Federal Reserve press conference, 2021-04-28 — Chair Jerome Powell

Question (Paul Kiernan, Dow Jones Newswires): Hi, Chairman Powell. Thanks for doing this. I guess, since I’m first, I’ll go ahead and re-up Howard’s question from the last press conference: Is it time to start talking about talking about tapering yet? Have you and your colleagues had any conversations to this effect? Thanks.
Answer: Thank you. So, no, it is not time yet. We’ve said that we would let the public know when it is time to have that conversation, and we said we’d do that well in advance of any actual decision to taper our asset purchases, and we will do so. In the meantime, we’ll be monitoring progress toward our goals. We first articulated this “substantial further progress” test at our December meeting. Economic activity and hiring have just recently picked up after slowing over the winter. And it will take some time before we see substantial further progress.

Question (Jonnelle Marte, Reuters): Okay. Hi. Thank you so much. My question is about what’s going on with the virus, and what if we don’t reach a level of herd immunity, per se. So, in your scenario, thinking about the outlook and the economy, do you have some model where you might start to still normalize policy even if there’s like a baseline of infection still going on? Or how can you, you know, talk about how you’re weighing those things?
Answer: Yes, so we have to leave questions about herd immunity and what that looks like to the health experts, but, but I would certainly say that what matters the most to the economic recovery continues to be controlling the virus. The economy can’t fully recover until people are confident that it’s safe to resume activities involving crowds of people. There may be people who are around the edges of the labor force who won’t come back in unless they feel really comfortable going back to their old jobs, for example, and there, there may be parts of the economy that will—that just won’t be able to, to really fully reengage until the pandemic is decisively behind us. But, you know, we’ve articulated particular guidance for tapering our asset purchases and for lifting off and raising interest rates. So for, for asset purchases, we’ve said that we would continue at the current pace of asset purchases until we see substantial further progress toward our goals. So—and that is, that is what it is, substantial further progress. For interest rates, as I—as I said a moment ago, we want to see labor market conditions consistent with maximum employment, we want to see inflation at 2 percent, and we want to see it on track to exceed 2 percent. So those are our tests. We don’t have an independent test to do with the virus. I will say, though, as I—as I started with, you know, the, the path of the virus is going to have an effect on our ability to achieve both of those tests.

Question (Steve Liesman, CNBC): Thank you. Mr. Chairman, I want to follow up on Jonnelle’s question, and I wonder if you can help us understand better your thinking about how COVID infection rates and the virus calibrate with monetary policy. As you recall, we had a major resurgence in the virus last fall. And I’m wondering, would you need to be assured that there wasn’t such a resurgence coming before you began—I mean, for lack of a better term—thinking about thinking about tapering? And what kind of comfort level would you need? Would it be something that would be declared from the CDC or the, or the World Health Organization—for example, downgrading the virus from a pandemic—before you have the comfort level to reverse course on policy? Thank you.
Answer: Yes. We, we really have—just articulated the goals that I’ve—that I’ve just mentioned a couple of times, which is substantial further progress toward our goals before we taper. Now, that’s very likely—for us to achieve that, it’s very likely going to be the case that we’ve also made really significant progress on controlling the virus through vaccination and, and other—it, it—you know, those two things should more or less coexist. We haven’t articulated a separate test for a state of the virus that we’d like to achieve because we’re not—you know, we’re not experts in that area. We’re, we’re really focused on the economic outcomes, and, again, my, my guess is that we—it’s very likely, it seems to me, that for us to achieve the economic outcomes, we would need to taper or to raise interest rates. We would also have to have made very substantial progress in getting the virus under control—not, not necessarily fully under control. There is a, a possibility, of course, that we will, will have ongoing outbreaks over the summer and various regional outbreaks and potentially next winter as well. But we’ll be looking for substantial progress toward our goal—substantial further progress toward our goals as we think about tapering asset purchases.

