Federal Reserve press conference, 2022-05-04 — Chair Jerome Powell

Question (Colby Smith, Financial Times): Thank you. Colby Smith from the Financial Times. Given the expectation that inflation will remain well above the Fed’s target at year-end, what constitutes a neutral policy setting in terms of the fed funds rate? And to what extent is it appropriate for policy to move beyond that level at some point this year?
Answer: So—neutral. When we talk about the neutral rate, we’re really talking about the rate that neither pushes economic activity higher nor slows it down. So it’s a concept, really. It’s not something we can identify with any precision. So we estimate it within broad bands of uncertainty. And the current estimates on the Committee are sort of 2 to 3 percent. And also, that’s a longer-run estimate. That’s an estimate for an economy that’s at full employment and 2 percent inflation. So, really, what we’re doing is, we’re raising rates expeditiously to what we see as the broad range of plausible levels of neutral. But we know that there’s not a bright line drawn on the road that tells us when we get there. So we’re going to be looking at financial conditions, right? Our policy affects financial conditions, and financial conditions affect the economy. So we’re going to be looking at the effect of our policy moves on financial conditions. Are they tightening appropriately? And then we’re going to be looking at the effects on the economy. And we’re going to be making a judgment about whether we’ve done enough to get us on a path to restore price stability. It’s that. So if that path happens to involve levels that are higher than estimates of neutral, then we will not hesitate to go to those levels. We won’t. But, again, there’s a sort of false precision in the discussion that we as policymakers don’t really feel. You know, you’re going to raise rates, and you’re going to be kind of inquiring how that is affecting the economy through financial conditions. And, of course, if higher rates are required, then we won’t hesitate to deliver them.

Question (Howard Schneider, Reuters): Howard Schneider with Reuters. And thanks, and nice to be back. So two questions. One quick one. You’ve cited the 1.9 to 1 figure so often now, I’ve got to ask you, what would be a good figure there? What would you like to see that come down to to think that you’re in sort of a noninflationary vacancy-to-unemployed rate? And, secondly, on help from inflation, how much are you counting on wealth effects through stock market channels? Equity markets broadly down quite a bit since late fall, first of the year—how are you mapping that into household consumption? Have they come down enough? Do you need another leg down in equity values to think that households are going to stop spending at the rate we need them to stop spending?
Answer: Okay, so in terms of the vacancies-to-unemployment ratio, we don’t have a goal in mind. There’s no specific number that we’re saying, “We’ve got to get to that.” It’s really, you’ve got to get to a place where the labor market appears to be more in balance. And that depends not only on the level of those things—it also, it depends on how well the matching functions in the labor markets are working. Because, you know, the longer these expansions go on, you can get very efficient with all of that, and the Beveridge curve shifts out. And that also tends to, you know, to help. So there isn’t a specific number. I will say we were— you know, I think, I think when we got to one-to-one in the, you know, in the late teens, we thought that was a pretty good number. But, again, we’re not shooting for any particular number. What we’d like to see is progress, but we’re not really looking at that. That’s an intermediate variable. We’re looking at wages, and we’re looking at, ultimately, inflation. So, you know, there are a bunch of channels through which policy works. You can think of it as, you know, interest-sensitive spending, and then you can think of another big one as asset values broadly. And, you know, there’re big models with, you know, a lot of different channels that are related to that. You know, we don’t focus on any one market—the equity market or the housing market—we focus on financial conditions broadly. So we wouldn’t be targeting any one market, as you suggest, for going up or down or taking a view on whether it’s at a good level or a bad level. We just would be looking at very broad measures of financial conditions—all the different financial conditions indexes, for example, which include equity. But they also include debt and other, many other things—credit spreads, things like that—too.

Question (Edward Lawrence, Fox Business): But we’ve talked with economists who have advised Democrats and Republican Presidents who both said that the Fed is so far behind the curve on inflation that a recession is inevitable.
Answer: So, and as I said, I think we have a good chance to restore price stability without a recession—without, you know, a severe downturn; without materially high, higher unemployment. And I mentioned the reasons for that. So I see a strong economy now. I see a very strong labor market, for example. Businesses can’t find the people to hire—they can’t find them. So, typically, in a recession, you would have unemployment. Now you have surplus demand. So there should be room, in principle, to reduce that surplus demand without putting people out of work. The issue will come that we don’t have precision surgical tools. We have, essentially, interest rates, the balance sheet, and forward guidance, and they’re famously blunt tools. They’re not capable of surgical precision. So I would agree. No one thinks this will be easy, no one thinks it’s straightforward, but there is certainly a plausible path to this, and I do think we’ve got a good chance to do that. And, you know, our job is not to rate the chances—it is to try to achieve it. So that’s what we’re doing. There are a range of opinions, though, and that’s only appropriate.

Question (Steve Dorsey, CBS News): Thanks. Steve Dorsey, CBS. You mentioned earlier, just now, fading fiscal policy. Do you feel that the Fed has been supported enough from policies at the White House and in Congress in combating inflation?
Answer: You know, it’s really the Fed that has responsibility for price stability. And we take whatever arrives at the Fed in terms of fiscal activity, we take it as a given, and we don’t evaluate it—it’s not our job, really. We don’t have an oversight function there. And we look at it as our job, given all the factors that are happening, to try to sustain maximum employment and price stability. So if Congress or the Administration has ways to help with inflation, I would encourage that, but I’m not going to get into making recommendations or anything like that. It’s not, it’s really not our role—we need to stay in our lane and do our job. When we get inflation back under control, then maybe I can, you know, give other people advice [laughter]. Right now, we need to focus on, just focus on doing our job. And I’ll stick to that. Stick in our lane.

Question (Nancy Marshall-Genzer, Marketplace): Hi. Nancy Marshall-Genzer with Marketplace. Chair Powell, I want to ask how you’re able to balance your dual mandate—stable prices and maximum employment—especially when the unemployment rate for Black workers is still roughly double, roughly twice the rate for white workers.
Answer: So unemployment rates for all racial groups have come down a lot and are now much closer to where they were before the pandemic hit. So that’s one thing I would say. And that’s important. But the bigger point is this: I do not, at this time, see the two sides of the mandate as in tension. I don’t, because you can see that the labor market is out of balance. You can see that there’s a labor shortage. There aren’t enough people to fill these job openings. And companies can’t hire, and wages are moving up at levels that would not, over time, be consistent with 2 percent inflation over time. And, of course, everyone loves to see wages go up. And it’s a great thing, but you want them to go up at a sustainable level, because these wages are, to some extent, being eaten up by inflation. So, what that really means is, to get the kind of labor market we really want to get, we really want to have a labor market that serves all Americans, especially the people in the lower-income part of the distribution, especially them. To do that, you’ve got to have price stability. And we’ve got to get back to price stability so that we can have a labor market where people’s wages aren’t being eaten up by inflation and where we can have a long expansion, too. That’s—the good things you can have, as we have. We’ve had—several of the longest expansions in U.S. history have been in the last 40 years, and that’s because it’s been a time of low inflation. And long expansions are good for people and good for the labor market. So that’s the way I think about it. I think we—you know, our tools work. We have to think in the, in the medium and longer term. And I do think that the best thing for everyone is for us to get back to price stability to support, really, a sustained period of strong labor market conditions. Thanks very much.