Federal Reserve press conference, 2018-09-26 — Chair Jerome Powell

Question (Michael McKee, Bloomberg): Mr. Chairman, Michael McKee, Bloomberg Radio and Television. Financial conditions are still extremely loose by all the measures that track that. The flow of funds shows the decline in short-term borrowing other than in Treasuries. So I’m wondering if that suggests a change in the way that tightening affects the economy. And along those lines, you mentioned that you dropped the word “accommodative” doesn’t suggest a change in policy. But if you’re dropping forward guidance in terms of “accommodative,” does the dot plot really serve any purpose anymore if, as you say, you can’t be confident out to 2021 what’s going to happen with the economy?
Answer: A couple questions in there. So the dot plot—I mean, I—it’s not new. I don’t think it’s a new point that forecasts two and three out—two or three years out are fairly uncertain. The dot plot is individual FOMC participants who are writing down their individual views on the evolution of the economy and of appropriate monetary policy. We don’t vote on that. These are individual forecasts. I think market participants generally find that interesting information, and so it seems to me to be serving a purpose. I think the point with “accommodative” was that its useful life was over. You know, we put that in the statement in 2015, just when we lifted off, and the idea was to provide assurance that we weren’t trying to slow down the economy, but, in fact, we were still—interest rates were still going to be pushing to support economic activity. Well, that—you know, that purpose has been well served, and the language now doesn’t really say anything that’s important to the way the Committee is thinking about policy going forward. That’s why that came out. Did I get— did I get all of your ques—?

Question (Binyamin Appelbaum, New York Times): Binya Appelbaum, the New York Times. If I could come back to “accommodative,” do you think of policy as accommodative at present? How close are you to neutrality, and do you share the view of some of your colleagues that you’ll eventually need to be restrictive?
Answer: Okay, so are we accommodative now? So I think if you look at the—look at the dot plot in the SEP, you’ll see that the federal funds rate, even after today’s move, is below the longer-run neutral estimate of every single participant that—who submits a— an estimate of that. So that’s why this is the perfect time to take the language out, because, you know, it’s perfectly clear that there can’t be a signal because, you know, by definition, that means an accommodative policy. So it wasn’t because policy is not accommodative. It is still accommodative. The thinking was more, as I mentioned, it’s more that the language has run its useful life. There’s another point, though, too, which is, you know, we don’t want to suggest either that we have this precise understanding of where “accommodative” stops or suggest that that’s a really important point in our thinking. You know, what we’re going to be doing, assuming we stay on this path, is, we’re going to be carefully monitoring incoming data from the financial markets and from the economy and asking ourselves whether our policy is achieving the goals we want to achieve—you know, sustain the economy, maximum employment, stable prices. That’s the way we’re thinking about it, and that does kind of amount to thinking less about one’s precise point estimate of the neutral rate. So that’s how I think about that.

Question (Greg Robb, MarketWatch): Thank you, Mr. Chairman. Greg Robb from MarketWatch. The 10-year anniversary of the bankruptcy of Lehman Brothers got a lot of attention over the last month. I was wondering if you thought there were any lessons from the crisis that you want to share—and two points on that. You go to Congress a lot and talk to members of Congress. Now, Secretary Paulson and Mr. Geithner and Chair Bernanke have said that Congress made a mistake when it took away the Fed’s emergency powers in Dodd-Frank. And then one other thing is that, are you confident that all these nonbanks didn’t—you know, nonbanks never got put into the, you know, the FSOC, you know, system. So are you confident that the—you can see the risks in the financial system? Thank you.
Answer: So, three things there. The first thing is the single biggest thing I think that we learned was the—as I mentioned, I think, earlier, the importance of maintaining the stability of the financial system. So I think if you look—if you look back at the way the models worked and the way people thought about risk in the economy, that’s what was missing, and I think it’s not missing anymore. So we—you know, we put a tremendous focus on that. We raised capital, liquidity. We have stress tests, which force banks to understand—the largest banks particularly—to understand and better manage their risk and have enough capital to survive a really substantial shock that’s at least as bad as the financial crisis. And if all that doesn’t work, we’ve got resolution plans, which we’ve, you know, through many cycles, have made really substantial progress, more than I had thought was likely. So we’ve done a lot. Nobody’s—you know, nobody is, I think, overconfident that we’ve solved every problem. And, you know, now we’re going back and kind of taking a hard look at everything and, you know, trying to make—trying to—trying to keep at it. So I think those are the really important lessons, and, you know, we—we’re determined not to, you know, not to forget them. And that’s, I think, a risk now—is to—is to forget things that we—that we learned. That’s just human nature over time. I saw the article you’re talking about; the question is, did Congress take things away, emergency powers from the Fed? So there was sort of a trade for taking away our power under 13, section 13(3), to provide support to individual nonbanks, which is really holding companies and other companies. In exchange for that, we got orderly liquidation authority and a resolution authority. Was it a mistake? I don’t think there’s any sense that Congress would seriously look at changing that. I have real doubts about whether it was wise to take away our crisis-fighting tools. I think you put them away, and you hope you never need them, but—and I certainly strongly oppose efforts to take away more of our tools. You know, the third thing you mentioned is the designation power. So it’s a really important power. In my mind, it should be used—my thinking, it should be used sparingly, and that means, you know, in situations where you have—I mean, in principle, you could have another Lehman Brothers come up out of the ground that’s not a bank, and it could be very threatening—or it could be capable of creating systemic risk. And so I think it’s a critical power to have. But, again, I would use it—I would tend to use it fairly sparingly.