Federal Reserve press conference, 2020-01-29 — Chair Jerome Powell

Question (Steve Liesman, CNBC): Steve Liesman, CNBC. Mr. Chairman, thank you for the question. Following up on Nick’s question, I know you said it’s not QE, but it’s $390 billion over five months, which is a lot to expand the balance sheet. I guess I’d ask one more time on Nick’s question—is there a number that you have in mind? Secondly, a lot of people in the market are sort of concerned that it looks like QE, and they’re trading that way. Are you concerned that the market is embracing this like a QE program, and that the rise in the stock market is linked to it, and you may then experience something of a “taper tantrum” the way Chairman Bernanke did when he tried to roll it off?
Answer: So I’ll just—I’ll repeat that—we think that the—we think we need to continue purchases until the—until reserves are at a level at which they will not go below $1½ trillion, roughly, during the course of the calendar year. And we know that the TGA will move up and down there. So they’ll be much higher than that some of the time, but that’s kind of the number, and we think we’ll reach that sometime in the second quarter. That’s our estimate. But we will—we’ll know it when we get there. We’ll know it because we’ll be able to be—to control the federal funds rate without use of—without active use, ongoing use of open market operations. You know, our intention of these—for these adjustments is just to raise the level of reserves and to allow us to conduct monetary policy in an efficient and effective manner. And that’s—that is our sole intention. I pointed out on other occasions, more than once, the differences—the really specific differences between this and the large-scale asset purchase programs. We’ve been over that. In terms of what affects markets, you know, I think many things affect markets. It’s very hard to say with any precision at any time what is affecting markets. What I can tell you is that you know what our intention is. It is to return reserves to an ample level. We expect that to happen during the second quarter. And our plan as we do that is, as those purchases get to that level, we believe we can gradually reduce them, and we believe we can also gradually reduce repo as—as we reach an ample level, as we’re satisfying demand now more from underlying reserves from bill purchases rather than from repo. And, again, the last thing I’ll say is, we’re prepared to adjust the details of this plan as we’ve shown ourselves willing to do depending on conditions.

Question (Jeanna Smialek, New York Times): Hi, Chair Powell. Jeanna Smialek from the New York Times. I was hoping that you could talk a little bit about the labor market. We’ve recently seen wages moderating a little bit by some measures, maybe even declining a little bit by others. As you mentioned, at the lower end of the sort of talent pool, it seems like we are seeing those wages climb up a little bit, but it doesn’t seem to be consistent across the entire sort of average. I was wondering if you’d talk a little bit about whether you guys are noticing any cracks, or whether you’re worried about that, or how you’re thinking about it.
Answer: The labor market continues to—to perform well. The labor market continues to be strong. We see strong job creation. We see low unemployment. Very importantly, we see labor force participation continuing to move up, really, against expectations. If you go back a few years, you will not find a lot of forecasts suggesting that we could have been at 63.2 percent overall labor force participation or the levels of employment to population that we’re seeing now, let alone the unemployment level. So I think we’ve learned quite a lot of good things about the labor market, good things suggesting that there’s been more room to run. The performance of wages, I think, has to be seen in that context. We saw—if you go back four or five years, the four or five major wage statistics that we track were running at around 2 percent, and now they’re running at around 3 percent, which is theoretically about where they might be at full employment. It would consist of inflation plus—plus productivity growth. The—it’s a bit surprising that, with sustained levels of historically low unemployment, we haven’t seen wages moving up above that level as we have in other long expansions and other periods of low unemployment. So you asked, what can be explaining that? You know, one thing can be that the natural rate of unemployment is still lower than we think, that the labor market is not as tight as it would appear just from the 3½ percent number. And the other can be, I think, that—as I mentioned, the sort of supply-side shock or surprise that we’re receiving from higher labor force participation. People are coming in to the labor market and providing more labor supply, and that is—that’s a great thing. That’s a very healthy thing. We’re a country that has low labor force participation compared to essentially all of our advanced-economy peers, and it’s a very good, positive thing. Nonetheless, it represents more labor supply, and it may be holding down wages.