Question (Rachel Siegel, Washington Post): Thank you, Michelle, and thank you, Chair Powell, for taking our questions. The housing market in many American cities is seeing booming prices, bidding wars, and all-cash offers well above asking price. And this is happening at the same time that housing is becoming much more expensive for lower-income Americans and people who are still struggling from the pandemic. Do you have concerns that there are localized housing bubbles or that there’s the potential for that, and what is the Fed doing to monitor or address this? Thank you.
Answer: So we do monitor the housing market very carefully, of course. And I would say that, before the pandemic, it’s a very different housing market than it was before the Global Financial Crisis. And one of the main differences was that households were in very good shape financially compared to where they were. In addition, most people who got mortgages were people with pretty high credit scores. There wasn’t the subprime—you know, low-doc, no-doc lending practices were not there. So we don’t have that kind of thing where we have a housing bubble where people are overlevered and owning a lot of houses. There’s no question, though, that housing prices are going up, and so we’re watching that carefully. It’s, it’s partly because there’s, there’s clearly strong demand, and there’s just not a lot of supply right now. So builders are, you know, struggling to keep up with the demand, clearly. Inventories are tremendously low. We’re, we’re all hearing those stories. And if you’re—if you’re an entry level housing buyer, this is—this is a problem, because it just is going to be that much harder for people to get that first house, and that’s a problem. I mean, we—it’s part of a strong economy, with people having money to spend and wanting to invest in housing. So, in that sense, it’s good. It’s clearly the strongest housing market that we’ve seen since the Global Financial Crisis. And, you know, my hope would be that, over time, housing builders can react to this demand and, and come up with more supply and workers will come back to work in that industry. So, you know, it is—it’s not an unalloyed good to have prices going up this much, and we’re watching it very carefully. I don’t see the kind of financial stability current concerns, though, that really do reside around the housing sector. So many of the financial crackups in all countries, all western countries, that have happened in the last 30 years have been around housing. We don’t—we really don’t see that here. We don’t see bad loans and unsustainable prices and that kind of thing.

Question (Christopher Rugaber, Associated Press): Thanks for taking my question. I wanted to ask about the labor market. Do you—do you see things, such as in the Beige Book—you saw in the Beige Book anecdotes about businesses not able to find workers, [inaudible] back to the labor market for fear of getting sick, childcare concerns, and so forth. Do you see these as also just sort of temporary bottlenecks that won’t have much effect on the long-term health of the labor market? Or how are you thinking about these kinds of issues?
Answer: Chris, you were breaking up a little there, but I think I did get your question. So I think there are a number of—a number of things going on there: the tension between a high level of unemployment and yet many, many companies saying they can’t find— an elevated number of companies saying that they can’t find workers. So, what’s really going on there? It, it should be a number of different things. There are workers who don’t actually have the specific skills that the employers are looking for. There may be geographical differences. It, it may also be that, for example, there—one big factor would be, schools aren’t open yet, so there are still people who are at home taking care of their children and would like to be back in the workforce but can’t be yet. There are people afraid of—there are virus fears that are weighing on people, so some—some people don’t want to go back to work. There are also a significant number of people who say they’ve retired—a large number of people that say that they’re retired. Now, it’s hard to say whether they will come back in as the labor market strengthens and as COVID, you know, becomes a—in the rearview mirror, in the history books, if you will. So—but clearly there’s something going, going on out there, as, as many companies are reporting labor shortages. We don’t see wages moving up yet, and presumably we would see that in a real—you know, in a really tight labor market. And we may well start to see that. I do think—so what will happen—what we saw during the last expansion, and it may be a different expansion, we don’t know, but, but what we saw was that labor supply generally showed up. In other words, if you were worried about there—about running out of workers, it seemed like we never did. You know, labor force participation held up. People came in the labor force. They stayed in the labor force longer than expected. So my guess would be that you will see people coming back into the labor force, and these jobs will be—the labor market will reach equilibrium. Maybe pay will go up. But I do think that—and I do think also that unemployment insurance benefits will run out in September, so to the extent that’s a factor, which is not clear, it will no longer be a factor fairly soon. So my guess is, it will come back to this economy where we have, you know, equilibrium between labor supply and labor demand. It may take some months, though.

