Federal Reserve press conference, 2021-11-03 — Chair Jerome Powell

Question (Colby Smith, Financial Times): Thank you. Chair Powell, what are the economic conditions that would perhaps warrant a faster pace of tapering? And I’m wondering how you would also characterize the risks that the Fed may actually need to accelerate that process eventually. Thank you.
Answer: So I guess, as I said in my opening remarks, assuming the economy performs broadly as expected, the Committee judges that similar reductions in the pace of net asset purchases will likely be appropriate each month, and we’re prepared to deviate from that path if warranted by changes in the economic outlook. So I’m not going to give you a lot more detail on what that might be. Of course, if we do see something like that happening, if it becomes a question, then we’ll communicate very transparently and openly about that. But I’m just going to leave it with the words that are in the statement. Sorry, was there a second part?

Question (Christopher Rugaber, Associated Press): Great. Thank you, Michelle. Thank you, Chair Powell. Well, I wonder if you could update us. You talked about getting back to full employment, and so could you update how you define that? I mean, you’ve, you know—a few months ago, yourself and other Fed officials talked about getting back to the pre-COVID labor market. There were even hints you might try to do something better than that. Now we heard talk of, as you mentioned, people retiring, and there’s talk of not being able to get back as—all the jobs back because of that and other trends. You did mention the prime-age folks. So can you give us some examples of things you're looking at, specifically, to measure full employment? Will you be looking at prime-age employment population ratio, for example, and, if so, do you need to see it get back to pre-COVID levels to achieve maximum employment, or is there something short of that that would work? Thank you.
Answer: Thanks. So maximum employment is, it’s a broad—what would we say?—broad-based and inclusive goal that’s not directly measurable and changes over time due to various factors. You can’t specify a specific goal. So it’s taking into account quite a broad range of things, and, of course, employment—levels of employment—[and] participation are a part of that. But, in addition, there are other measures of what’s going on in the labor market, like wages is a key measure of how tight the labor market is—the level of quits, the amount of job openings, the flows in and out of various states. So we look at so many different things, and you make an overall judgment. Now, the temptation at the beginning of the recovery was to look at the data in February of 2020 and say, well, that’s the goal because we didn’t know any—that’s what we knew. We knew that was achievable in a context of low inflation. I think we’re in a, you know, we’re learning that. We have to be humble about what we know about this economy, which is still very, you know, COVID-affected, by the way. A lot of what we’re seeing in the last 90 days is because of Delta. We were on a path to a very different place. Delta put us on a different path. And we see these things. But, so I think we’re going to have to—ideally, we would have, we would see further development of the labor market in a context where there isn’t another COVID spike, and then we would be able to see, I think, a lot. We would see whether—how does participation react in that world, in that sort of post-COVID world? Right now, people are staying out of the labor market because of caretaking [and] because of fear of COVID to a significant extent. You know, we thought that schools reopening and elapsing unemployment benefits would produce some sort of additional labor supply. That doesn’t seem to have been the case, interestingly. So I think there’s room for a whole lot of humility here, as we try to think about what maximum employment would be. We’re going to have to see some time post-COVID so that we know—or post-Delta, anyway—to see what is possible. And I think the learning for those of us who lived through the last cycle is that, over time, you can get to places that didn’t look possible. Now, what we also have now, though, is, we have high inflation. So we have a completely different situation now where we have high inflation, and we have to balance that with what’s going on in the employment market. So it’s a complicated situation, and I would say, we will, we hope to achieve significantly greater clarity about where this economy is going and what the characteristics of the post-pandemic economy are over the first half of next year.

Question (Matthew Boesler, Bloomberg): Hi, Chair Powell. Matthew Boesler with Bloomberg. So, when you’re looking at this question of assessing whether or not the U.S. economy is at maximum employment, do you have a framework for making that judgment that is independent of what inflation is doing? And, if not, does it kind of complicate that assessment, given all of the uncertainty about inflation right now and the inclination to believe that, you know, the high inflation we’re seeing is not related to capacity utilization in the labor market? Thank you.
Answer: So we don’t actually define maximum employment as—we define it in terms of inflation, but, of course, there is a connection there. Maximum employment has to be a level that is consistent with stable prices. But that’s not really how we think about it. We think about maximum employment as looking at a broad range of things. You can’t just look at— unlike inflation, where you can have a number. But with maximum employment, you could be in a situation, hypothetically, where the unemployment rate is low, but there are many people who are out of the labor force and will come back in. And so you wouldn’t really be at maximum employment, because there’s this group that isn’t counted as unemployed. So we look at a range of things. So the thing is, by many measures, we are at a very tight labor market. I mentioned quits and job openings and wages and things. Many of them are signaling a tight labor market, but the issue is, how persistent is that? Because you have people who are held out of the labor market, you know, of their own—they’re holding themselves out of the labor market because of caretaking needs or because of fear of COVID, or, for whatever reason, they’re staying out. And it’s clear that there are, you know—with tremendous demand for workers and wages moving up, it does seem like we’re set up to go back to a higher job- creation rate. So that would suggest that you’re not at maximum employment. So, at the end of the day, it is a judgment thing. But, of course, at the end of it, it also has to be a level of employment that’s consistent with price stability.

