Federal Reserve press conference, 2021-01-27 — Chair Jerome Powell

Question (Steve Liesman, CNBC): Thank you, Mr. Chairman. I wonder if I could follow up on Jeanna’s question here. I understand that you do address issues of, of valuations through macroprudential policies in the first instance, but there’s a range of assets. And I know you do watch a range of assets. But from Bitcoin to corporate bonds to the stock market in general to some of these more specific meteoric rises in stocks like GameStop, how do you address the concern that super easy monetary policy—asset purchases and zero interest rates—are potentially fueling a bubble that could cause economic fallout should it burst?
Answer: Let me—let me provide a little context. The shock that the—from the pandemic was unprecedented both in its nature and in its size and in the amount of unemployment that it created and in the shock to economic activity. There’s nothing close to it in our modern economic history. So our response was really to that. And we—we’ve done what we could, first, to restore market function and to provide a bit of relief, then to support the recovery. And, hopefully, we’ll be able to do the third thing, which is to avoid longer-run damage to the—to the economy. Our role assigned by Congress is maximum employment and stable prices and also look after financial stability. So, in a world where, almost a year later, we’re, we’re still 9 million jobs, at least—that’s one way of counting it; it can actually be counted much higher than that— short of maximum employment and people are out of the labor force who were in the labor force—the real unemployment rate is close to 10 percent if you include people that’ve left the labor force—it’s very much appropriate that monetary policy be highly accommodative to support maximum employment and price stability, which is getting inflation back to 2 percent and averaging 2 percent over time. So, on, on matters of financial stability, we have a framework. We don’t look at one thing or two things. We look at—and we made that framework public after the financial crisis so that it could be criticized and understood and we could be held accountable. And, you know, the things that we look at are—we do look at asset prices. We also look at leverage in the banking system. We look at leverage in the non—the nonbanking system, which is to say, corporates and households. And we look at also funding risk. And if you look at it across that range of, of, of readings, they’re each different, but we monitor them carefully. And I would say that financial stability vulnerabilities overall are moderate. Our overall goal is to assure that the financial system itself is resilient to, to shocks of all kinds, that it’s strong and resilient. And that includes not just the banks, but money market funds and, and all different kinds of nonbank financial structures as well. So when we get to the nonfinancial sector, we don’t—we don’t have jurisdiction over that. But—so I would just say that our—that there are many things that go in, as you know, to, to setting asset prices. So if you look at what’s really been driving asset prices, really, in the last couple of months, it isn’t monetary policy. It’s been expectations about vaccines. And it’s also financial—sorry, fiscal policy. Those are—those are the news items that have been driving, driving asset purchases—sorry, asset values in, in recent months. So I, I know that monetary policy does play a role there, but that’s how we look at it. And I think, you know, I think that the connection between low interest rates and, and asset values is probably something that’s not as tight as people think, because a lot of—a lot of different factors are driving asset prices at any given time.

Question (Michael Derby, Wall Street Journal): Yes. Thank you very much. I wanted to ask you, if there is a near- term rise in inflation related to the recovery, how will you determine whether or not it’s something that’s temporary or more enduring? And how much inflation is the Fed willing to tolerate before it acts to restrain price pressures?
Answer: So, on inflation, a couple of things—there are a couple of things that are worth mentioning. One is just that we know that we measure inflation on a trailing 12-month basis. And as we—as we lap the very low inflation readings of March and April of last year, we’ll see measured 12-month inflation move up a few tenths. This is just—they’re called base effects, and, and that’s a—that’s a transient thing that we think will pass. There’s also the possibility—indeed, it’s in some forecasts—that as the economy fully reopens, there’ll be a burst of spending, and—because people will be enthusiastic that the pandemic is over, potentially, and that that could also create some upward pressure on inflation. Now, again, we would see that as something likely to be transient and not to be very large. In both cases, we don’t see those as either lasting or particularly large. So the way we would react is, we’re going to be patient. Expect us to wait and see and not react if we see small and what we would review—we would view as very likely to be transient effects on inflation. I think if you—you know, it helps to look back at, at the inflation dynamics that the United States has had now for some decades and notice that there has been, you know, significant disinflationary pressure for some time, for a couple of decades. Inflation has averaged less than 2 percent for a quarter of a century. And the inflation dynamics, with the flat Phillips curve and low persistence of inflation, is very much intact. Those things, they change over time. We understand that inflation dynamics evolve constantly over time, but they don’t change rapidly. So we think it’s very unlikely that anything we see now would result in, you know, troubling inflation. Of course, if we did get sustained inflation at a level that was uncomfortable, we have tools for that. It’s far harder to deal with, with too low inflation. We know what to do with higher inflation, which is, you know, should the need arise, we, we would have those tools. And we don’t expect to see that at all. In terms of how much, you know, what we’ve said is we’d like to see—because inflation has been running persistently below 2 percent, we’d like to see it run moderately above 2 percent for some time. We have not adopted a formula. We’re not going to adopt a formula. We’re going to—we, we use policy rules and formulas in everything we do, consult them constantly, but we don’t set policy by them. We don’t do that. And so we’re going to preserve an element of judgment. And, again, we’ll seek inflation moderately above 2 percent for some time. And we’ll, we’ll show what that means when we get inflation above 2 percent. The, the way to achieve credibility on that is to actually do it. And so that’s what we’re planning on doing.

Question (Victoria Guida, Politico): Hi, Chair Powell. I just wanted to go back to fiscal stimulus for a second. You know, we just had a $900 billion package, and now Congress is talking about doing more. Do you expect more aid directly to consumers to be inflationary? And, specifically, how worried should lawmakers be about, you know, causing concerning levels of inflation?
Answer: I, I would say that, again, we have been struggling with disinflationary forces for some time. If you look around the world—look in Western Europe, look at Japan—around the world, large economies have, have felt much more downward pressure on inflation, have fallen short of their inflation goals, for some time now. That is the broad global macroeconomic context that we all live in. And we believe that those global forces—which are, you know, aging demographics, advancing technology, and globalization—those, those forces are still in effect. Now, they may slow down, and, and it’s, it’s an interesting question, the extent to which, for example, globalization may slow down or even reverse. Notwithstanding that, inflation dynamics in the United States have, have consisted of a flat Phillips curve and low persistence for, for a long time. We do not expect in the near term that that will change significantly. It may evolve over time, but significant time. You know, these things are—these things are, are changing, but they don’t change at a rapid rate. And there’s—I, I don’t believe that, that they will. So I wouldn’t—I’m, I’m not—I’m much more worried about falling short of a complete recovery and losing people’s careers and lives that they—that they built because they don’t get to work—back to work in time and things like that. I’m more concerned about that and the damage that will do not just to their lives, but to the United States economy, to the productive capacity of the economy. I’m more concerned about that than about the possibility, which exists, of higher inflation. Frankly, we welcome slightly higher inflation, somewhat higher inflation. The kind of troubling inflation that people like me grew up with seems, seems far away and unlikely in, in the both domestic and global context that we’ve been in for some time.