Question (Heather Scott, Reuters): Thank you. Good afternoon, Chair Powell. I wanted to ask you, you know, you’ve been hearing, of course, these concerns raised by Larry Summers and others about inflation and the fact that they think the Fed might be—might let things get out of hand with the new policy stance. So my question is, can you tell us, what is different this time versus previous periods like in the ’60s when inflation got out of control? Why are you confident with, with the lags in monetary policy that the Fed can get ahead of inflation and, and make sure it doesn’t go too far above the 2 percent target?
Answer: Thanks for your question. So I actually have a couple things I’d like to say about inflation, including addressing your question. So let me start with just saying that we’re very strongly committed to achieving our objectives of maximum employment and price stability. Our, our price stability goal is 2 percent inflation over the longer run, and we believe that having inflation average 2 percent over time will help anchor long-term inflation expectations at 2 percent. With inflation having run persistently below 2 percent for some time, the Committee seeks inflation moderately above inflation for two times—above 2 percent for some time. So, with a, a little bit of context, we’re, we’re making our way through an unprecedented series of events, really, in which a synchronized global shutdown is now giving way to widespread reopening of economies in many places around the world. In the United States, fiscal and monetary policy continue to provide strong support: Vaccinations are now widespread, and the economy is beginning to move ahead with real momentum. During this time of reopening, we are likely to see some upward pressure on prices, and I’ll discuss why. But those pressures are likely to be temporary as they are associated with the reopening process. In an episode of one-time price increases as the economy reopens is not the same thing as, and is not likely to lead to, persistently higher year-over-year inflation into the future— inflation at levels that are not consistent with our goal of 2 percent inflation over time. Indeed, it is the Fed’s job to make sure that that does not happen. If, if, contrary to expectations, inflation were to move persistently and materially above 2 percent in a manner that threatened to move longer-term inflation expectations materially above 2 percent, we would use our tools to bring inflation and expectations down to mandate-consistent levels. And I would say, if I may, that is a principal difference from—we’re all very familiar at the Fed with the history of the 1960s and ’70s, of course. And we know that our job is to achieve 2 percent inflation over time. We’re committed to that, and we will use our tools to do that. So that’s a very different situation than you had back in the 1960s—or many, many differences, actually. So let me talk quickly about the two reasons—two, or you could say three, but really two main reasons why we think inflation will move up in the near term. The first is the base effects. Twelve-month measures of inflation are likely to move well above 2 percent over the next few months as the very low inflation readings recorded in March and April of last year drop out of the calculation. That process has already started to show up. You saw it in the March CPI reading, and you’ll see it later this week in the PCE price data. These base effects will contribute about 1 percentage point to headline inflation and about 0.7 percentage point to core inflation in April and May. So, significant increases, and they’ll disappear over the following months. And they’ll be transitory. They carry no implication for the rate of inflation in later periods. So that’s base effects. The other big one I would talk about is bottlenecks. So this is what we’re seeing in supply chains in various industries, and we’re, we’re in close touch with all of these industries. You know, the Fed has a network of contacts that is unequaled in businesses and in nonprofits for that matter, too. So what do we mean by a bottleneck? A bottleneck really is a temporary blockage or restriction in the supply chain for, for a particular good or goods, something that slows down the process of producing goods and delivering them to the market. We think of bottlenecks as things that, in their nature, will be resolved as workers and businesses adapt, and we think of them as not calling for a change in monetary policy since they’re temporary and expected to resolve themselves. We know that the base effects will disappear in a few months. It’s much harder to predict with confidence the amount of time it will take to resolve the bottlenecks, or for that matter, the temporary effects that they will have on prices in the meantime. So, you know, I’ll just sum up and say, we understand our job. We will do our job. And we are, we are focused—as you’ve seen, for many years, we’ve been focused on inflation deviating below 2 percent, and we used our tools aggressively to keep it back up at 2 percent. If, if we see inflation moving materially above 2 percent in a persistent way that risks inflation expectations drifting up, then we will use our tools to guide inflation and expectations back down to 2 percent. No one should doubt that we will do that. This is not what we expect. But no one should doubt that, in the event, we would be prepared to use our tools.

Question (Catarina Saraiva, Bloomberg): Hi, Chair Powell. Thanks for taking our questions. Over the past decade, the Fed has invested significant resources in large-scale bank supervision—has completely overhauled that approach. And it’s even created a special committee that looks horizontally across the largest banks to find common risks. Did the Fed not see that multiple banks had large exposures to Archegos? If not, why not? And then, what regulatory changes would you like to see implemented to change that going forward?
Answer: We’re, we, we supervise banks to make sure that they have risk- management systems in place so that they can spot these things. We don’t manage their companies for them or, or try to manage individual risks. In the grand scheme of these large institutions, the Archegos risks were not systemically important or were not of the size that they would have really created trouble for any of those institutions. What was troubling, though, was that this could happen in a business for a number of firms that is thought to be—to carry relatively well understood risks. The prime brokerage business is, is a well understood business, and so it was surprising that a number of them would have had this. And it was essentially, I believe, the fact that, that they had the same big risk position on with a number of firms, and they weren’t—some of the firms were not aware that there were other firms that had those things. I, I wouldn’t say it’s in any way an indictment of our supervision of these firms. It, it—in some cases, it may be they were—it seems as though there were risk-management breakdowns at some of the firms, not all of them. And that’s what we’re looking into.

