Federal Reserve press conference, 2022-07-27 — Chair Jerome Powell

Question (Nick Timiraos, Wall Street Journal): Nick Timiraos of the Wall Street Journal. Chair Powell, you’ve said that your policy works through influencing expectations and that policy needs to be at least moderately restrictive, which means you need financial conditions to stay tight. Futures market pricing currently implies you will raise rates this year along the lines of your June SEP but then lower them a few months later next year. Are these expectations consistent with the need to keep financial conditions tight in order to moderate purchasing power and bring inflation back to 2 percent?
Answer: So I’m going to start by pointing out that it’s very hard to say with any confidence in normal times—in normal times—what the economy’s going to be doing in 6 or 12 months. And to try to predict what the appropriate monetary policy would respond— response would be—of course, we do that in the SEP, but, nonetheless, you’ve got to take any estimates of what rates will be next year with a grain of salt, because there’s so much uncertainty. These are not normal times. There’s significantly more uncertainty now about the path ahead than I think there ordinarily is, and, ordinarily, it’s quite high. So, again, I would—the best data, the only data point I have for you really is the June SEP, which I think is just the most recent thing that the Committee’s done. Since then, inflation has come in higher; economic activity has come in weaker than expected. But at the same time, I would say that’s probably the best estimate of where the Committee’s thinking is still, which is that we would get to a moderately restrictive level by the end of this year—by which I mean somewhere between 3 and 3½ percent—and that when the Committee sees further rate increases in 2023, as I mentioned, we’ll update that, of course, at the September meeting. But that’s really the best I can do on that.

Question (Michael McKee, Bloomberg): I’d like to weave a couple of things together, Mr. Chairman. Michael McKee from Bloomberg TV and Radio. You said that the destination pretty much remains the same in terms of your end-of-the-year target. But where are you in the journey? We’ve now seen the federal stimulus programs end. You mentioned consumer spending, business investment have slowed. Are they moving at a pace you would expect? Or is demand still greater than supply—too much greater than supply that you need to do significantly more? And I ask because there are lags in the impact of monetary policy, as you mentioned. And a lot of this might hit in 2023. The strong dollar effect may hit in 2023, when the economy might be weak. How, how do you know where you are and where you think you need to get to?
Answer: Well, just talking about demand for a second: As I mentioned in my remarks, I think you pretty clearly do see a slowing now in demand in the second quarter— consumer spending, business fixed investment, housing, places like that. I think, you know, people widely looked at the first-quarter numbers and thought they didn’t make sense and might have been misleading in terms of the overall direction of the economy—[that was] not, not true of the second quarter. But at the same time, you have this labor market. So there are plenty of experiences where GDP has been reported as weak and the labor market as strong. And the economy has gone right through that and been fine. So that—that’s happened many times. And it used to happen—if you remember, in the first quarter of every year, for several years in a row, GDP was negative, and the labor market was moving on just fine. And it turned out to just be measurement error. It was called residual seasonality. We don’t know the situation. The truth is, though, we, we think that demand is moderating. We do. How much is it moderating? We’re not sure. We’re going to have to watch the data carefully. There are—there is a great deal of money on people’s balance sheets that they can spend. The unemployment rate is very low. The labor market’s very hot. There are many, many job openings. Wages are high. So it’s the kind of thing where you think that the—that the economy should actually be, be doing pretty well in the second half of the year. But we’ll have to see. We don’t know that because you do see a marked slowing in the second quarter that does—that is fairly broad. So we’ll be watching that. We’ll be watching that. Of course, as I mentioned, we do want to see demand running below potential for a sustained period to create slack and, and give inflation a chance to come down.

Question (Mark Hamrick, Bankrate): Thank you, Mr. Chairman. Mark Hamrick with Bankrate. I can remember when you held your first news conference, and you vowed to be a very plainspoken Chairman, and we’re thinking today about the impacts of Fed policy on individuals as well. What would you say to individuals or households who may yet lose their jobs in this tightening cycle in the fight against inflation as they try to translate what Fed policy means to them in this complicated economic landscape? Thank you.
Answer: So I guess the first thing I would say to, to every household is that we know that inflation is too high. We understand how painful it is, particularly for people who are living paycheck to paycheck and spend most of that paycheck on necessities, such as food and gas and heating their homes and clothing and things like that. We do understand that, that those people suffer the most. Middle-class and better-off people have some resources, where they can absorb these things. But people, many people, don’t have those resources. So, you know, we—it is our job. It is our institutional role. We are assigned uniquely and unconditionally the obligation of, of providing price stability to the American people. And we’re going to use our tools to do that. As I mentioned, there will be some, in all likelihood, some softening in labor market conditions. We need growth to slow to below potential growth. We don’t want to—we don’t want this to be bigger than it needs to be. But, ultimately, if you think about the medium and longer term, price stability is the thing that, that makes the whole economy work. It’s what can—it can give us a strong labor market and wages that aren’t being eaten up by high inflation. If you talk to people—again, people who are making, you know, wages, relatively low wages— they’re the ones who are suffering the most from inflation. So it’s all the more reason why we need to move, move on this. Thank you very much.