Federal Reserve press conference, 2023-07-26 — Chair Jerome Powell

Question (Nick Timiraos, Wall Street Journal): Nick Timiraos of the Wall Street Journal. Chair Powell, markets widely believe the median FOMC participant’s inflation forecast from June for the fourth quarter of this year will be too high, given autos and shelter, and that by September, that may warrant a downward revision in the inflation forecast of 20 to 30 basis points. Would that type of inflation progress be enough to hold rates steady from here, or do you need to see below-trend growth and decelerating labor income growth to be convinced that you’ve done enough?
Answer: So it’s hard to pick the pieces apart and say, you know, how much of this and how much of that. You know, we’ll be looking at everything. And, you know, we’ll, of course, we’ll be looking to see whether the signal from June’s CPI is replicated or, or the opposite of replicated or whether it’s somewhere in the middle. We’ll be looking at the growth data. We’ll be looking at the labor market data very closely, of course, and making an overall judgment about that. It’s the totality of the data, I think, but with a particular focus on, on making progress on inflation.

Question (Colby Smith, Financial Times): Thank you. Colby Smith with the Financial Times. If September is, in fact, a live meeting, how does that square with the need for a more gradual tightening pace that you spoke of last month in explaining the rationale for holding the funds rate steady at the June meeting?
Answer: So a more gradual pace doesn’t go immediately to [moving] every other meeting. It could be two out of three meetings, right? It could be—it just means if you’re slowing down, the point really was to slow down the decision cycle as, as we get closer and closer to, we think, our destination. And I wouldn’t want to go automatically to [moving] every other meeting, because I just don’t think that’s—we don’t—I think it’s not an environment where we want to provide a lot of forward guidance. There’s a lot of uncertainty out there. We just want to keep moving at what we think is the right pace, and I do think it makes all the sense in the world to slow down as we now make these finely judged decisions, and so that’s what we did. And so I, I think it’s possible. I mentioned it before. It’s possible that we would move at consecutive meetings—we’re not taking that off the table—or we might not. It’s really going to depend on what the data tell us. That’s the best we can do.

Question (Rachel Siegel, Washington Post): Hi, Chair Powell. Rachel Siegel from the Washington Post. Thanks for taking our questions. Could you break down the reasons why inflation has fallen and what share of that credit you would give to factors that don’t stem directly from rate hikes or that might be within your control at all, like easing supply chains and a drop in energy prices over the past year?
Answer: Yeah. So, interesting question. So let me start by saying that the inflation surge that we saw in the pandemic resulted from a collision of elevated demand and, and constrained supply, both of which followed from the unprecedented features of the pandemic and the response from fiscal and monetary policy. And we’ve always expected that the disinflationary process would stem from, both from the normalization of those broad pandemic- related supply and demand conditions and from restrictive, restrictive monetary policy, which would help return the balance between supply and demand by restraining demand. And we think that’s broadly what we’re—what we’re seeing. So to go, break it down a little further: Of course, headline inflation has come down sharply from elevated levels as energy and food prices have come down, mostly due to [a] reversal of the effects [on those prices that resulted] from the war in Ukraine. And that’s, that’s a good thing, and the public experiences that, as I mentioned earlier. For core inflation, I’d say there also—there has been a role for, for most—for, for both factors, both that I mentioned. Clearly, for goods, normalization of supply conditions is playing an important role, as is the reversal, the beginning of the reversal, of spending—back into services and away from goods. And take autos as an example. The combination of an increase in sales and inventories, while, while vehicle inflation has decelerated, points to a substantial role for supply, but there’s also a role for demand, as, you know, the loans and things like that are more expensive. So they’re both working there. Housing services inflation now starts to move down. Clearly, higher rates have, have slowed the housing market. You know, I would say, monetary policy is working about as we expect, and we think—we think it’ll play an important role going forward, in particular in nonhousing services, where, really, we think that’s, that’s where the labor market will come in as a very, very important factor. So we think both of those—both of those sources of disinflation are playing an important role.