Federal Reserve press conference, 2022-03-16 — Chair Jerome Powell

Question (Jeanna Smialek, New York Times): Hi, Chair Powell. Thank you so much for taking our questions. I wonder if you could detail your thinking a little bit about how you’re considering the, you know, the risks of going too fast and potentially tipping the economy into recession and how you’re weighing those risks against the possibility of going too slowly, allowing inflation to become embedded, and kind of getting “behind the curve.”
Answer: So I guess I would start by saying that, in my view, the probability of a recession within the next year is not particularly elevated. And why do I say that? Aggregate demand is currently strong, and most forecasters expect it to remain so. If you look at the labor market, [you find that it is] also very strong. Conditions are tight, and payroll job growth is continuing at very high levels. Household and business balance sheets are strong. And so all signs are that this is a strong economy and, indeed, one that will be able to flourish—not to say withstand, but certainly flourish—as well in the face of less accommodative monetary policy. So I guess that’s how I would say I’m looking at that. Of course, the objective is to achieve price stability while also sustaining a strong labor market. And that is our overall objective. But we do feel the economy is very strong and well positioned to withstand tighter monetary policy.

Question (Scott Horsley, NPR): Thanks. And I apologize if this covers some of the same ground you just talked about, Mr. Chair. I think I missed some of your answer there. But I have a follow-up question on the labor force. We have seen some gains in the prime-age workforce in the last few months. I wonder what you anticipate when it comes to some of the older workers as the health outlook has changed. Are we going to see more recent retirees following Tom Brady back into the workforce? And what would that mean for wages and inflation?
Answer: It’s hard to say. You know, what we saw in the last cycle was that, over the course of a long, steady expansion, labor force participation outperformed expectations. And that was just a, you know, it was a tight labor market, but it wasn’t—it was nowhere near as tight as this labor market. But it was a tight labor market, and so people stayed in the labor force longer. It wasn’t so much people coming back in the labor force after retirement. That’s not something that happens, in the aggregate, very much. But, so that’s what was happening. And, you know, more labor force participation is tremendously welcome. And, of course, our policy does not in any way preclude that. This is a situation where wages have moved up at the highest rate in a very long time. And people are able to quit their jobs and move to better-paying jobs in the same industry or different industries. So it’s a really attractive labor market for people. And once, you know, as we get past COVID well and truly, it becomes an even more attractive one. So we hope that that will lead to more labor supply. That’s a good thing for the country. It’s a good thing for people. And it also will, we think, help relieve some of the wage pressures that do put inflation more at risk. That last part is, we’ll have to see whether, empirically, it winds up, works out that way. But, in principle, it ought to help with inflation as well. It’s not the only thing we’re looking for, though, from inflation. We’re looking for help from a number of different places and, most importantly, from our own policy.

Question (Richard Miller, Bloomberg): Thank you, Michelle. And thank you, Chair Powell. I’m sorry; I’m having some communication problems. So I missed some of the stuff you’ve said, and my apologies if this has been asked. Since the FOMC met last January, financial conditions have tightened markedly, equity prices down, Treasury yield’s up, bond spread’s risen, yield curve has flattened a lot, and even further just today, dollar’s up. Is that welcome? And would you like to see more in order to achieve your goals? Thank you.
Answer: So, as you know, policy works through financial conditions. That’s how it reaches the real economy—by just the mechanisms you mentioned. And remember that the financial conditions we had for the last couple of years were a function not only of very aggressive, and appropriately so, fiscal policy, but also highly accommodative monetary policy—the monetary policy settings that we put in place at the worst parts of the pandemic. So it is very appropriate to move away from those. And, yes, that will lead to some tightening in financial conditions in the form of higher interest rates and just the sorts of things—we’re not targeting any one or more of those things, but financial conditions generally should move to a more normal level so that—because we know the economy no longer needs, or wants, these very highly accommodative, this stance, which, you know, so it’s time to move to a more normal setting of financial conditions, and we do that by moving monetary policy itself to more normal levels.

Question (Michael McKee, Bloomberg): Mr. Chairman, since September of 2020, you’ve been operating on a monetary policy framework that let the economy run hot to bring unemployment down. That seems to be over. But I’m wondering how you would describe your reaction function now. What is it that the Fed is trying to do other than bring inflation down? In other words, is it, we’re going to keep raising rates until it comes down to an acceptable level?
Answer: Yes. So I want to clear one thing up again. And that is that nothing in our new framework or in the changes that we made has caused us to wait longer to raise interest rates. What we said in the framework changes was—and this was really a reflection of what had happened for the preceding couple of decades, actually. What we said was, if we see, you know, low unemployment, high employment, but we don’t see inflation, then we’re not going to raise rates ’til we actually see inflation. That’s what we said, and that was the sense of it. There was no sense in which, if we got a burst of really high inflation, we would wait to raise rates. That’s simply not in the framework. In fact, quite the contrary. The framework is all about anchoring inflation expectations at 2 percent. So I do hear this, you know, that the framework—really, we can’t blame the framework. It was a sudden, unexpected burst of inflation. And then it was the reaction to it, and it was what it was. But it was not in any way caused by or related to the framework. So, come to today. You know, I think our vision on this on the Committee is very, very clear. What we see is a strong labor market. We see a labor market with a lot of momentum, great job creation. And we see the underlying economy’s strong. Balance sheets are strong. Yes, there are threats to growth from, you know, from what’s going on in Eastern Europe. And, but, nonetheless, in the base case, there’s a pretty broad expectation of strong growth. But inflation is far above our target. And, you know, the help we’ve been expecting and other forecasters have been expecting from supply-side improvement, labor force participation, bottlenecks, all those things getting better—it hasn’t come. And so we’re looking now to using our tools to restore price stability, and we’re committed to doing that. And you see that, I think, in the Summary of Economic Projections. And you see that in the decision we make, and you’ll continue to see it in the decisions we make, going forward.

Question (Simon Rabinovitch, The Economist): Hi. Thank you, Michelle. Thank you, Chair Powell. Sorry to take you away from inflation for one minute. May I ask about the sanctions on Russia and, specifically, the freezing of the central bank assets? Of course, that raises a similar risk for other sovereigns around the world and their biggest companies, potentially. Any concerns about, in the long term, how this might affect the dollar’s status as the preeminent global reserve currency? And in the past couple of weeks, have you had to deliver any kinds of reassurance to other central bankers around the world?
Answer: Well, so, of course, central bankers around the world are generally very in favor of these sanctions. But let me say this: Sanctions are really the business of the elected government, and that’s true everywhere. So the Administration and the Treasury Department, in particular, and other agencies—they create these sanctions. We’re there to provide technical expertise, but they’re not, it’s not our decisions. And so I’m reluctant to comment on sanctions really much because, again, they’re not for us [to decide]. We have a very specific mandate. And these are really the province of elected governments, as I mentioned. So I’d have to leave it at that. Sorry.