Federal Reserve press conference, 2023-06-14 — Chair Jerome Powell

Question (Steve Liesman, CNBC): Mr. Chairman, thanks for taking my question. You had said back at the end of May that you thought risks were getting closer to being into balance. Is that still the case, or has your mind changed about the balance of risks out there? And also, could you give us an idea of what would be a sufficiently restrictive funds rate? Is the—obviously, the current rate, according to the Committee, is not sufficiently restrictive. Is it 5.6? Is it 6? Where is sufficiently restrictive? Thank you.
Answer: You know, I, I would say again that I think that, over time, the balance of risks, as we move from very, you know—from interest rates that are effectively zero now to 5 percentage points with, with an SEP calling for additional hikes—I think we’ve moved much closer to our destination, which is that sufficiently restrictive rate, and I think that means by—almost by definition that the—that the risks of, of sort of overdoing it and under, underdoing it are, are getting closer to being in balance. I still think, and my, my colleagues agree, that, that the risks to inflation are to the upside still. So we don’t—we don’t think we’re there with inflation yet because we’re just looking at the data. And if you look at the—at the full range of, of inflation data, particularly the core data, you just—you just aren’t seeing a lot of progress over the last year. Headline, of course, inflation has come down materially, but, as you know, we look at core [inflation] as a better indicator of where inflation overall is going. Sufficiently—so I think, you know, what, what we’d like to see is credible evidence that inflation is topping out and then beginning to come down. That’s, that’s what we want to see— of course that’s what we want to see. And I, I think it’s—it’s also—we understand that there are lags, but remember that it’s, it’s more than a year since financial conditions began tightening. I think it’s—I think the reason we’re, we’re comfortable pausing is that we are still—much of the tightening took place over last summer and later into the year. And I think it’s, it’s reasonable to think that some of that may come into effect. So we’re, you know—I think stretching out into a more moderate pace is appropriate to, to allow you to make that judgment of sufficiency, you know, more—with more data over time.

Question (Mark Hamrick, Bankrate): Thank you, Mr. Chairman. Mark Hamrick with Bankrate. Wondering what your thoughts are now about systemic risk now that we’re about three months past the failure of Silicon Valley Bank. And also, specifically, what are the risks associated with commercial real estate as well as nonbank financials? And could you further elevate those risks with higher still rates, possibly for longer?
Answer: So I’m trying to think where to start. I’ll start with commercial real estate. We—of course, we’re watching that situation very carefully. There’s a substantial amount of commercial real estate in the banking system. A, a large part of it is in smaller banks. It’s well distributed—to the extent it’s well distributedthen, then the system could, could take losses. We do expect that there will be losses, but they’ll be—they’ll be banks that have concentrations, and those banks will experience larger losses. So we’re well aware of that. We’re monitoring it carefully. You know, it feels like—it feels like something that will be around for some time, as opposed to, you know, something that will suddenly hit and, and, you know, work its way into systemic risk. In terms of nonbank financials—financial sector—there’s been a ton of work. And, you know, clearly in the—in the pandemic, it really was—it was the nonbank financial sector where, where issues really arose. And, you know, there’s a lot of work going on in—with the Administration, in particular, leading that to try to address issues in the Treasury market and, and in all kinds of areas in the nonbank financial market. And—but, you know, our jurisdiction at the Fed is over banks—actually bank holding companies and some banks. So that’s, that’s really our main focus. You know, in terms of the events of March—as I mentioned earlier, we will be carefully monitoring that situation. You know, our, our job generally involves worrying about a lot of things that may go wrong, and that would include the banks. It might be hard for me to identify something that we don’t worry about rather than that we do worry about. So we’re watching those things very carefully. And as we see things unfold—as we see what’s happening with credit conditions and, and also all the individual banks that are out there, you know, we’ll be able to take, to the extent it’s appropriate, we can take, if they’re macroeconomic implications, we can take that into account in our rate setting. And so I guess that’s what I would say.