Federal Reserve press conference, 2024-12-18 — Chair Jerome Powell

Question (Steve Liesman, CNBC): Mr. Chairman, I, I did not hear you use the word “recalibration” today. And I’m just wondering if the recalibration phase is over and what you might call this new phase and whether the criteria for changing rates is somehow different and higher than it was before. Thanks.
Answer: We’re not—we’re not renaming the phase—yet. But we may get around to that. But, no, I, I would say we, we are, though, in, in a new phase in the process, as I said. So, and that’s just because we’ve reduced—we’ve reduced our policy rate by 100 basis points. We’re significantly closer to neutral. We still think where we are is meaningfully, meaningfully restrictive, and I think from this point forward, you know, it’s appropriate to move cautiously and look for progress on inflation. We’ve, you know, we’ve done a lot to support economic activity by cutting 100 basis points, and that’s a good thing. I, I think it would—I support the decision, and, and I think it was the right decision to make. I think from now we are in a place where the risks really are in balance, and we need to see progress on inflation. And that’s, that’s how we’re thinking about it. So it is kind of a new thing. We moved pretty quickly to get to here, and I think going forward, obviously, we’re going to be moving slower, which is consistent with, with the SEP.

Question (Neil Irwin, Axios): Thanks Chair, Chair Powell. Neil Irwin from Axios. Financial markets have been very buoyant, really all year. Is the Committee comfortable with where financial conditions are, or do you see a risk that looseness in financial conditions could undermine progress on your inflation target?
Answer: So we, we do look carefully at financial conditions, of course; that’s part of what we do. But, you know, we, we really look carefully at is the performance of our— of our goal variables and, and how are we affecting the economy. So what we’ve seen over the course of—just take the last year. We, we’ve seen inflation—well, over the last couple of years—come down a lot. We’ve seen the labor market cool off quite a bit. That suggests that our policy is restrictive. We’ve, we can also look more directly at, at the parts of the economy that are affected by—that, that are interest sensitive, like particularly housing. Housing activity is, is very low, and that’s partly, significantly because of our policy. So we think our policy is working. It’s transmitting, and it’s having the effects on our goal variables that we would want. You know, a lot of things move financial conditions around, as you know, and we don’t really control those. But I’d say we, we see the effects we’re hoping to see on, on the goal variables and, and the places where we’d expect to see it.

Question (Andrew Ackerman, Washington Post): The other thing I just wanted to ask about was the—you, you guys have noted that the unemployment rate is, is still low. However, employment rates have fallen rather quickly. The prime-age employment rate has fell by about half a point—half a percent, rather—recently. The question, I guess, is, do you think there’s maybe more downside momentum in the labor market than the unemployment rate alone is signaling?
Answer: I don’t think so, no. I think, overall, if you look at it, prime-age participation is still very high. What, what’s going on in the labor market is that the hiring rate is low. So if you—if you have a job, you’re doing very well, and layoffs are very low, right? So people are not losing their jobs in large numbers, unusually large numbers. If you are looking for a job, though, the hiring rate is low, and that’s a signal of, of lower demand, and it has come down. So we look for signs like that, and that, that’s clearly a sign of softening, further softening. I didn’t mention it earlier, but I, I think you can see a, an ongoing gradual softening in the labor market. Again, not something we need to see to get 2 percent inflation. And, you know, that’s part of the reason that explains why we moved ahead today with, with our, with the action, with, with an additional cut. So, but you take a step back, the level of unemployment is very low—again, participation is high. Wages are at a healthy and, and ever more sustainable level—wage growth. And so the labor market—this is a good, a good labor market, and, you know, we want to keep it that way.

Question (Kelly O’Grady, nan): And just one follow-up: Let’s look more long-term. You previously predicted hitting the 2 percent inflation target in 2026. It’s now been pushed out to 2027. You said you’re focused on enabling further progress on inflation. That’s not necessarily progress in the right direction. Are you confident that target isn’t going to move further out?
Answer: We’re talking about—when you’re projecting the economy, you know, three years out, two years out, you’re talking about high uncertainty. Very high uncertainty. You know, we, we really—at that point it, it’s not, it’s not possible to confidently predict where the economy is going to be in three years. So what we’re doing is we’re looking at what’s happening now. And we’re kind of projecting that the same kinds of things are happening—so we, we keep a strong labor market, housing services inflation comes down, goods and services—goods inflation settles down, and, you know, nonmarket services return to their, their prior level. All of those things should happen over time, and, and, you know, those pieces come together. There’s every reason to think that they will. The timing of it is highly uncertain. You know, but you’re not wrong, though, that, you know, we’ve, the— it’s been a bit frustrating because the—while we’ve made progress, it has been slower than we had hoped. Nonetheless, we’re still on track. And, you know, I think if you’d—if two, two years ago, you’d said, “we were [going to be] at 4.2 percent unemployment and 2.8 percent inflation,” people would be, would say, “I’ll take that.” I mean, that, that’s a pretty good interim place to be. Job’s not done, but, but I think we’re, we’re feeling good about where we are and where we’re headed.