Question (Nancy Marshall-Genzer, Marketplace): Hi, Chair Powell. I—I’m wondering, are you planning to visit the homeless encampment that’s near the Fed in Washington that you drive by? Have you been invited, and if you went, what would you be looking to learn there?
Answer: You know, frankly, yes. I have not had a chance to do it yet, but I’ve been very busy, but I will visit. I don’t want to visit it at a time of a lot of media attention, because I don’t want that to be part of the story. But I will—I will go visit when, when it’s no longer a, a news story. And I—you know, I—I’ve met with homeless people many times, a number of times, anyway, let’s say. And I, I think it’s always good to talk to people and hear what’s going on in their lives. What you find out is, they’re you. They’re just us. I mean, they’re, they’re—these are people who, in many cases, had jobs and, you know, they have lives, and they’ve just, they’ve just found themselves in this place. It’s, it’s a—it’s a difficult problem, though. You know, there are many, many facets of it, and I’m well aware that this is not something that the Fed has all the tools for or anything like that. But I, I will do that when, when the need arises and when, when it’s not so much, you know, in the public eye.

Question (Hannah Lang, American Banker): Hi. I wanted to ask about digital currency. You previously said a few times that you think it’s important for the U.S. to get a central bank digital currency right rather than be first. But with countries like China moving very quickly on CBDC, I was wondering what you think the risks are of, of moving too slow on, on digital currency.
Answer: Right. So I think the first thing to say is that we feel an obligation to understand the technology and all of the policy issues very, very well. Central bank digital currencies are now possible, and we’re going to see some of them around the world. And we need to understand whether that’s something that would be a good thing for the people that we serve. How would it work in our system? And there are some very, very difficult questions to answer, but I think we—and we are engaged in a serious program to understand both the technology and the policy issues. I am—I would say this: We’re the world’s reserve currency, and that means that the dollar is used in transactions all around the world, far more than any other currency. And that’s because of our rule of law; our democratic institutions, which are the best in the world; our economy; our industrious people; all the things that make the United States the United States. That’s why we’re the, the reserve currency. And, of course, we have open capital accounts, which is essential if you’re going to be the reserve currency. So those are the factors that make us the reserve currency. I am—I’m less concerned that someone—that another country might have a digital currency first. You know, ask yourself the question, does that mean that, if you were a company that’s doing international business, would you then suddenly start to use that currency to use your—do your international transactions, or would you still do them in dollars, where, where— which is what everyone does? And I’m not so concerned about, about that. I am really concerned about getting it right. It is—it is a—it is a tricky set of questions that we have to navigate in a world where we already have, remember, a highly evolved payment system. We have FedNow and other immediately available funds. Pretty soon everybody will be able to, to do what people do in other parts of the world, which is just use their phone to make immediately available payments all the time. It’ll be normal. And what would be the role of a central bank digital currency in that kind of an environment? Far more important to get it right than it is to do it fast or feel that we need to rush to reach conclusions because other countries are moving ahead. I mean, that—what the China—the currency that’s being used in China is not one that would—that would work here. It’s, it’s one that really allows the government to see every payment that’s used—for which it is used in real time. It’s much more to do with things that are happening within their own financial system than it is, I think, to do with, with the global—you know, sort of global competition.

Question (Michael Derby, Wall Street Journal): Just one small follow-up. Do you have any redlines on inflation readings where if, you know, you hit, like, a certain number on, say, you know, core PCE, that would be, you know, a trigger response from the Fed?
Answer: It doesn’t work that way. You know, we’re, we’re—inflation measures are always going to be a bit volatile. We expect—as I mentioned, we expect core and, and headline PCE to move up because of base effects, and—you know, I—and we expect that to go away. We, we also expect these, these bottleneck effects to come in. We don’t know how persistent they’ll be. We, we think they’ll—you know, it’s a matter of, of when they will pass through, not whether they will pass through. But we can’t be confident about the exact timing of that or the size of them. They don’t seem especially large at the moment, but, you know, we, we don’t know. I mean, you know, this is—this is all about the reopening of the economy. That’s what’s happening. We had it—we were in a deep, deep hole a year ago, and now, with a lot of help from fiscal policy, some additional help from monetary policy, and, you know, a great deal of help from vaccination, we’re seeing a strong rebound in activity. And what’s happening is, it’s, it’s—demand can be spurred with fiscal transfers and—the saved-up fiscal transfers and, and people going back to work and things like that. The supply side will take a little bit of time to adapt. New restaurants will have to be opened. The supply of various inputs into the goods part of the economy will have to be brought back up to speed. And you—you’re seeing some of that. That’ll happen over a period of time, over coming quarters. You’ll see some of the bottlenecks resolved, but the last one may not be resolved for some time.

