Federal Reserve press conference, 2020-06-10 — Chair Jerome Powell

Question (Nick Timiraos, Wall Street Journal): Yes, hi. Thanks, Chair Powell. Nick Timiraos at the Wall Street Journal. I want to ask about the economic projections, and I realize these are more of an educated guess at this point, but they suggest the Committee sees quite a large output gap over the next two years. And yet the Committee did not take any steps to date to—to reinforce your forward guidance. And so my questions are, first, what are you hoping to learn by waiting? Second, how might that change your response? And, third, how close is the Committee to reaching a decision on a—a more concrete forward guidance and whether yield caps might reinforce that guidance?
Answer: So, first, I would say that we think that monetary policy today is currently well positioned to support the economy in this challenging time. If we didn’t think that, of course, we would change our policy now. As you know, we—we lowered our policy rate very quickly, [more] quickly than others, to the effective lower bound. And we’ve said that we’ll keep it there until the economy has weathered the effects of the virus and is on track to achieve our goals. You can see that in—in the dot plot, as I think you pointed out, that overwhelmingly, FOMC participants expect, as their baseline expectation, no rate increase at least through 2022. And if you look at surveys of more forecasters and market participants, financial market prices, et cetera, those also appropriately reflect a long spell with rates at the effective lower bound. So the first thing is, monetary policy is in a good place, and it’s—that’s well understood in the markets. Secondly, we’ve also taken strong measures to support the flow of credit in the economy, as I mentioned. And, third, we’re continuing asset prices in coming months at—at a— at a relatively high level.1 So for all those reasons, we feel like policy is now in a good place. So as we look ahead, we see that the path for the—ahead for the economy is highly uncertain and continues to depend to a really significant degree on the path of the pandemic. So, at this meeting, what we did was, as I mentioned, we—we looked in some depth at forward guidance and asset purchases and looked carefully at those. We also received a briefing on the historical experience with yield curve control. And we’ll continue those discussions in upcoming meetings and evaluate our stance and communications as more and portion—more— more information about the trajectory of the economy becomes available. I—I would just say, in terms of—of what we’re looking for, we—we expect to get a better understanding of the economy’s trajectory and, particularly, how we should best deploy those tools to achieve those goals. So that’s really what we’re looking to achieve, and, as you can see, we’re—we’re actively at work on that. 1 Chair Powell intended to say “asset purchases” rather than “asset prices.”

Question (Jeanna Smialek, New York Times): Hi, Chair Powell. Thank you so much for taking our questions. I’m—I’m curious about your inflation forecasts, which are—are pretty low across the forecast horizon. I guess just given how low you see inflation being over the coming years, why is policy appropriate now, and why not just kind of throw everything you can—you know, everything and the kitchen sink at it currently? And I guess if you could just talk a little bit about what urgency you see in—in returning it back to that 2 percent target.
Answer: Our current policy stance is appropriate. And remember, we’re using—we’re using our—our emergency 13(3) lending tools to an unprecedented extent. We have asset purchases, and we’ve now said that we won’t go any lower than this, and—but—but that we’re prepared to adjust as appropriate, and rates are at the effective lower bound. So we have all of our tools in—in use in a strong way. And so what we’re—what we’re waiting for is to—is to learn more. I—I think, actually, if you look at the May employment report, it’s a pretty good—probably the biggest data surprise that anybody can remember. It’s a pretty good illustration of just how uncertain these times are. The economy is reopening. We’re going to learn a whole lot about the—the path of the economy in the next—in coming months. So that’s really what we’re—what we’re looking for. In terms of inflation, you’ll know that we—we had a 128-month expansion, and we never did quite get inflation back to 2 percent on a symmetric, sustained basis. We got close for the last couple of years, but we never did quite get there. So I think we have to be humble about our ability to move inflation up and particularly when unemployment is—is going to be above most estimates of the natural rate for—certainly above the median in our—in our—in our SEP well through the end of—past the end of 2022. So I do—I think we’re in the right place now. We— we are looking carefully at what the—as we learn more and—and better understand the—the path of the economy, we will be assessing, what’s the best way to deploy all of our tools to achieve our goals in the best possible way? And I’ll—I’ll just say again that we are—the—the May employment report, of course, was a—was a welcome surprise, very pleased. We hope we get many more like it. But I think we have to be honest. It’s a—it’s a long road. It’s—it’s, depending on how you count it, well more than 20 million people displaced in the labor market. It’s going to take some time. And we are going to be deploying our tools—all of our tools, to their full extent, in pursuit of that—of those goals, however long it takes.

