Federal Reserve press conference, 2020-12-16 — Chair Jerome Powell

Question (Richard Miller, Bloomberg): Thank you very much, Mr. Chairman. Thank you, Michelle. I wonder if I could start with the, the SEP. We have—unemployment now is at 6.7, the SEP median sees, sees it falling to 5. Headline inflation is one time 1.2, the SEP median sees it rising to 1.8. And core inflation is 1.4, and the SEP sees it rising to 1.8 likewise. Would that constitute “substantial further progress” toward the Committee’s maximum-employment and price-stability goals?
Answer: Yes. Well, so we’re not—we’re not going to be identifying specific—associating that test with, with specific numbers at this point. So, really, the question is, what do we mean by, by that language? And, really, the overarching message, Rich, is that our guidance for both interest rates and asset purchases will keep monetary policy accommodative until our maximum-employment and price-stability goals are achieved, and that’s, that’s a powerful message. So “substantial further progress” means what it says. It means we’ll be looking for employment to be substantially closer to assessments of its maximum level and inflation to be substantially closer to our 2 percent longer-run goal before we start making adjustments to our purchases. I would also point out that by increasing our asset holdings, we see ourselves as adding policy accommodation. There will come a time when the economy does not require increasing amounts of policy accommodation. And when that time comes—and that will be uncertain and, in any case, is, is some ways off. So I can’t give you an exact set of numbers. We will—of course, as we approach that point, we’ll be evaluating that. And when we see ourselves on a path to achieve that goal, then we will—we will say so undoubtedly well in advance of any time when we would actually consider gradually tapering the pace of purchases.

Question (Michael McKee, Bloomberg): Mr. Chairman, I have a couple of questions about the fiscal support for the economy. This year’s budget deficit is $3.1 trillion. And Republicans have argued they don’t want to spend more, because we can’t afford it. So I’m wondering if you can make the case for how much we can afford. At what point do deficits and the debt start to have an impact on the economy or on interest rates? And how would we know when we get there?
Answer: So people who—people who run for elected office and win, they’re the ones—their reward is they get to make those very difficult decisions. And—you know, so we’re not charged with providing fiscal advice to, to Congress. But I, I would just say, as a general—as a general rule, it is important to be on a sustainable fiscal path. For my way of thinking and many others’, the time to focus on that is when the economy is strong and when unemployment is low and taxes are—you know, are, are pouring in, and there’s, there’s room to get on—get on a sustainable path, because the economy’s really doing well. You’re still now in the—in the, you know, some part of, of an economic crisis. And the fact that Congress is debating a fairly large bill today suggests that, that—you know, suggests that something fairly substantial is going to get done, we hope—that what’s being discussed is, you know, is, is of some size. In terms of what is a sustainable level, I think, you know, it’s—the question is—we’ve always looked at debt to GDP, and we’re very high by that measure. By some other measures, we’re actually not that high. In particular, you can look at the real interest rate payments, the amount of, what does it cost? And from that standpoint, if you—if you sort of take real interest costs of the federal deficit and divide that by GDP, we’re actually—you know, we’re actually on a more sustainable fiscal path if you look at it through those eyes. Again, these are—these are issues for Congress. But, you know, I’ll just say in the near term, I think fiscal—the case for, for fiscal is, is strong. And I’m certainly hoping—I think it will be very good for the economy if, if we did get something soon.