Question (Brian Cheung, Yahoo Finance): As a follow-up, you mentioned money market pressures. The Fed didn’t make changes to interest on reserves or excess reserves. What was the logic behind that? It seems like SOFR has been drifting closer to zero. So just hoping for clarification on that.
Answer: Right. So the federal funds rate has been well within target and—at target range, and money market funds—money market conditions are, are fine. We have the ability to use our administrative tools to make sure that that remains the case. We do expect further downward pressure on, on rates through asset purchases and also the runoff in the—in the Treasury General Account. But, at this point, we didn’t see a need for—to, to deploy our tools to, to support rates. And, of course, we will do so if, if the need does arise.

Question (Edward Lawrence, Fox Business): What, what I’m saying is, is, you know, when will the—when will you need to lower the, the amount of Treasuries you’re buying to sort of taper off a little bit? When can it stand without having that support from the monetary policy side? And then—and then, further, the transitory.
Answer: Okay. Sorry. So we have—you know, we’ve articulated our test for that, as you know, and that is just, we’ll continue asset purchases at this pace until we see substantial further progress. And we’re, we’re going to communicate well in advance of any decision. We’re going to let, you know, the, the public know that that’s what we’re thinking. And, and so there’ll be a lot of warning and that kind of thing. But it’s about substantial further progress toward our goals. That’s, that’s really all it is. It doesn’t have any, any external, virus- related specific requirement, although, again, I do think it’ll—you know, the, the virus will need to continue to be controlled for us to achieve those economic goals. But it’s really the economic goals. Now, your second question. Sorry, just say again. I didn’t quite get that question.

Question (Greg Robb, MarketWatch): Hi, Greg Robb from MarketWatch. Thank you—thank you so much for the—for the opportunity. I wanted to circle back to the housing market. It’s just kind of confusing that the question and your answer—you know, the housing market is strong, prices are up. And yet the Fed is buying $40 billion per month in mortgage-related assets. Why is that, and are those purchases playing a role at all in pushing up prices? Thank you.
Answer: Yes. I, I mean, we’re—we started buying MBS because the mortgage-backed security market was, was really experiencing severe dysfunction, and we’ve sort of, sort of articulated, you know, what our exit path is from that. It’s not meant to provide direct assistance to, to the housing market. That was never the intent. It was really just to keep that as—it’s a very close relation to the Treasury market and a very important market on its own. And so that’s, that’s why we, we bought as we did during the Global Financial Crisis; we bought MBS too. Again, not, not an intention to send help to the housing market, which was, which was really not, not a problem this time at all. So—and, you know, it’s, it’s a situation where we will, we will taper asset purchases when the time comes to do that, and those, those purchases will come to zero over time. And that time is not yet.

Question (Michael McKee, Bloomberg): Thank you, Mr. Chairman. Since I am last, let me go back to Paul’s question, the first question, and ask him—ask you whether—not whether you’re thinking about thinking of tapering, but why you’re not. We’re seeing bank lending fall. The markets seem to be operating well. Are you afraid of a taper tantrum? Or is it, as one money manager put it, “If you get out of the markets, there aren’t enough buyers for all of the Treasury debt, and so rates would have to go way up”? The bottom-line question is, what do we get for $120 billion a month that we couldn’t get for less?
Answer: So it’s really not more complicated than this. We, we articulated the “substantial further progress” test at our December meeting. And, really, for the next couple of months, we made relatively little progress toward our goals. And, remember, substantial further progress from December—from our December meeting. And then vaccination started to get more widespread. The economy reopened. We got a really nice job report for March. It doesn’t constitute substantial further progress. It’s not close to substantial further progress. We’re hopeful that we will see along this path a way to that goal. And we believe we will; it just is a question of when. And so, when that time—when the time comes for us to talk about talking about it, we’ll do that. And—but that time is not now. It’s—we’re just not—we’re not that far. We’ve had one great jobs report. It’s not enough. You know, we’re going to act on actual data, not on our forecast. And we’re just going to need to see more data. That’s—it’s no, no more complicated than that.