Federal Reserve press conference, 2018-12-19 — Chair Jerome Powell

Question (Jeanna Smialek, Bloomberg): Hi, Jeanna Smialek, Bloomberg News. Just following up on Binya’s question—I guess if you haven’t achieved 2 percent inflation and you don’t see an overshoot, which would be sort of implied by a symmetrical target, what’s the point in raising rates again at all?
Answer: So, again, I go back to the health of the economy. If you look at 2018, as I mentioned, this the best year since the financial crisis. You’ve had growth well above trend. You’ve got unemployment dropping. You’ve got inflation moving up to 2 percent. And we also have a positive forecast, as I mentioned, and, in that context, we think this move was appropriate for what is a very healthy economy. Policy at this point does not need to be accommodative. It can move to neutral. It seems appropriate that it be neutral. We’re now at the bottom end of the range of estimates of neutral. So that’s the basis upon which we made the decision. I also think we took on board, you know, the risks to that, and, you know, we’re certainly cognizant of them.

Question (Paul Kiernan, Dow Jones Newswires): Hi, Paul Kiernan from Dow Jones Newswires. Thanks for the question. In Dallas last month you talked about the usefulness of speaking with businesses, sometimes hearing things that aren’t yet showing up in the economic data. And I was just wondering if you’re hearing anything from businesses that might explain the recent market moves. You know, are markets on to something that, again, hasn’t showed up yet in the data? Thanks.
Answer: So, if you look at the Tealbook, or—you know, we get the Tealbook in person from the Reserve Bank presidents who come in, and they share their discussions not just with their directors, but with literally hundreds of business and nonprofit, you know, and labor union people around the country.1 And I personally find it really 1 Chairman Powell was referring to the Beige Book, not the Tealbook. interesting. My background is very much working—starting with, you know, a small group of people, maybe a company, and working out. So that kind of anecdotal data really helps me capture the picture better. So—and, you know, what—what you’re picking up now, I think, is, there’s, you know, a mood of concern, or it’s a mood of angst about growth going forward, if I could just capture it in one thought. There are many reasons that are given for that, but, generally speaking, it’s—it’s a concern about, is growth going to be as strong as it was? Why not? What might it be—to different people? But that mood is out there. That doesn’t mean that it’ll come into the real data in a big way—it may, but—or that financial conditions will tighten further. We’ll just have to see. For now, financial conditions have tightened a little bit. We’ve taken that on board both in the outcomes, in our forecast, but also in a lower rate path to—you know, to provide some accommodation to push back against that tightening. That’s how I think about it.

Question (Don Lee, Los Angeles Times): Don Lee with the L.A. Times. You mentioned broad-based wage gains this year, and I’m wondering if you see further acceleration in wage growth and just how much slack there is in the labor market.
Answer: So what we’ve seen is, is a very gradual—and, I think, ongoing—increase in wages. If you go back a few years, you’ll see that we look at many, many indicators of wages and compensation. But there are four principal ones. And they were all kind of clustered around 2—if you go back five years ago—2 percent increase per year. Now they are all at 3, and they’ve just continued to gradually move up—not perfectly in sync, but—and that’s a number that is, you know, right in keeping with 2 percent inflation and 1 percent productivity growth. So in an economic sense, it makes sense. I do expect, and I think many forecasters expect, that wage increases will continue, and that would be a welcome development. Wage—wage increases do not need to be inflationary. There’s plenty of evidence of situations—for example, in the very tight labor market of the late 1990s of a—I think I mentioned in a speech a month or so ago, we had wage increases above productivity plus inflation, and we didn’t have high inflation. So it would be welcome. We hear a great deal of anecdotal information about labor shortages, along with other, you know, bottlenecks and things. So I would expect that wages will keep moving up, and it doesn’t necessarily mean inflation. We don’t think of it that way. So did that answer your question?

Question (Steven Beckner, NPR): Steve Beckner, freelance financial journalist reporting for NPR, Chairman Powell. I know you look at many different financial indicators, but let me focus your attention briefly on bond yields. The 10-year note yield has gone down pretty steeply, roughly 50 basis points, I think, in recent weeks. I wonder what you make of it. Is it a worrisome sign for you in terms of the outlook for growth, for inflation? On the other hand, could it be a positive, in terms of presumably bringing down mortgage rates and helping the housing sector?
Answer: Again, we do focus on a broad range of financial indicators, and I—really, we don’t obsess about any particular one. You know, we look at a whole range of them, and we ask ourselves, what’s really going on in the broad picture out there? You know, if you ask what’s going on with the long—certainly the long, longer-maturity Treasury market has come in some. That’s consistent with, you know, a risk-off feeling in the stock market as well. And, you know, we don’t know whether that’ll persist. Really, the longer Treasury has moved in a range above 3 percent and down 3 percent as the risk sentiment has changed. You know, I think if rates were to stay low for a longer period of time, that could be thought of as a signal of expectations of lower growth. But, you know, we don’t know that that’ll happen. As I mentioned, our forecast for next year is—I think, in keeping with most other forecasts—is that we’ll still have solid growth next year, declining unemployment, and a healthy economy.