Federal Reserve press conference, 2023-11-01 — Chair Jerome Powell

Question (Nick Timiraos, Wall Street Journal): Nick Timiraos, the Wall Street Journal. Chair Powell, did the Fed staff put a recession back into the baseline forecast in the materials for today’s meeting? And how much does this tightening and financial conditions substitute for rate hikes if the tightening is persistent? You had said it was worth maybe a ¼ point when we had the bank failures in the spring. What is it here on something that’s presumably more straightforward and more familiar to simulate?
Answer: So I guess I don’t want to answer your question about the—about the recession. But the answer is “no.” I think I have to answer it, since we did publicly say in the minutes—you’ll know anyway in the [next] minutes—the staff did not put a recession back in. I mean, it would be hard to see how you would do that if you look at the—look at the activity we’ve seen recently, which is not really indicative of a recession in the near term. In terms of how to think about translation into rate hikes, I think it’s just too early to be doing that, and the main reason is we just don’t know how persistent this will be. You can see how volatile it is. Different kinds of news will affect the level of rates, and I think any kind of an estimate that was precise would hang out there and have a great chance of looking wrong very quickly. So I think what we can say is that financial conditions have clearly tightened, and you can see that in the rates that, that consumers and households and businesses are paying now. And over time, that will have an effect. We just don’t know how persistent it’s going to be, and it’s tough to try to translate that in a way that I’d be comfortable communicating into how many rate hikes that is.

Question (Simon Rabinovitch, The Economist): Hi, Simon Rabinovitch with the Economist. Quick follow-up to the question about banking stresses—you talked about how the banking system is resilient. Of course, part of the resilience the past year stems from the Bank Term Funding Program that you launched in March. Given that bond prices have not recovered, that unrealized losses are probably mounting, how likely is it that you might have to extend that program in March next year?
Answer: Good question. We haven’t really—we haven’t really been thinking about that yet. We—you know, it’s November 1, and that’s a decision we’ll be making in the first quarter of next year.

Question (Megan Cassella, Barron's): Hi, Chair Powell. Megan Cassella with Barron’s. Thanks for taking our questions. I wanted to see if you could talk about the neutral rate. You mentioned today that you’re still debating whether rates are sufficiently restrictive, and you’ve recently said that evidence is suggesting policy is not too tight right now. So I was curious if you could elaborate on that at all and whether that means the neutral rate, in your view, has risen.
Answer: Yeah. So first thing to say is that it’s very important. It’s a very important variable in, in the way we think about monetary policy, but you can’t identify it with any precision in real time. And we know that. So you have to just take that—you have to take your estimate of it with a grain of salt. What we know now is, you know, within a range of estimates of the neutral rate policy, is restrictive, and it’s therefore putting downward pressure on economic activity, hiring, and inflation. So we do—we do talk about this. There’s not any debate or attempt to, you know, to sort of agree as a group on what—whether r* has moved or not. Some people think it has, some people haven’t said—that don’t think it has. Ultimately, it’s unknowable, and so really again, what we’re focused on is, you know, looking at the data and giving ourselves a little more time now to look carefully at the data by being careful in our moves. Does it—does it feel like monetary policy is restrictive enough to bring inflation down to 2 percent over time? That’s the question we’re asking ourselves. I think, you know, years from now economists will be revising their estimates of r* as it existed on November 1, 2023. You can’t—we can’t really wait for that in making policy. We have to look—we have to have those models and look at them and think about them, and, ultimately, we’ve got to look at the effects that policy is having, accounting for the lags, which makes it difficult.