it. And so that is, in effect, an “off-ramp” which could, in concept, be taken and it’s in our framework, it’s been in our framework a long time. I’ve talked about it on a number of occasions. It, it is a provision that would enable us to, in this case, because of high inflation, move before achieving maximum employment. Now, we’re—as I said, we’re making rapid progress toward maximum employment in my—in my thinking, in my opinion. And I don’t at all know that we will—that we’ll have to invoke that, that paragraph. But just as a factual matter, that is part of our framework—and has been, really, for a very long time.

Question (Jeanna Smialek, New York Times): Hey, Chairman Powell. Thanks for taking our questions. I wonder if you could talk a little bit about what prompted your recent pivot toward greater wariness around inflation.
Answer: Sure. So I guess I would go back and—you know, it’s been a continual process, really. Inflation really popped up, right? In the late spring last year. And we had a view—it was very, very widely held in the forecasting community—that this would be temporary. It was quite narrow, you know, a limited number of factors were causing it. And there was a decent amount of evidence to support that view, that it would be temporary or transitory, as we said. Certainly, we had five months of declining month on month—monthly readings of inflation, but we didn’t see much in the way of progress on labor supply or on other supply-side issues. Then in September, I’d say after Labor Day, we started to see—it started to become clear that this was both larger in its effect on inflation and more persistent. And, of course, I said so on many occasions, and one of the consequences of that is that we move the taper forward. We moved the taper forward and we—and it’s a much faster taper than had been planned. So we’ve been adapting—I’ve been saying we’re adapting our policy. So coming to your real question, we got the ECI reading on the eve of the November meeting—it was the Friday before the November meeting—and it was very high, 5.7 percent reading for the employment compensation index for the third quarter, not annualized, for the third quarter, just before the meeting. And I thought for a second there whether we—whether we should increase our taper, [We] decided to go ahead with what we had—what we had “socialized.” Then, right after that, we got the next Friday after the meeting, two days after the meeting, we got a very strong employment report and, you know, revisions to prior readings and, and no increase in labor supply. And the Friday after that, we got the CPI, which was a very hot, high reading. And I, honestly, at that point, really decided that I thought we needed to—we needed to look at, at speeding up the taper. And we went to work on that. So that’s, that’s really what happened. It was essentially higher inflation and faster—turns out much faster progress in the labor market. Really, what’s happening is the unemployment rate is catching up—seems to be catching up—with a lot of the other readings of a tight labor market, 6/10 [decline] over one cycle. So that’s really what happened and, you know, widely supported in the Committee today, as you can see—unanimous vote—but beyond that I think widely, widely supported, you know, this, this move.