Question (Michael Derby, Wall Street Journal): Yes, thank you for taking my question. I wonder if the Fed has given any thoughts yet to the endgame for the balance sheet in terms of, you know, once you get the taper process complete, will you hold the balance sheet steady, or will you allow it to start passively winding down? And then, in a related question, do you have any greater insight into what Fed bond buying actually does for the economy? In terms of its economic impact, have you been able to, you know, measure it or quantify it in any fashion, you know, because I’m sure you know there’s often been questions about, what is bond buying actually doing to help the economy?
Answer: Sure. So in terms of the balance sheet, those questions that you mention—we haven’t gone back to them. Now that we’ve tapered, I expect that that’s exactly what we’ll do in coming meetings. And we’ll do it in an orderly fashion, and we’ll talk about reinvestment and all those things. And we don’t have to make decisions on those yet. But, you know, typically, when we’re doing a new subject like that, we’ll have a series of briefings and discussions. And that’s what we will now begin to do. In terms of the effect of asset purchases on the economy, so, there’s a tremendous amount of research and scholarship on this. And, you know, you can kind of—you can find different people coming out with different views. But I would say, the most mainstream view would be that you’re at the effective lower bound, so how do you affect longer-term rates? There are two ways. One, so you can’t lower rates—let’s say you can’t lower rates any further, hypothetically. So you can give forward guidance. You can say, we’re going to keep the rates low for a period of time, either [for] a specific period, [or] until certain conditions are met. The markets will do the math, and that’ll have an effect on longer-term borrowings even, you know, 10, 30 years out kind of thing. So that’s one thing. The other thing you can do is, you just go buy those securities, buy longer-term securities. That will drive down longer-term rates and hold them lower, and, you know, rates right across the, right across the rate spectrum matter for borrowers. So lower rates encourage more borrowing, encourage more economic activity. People—you can service your debt. You have more free cash flow. You know, it’s not different from what we do at the short end. So that was discussed long before anybody did it. That was—I think Milton Friedman said that that was what you could do if you were pinned at the lower bound, many, many years ago. So, anyway, that’s how it’s supposed to work. And, you know, it’s quite hard to be precise about these things because, you know, you only have one economy, and you can’t run two different economies right next to each other and do a scientific experiment. But most people find—most of the findings are that it does support economic activity in the way that you would expect, which is to say, at the margin, more economic activity with lower rates, which is why we do what we do. More accommodative financial conditions lead to more economic activity, over time, with a lag. So I think that’s the main finding I would say on QE.

Question (Paul La Monica, CNN): Chair Powell, Chair Powell, you’ve addressed already questions about the stock purchases that took place from some of the regional Fed presidents and, you know, addressing the American people to make sure that they can trust the Fed. I was wondering, also, in light of the fact that, you know, we now have questions about your own future, whether or not President Biden will nominate you for a second term, what would you say—to the President and to senators that, potentially, you know, will be voting on a renomination—about this, specifically with regards to your future as Fed Chair for a possible second term?
Answer: So I’m not going to—I won’t have any—I will answer your question, Paul, but I’m not going to have any comment whatsoever on the renomination process at all. I will say, though, that I have briefed Administration officials, and I’ve briefed people on Capitol Hill in detail about what we did and why we did it, and seeking their feedback, getting their reaction. But, you know, this is—part of my job is—Congress has oversight over the Fed, and we take that very seriously. So if you’re on our, one of the two committees that has oversight over us, then I’m in regular contact with you, probably. And, you know, when something like this comes up, I’m on the phone. I’m offering to meet with you and explain it to you and answer your questions and identify any concerns people might have. That’s just part of my job. So I do that. I don’t talk about particular conversations. But you can assume I’ll always do that. And I certainly did it in this case.

Question (Brian Cheung, Yahoo Finance): When you say you spoke with Administration officials, did that include the President?
Answer: I’m not going to answer who I spoke to at all. I just, I’m not going to give you any names, so don’t take that as a “yes” or “no.” I’m just not going to start down that road.