Question (Heather Long, Washington Post): Heather Long from the Washington Post. I’m wondering, do you think that there is a financial stability risk from climate change? You’ve spoken several times that you think severe weather events are happening more often and that the Fed is monitoring what that could physically do to a bank or a financial institution, but that’s sort of one institution. Do you think there’s a systemwide risk that may—that could develop from climate change?
Answer: So that’s an interesting question—the question being, is there a systemwide financial stability risk? I’d say, over—over the longer term, it’s certainly possible, and I would say that sort of feeds into the way we’re thinking about climate change as an institution. So, as I’ve mentioned, climate change is an important issue, a very important issue, but it’s essentially assigned to many other agencies in the federal government and state governments for leadership on that. And, importantly, society’s overall response to climate change needs to be decided by elected officials and not by the Fed. All of that said, if you look at our mandate, we’ve got a monetary policy mandate and, more immediately perhaps, a supervisory mandate where we’re supervising financial markets, utilities, and financial institutions, banks. And we haven’t—we share overall responsibility for financial stability with a number of agencies. And that latter part—I think the public has every right to expect and will expect that we will assure that the financial system is resilient and robust against the risks from climate change. Now, I think that’s got to be right. We are in the very early stages, as are other central banks, in understanding just what that means. And there’s quite a lot of work going on around the world at other central banks and at the Fed, too, to think that through. But I do think it’s—in that sense, it has to be part of our role, and—but not the overall response of society to climate change. That’s not us.

Question (Christopher Rugaber, Associated Press): Hi, Mr. Chairman. I just wanted to ask about how your balance sheet operations and repo—temporary repos—how they affect the system and who they’re helping. Clearly, they’re mostly designed, as you said, to get—keep the fed funds rate in the range you’re looking for. But, certainly, the repo market is also used heavily by hedge funds and other Wall Street institutions. And so, how would you explain to, sort of, Main Street why you’re doing all this for that market? And how would you address criticism that it is helping mostly Wall Street, along with everything else? Thank you.
Answer: Well, let me just stress that we have a very specific and important reason for caring about money market operations generally, and that just is that we are—our monetary policy decisions are transmitted through the financial markets—through the money markets into other financial markets and into broader financial conditions. So we care that money markets are operating smoothly. And they stopped operating smoothly, briefly, back in September. And so we acted. This is a one-time thing that we’re doing to adjust the level of reserves so that the money markets will be able to operate smoothly on an ongoing basis. Repo markets are important, because that’s where Treasury securities—the purchase of Treasury securities, which is the way—you know, the federal—part of the way the federal government is funding its operations. It’s the way those are financed. So these are largely Treasury securities that have been purchased by dealers to—for distribution to—and buyers, to a substantial extent. That’s what’s going on in the Treasury repo market. So it’s just the financing for—for that. Now, again, we don’t—that activity is a—is a market activity. We’re not looking to eliminate volatility or protect anybody from volatility at all. What we care about is that volatility in the repo market can affect the transmission of—of our policy decisions to federal funds rate, and that really is important for the public.

Question (Mark Hamrick, Bankrate): Thank you. Here we go. Sorry, I had it [the microphone] upside down. That’s not too good. Mr. Chairman, Mark Hamrick with Bankrate. Thank you. I wanted to ask you a question about the—one of the unintended consequences over the years-long low interest rate environment, and that is that savers haven’t gotten as much return as would have otherwise been the case. What would you say to those individuals who’ve seen the Fed again cutting rates, eroding their ability to get a higher return on their savings? And how much would you take their plight into consideration? How much can you sympathize with them?
Answer: Sure. So we—we are assigned a job by Congress, and that is to use our tools to pursue maximum employment and stable prices. And that’s what—that’s our focus. Now, monetary policy is a blunt instrument, but it’s a powerful one. So I think if you look— look at the time since the financial crisis. That was—in the week [wake] of fairly modest growth, it was a powerful recovery in the labor market. And part of that just is the effect of lower interest rates. So, if—so many, many people benefit from low interest rates. In fact, you don’t hear—when you talk to the low- and moderate-income communities, one thing you don’t hear is, “You ought to raise rates.” That’s not what you hear. You hear quite the opposite, which is, you know, “Please do whatever you can to keep this expansion going.” I absolutely sympathize with people. If you’re living on just the interest in a bank or on fixed-income generally, then that’s a challenging thing. On the other hand, if you own a home, home values—the housing market has recovered, other financial assets have recovered, so—but, yes, for some people who are limited to those sources plus whatever other help they get, it can be challenging. I mean, we have to do what’s best for the—for the overall society and the economy. That’s—those are our orders from Congress. Thanks very much.