Federal Reserve press conference, 2022-06-15 — Chair Jerome Powell

Question (Jeanna Smialek, New York Times): Thanks for taking our questions. Jeanna Smialek with the New York Times. You—I guess I wonder if you could describe for us a little bit how you’re deciding how aggressive you need to be. So, obviously, 75 today. What did 75 achieve that 50 wouldn’t have, and why not just go for a full percentage point at some point?
Answer: Sure. So if you take a step back, what we’re looking for is compelling evidence that inflationary pressures are abating and that inflation is moving back down. And we’d like to see that in the form of a series of declining monthly inflation readings— that’s what we’re looking for. And, by this point, we had actually been expecting to see clear signs of at least inflation flattening out and, ideally, beginning to decline. We’ve said that we’d be data dependent, focused on incoming data, highly attentive to inflation risks—the things that I mentioned to Howard moments ago. So contrary to expectations, inflation again surprised to the upside. Indicators—some indicators of inflation expectations have risen, and projections of [inflation] this year have moved up notably. So we thought that strong action was warranted at this meeting, and today we delivered that in the form of a 75 basis point rate hike, as I mentioned. So the point of it, really, is this: We’ve been moving rates up expeditiously to more normal levels, and over the course of the seven months since we pivoted and began moving in this direction, we’ve seen financial conditions tighten, and appropriately so. But the federal funds rate, even after this move, is at 1.6 percent. So, again, the Committee is moving rates up expeditiously to more normal levels, and we came to the view that we’d like to do a little more front-end loading on that. So I think that the SEP gives you the levels that people think are appropriate at given points in time. This was really about the speed in which we would get there. So, as I mentioned, 75 basis points today—I said the next meeting could well be about a decision between 50 and 75. That would put us, at the end of the July meeting, in that range—in that more normal range, and that’s a desirable place to be, because you begin to have more optionality there about the speed with which you would proceed going forward. Just talking about the SEP for a second: What it really says is that Committee participants widely would like to see policy at a modestly restricted—restrictive level at the end of this year. And that’s six months from now, and so much data [can accrue] and so much can happen, so remember how highly uncertain this is. But so that is generally a range of 3 to 3½ percent. That’s where people are, and that’s what they want to see, knowing what they know now and understanding that we need to be—we need to show resolve but also be flexible [in responding] to incoming data as we see it. If things are better, we don’t need to do that much, and if they’re not, then we either do that much or possibly even more. But in any case, it will be very data dependent. Then you’re looking at next year, and what you’re seeing is, people see more—a bit more tightening and a range of maybe 3½ to 4 percent. And that’s generally what people see as the appropriate path for getting inflation under control and starting back down and getting back down to 2 percent. So 75 basis points seemed like the right thing to do at this meeting, and that’s what we did.

Question (Steve Liesman, CNBC): Steve Liesman, CNBC. Thank you for taking my question, Mr. Chairman. You have not used the phrase in a long time “monetary policy is in a good place,” which is a phrase that you used to use often. Now that the Committee is projecting 4 percent on a—or 3.8 percent next year in terms of the funds rate, which is similar to where the market is now, the futures market of 4 percent funds rate next year, do you think that’s a level that is going to be sufficiently high enough to deal with and bring down the inflation problem? And just as a follow-up, could you break that apart for me? How much of that is restrictive, and how much of that is a normal positive rate that ought to be embedded or not, in your opinion, in the funds rate? Thank you.
Answer: Sure. So the question really is, how high does the rate really need to go? And this is—the estimates on the Committee are in that range of 3½ to 4 percent. And how do you think about that? Well, you can think about the longer-run neutral rate, you can compare it to that, and we think that’s in the mid-2s. You can look, frankly, at broader financial conditions. You can look at asset prices, you can look at the effect they’re having on the economy, rates, asset prices, credit spreads—all of those things go into that. You can also look at the yield curve and ask, all along the yield curve, where is the policy rate? So for much of the yield curve now, real rates are positive. That’s not true at the short end. At the short end of the yield curve in the early years, you don’t have real—you have negative rates still. So that really is one data point—it’s one part of financial conditions. So I think—I have to look at it this way: We move the policy rate. That affects financial conditions. And that affects the economy. We have, of course, ways—rigorous ways to think about it, but, ultimately, it comes down to, do we think financial conditions are in a place where they’re having the desired effect on the economy? And that desired affect is, we’d like to see demand moderating. Demand is very hot still in the economy. We’d like to see the labor market getting better in balance between supply and demand, and that can happen [as a result of developments coming] both from supply and demand. Right now, there’s—demand is substantially higher than available supply, though, so we feel that there’s a role for us in moderating demand. Those are the things we can affect with our policy tools. There are many things we can’t affect, and those would be, you know, the things—the commodity price issues that we’re having around the world due to the war in Ukraine and the fallout from that, and also just all of the supply-side things that are still pushing upward on inflation. So that’s really how I think—how I think about it.

Question (Greg Robb, MarketWatch): Thank you. Greg Robb from MarketWatch. Chair Powell, I was wondering if you could talk a little bit more—economists are worried that you’re kind of hitting the economy with a sledgehammer and that now there’s even more risk of a recession than a 50–50 path of rates. So could you talk a little bit more about that? And what evidence would get you to stop rate hikes and maybe even reverse them?
Answer: Sure. So, as I mentioned, financial conditions have tightened over the last seven months, and that’s a good thing, we think. But the federal funds rate, even after this increase, is at 1.6 percent. So it’s hard to see how that is too high of a rate. And even if we did another—so we’re going to get here by the end of the summer, somewhere in the 2s probably. Still, that’s still a low rate. So that’s not a rate that is calculated to bring a recession on. And we’ll—by then, we’ll have seen a whole lot more data. As I mentioned a couple times, the Committee’s views are around a modestly restrictive stance, which will be in the 3 to 3½ percent range by the end of this year, but that’s conditioned on that being the appropriate thing to do. If we see data going in a different direction, it’ll be reflected in our policy, as you see today. We’ll be watching—if things go in a direction we don’t expect, then we’re going to adapt. And I would say, this is a highly uncertain environment—extraordinarily uncertain environment. So, again, we’ll be determined and resolved, but flexible.