Federal Reserve press conference, 2023-05-03 — Chair Jerome Powell

Question (Steve Liesman, CNBC): Mr. Chairman, can you—oh, thank you. Steve Liesman, CNBC. Can you tell us what the Federal Reserve Board did in the wake of that February presentation where you were informed that Silicon Valley Bank and other banks were experiencing interest rate risks? And can you tell me what supervisory actions you’ve done in the wake of the recent bank failures to make sure that banks are currently appropriately managing interest rate risk? And kind of part 3, but it’s all the same question here—do, do you still think this separation principle that monetary policy and supervision can be handled with different tools? Thank you.
Answer: Sure. So the February 14 presentation—I didn’t remember it very well. But now, of course, I’ve gone back and looked at it very carefully. I did remember it. And what it was was a general presentation. It was an informational briefing of the whole Board— the entire Board. I think all members were there. And it was about interest rate risk in the banks and, and lots of data. And there was one page on Silicon Valley Bank, which talked about, you know, the amount of losses they—or mark-to-market losses they had in their portfolio. There was nothing in it about—that I recall, anyway, about, about the risk of a bank run. So it was—I think the takeaway was, they were going away to do a—an assessment, a vertical—sorry, horizontal assessment of, of banks. It wasn’t—it, it wasn’t presented as an urgent or alarming situation. It was presented as a—as an informational, nondecisional kind of a thing. And I thought it was a good presentation and, and, as I said, did remember it. In terms of what we’re doing—of course, I think banks themselves are, are—many, many banks are now, are attending to liquidity and taking opportunity now, really, since, since the events of, of early March, to build liquidity. And you asked about the separation principle. I— you know, like so many things, it, it’s very useful. But, you know, ultimately, it has its limits. I mean, I, I think in this particular case, we have found that the monetary policy tools and the financial stability tools are not in conflict. They’re both—they’re working well together. We’ve used our, our financial stability tools to support banks through our lending facilities. And, at the same time, we’ve been able to use our monetary policy tools to foster maximum employment and price stability.

Question (Nick Timiraos, Wall Street Journal): Nick Timiraos, Wall Street Journal. Chair Powell, the argument around the end of last year and the beginning of this year to slow down the pace of increases was to give yourself time to study the effects of those moves. After the bank failures in March, as you’ve discussed, the Fed staff projected a recession starting later this year. So my question is why it was necessary to raise interest rates today. Or, put, put differently: If the whole point of slowing down the pace was to see the effects of your moves, and now you’ve, for the last two meetings, been seeing the effects of those moves, why did the Committee feel it was necessary to keep moving?
Answer: Well, we—the reason is that we—again, with our monetary policy we’re try—trying to reach and then—and then stay at a, for an extended period, a level of policy—a policy stance that’s sufficiently restrictive to bring inflation down to 2 percent over time. And, you know, that’s what we’re trying to do with our—with our tool. I think slowing down was the right move. I, I think it’s enabled us to see more data, and it will continue to do so. So I, I—you know, we really—you know, we have to balance. We always have to balance the risk of not doing enough and, and not getting inflation under control against the risk of maybe slowing down economic activity too much. And we thought that this rate hike, along with the meaningful change in, in our policy statement, was the right way to balance that.

Question (Edward Lawrence, Fox Business): Thank you very much, Chair Powell. Edward Lawrence with Fox Business. So if the Federal Reserve gets down to the 3 percent inflation, as the projections show, at the end of this year or close to it, would it be okay for you for a prolonged period of 3 percent inflation and hoping for some outside event to move down to 2 percent target?
Answer: Look—I think we’re always going to have 2 percent as our, our target. We’re always going to be focusing on getting there.

Question (Courtenay Brown, Axios): Courtenay Brown from Axios. I’m curious how you view the role of the overnight reverse repo facility in the context of the current banking stress. Do you think it’s contributing to the stress by making it more attractive for money market funds to compete with banks for deposits? And did the Committee discuss any changes to the structure of the facility? Or do you see that being put on the table in the future? Thanks.
Answer: Sure. So we looked at that very carefully, as you would imagine. And, you know, the—it’s, it’s really not contributing, we don’t think, now. It hasn’t actually been growing. You know, it moved up—moved down and then moved back up to where it was. What happened in the—when, when there were the big deposit flows, which, by the way, have really stabilized now—what happened was, institutional investors took their uninsured deposits and put them in government money market funds, which bought paper from the Federal Home Loan Banks and things like that. Over the course of, of maybe the last year, retail investors had been gradual—as they do in every tightening cycle, they’ve been gradually moving their deposits into higher-yielding places such as CDs and, and other things, including money market funds. So that’s a gradual process that is quite natural and happens during a, a tightening cycle. What was unusual, really, was the institutional investors moving their uninsured deposits and spreading them around and things like that. But it doesn’t seem to have had any—any effect overall on the overnight repo facility. That is really there to, to help us keep rates where they’re supposed to be, and it’s, it’s serving that purpose very well.

Question (Megan Cassella, Barron's): I’m curious, too, how to interpret that and, and the changes to the statement. Is the bar higher now to raise rates at the next meeting, or would a strong jobs report or inflation print be enough to push the Fed to tighten again?
Answer: I don’t want to—I couldn’t—I couldn’t really say. I just think we’re—I think we—look, I think we’ve moved a long way fairly quickly. And I think we can afford to look at the data and, and make a careful assessment.