Federal Reserve press conference, 2022-01-26 — Chair Jerome Powell

Question (Howard Schneider, Reuters): You know, for a year or so—Hi. Thanks, Chair Powell. Howard Schneider with Reuters. So for a year now, the statements referenced the benchmarks for this initial interest rate increase. Now that we’re approaching that moment, what are the benchmarks going to be for subsequent rate increases? I know you can’t stipulate the path, but how should we think about the criteria for the next step and the next step?
Answer: Well, you’re right. We haven’t got—we haven’t gotten to that point yet. We haven’t made a decision yet, and we’ll make that decision at the March meeting. We’ll make a decision whether to raise the federal funds rate. I would say that the Committee is, is of a mind to, to raise the federal funds rate at the March meeting, assuming that conditions are appropriate for doing so. We have—we have our eyes on, on the risks, particularly around the world. But we do expect some softening in the economy from Omicron, but we think that that should be temporary. And we think that the economy should—the underlying strength of the economy should, you know, should, should—show through fairly quickly after that.

Question (Jeanna Smialek, New York Times): Thanks for taking our questions, Chair Powell. And sorry for my tech issues. I wonder if you could tell us a little bit about where your thinking on inflation stands today. You know, the last time we saw an SEP back in September, we saw that you and your colleagues were projecting that inflation would sort of sink back down quite close to target by the end of the year. And I wonder if you still think that projection from December is a reasonable one. And if your thinking has changed at all, I wonder how you’re thinking about that. And I also wonder if you could talk a little bit about the pathway to getting to that deceleration. Like, how do—how do we get from here, 7 percent CPI, to where you expect to be at the end of the year?
Answer: So I’d say, you know, since, since the December meeting, I would say that the inflation situation is about the same but probably slightly worse. I’d be inclined to raise my own estimate of 2022 core PCE inflation—let’s just go with that—by a few tenths today. But we’re not writing, writing down an SEP at this meeting. But I think it’s—it hasn’t gotten better. It’s probably gotten just a—just a bit worse, and that’s been the pattern. That’s been the pattern. So I think if you look at the—the FOMC participants are—there’s a range there. And that range has been moving to the right for, for a year now. And, by the way, if you look at other forecasters, essentially all other macro forecasters who do this for a living, you’ve seen the same pattern. So, what do we think about that? Well, I think we, you know, we wrote down rate increases in the December meetings, each of us individually. And I think to the extent the situation deteriorates further, our policy will have to address that, if it deteriorates meaningfully further, either in the time dimension or in the size of the inflation dimension. So that’s how we’re thinking about it. I—as I mentioned, though, I think it’s—part of this will be that us, the Fed, moving away from a very highly accommodative policy to a substantially less accommodative policy and then, over time, to a policy that’s not accommodative, in time. I don’t know when that will be. That’s—those are the things that we’re—that we’re thinking about. That’s, that’s part of it. Another part of it is that fiscal policy provided an impulse to growth over the last two years. That impulse will be less, in fact, will be—will be negative this year. And so that’s another thing. The other one is, we will eventually get relief on the supply side. And, you know, the ports will be cleared up. And there will be semiconductors and things like that. Now, what we’re learning is, it’s just taking much longer, so I think—longer than expected. And that, I think, does raise, raise the risk that high inflation will be more persistent. I do think we’ll come off of the highs that we saw in the early part of this episode in the—in the spring last year. But, really, what’s—the question is going to be, what is inflation running at? And so we’ll be watching that. And I, you know, we—our objective is to get inflation back down to 2 percent. It’s also to provide enough support to keep the labor market healthy. The labor market is very, very strong right now, and I think that that strength will continue. There’s a—there’s really a shortage of workers. We see it particularly among production and nonsupervisory workers and people in the lowest quartile. You see very large wage increases. I mentioned some of the other indicators. So I think that’s, that’s what we’re looking at. And we’re also—you know, we realize, I think, as everyone does, that this outlook is quite uncertain and that we’re going to have to adapt. And we’re going to communicate as clearly as we can. But we’re going to have to be adaptable and, you know, move, move as appropriate.

Question (Edward Lawrence, Fox Business): Thanks, Michelle, and thank you, Mr. Chairman, for taking the question here. So year over year, inflation’s at a 40-year high. The [increase in] input costs for producer price index for all of 2021 was the highest on record. Some investors fear that the Fed might be moving too late. Now, you said no decisions were made on the path of rate hikes, but was a rate hike more than 25 basis points discussed today? And as a follow to that—because I have problems with the mute button—as a follow to that, you testified that the supply chain issues could be worked out by the end of the year. You talked about that today. The CEO of Ford, though, told Fox Business today that the chip shortage will last into 2023. So today you said inflation will start to ease this year. I want to drill down and get a timeline that you see as to when we could see that relief. Thank you.
Answer: So I, I would not say that I would expect the supply chain issues to be completely worked out by the end of this year. I do not expect them, and I have not expected them. What I would say, and I have been saying, is that I expect progress to be made in the second half of this year, mainly—progress because we’re not making much progress. If you look at a ton of metrics, you can find some that suggest that delivery times are shorter and inventories in some industries moving up. But, overall, we’re not—we’re not making progress. And, you know, things like the semiconductor issue are going to—they’re going to be quite a long time. I would think they’ll go more than through 2023. In terms of—so in terms of being too late, I would just say this. We—our policy needs to be positioned to address the full range of plausible outcomes, as I said, and particularly the possibility that inflation will continue to run higher, more persistently than we’d expected. And we think we are positioned to make the changes in our policy to do that, and, and we’re committed to doing that. And that’s, that’s really where we are. In terms of your, your question about the, the size of rate increases, we haven’t—we haven’t faced those decisions. We haven’t made them. It isn’t possible to sit down here today and tell you with any confidence what the—what the precise path will be. But in—as we work our way through this, meeting by meeting, we are aware that this is a very different, different expansion, as I’ve said a couple times, with higher inflation, higher growth, a much stronger economy. And I think those differences are likely to be reflected in—in the policy that we implement.

Question (Jean Yung, MNI): Thanks, Michelle. Chair Powell, some investors are expecting the yield curve could flatten, or even invert, after rate hikes begin. Would that worry you, and how important is that risk in the Fed’s consideration for adjusting policy?
Answer: So we, we do monitor the slope of the yield curve, but we don’t control the slope of the yield curve. Many flat—many factors influence longer-term interest rates. But it is something that we watch, and, and you will know that from when we had this issue a few years ago. And we take it into account, along with many other financial conditions, as we try to assess the implications of all those conditions for the economic outlook. So that’s, that’s one thing I would say. Another is, currently, you’ve got a slope. If you think about 2s to 10s, 2-year Treasury to 10-year Treasury, I think that’s around 75 basis points. That’s well within the range of a normal—of a normal yield-curve slope. So it’s something we’re monitoring. We don’t think of it as—I don’t think of it as some kind of an iron law. But we do look at it and try to understand the implications and what it’s telling us. And it’s—but it’s one of many things that we monitor.