Federal Reserve press conference, 2019-10-30 — Chair Jerome Powell

Question (Michael McKee, Bloomberg): If I could follow up—if the markets decide that you need to cut rates again, will you be forced to follow?
Answer: We’ll be looking at a full range of data about the economy and about the risks to the outlook, and I’ve given you a sense of what our outlook is. It’s for moderate growth, a strong labor market, and inflation near our 2 percent objective. If something happens to cause us to materially reassess that outlook, that’s what would cause us to change our views on the appropriate stance of policy.

Question (Heather Long, Washington Post): Hi, Heather Long from the Washington Post. You just said that the risks to the outlook are moving in a positive direction. I’m wondering if you could specify—is that on trade, or are there other matters? This morning we obviously learned that we’ve now had two quarters of contracting business investment, which would seem to be moving the outlook in the other direction.
Answer: So, in terms of risks, what I was referring to there—the principal risks that we’ve been monitoring have been, really, slowing global growth and trade policy developments as well as muted inflation pressure. So I was really referring there to trade developments. We have that phase-one potential agreement with China, which, if signed and put into effect, could have the effect of reducing trade tensions and reducing uncertainty, and that would bode well, we think, for business confidence and perhaps activity over time. So that has the potential for being an improvement in the risk picture. Brexit, I would say, as well—it appears that the risk of a no-deal Brexit seems to have materially declined. I think on both situations there’s plenty of risk left, but I’d have to say that the risks seem to have subsided. You asked about business investment, and that’s right. Business investment has been weak, and today’s reading was weak as well. And it was broad across equipment and other parts of—all parts of business fixed investment were weak. That’s consistent with what we’ve seen, but that’s the economy we’ve had this year. What we’ve had is an economy where the consumer is really driving growth, and, you know, personal consumption expenditures were almost 3 percent in this quarter—in this first reading for the quarter. So, overall, we see the economy as having been resilient to the—you know, the winds that have been blowing this year.

Question (Brendan Greeley, Financial Times): So if you were to describe the shifts that you’ve made so far, it wasn’t just about trade uncertainty. It was about, specifically, these kinds of high-pressure labor gains that you’ve talked about.
Answer: Well, no. It was—so we’ve said it was about three things. It’s been about the slowing global economy. You have a synchronized slowdown in economic activity around the globe. It’s been building for just about 18 months now, and that’s having an effect on U.S. activity. That’s part of the weakness in manufacturing, export, and business investment. We’ve had trade policy uncertainty, which we think also has been weighing on activity and investment and sentiment. And we’ve had inflation, which—we’ve called out the risk of inflation running persistently below 2 percent as a risk that we needed to address. So we’ve been doing it to address all of those things. I would say, the gains in the labor market have been great to see. It’s particularly the fact that people at the lower end of wages have been getting most of the benefit of most of the wage gains in the last couple of years. That’s a great thing. You know from our Fed Listens events that we’ve been hearing from people who live and work in low- and moderate-income communities that this is the best labor market they’ve seen in their lifetime, things like that. And, by the way, that there’s also—there’s still so many people who are, you know, still not in the labor market yet, and that—there’s just a lot more good that can be done there. At the same time, we have to think about the whole economy, and—but, yes, those gains are very positive. We do call them out. They are a reason for us to want to extend the expansion, and that’s something we’re committed to doing.

Question (Victoria Guida, Politico): On the Fed’s balance sheet—you all recently resumed purchases of Treasury bills, and I was just wondering, how long do you expect that to continue? And, given the fact that, you know, the repo operations—it seems like the Fed is having to increase the amount of liquidity—temporary liquidity that it’s injecting into the system. You know, do you still feel like it’s just—that there is not enough reserves in the system? Do you feel like you have a good sense of what’s going on there?
Answer: Okay. So, on the “how long,” what we’ve said is that we expect bill purchases to continue at least into the second quarter of next year. And we’ve said that temporary open market operations we expect to continue, I think, at least until the end of January, I believe. Yes, through January. In terms of the causes, so there’s a lot of forensic work going on by us and by market participants and all kinds of analysts. And, you know, one thing is that we think we need reserves to be back up to the level—the minimum level of reserves that we can have during the various fluctuations that you see with reserves is something like $1.45 trillion or a little higher, and that’s the level in early September. So we’re going to be adding reserves to get back to that place. That’s one thing. There are also—it may be—one thing that was surprising about the episode was that liquidity didn’t seem to flow as one might have expected. We had surveyed the banks carefully about what was their lowest comfortable level of reserves, and many banks that were well above that level did not take that excess cash and invest it in the repo market at much higher rates. They just—they didn’t do that, and so the question is why. And are there things that we can do that would—adjustments that we could make that would allow liquidity to flow more easily in the system without in any way sacrificing safety and soundness or financial stability? So we’re looking at those. Those are not things that can happen that can really address the situation in the short term, but those are a range of things that we’re looking at as well.

Question (Greg Robb, MarketWatch): Thank you. Greg Robb from MarketWatch. Chairman Powell, it seems that the differences all across the country—that different regions are reacting differently to the China trade, and some regions are much weaker than others. There’s this urban versus rural divide, the coasts versus the middle of the country. How does that factor into your policy decisions?
Answer: You know, it’s—monetary policy is famously a blunt instrument. So we can’t—obviously, we can’t raise interest rates some place and lower them other places. But we’re very conscious. The first thing to know is to understand that, that—and we’ve called that out, as you, I’m sure, know, in one of our recent Monetary Policy Reports to Congress. The sort of rural–urban disparities in—you know, in employment, in growth, in all kinds of things, in health outcomes. You know, it’s a big and growing difference—set of differences. We don’t really have, you know, the tools to address that, but we call things out that are important to our economy that we may not be—that we might have—may not have the right tools to best address them, but we call them out because, you know, we’re spending all of our time with the economy, and those are issues that maybe have to be addressed by legislatures and, you know, by—at the national level and at the state level.