Federal Reserve press conference, 2021-04-28 — Chair Jerome Powell

Question (Jeanna Smialek, New York Times): Hi, Chair Powell. Thanks for taking our questions. I wonder if you could talk a little bit about that test for raising interest rates that you just elaborated. You’ve obviously made it very clear that you want to see improvements in the real economy and the real data and not in just sort of expectations data before making that move. But I guess I wonder what happens if inflation expectations were to move up before you see some sort of return to full employment. You know, it seems like a lot of sort of the stability in inflation has been tied to the fact that those have been so low and stable, and I guess I wonder how, how your reaction would be—sort of how your reaction to that is, is—how you’re thinking about that.
Answer: Right. So it seems unlikely, frankly, that we would see inflation moving up in a persistent way that would actually move inflation expectations up while there was still significant slack in the labor market. I won’t say that it’s impossible, but it, it seems—it seems unlikely. It’s much more likely that we would—having achieved maximum-employment conditions—we’d also be seeing 2 percent inflation and be on track to see inflation moving above 2 percent. They tend to move together. So that’s not to say inflation won’t—might not move up, but for inflation to move up in a persistent way that, that really starts to move inflation expectations up, that would have to—that would take some time. And you would think that, that it would be quite likely that, that we’d be in very strong labor markets for that to be happening. If it—if that actually were to happen, though, there is a—there’s a paragraph in the—in the Statement on Longer-Run Goals and Monetary Policy Strategy which says that when the two goals are somewhat in conflict, we weigh various factors, including the, the time it would take to get back and [so] forth. So we do—it doesn’t really tell you what to do, but it tells you that we will weigh those two factors and how far we are away from them and how long it would take to reach them were we to reach that sort of pretty unlikely state.

Question (Brian Cheung, Yahoo Finance): Brian Cheung with—hi, Chairman Powell. Brian Cheung with Yahoo Finance. I wanted to ask about financial stability, which is a part of the Fed’s reaction function here. It seems like to people on the outside who might not follow finance daily, they’re paying attention to things like GameStop, now Dogecoin. And it seems like there’s interesting reach for yield in this market—to some extent, also Archegos. So does the Fed see a relationship between low rates and easy policy to those things, and is there a financial stability concern from the Fed’s perspective at this time?
Answer: Right. So we look at—financial stability for us is really—we have a broad framework, so we don’t just jump from one thing to another. I know many people just look at asset prices, and they look at some of the things that are going on in the—in the equity markets, which, which I think do reflect froth in the equity markets. But really, it—really, we try to stick to a framework for financial stability so we can—so we can talk about it the same way each time and so we can be held accountable for it. So one of the areas is asset prices, and I would say some of the asset prices are high. You are seeing, seeing things in the capital markets that, that are—that are a bit frothy. That’s a fact. I won’t say it has nothing to do with monetary policy, but it also—it has a tremendous amount to do with vaccination and reopening of the economy. That’s really what has been moving markets a lot in the last few months is this turn away from what was a pretty dark winter to now a fast—a much faster vaccination process and a faster reopening. So that’s, that’s part of what’s going on. The other—the other things, though—you know, leverage in the financial system, is it— is, is not a problem. That’s a—that’s a—that was one of the four pillars. Asset prices was one. Leverage in the financial system is, is not an issue; we have very well capitalized large banks. We have funding risks for, for our largest financial institutions that are also very low. We do have some funding risk issues around money market funds, but I would say they’re not systemic right now. And, and the household sector is actually in pretty good shape. It was in—it was in a very good shape as a relative matter before the financial crisis—sorry, the pandemic crisis hit. There were real concerns, of course, with high levels of unemployment and loss of wages and all of that, that the—that the household sector would, would, would weaken dramatically. That hasn’t happened. So, with the fiscal transfers, money that’s on household balance sheets, they’re in good shape. You see relatively low defaults and that kind of thing. So the overall financial stability picture is mixed, but, on balance, it’s—you know, it’s manageable, I would say. And it’s—by the way, I think it’s appropriate and important for financial conditions to remain accommodative to support economic activity. Again, 8½ million people who had jobs in February don’t have them now, and, you know, there’s a long way to go until we reach our goal. So that’s what I would say.

Question (Michael McKee, Bloomberg): Well, if you leave rates where they are, it doesn’t change anything. But does it change anything if you actually tapered a bit? If you spent less, would you still get the same effect on the economy?
Answer: If we bought less? You’re, you’re very faint. So if someone has the volume, they can turn it up. But if we bought less, you know, no. I mean, I think the effect is proportional to the amount we buy. It’s, it’s really part of overall accommodative financial conditions. We, we have tried to create accommodative financial conditions to support economic activity, and we did that. And we articulated the—you know, the, the tests for withdrawing that accommodation. And we think, you know—so we’re waiting to see those tests to be fulfilled both for asset purchases and for liftoff of rates. And, you know, when the tests are fulfilled, we’ll, we’ll go ahead. As we—you know, we’ve done this before. We did it in, in the last—after the last crisis, and, you know, we’ll do it in, in maybe—we’ll do it—as those tests are satisfied, we’ll do it. And the—and the only thing that will guide us is, are the tests met? You know, that, that’s what we focused on: Is—have, have the macroeconomic conditions that we’ve articulated, have they been realized? That will be the test for, for tapering asset purchases and for raising interest rates.