Federal Reserve press conference, 2018-06-13 — Chair Jerome Powell

Question (Sam Fleming, Financial Times): Well, thanks very much. Sam Fleming from the Financial Times. Over the weekend, we saw some significant tensions within the G-7. In Canada, there is the potential, obviously, for further action against China right now and retaliatory action from major U.S. trading partners. How big a risk do you currently see this as being to the United States economy? And what kind of feedback are you getting in terms of corporate investment intentions? Is there something that’s beginning to feature more prominently in your own discussions with major U.S. companies? Thanks.
Answer: I ought to start by saying that, you know, Congress has assigned us very important jobs and—you know, maximum employment, stable prices, we have a role in financial stability that we share with other agencies. Congress has very specifically given authority over trade to the executive branch, so I wouldn’t comment on any particular specific trade actions. I will say that we, of course, have—we have broad contacts in—among business leaders around the country. And the Reserve Bank presidents, in particular, have that. And so they report in the Beige Book and then in person at the FOMC meeting. And they do come back and they say that concerns about changes in trade policy are arising, I think it’s fair to say, and also that you’re beginning to hear reports of companies holding off on making investments and hiring people. So right now we don’t see that in the numbers at all. The economy is very strong. The labor market is strong. Growth is strong. We really don’t see it in the numbers. It’s just not there. But—so I would put it down as more of a risk.

Question (Steve Liesman, CNBC): How would you forecast it though?
Answer: I think we’re looking at a reasonable range of estimates and we’re putting every—different participants are putting different estimates in and we’re going to be waiting and seeing.

Question (Steven Beckner, NPR): Steve Beckner, Mr. Chairman, freelance journalist reporting for NPR. About financial conditions, which worries you more—warnings that rising short-term rates are bringing the yield curve closer to inversion, or the fact that long rates have risen very slowly and, in fact, are nearly 20 basis points below their recent high? How do you account for the fact that long rates have been so slow to rise? And what does it say about the inflation outlook as well?
Answer: So let me—let me briefly mention the yield curve. I mean, I— the yield curve is something that people are talking about a lot, including FOMC participants. And I—you have a range of views. It’s something we’re going to continue to be talking about. It’s—but it’s only one of many things, of course, that we talk about. I think that that discussion is really about what is appropriate policy, and how do we think about policy as we approach the neutral rate. How do we understand what the neutral rate is? How do we know where it is? And what are the consequences of being above or below it? That’s really what—when people are talking about the slope of the yield curve, that’s really what they’re talking about. We know why—we know why the yield curve is flattening. It’s because we’re raising the federal funds rate. It makes all the sense in the world that the short end would come up. I think you asked—the harder question is, what’s happening with long rates? And there are many things that move long rates around. Of course, there’s an embedded expectation of the path of short rates. There’s the term premium, which has been very low by historical standards. And so arguments are made that a flatter yield curve has less of a signal embedded in it. In 1 Chairman Powell intended to say that there are pockets of people in the United States who have not yet experienced the economic recovery. addition, I think what you saw most recently that you referred to, Steve, was just risk-on, risk- off. In a risk-off environment, people want to own U.S. Treasuries, and you see—you know, Treasury prices go up, rates go down quite a lot. So—but I think ultimately, you know, what we’re—what we really care about is what’s the appropriate stance of policy. And there’s a— there may be a signal in that long-term rate about what is the neutral rate, and I think that’s why people are paying attention to the yield curve.