Federal Reserve press conference, 2023-07-26 — Chair Jerome Powell

Question (Neil Irwin, Axios): Thanks, Chair Powell. Neil Irwin from Axios. So, as you referenced earlier, in the intermeeting period, soft CPI, jobs reports still strong but moderating, JOLTS look good. So if you’re data dependent, why not pause again? Why not stay on hold? Why not take another meeting off when the data was at least cutting in the direction you want to see?
Answer: So if you go back to what we’re trying to do here, we’re trying to achieve a stance of policy that’s sufficiently restrictive to bring inflation down to 2 percent. At the last meeting, we wrote down our individual estimates of that would take—of what that would take, and the median of that was, was an additional two rate hikes. So I would say, we looked at the interim intermeeting data and, as I mentioned, broadly consistent, not perfectly consistent, but broadly consistent with expectations. And, as a result, we went ahead and, and took another step. And that’s, you know, a labor market that continues to be strong but, but gradually slowing. I mentioned that the inflation report was actually a little better than expected, but, you know, we’re, we’re going to be careful about taking too much signal from, from a single reading. And, you know, growth came in stronger than expected. So that’s how we look at it, and, and so we did take that step today.

Question (Christopher Rugaber, Associated Press): Well, and then if inflation were to—just a quick follow[up]: If it stays at 3 or drops even a little bit more, I mean, how much of an increase in unemployment do you think is acceptable to get that last bit of inflation? People are talking about the potential difficulty of the last, so-called last mile of inflation. So—but how much? Again, how much unemployment do you think is justified to get down that last one—
Answer: So it is—it is a very positive thing that, actually, the unemployment rate is the same as it was when we lifted off in March of ’22, at 3.6 percent. So that’s a real blessing in that we’ve been able to achieve some disinflation, and we don’t seek to it. It’s not that we’re aiming to, to raise unemployment, but I would just say, the historical record—we have to be honest about the historical record, which does suggest that when central banks go in and slow the economy to bring down inflation, the result tends to be some softening in labor market conditions. And so that is still the, the likely outcome here. And, you know, we hope that that’s as little as possible, but we have to be honest that that is—that is the likely outcome. The worst outcome for everyone, of course, would be not to deal with inflation now, not get it done. Whatever the short-term social costs of getting inflation under control, the longer- term social costs of failing to do so are greater, and the historical record is very, very clear on that. If you go through a period where inflation expectations are not anchored, inflation is volatile, it interferes with people’s lives and with economic activity, and, you know, that’s the— that’s the thing we, we really need to avoid and will avoid.

Question (Victoria Guida, Politico): Hi. Victoria Guida with Politico. I wanted to ask about the SEP, which suggests that you would cut rates as overall and core PCE get to around or under 3 percent. And so I’m wondering, is the level of inflation what’s sort of important there as you think about getting to 2 percent and when you might start cutting rates, or is the speed at which inflation is falling also important?
Answer: I think you’d take both into account. I think you’d take everything into account when you start cutting rates. It would—it would depend on the whole, on a wide range of things. And when, when people are writing down rate cuts next year, you know, it just is a sense that inflation is coming down, and we’re comfortable that it’s coming down, and it’s time to start cutting rates. I think—but I mean, there’s a lot of uncertainty between what happens, you know, in the next meeting cycle, let alone the next year, let alone the year after that. So it’s, it’s hard to say exactly what happens there, what’s motivating people.

Question (Steve Matthews, Bloomberg): A good part of Wall Street has become more confident that the Fed is going to be able to engineer a soft landing, and they’ve reduced their forecast for a recession. And I’m wondering if the staff has changed its view on the likelihood of a recession being likely and if you personally have changed your view in terms of becoming more confident that you can achieve a soft landing.
Answer: So it’s, it has been my view consistently that we do have a shot, and my base case is that we will be able to achieve inflation moving back down to our target without the kind of really significant downturn that results in high levels of job losses that we’ve seen in some past—in some past instances, many past instances of tightening that look like ours. That’s been my view. That’s, that’s still my view. And I think, you know, that that’s sort of consistent with, with what I see today. So—but it’s a long way from assured, and, and, you know, we have a lot left to go to see that happen. So the staff now has a noticeable slowdown in growth starting later this year in the forecast, but given the resilience of the economy recently, they are no longer forecasting a recession. I just want to note that it’s—that our staff produces its own forecast, which is independent of the forecasts that we as FOMC participants produce. Having an independent staff forecast as well as the individual participant forecasts is really a strength of our—of our process. There’s just a lot of, I think, constructive diversity of opinion that, that helps us make— informs our deliberations—helps us make, I hope, better decisions.

Question (Megan Cassella, Barron's): This goes sort of to the balance of risks question, but you mentioned at the start how you’re keeping an eye on consumer activity and whether there might be some sort of a rebound there, and I’m curious what the Fed’s explanation would be to families if further interest rate hikes start to hit the labor market—start to, you know, drive that sentiment back down. What’s the message there of, of why you continue to keep rates elevated or to raise them?
Answer: Well, you know, we have a job assigned to us by Congress to get inflation under control. And we think the, the single most important thing we can do to benefit those very families, especially families at the lower end of the income spectrum, is to get inflation sustainably under control and restore price stability. We think that is the most important thing we can do now, and we’re determined to do that. And I would just point out that the people who are the most hurt by inflation right away are people who are on a low fixed income, who, you know, when you’re talking about travel or, you know, transportation costs, heating costs, clothing, food, things like that, those—if you’re just making it through each month on your paycheck and prices go up, you’re in trouble right away. Even middle-class people have some resources and can absorb inflation. People, people on the lower end of the income spectrum have a harder time doing that. So we need—we need to get this done. And, you know, the record is clear that if we—if we take too long or if, if we don’t succeed, that the pain will only be greater. So that’s, that’s how I would explain what we’re doing.