Federal Reserve press conference, 2019-12-11 — Chair Jerome Powell

Question (Brendan Greeley, Financial Times): Brendan Greeley from the Financial Times. Given that inflation—whichever measure you choose—has either sort of remained where it is or not increased over the past year as you’ve been dropping the policy rate, what is it that gives you confidence that the Fed has the tools to get inflation back up to target or even overshoot as you just indicated that some people are considering doing?
Answer: Well, it’s just that there is still, empirically, by many, many different—by the work of many different analysts, there is a relationship between resource utilization, by which I mean unemployment, and inflation. It’s just relatively weak. And, by the way, that’s not a bad thing. That means that we can run at low levels of unemployment and have a historically good—in some dimensions—labor market without having to worry about inflation. It also means, though, that it’s not easy to move inflation up. Now, you say, why is there confidence? I mean, I would say there’s more humility than there is confidence in this at this point. It’s been very challenging to get inflation to be at target. If you look around the world, the United States, of all major economies, has been closest to it but still hasn’t quite been able to achieve it. And I would also point out that this year, which has been a good year for the economy, inflation—core inflation is actually running at 1.6 percent, whereas it ran close to 2 percent most of last year. So it’s—it’s a real challenge, and—but I think we’re using our tools as best we can to meet that challenge.

Question (Matthew Boesler, Bloomberg): Hi, Matthew Boesler at Bloomberg. Chair Powell, the Fed policy review this year has largely been discussed in terms of the inflation side of the mandate and the need to shore up inflation expectations. But it seems like the message you’ve been getting from the Fed Listens events and also something else you’ve recently acknowledged is that, you know, the Fed has also been systematically overestimating labor utilization throughout this expansion. So I’m wondering if you could talk a little bit about the extent to which the review is looking at the employment side of the mandate as well. Are there any possibilities, you know, for perhaps systematizing a more asymmetric reaction function with regard to unemployment? Thank you.
Answer: Yes. So the—you know, the focus really is on how to use our strategies, tools, and communications to achieve both sides of the mandate. And you’re right, though, that we’ve talked here a lot about inflation. And I think that the—I think, more broadly, over a period of years—many years—we’ve been learning that the natural rate of unemployment is lower. It’s just been—it’s in estimates not just at the Fed, but among—broadly among economists—labor economists have seen that the connection—that we can sustain much lower levels of unemployment than had been thought. And, as I mentioned, that’s a good thing because that means we—we don’t have to worry so much about inflation. And that’s—and you see the benefits of that in today’s labor market. I—you know, the Fed Listens events are about inflation to a much lesser extent than they are about maximum employment. If you’ve—if you’ve listened to or attended any of those, the discussion—we always focus on inflation as well, but the discussion is really around what’s happening in low- and moderate-income communities and among small businesses. And I think you—you get a perspective, which—you know, we were already getting that from our extensive outreach to community groups and such. But it was help to get—helpful to get it in the context of a monetary policy review. And I think that the fact that these communities have so much— such high levels of unemployment and low levels of labor force participation tells you that there is slack out there. And I think that does also inform our understanding of what we mean by “maximum employment.” And it’s been a very positive—I would say that the Fed Listens events have been—have been extraordinarily positive, and they’re certainly something we’ll repeat. You also see from the business perspective that companies are taking all kinds of measures to—you know, to look through things on people’s résumés that would have perhaps disqualified them in other kinds of environments, training is moving up—you hear just a lot—there are a lot of things going on that suggest that people at the margins of the labor force are being pulled in and being given chances, which is a great thing.

Question (Michael Derby, Dow Jones Newswires): Mike Derby with Dow Jones Newswires. Does the Fed’s dot plot still serve a useful communications purpose, or do you feel that it might be time to retire it or change it in some fashion?
Answer: With—I think properly understood, it can be useful, but that’s been a challenge. You know, I think “properly understood” to me means looking at what it is and not at what it isn’t. And what it is is, it’s an expression of the thinking about individual Committee members about appropriate monetary policy and the path of the economy. Remember that we write all that down, and we send it in, and it gets compiled. But we don’t discuss it at the meeting, and we don’t negotiate a plan. There is no—there’s no agreement. There’s no plan. And I think, particularly at inflection points, it’s hard to convey the reality, which is that policy is always going to depend on the economic outlook and changes in the economic outlook. And when the economic outlook is changing, the dots are—they’re just not a consideration. We’re going to do what we think is the right thing for the economy. And if the fact—dots that we did six months ago or three months ago don’t agree with that, that’s not even in the conversation. So its more—but it can it be useful if—and I think—but, as I said, it’s been a challenge, and so I—I do—I do like to say, if you focus too much on the dots, you can—you can miss the broader picture.