Federal Reserve press conference, 2024-01-31 — Chair Jerome Powell

Question (Rachel Siegel, Washington Post): Hi, Chair Powell. Rachel Siegel from the Washington Post. Thanks for taking our questions. So, over the past few years, there have been all these real-time indicators that helped us gain a sharper understanding of where the economy was, like OpenTable data or office attendance. You’ve talked about vacancies in the past. And I’m wondering, at the start of this year, what might be on that dashboard for you that’s giving you the clearest picture of the economy—including on rents—if you could touch on that.
Answer: Yeah. Well, so we’re not—you know, it’s not the pandemic, so we can actually rely on more, more traditional forms. People are working. They’re getting wages, and, and the economy has largely reopened and is broadly normalizing, as you see. So I wouldn’t say we’re looking at that, that sort of more innovative data as much. You know, you point to rents. So, of course, we follow the, the components of inflation very carefully. Which would be: Goods inflation—I talked about that a little bit; you mentioned housing inflation. So the question is, when will these lower market rents find their way into measured rents, as measured, measured in PCE inflation? And we think that’s coming, and we know it’s coming. It’s just a question of when and, and how big it’ll be. So—but that’s in, in everyone’s forecast, I would say. So that will—that will help. But at the same time, we think goods inflation will probably—it’s been giving a lot of disinflation to the effort—and probably that declines over time, but it may well have some, some more time to run. You know, these—the supply chains are not perfectly back to where they were. In addition, it takes time for the, the healing process to get into prices. So there may be still a tailwind. We’ll find out with, with that. So we look at the things that relate to our mandate very carefully, and—as you would imagine.

Question (Steve Liesman, CNBC): Thank you, Mr. Chairman. You’ve said that you would know the neutral rate by its works. So I’m wondering what you could tell me—how do you believe the neutral rate is working or telling you right now that growth is stronger? In other words, how much is the economy really being restrained right now by the current funds rate? And how much restraint does it really need, additionally, if inflation is still coming down?
Answer: So it’s—I think you, you do see in the interest-sensitive parts of the economy—you do see, for example, housing. You see the effects. You do. Your, your second question, though, really, I think, is important, and that is, a lot of this has come through—a lot of the disinflationary process has come through the healing of supply chains and also of the labor market. So you’ve seen the—you know, that other set of factors is really different from other cycles and has brought that working with tighter, tighter policy, which has enabled the supply side to recover—I think is that, that mixture has been behind what has enabled this. So, no—we really do think that we’re having an effect broadly across the economy. I would point to the interest-sensitive parts of the economy as well as spending, generally. But it’s a—it’s a joint story. It’s a complicated story.

Question (Richard Miller, Bloomberg): So that process can continue without a weakening of the labor market, basically, you’re saying?
Answer: I think the, the labor market is—it—I don’t know if I’d—it’s rebalancing. Clearly, that the—there was a fairly severe imbalance between demand for workers and supply at the beginning of the pandemic. So we lost several million workers at the beginning of the pandemic from people dropping out of the labor force. And then when the economy reopened—you remember 2021—you had a severe labor shortage, and it was just—it was everywhere—panic on the part of businesses—couldn’t, couldn’t find people. So, what’s happened is—we expected labor—the labor supply—labor market to come back quickly, and it didn’t. And 2022 was a disappointing year, and, you know, we were kind of thinking, “Well, maybe we won’t get it back.” And then 2023, we did, as you know—so labor force participation came back strongly in ’23, and so did immigration. Immigration came to a halt during the pandemic. So—and so those two forces have significantly lowered the temperature in the labor market to what is still a very strong labor market. It’s still a good labor market for wages and for finding a job, but it’s getting back into balance, and that’s what we want to see. And, you know, one great way to look at that is what’s happening with, with wage increases. And you see it now across the, the major things that we—that we track. It isn’t every quarter, but, overall, there’s a clear trend—still at high levels, but back down to where—what would be consistent with, with where we were before the pandemic and with 2 percent inflation.