Federal Reserve press conference, 2019-06-19 — Chair Jerome Powell

Question (Steve Liesman, CNBC): Mr. Chairman, Steve Liesman, CNBC. Could you walk us through your thinking about trade? It was really the threat of tariffs against Mexico that caused at least the market to become definitively banking, or—pricing in rate cuts. If, for example, there’s a deal with China, does that take the possibility of rate cuts off the table?
Answer: Yeah, so I would say that we’re not looking at any one thing. I guess I would start by agreeing with your premise that news about trade has been an important driver of sentiment in the intermeeting period. But we’re also looking at global growth. It’s really trade developments and concerns about global growth that are on our minds. So we’re not exclusively focused on one event or one piece of data. Risks seem to have grown. In the meantime, we have incoming data in the United States that’s been pretty good, particularly for the consumer: Consumer spending is solid supported by, you know, a healthy job market, high levels of employment, wages going up. We do see, though, some areas that we’re looking at, such as, I mentioned, business fixed income.2 So—also, the prolonged shortfall in inflation and perhaps job growth—we don’t like to look at one job report. We like to average over three or six months, but still that bears watching. So we’ll be monitoring the implications of all of those developments for the U.S. economic outlook. We expect to learn a good deal more, as I mentioned. And we’ll be asking the question whether those risks are going to continue to weigh on the outlook. And then, in the end, we’ll use our tools as appropriate to sustain this long expansion.

Question (Jeanna Smialek, New York Times): Hi, Chair Powell. I was hoping that—this is Jeanna Smialek from the New York Times. I was hoping that you could clarify for us a little bit how you’re thinking 2 Chair Powell intended to say “business fixed investment.” about the risks of waiting too long to cut rates versus the risks of cutting rates prematurely—sort of, what the balance of risks are and how you talk about that.
Answer: Right. So we’re always trying to balance that risk, but I would say that, given the quite recent nature of some of the events, I think the Committee felt, though, that the right thing to do was to wait and see more. And we will see a lot more on all of these issues in the very near term. So I don’t think the risk of waiting too long is prominent right now. I would say, as a general matter, it’s always something that we have to weigh. But I think we believe that the right thing here is to watch carefully in the near term and see how these risks unfold and see whether they continue to weigh on the outlook.

Question (Donna Borak, CNN): Donna Borak with CNN. Thanks, Chairman Powell. Democratic presidential candidate Elizabeth Warren has provided a proposal to revalue the U.S. dollar in order to address concerns about rising trade deficits. The President himself has routinely complained about the strength of the U.S. dollar, saying it has resulted in, quote, “tremendous,” close quote, competitive advantage with countries like China and others. Do you think that an overvalued dollar has been a drag on America’s global competitiveness? And would you support an intervention of some kind on this issue?
Answer: The U.S. Treasury has responsibility for exchange rate policy, not the Fed, and we don’t comment, in that sense, on the level of the dollar. We have the responsibility for maximum employment and stable prices, and we use our tools to achieve that. Of course, we do that through changing financial conditions, and one of those is the dollar, but we don’t target the dollar. It’s just something that we don’t do. In fact, central banks—or, rather, nations, when they get together, routinely adopt a communique that says we will target our domestic, economic, and financial conditions and not our exchange rate in using monetary policy, and that includes the United States, that includes the G-20 communique that we adopted 10 days ago. So I’m not the right person to ask about that sort of dollar policy intervention.

Question (John Heltman, American Banker): John Heltman with American Banker. I have a question about the Fed’s—or, I guess, the bank regulators’ leveraged lending guidance from 2013. As you know, the GAO had a letter saying that they thought it was a rule, and it sort of went away. But yet leveraged lending is a source of concern. You yourself have said that credit underwriting quality seems to be deteriorating somewhat lately, and that the Fed has tools to supervise banks and to prevent leveraged lending from becoming too much of an issue. I want to know what the—is the 2013 guidance still representative of the, sort of, Fed’s thinking about leveraged lending? And does the Fed have any intent—intention to either issue, like, a leveraged lending rule or a new guidance that is less problematic? Or is the plan to just kind of carry on with supervision as you’re—as you are?
Answer: So the 2013 guidance is not binding, and that’s what came out of the GAO review. But that’s really the beginning of this—of the story. You know, we have the authority we need to examine the banks for safety and soundness exposure. So, this—the first thing you start with as a bank supervisor is the risks that the banks are taking to themselves through their portfolio, through the risks that they’re running and the pipeline—you know, the obligations that they’ve undertaken to underwrite deals. And so we monitor that very carefully—so do the banks—and you see exposures that are much smaller than they were before the crisis. And, by the way, we test that regularly in the stress tests. We impose very large losses on those portfolios, so we kind of have a sense of what that is, whereas before the crisis, there was a lot of lack of knowledge about what the losses would be. So that’s where it starts for us in supervision, is the risks that the banks are running—you know, running on their own books and to themselves and to each other. So, in that, I feel—I feel like that is—that’s in a good place, but we never—we never say “Mission accomplished” on that. We will keep—you know, keep monitoring that carefully. What’s happened, though, is, the paper is now owned by market-based vehicles: collateralized loan obligations, mutual funds, and things like that. And so we now have—you know, we have a good sense of, domestically, of where that paper is. I think, internationally, not as much, and the Financial Stability Board is actually looking more carefully at that. And we— you know, we monitor those vehicles to see what they are. And they’re actually pretty stably funded, in the sense that there’s no run risk, but there’s still macroeconomic risk. And, you know, this is something that we take very seriously and that the FSOC, the Financial Stability Oversight Council, is looking at. And, you know, we call it out as a macroeconomic risk, but it’s not really a financial stability risk, in the sense that it could undermine the ability of the financial system to do its job of intermediating credit.