Federal Reserve press conference, 2024-06-12 — Chair Jerome Powell

Question (Neil Irwin, Axios): Thanks, Chair Powell. Neil Irwin, with Axios. Back on the rates path: The SEP showed quite a large shift of rate cut expectations relative to March—that’s a period in which the economic data flow hasn’t been that dramatic a shift. How, how—can you provide some color on what changed in the attitudes on the Committee over the last three months to, to see a much shallower path of rate cuts this year?
Answer: Yeah. The big thing that changed was the inflation forecast. So the inflation forecast moved up several tenths for the end of the year. And, and, as I mentioned earlier, in the, you know—what, what did we take away from this? We had really, really good inflation data in the second half of last year, then kind of a pause in progress in the first quarter. And what we took away from that was that it’s probably going to take longer to get the confidence that we need to begin to loosen policy. So the sense of that is that rate cuts that might take place in—might’ve taken place this year—take place next year, you know? We, we—there are—there are fewer rate cuts in the median this year, but there’s one more next year. So, so you really—if you look at year-end 2025 and ’26, you’re, you’re almost exactly where you would have been, just it—just it’s moved later because of that progress. Now, you get another—you get data—different data today. So we’ll have to see where the data light the way. You know, we’re, we’re—the economy has, you know, repeatedly surprised forecasters in both directions, and today was certainly a better inflation report than almost anybody expected. And we’ll just have to see what, what—what the incoming data flow brings and, and how that affects the outlook and the balance of risks.

Question (Howard Schneider, Reuters): So, so just to follow up on that—I think one, one curious thing here is, you’ve got now this restrictive policy in place and virtually no change in any of the major things for all of this year. You’ve got growth that stays above long-run potential throughout the forecast period, unemployment that never goes above the long-run estimate— right?—of 4.2. So this isn’t a story of slack improving inflation. So where’s the improvement in inflation coming from that it’s going to pick up pace so much in 2025?
Answer: Well, you know, it’s been coming—where’s it been coming from— let’s start with that. You know, clearly a lot of what—some of what we’ve been getting is just the reversal of the—the unwinding of the pandemic-related distortions to both supply and demand. And that is, you know—that is complemented by and amplified—supported by restrictive monetary policy. So those two things have been working together. We’ve also had a very positive supply shock on the labor side. And, and, also, you get—you get a positive supply shock when the—when the supply conditions unwind and return to normal. So you’ve had, you know, above-trend potential growth and, and high growth. And yet you’ve had the benefit of, of inflation coming down, you know, really fast, actually, last year, and you will see what the rest of this year brinks—brings. So these dynamics can continue as long as they continue. I mean, ultimately, the question is, ultimately, are you down to demand? And, and we don’t know that, though. I mean, look at today’s report. You know, if we see more like that—you know, we don’t—we can’t know what the future holds. But in the meantime, we’ve made pretty good progress on inflation with our current stance.

Question (Michael McKee, Bloomberg): Michael McKee from Bloomberg Radio and Television. The base case of the Committee seems to be that there is going to be at least one rate cut this year, but your growth forecast doesn’t see any slowdown in the rest of the year, nor does the unemployment forecast see any significant weakening of the labor market. And your inflation forecasts basically average out to no change. So if, at the end of the year, there is no change from conditions now, why would you anticipate cutting rates? What, what would be the point for a rate cut?
Answer: Well, we think—we think policy is restrictive. And we think, ultimately, that if you—if you just set policy at a restrictive level, eventually you will see real weakening in the economy. So that’s always been the thought is that, you know, since we raise rates this far, we’ve, we’ve always been pointing to cuts at a certain point. Not to eliminate the possibility of hikes, but, you know, no one has that as their base case, so—no one on the Committee does. But so that’s, that’s—you know, that’s how we think about it. And that’s what we’ve been getting. That’s what we’ve been getting is good progress on inflation, with growth at a—at a, a good level and with a strong labor market. Now, ultimately, we think rates will have to come down to continue to support that. But, so far, they haven’t had to. And, you know, that’s why we’re watching so carefully for signs of weakness. We don’t really see that. We kind of see what we wanted to see, which was gradual cooling in demand—gradual rebalancing in the labor market while we’re continuing to make progress on inflation. So we’re getting—we’re getting good results here.

Question (Edward Lawrence, Fox Business): So how close then are we to that point where the consumer can’t continue to spend as it’s spending or companies can’t hire like they’re hiring?
Answer: So consumer spending is still growing. It’s not growing at the pace it was growing at a year or so ago, but, but it’s still—it’s still growing solidly. And, by the way, other parts of the economy are picking up. Spending on equipment and intangibles is—has picked up quite a bit, you know, in the wake of all the construction that we saw of new tech— you know, tech plants. So, overall, the economy is exhibiting solid growth, and, you know— something around 2 percent—which is—which is, you know, good—a good pace of growth for the U.S. economy. But, no, you’re, you’re right, though. We, we do see the same thing other people see, which is, you know, increasing financial pressures on, you know, more lower-income people. And, and, you know, the best thing we can do is, is to foster a very strong jobs economy, which we think we have done—ultimately to get inflation under control, because those people experience inflation, you know, very directly—very painfully. And, and, you know, once, once we get inflation under control, rates can come down—which, which will also improve things.