Federal Reserve press conference, 2021-03-17 — Chair Jerome Powell

Question (Paul Kiernan, Dow Jones Newswires): Thank you, Chairman Powell. My question is twofold. One, how high are you comfortable letting inflation rise? There, there is some ambiguity in, in your new target, as you mentioned, “expectations driven.” And, and do you think that that ambiguity might cause markets to price in a lower tolerance for inflation than the Fed actually has, thereby causing financial conditions to tighten prematurely? Is that a concern? Thanks.
Answer: So we’ve said we’d like to see inflation run moderately above 2 percent for some time. And we’ve resisted, basically, generally, the temptation to try to quantify that. Part of that just is, talking about inflation is one thing; actually having inflation run above 2 percent is the real thing. So I—you know, over the years we’ve, we’ve talked about 2 percent inflation as a goal, but we haven’t achieved it. So I, I would say we’d like to, you know, perform. That’s what we’d really like to do, is to get inflation moderately above 2 percent. I don’t want to be too specific about what that means, because I think it’s hard to do that. And we haven’t done it yet. You know, when we’re actually above 2 percent, we can do that. I—look, I, I would say this. The fundamental change in, in our framework is that we, we’re not going to act preemptively based on forecasts for the most part. And we’re going to wait to see actual data. And I think it will take people time to, to adjust to that—and to adjust to that new practice. And the only way we can really build the credibility of that is by doing it. So that’s how I would think about that.

Question (Anneken Tappe, CNN): Okay, great. I was asking if you could talk to us a little bit about the relationship between the persistent pandemic unemployment and the expected increase in inflation. I’m wondering whether the former offsets the latter and to which degree you guys are monitoring this.
Answer: Yes, I think I’m hearing you correctly. So I would say a couple things. There was a time when there was a tight connection between unemployment and inflation. That time is long gone. We had extremely low unemployment in, in—not extremely low. We had low unemployment in 2018 and ’19 and the beginning of ’20 without having troubling inflation at all. We were at 3.5 percent. We were bouncing around with unemployment 3.5 percent to 4 percent. And it wasn’t just unemployment. Participation was high, wages were moving up. It was a very healthy thing. And we didn’t see price inflation move up. There is a relationship between wage inflation and unemployment. But that has not— what, what happens is that when wages move up because unemployment is low, companies have been absorbing that increase into their margins rather than raising prices. And that seems to be a feature of late-cycle behavior. So we’re, we’re not—when, when we—when we seek to achieve low unemployment, high levels of employment, which is our mandate, you know, we think we have the freedom to do that based on the data without worrying too much about inflation.