Federal Reserve press conference, 2023-03-22 — Chair Jerome Powell

Question (Rachel Siegel, Washington Post): Hi, Chair Powell. Rachel Siegel from the Washington Post. Thank you for taking our questions. I know we’ve talked a bit about how Silicon Valley Bank was unique to a certain sector of the economy, but there’s also growing concern that there are financial stability risks from the commercial real estate market and loans that will begin to roll over later this year and next, and that smaller regional banks also disproportionately hold those loans. Is there a risk that could mimic the kind of—what we saw with SVB to banks that disproportionately are focused in commercial real estate?
Answer: So, you know, we’re well aware of the concentrations people have in commercial real estate. I really don’t think it’s comparable to this. The, the banking system is, is strong, it is sound, it is resilient, it’s well capitalized, and I really don’t see that as at all analogous to this.

Question (Catarina Saraiva, Bloomberg): Hi, Chair. Catarina Saraiva with Bloomberg News. The minutes of the January–February meeting, the last meeting, indicate that you discussed the possibility of runs on nonbank financial institutions and the impact of large unrealized losses on bank portfolios. Can you talk a little bit more about that discussion—kind of what was talked about in light of that, and then why didn’t the Fed, you know, do anything about that at that point to ultimately prevent, you know, what happened this month?
Answer: I mean, to be honest, I don’t—I don’t recall the specifics of that. It’s been quite an interesting seven weeks. But, but I will tell you, though, that we have—there have been presentations about, about interest rate risk. I mean, it’s been in all the newspapers. It’s not a surprise that there are institutions that have—that have had unhedged long positions in long- duration securities that have lost value as, as longer-term rates have gone up due to our rate increases. So that’s, that’s not a surprise. I, I think, as you know, as is now in the public record, the supervisory team was apparently engaged, very much engaged with the bank repeatedly, and was escalating but, you know, nonetheless, what happened happened. And so that’s really the purpose of—one way to think about the review that Vice Chair Barr is conducting is to try to understand how that happened and try to understand how we can do better and what policies we need to change. I mean, one thing is the speed of the—I’ll come back to that, the speed of the run, it’s very different from what we’ve seen in the past, and it does kind of suggest that there’s a need for possible, you know, regulatory and supervisory changes just because supervision and regulation need to keep up with what’s, what’s happening in the world.

Question (Nicole Goodkind, CNN): Hi. Thank you, Chair Powell. Nicole Goodkind with CNN Business. In the Summary of Economic Projections, the FOMC sees the unemployment rate increasing to 4.5 percent this year. I’m wondering how you anticipate preventing this from snowballing while using the admittedly blunt tools at your disposal.
Answer: So that’s just—that’s an estimate of what will happen as demand slows and as conditions soften in the labor market and it’s just—it’s a highly uncertain estimate. And, I mean, I was really—we have to bring inflation down to 2 percent. The costs of bringing it down—there are real costs to bringing it down to 2 percent, but the costs of failing are much higher. And if you read your history, as I’m sure you have, you can see that if the central bank doesn’t get inflation back in place, get inflation—make sure that inflation expectations remain anchored, you can have a long series of years where inflation is high and volatile, and it’s hard to invest capital, it’s hard for an economy to perform well. And we’re looking to avoid that and, you know, to get back to where we need to be—back to where we were for a quarter century, and get there as quickly as we can.

Question (Nicole Goodkind, CNN): But I guess the question is, historically, it’s hard to— historically, it’s been hard to contain unemployment and I, I—the question is, do you worry about some sort of snowball effect, and how do you factor that into your projections and your thoughts?
Answer: Well, it depends on whether you—so recessions tend to be nonlinear, and so they’re very hard to model. You know, the models all work in a kind of linear way—if you have more of this, you get more of that. But when a recession happens, the reactions tend to be nonlinear and that’s what—so we don’t know whether that’ll happen this time. We don’t know—if so, we don’t know how significant it will be, and so, you know, we’re very focused on getting inflation down because we know in the longer run that that is the thing that will most benefit the people we serve. That’s how we can have a long—you know, we’ve had very strong labor markets through these long expansions that we’ve had. Four of the five longest, or three of the four longest expansions in U.S. history have been really since the high-inflation period. And the reason was inflation wasn’t forcing the central bank to come in and stop an incipient or, or, you know, an expansion. You can have very, very long expansions without high inflation, and we had several of those, and they’re very good for people. You see late in an expansion—you see low unemployment, you see the benefits of wages going to people at the lower end of the wage spectrum. It’s just a place that we should try to get back to.

Question (Nancy Marshall-Genzer, Marketplace): Do you have specific thoughts on that?
Answer: Well I, I—see, if I did, I wouldn’t share them because I, I really, you know, this review is going on, and, you know, I want nothing other than us to find out what happened and why, figure out what we can do to do better, and then implement those changes. That’s all I want. It’s—For me to be giving you my half-formed, or partially informed, thoughts, it, you know, just isn’t appropriate. There’s a real serious review going on with, with people from all over the Federal Reserve System who are not connected to this, you know, to this work, not connected to this bank, and under, again, Vice Chair Barr’s leadership, and I’m confident that it will produce a satisfactory result.