Federal Reserve press conference, 2024-12-18 — Chair Jerome Powell

Question (Michael McKee, Bloomberg): If I could follow up by asking about—your formulation for beginning rate cuts included the phrase “we need to have confidence that inflation is moving down towards our target.” Given the fact that you’ve raised your forecast for next year, do you have confidence or are you uncertain about the path of inflation going forward?
Answer: So confidence was our test for raising rates, and, you know, we’ve made—look, look at the broader suite: We’ve made just a great deal of progress. We’re, you know, we’re well into the 2’s in, in core inflation and around 2½ [percent]—or even lower than that, we have been—for headline inflation. So I, I would say I’m confident that inflation has come down a great deal, and I, I’m confident in the story about why it’s come down and why that portends well. And I’ll—and I’ll tell you why. You, again, you do see with housing services inflation, which is one that we’ve really worried, worried about, it really has come down now quite steadily, at a slower pace than we thought, you know, two years ago, but it’s nonetheless steadily coming down as, as market rents, you know, market rents start to equilibrate better with, you know, new leases that turn over. Not, not new tenants, but new leases. Market rents is new leases. So that, that’s happening; that process is ongoing pretty much as we expect. Goods inflation, which is another big piece of it, has returned right to the range where it was before the pandemic. Just for some months this year it kind of moved up in a bumpy way because of used cars and things like that. But we think, overall, that should generally be in the range it was in. Then that leaves nonhousing services, and market-based nonhousing services are in, in good shape. It’s nonmarket services, and those are—those are services that are imputed rather than measured directly, and they, they don’t, we, we think they don’t really tell us much about the, you know, about tightness in the economy. They don’t really reflect that. I mean, a good example is financial services, which is really done off of asset prices, and that just—so that, that’s how that inflation works. So the overall picture, the story of why inflation should be coming down, is still intact. In particular, the labor market—look at the labor market. It’s, it is cooler by so many measures now—modestly cooler than it was in 2019, a year when inflation was well under 2 percent. So it’s not a source of inflationary pressures. Not to say there aren’t regional and, and, you know, particular professions where labor is tight. But, overall, you’re not getting inflationary impulses of any significance from the labor market. So what’s the story? The story is still just, we’re unwinding from these large shocks that the economy got in 2021 and ’22 in, for example, housing services, and now also in, in insurance, in particular, where costs went up, and those are now being reflected later in housing insurance. It’s real inflation, but it doesn’t portend persistently high inflation. So we and most other forecasters still feel that we’re on track to, you know, to get down to 2 percent. It might take another year or two from here, but I, I’m confident that that’s the path we’re on. And, you know, our policy will do everything it can to assure that that is the case.

Question (Edward Lawrence, Fox Business): But, but I think that the markets are looking for, for a little more clarity. I mean, I’ve heard estimates from 2.9 percent to 4 percent. You know, I, I think the markets would like to see a little more clarity about a year out, 18 months out, as to where that, that goalpost, for lack of a better term, is, because at the moment, it looks big.
Answer: Yeah, I mean, honestly, we—you know, there are countless models of what—of what a neutral rate might be at any given time. There, there are empirical models, there are theoretical models, there are things that combine them, and they have as many different answers as you’d like. So there is no real certainty. And, I mean, it’s, it’s actually a good thing to know that we don’t know exactly where it is, so you’re not—you’re not tempted to think, “Oh, I think this model or this estimate is right.” You, you just have to be open to, you know, the empirical data that are coming in and also how it’s affecting the outlook. And it’s not made any easier by the fact that, you know, that our policy works with long and variable lags. Nonetheless, that is the job we have, and so we’re, we’re— I think we need— it’s appropriate for us—for us now to proceed cautiously, now that we’re 100 basis points closer to, to neutral, and we’ll do so. Meanwhile, the economy seems to be in, in good shape, and these cuts will certainly help to support economic activity and the labor market while we can still make progress on inflation, because policy is still meaningfully restrictive.