Federal Reserve press conference, 2022-11-02 — Chair Jerome Powell

Question (Howard Schneider, Reuters): If I could follow up on that, to what degree was there an importance or weight given to a need to signal this possibility now, given all the concerns, really around the globe, about Fed policy sort of driving ahead and everybody else dealing with their own stress as a result?
Answer: Well, I think I’m pleased that we have moved as fast as we have. I don’t think we’ve overtightened. I think there’s—very difficult to make a case that our current level is too tight, given that inflation still runs well above the federal funds rate. So I think that at this meeting, as in the last two meetings, as I’ve mentioned, I’ve said that we—that there would come a point, and this was a meeting at which we had a discussion about what that might mean. And we did discuss this, and, as I mentioned, we’ll discuss it again in December. But there’s no—I don’t have any sense that we’ve overtightened or moved too fast. I think it’s been good and a successful program that we’ve gotten this far this fast. Remember, though, that we still think there’s a need for ongoing rate increases, and we have some ground left to cover here, and cover it we will.

Question (Nick Timiraos, Wall Street Journal): If I could follow up: What is your best assessment, or the staff’s best assessment right now, of the current rate of underlying inflation?
Answer: I don’t have a specific number for you there. There are many, many models that look at that. And, I mean, one way to look at it is that it’s a pretty stationary object and that when inflation runs—above that level, for sure—substantially above for some time, you’ll see it move up, but the movement will be fairly gradual. So I think that’s what the principal models would tend to say. But I wouldn’t want to land on any one assessment. There are many different—as you know, many different people publish an assessment of underlying inflation.

Question (Jeanna Smialek, New York Times): Hi, Chair Powell. Thank you for taking our questions. Jeanna Smialek with the New York Times. I wondered, do you see any evidence at this stage that inflation is, or is at risk of becoming, entrenched?
Answer: Is inflation becoming entrenched? So I guess I would start by pointing to expectations. So if we saw longer-term expectations moving up, that would be very troubling. And they were moving up a little bit at the middle part of this year, and they’ve moved now back down. That’s one piece of data. Shorter-term inflation expectations moved up between the last meeting and this meeting, and we don’t think those are as indicative, but they may be important in the wage-setting process. There’s a school of thought that believes that. So that’s very concerning. I guess the other thing I would say is that the longer we have—we’re now 18 months into this episode of high inflation, and we don’t have a clearly identified, scientific way of understanding at what point inflation becomes entrenched. And so the thing we need to do from a risk-management standpoint is to use our tools forcefully but thoughtfully and get inflation under control—get it down to 2 percent—get it behind us. That’s what we really need to do and what we’re strongly committed to doing.

Question (Neil Irwin, Axios): Thanks, Chair Powell. Neil Irwin, Axios. As you look around the economy, the clearest impact of your tightening so far has been on housing, maybe some venture-funded tech companies. It’s been relatively narrow in terms of the labor market, consumer demand; a lot of sectors, you don’t see a ton of effect. Is the pathway and channels through which monetary policy works changing? Is it narrower than it used to be? And on housing in particular, are you at all worried that you’re cramping housing supply in ways that might cause problems down the road?
Answer: I don’t know that the channels through which policy works have changed that much. I would say a big channel is the labor market, and the labor market is very, very strong. Very strong. And households, of course, have strong balance sheets. So we go into this with a strong labor market and excess demand in the labor market, as you can see through many different things, and also with households who have strong spending power built up. So it may take time, it may take resolve, it may take patience. It’s likely to, to get inflation down. It may—I think you see, from our forecasts and others, that it will take some time for inflation to come down. It’ll take time, we think. So, sorry, was I getting to your question there? Oh, housing—the housing part of it. Yes, so we look at housing—of course, housing is significantly affected by these higher rates, which are really back where they were before the Global Financial Crisis—they’re not historically high, but they’re much higher than they’ve been. And you’re seeing housing activity decline, and you’re seeing housing prices growing at a faster rate and, in some parts of the country, declining. You know, I would say housing was—the housing market was very overheated for the couple of years after the pandemic as demand increased and rates were low. We all know the stories of how overheated the housing market was, prices going up. Many, many bidders and no conditions, that kind of thing. So the housing market needs to get back into a balance between supply and demand. We’re well aware of what’s going on there. From a financial stability standpoint, we didn’t see in this cycle the kinds of poor credit underwriting that we saw before the Global Financial Crisis. Housing credit was very carefully—much more carefully managed by the lenders. So it’s a very different situation and doesn’t present potential financial—doesn’t appear to present financial stability issues. But, no, we do understand that that’s really where a very big effect of our policy is.