Question (Steve Liesman, CNBC): Thank you, Mr. Chairman. I think I understand how the Fed might react in the event things come out worse than expected. I think I don’t understand how you might react if things come out better than expected—kind of a variant on these other questions. How firm is the commitment to lower interest rates? And if things end up better, do you stick with these low interest rates, as you—as you projected them? And—or is it specific points that you have in mind—for example, unemployment or inflation—that is animating where you might go? And what are those numbers that you’re looking for that might cause you to change about the policy as it now is projected?
Answer: I would start with—that’s where I would start. I would say, you know, we were—we just had a period of unemployment, as you know, that was in the—well below 4 percent, hanging around 3½ percent, that lasted two years. And during that period of time, we saw a lot of great things happening in the labor market, things that we’d love to get back to. We didn’t see any problems with price inflation. Price inflation didn’t really react much. So, I would say, you know, we’d be looking to get inflation back up, and we—we’d be prepared to tolerate pretty low—welcome, in fact, not tolerate but welcome very low readings on—on unemployment just based on what we—what we saw in the last—in the last expansion. So, you know, we’re—we’re not thinking about raising rates. We’re not even thinking about thinking about raising rates. So what we’re thinking about is—is providing support for this economy. We do think this is going to take some time. I think most forecasters believe that. It would be great if—if we got a whole bunch more months of job creation like that. Not— notwithstanding that, as I mentioned, there are—there are just a lot of people that are unemployed. And it seems quite likely that there will be a significant group at the end of— even—even after a lot of strong job growth, that’ll still be struggling to find jobs, and we’ll still be providing strong accommodation for that.

Question (Christopher Rugaber, Associated Press): Hi. Thank you for taking our questions. Well, in the projections you have—you didn’t change the—the Fed policymakers didn’t change their—the forecast for long-run unemployment, so that suggests that you—you know, the—that all of you so far don’t see necessarily prospects for long-term damage. But still, what kind of data are you looking at here to gauge, you know, the potential for longer-term hits to the economy even as we have some of these—even as we have something like the May jobs report, you could still have, at the same time, people return from temporary layoffs, there could still be permanent job losses? So what kind of data are you looking at to gauge that potential impact, and what is—what is it telling us so far?
Answer: Chris, this is a really important risk. And I think it’s—it’s not the risk for the next few months, but it’s the risk over time of—of lasting damage to the—to these— you know, to the productive capacity of the United States, typically in two forms. One, through extended periods of unemployment, people lose contact with the labor force. They get out of touch with the skills and—that they need, and—and they have a hard time getting back in, and that drives that—that, you know, it’s very damaging to people’s lives and their working lives. And it also just lowers, in a way—it can—it can increase the—you know, the unemployment rate, but it can also lower the labor force participation rate, which is almost worse, in a way, to have people dropping out of the labor force where we need them in the—in the labor force working. The other piece of it is just businesses. You know, a shock like this that just comes in, it’s like a natural disaster. You wouldn’t want a lot of perfectly good businesses, particularly the smaller and medium-sized businesses that may not have a lot of resources to sustain them to— you know, to go out of business permanently in a situation like that—like this where, really, there was no reason for it. Of course, you know, businesses are going to go in and out. They’re going to fail all the time, and that’s a healthy thing in capitalism. That’s something that has to happen. But this is different. This is a way—potentially—so those are the things we’ve been worried about. We didn’t change. You—you’re right, though. We didn’t change our longer-run estimate of—of potential growth or of the unemployment rate. And that’s—I would say, in my thinking, the reason I didn’t change mine is that I still—I—I think we can avoid that or avoid much of that, most of that even. And—and we do that with measures that—that, you know, keep people in their homes; that—that support hiring; that support growth; that avoid unnecessary, avoidable business insolvencies. And that’s all the things that we’re trying to do. Basically, if you look at what’s happened, as I mentioned, there’s something—somewhere short of 25 million people have been displaced, even after the good May employment report. What we’re trying to do is create an environment in which they have the best chance either to go back to their old job or to get a new job. That’s—that’s kind of the most important part of this exercise. And maybe these—it’s probably hopeful at this point to say that—that we won’t have longer-run damage to the economy, and these numbers won’t change. So—but I think it’s way too early to be—to be changing the longer run—see, these are—these are not meant to be short- run numbers. They’re called—they’re longer-run assessments, so I—I would—I have not changed mine, and I’m hopeful that—that I won’t have to change it.

Question (Matthew Boesler, Bloomberg): Hello, Chair Powell. This is Matthew Boesler with Bloomberg News. I wanted to ask you about regulatory forbearance. There were some piecemeal forbearance measures put into place in various jurisdictions and also to a slice of the mortgage market to prevent banks from foreclosing on such debts amid the widespread financial hardships caused by the pandemic. And with many of those set to expire soon and many businesses and households still in dire financial straits, I’m wondering if any consideration is being given at the Fed to more comprehensive regulatory forbearance measures or other regulatory measures to prevent businesses from going under just because they can’t meet those payments. There have, of course, been some tweaks to the Paycheck Protection Program on the fiscal side to address this, but I wanted to ask you about things you might be able to do on the regulatory side as well. Thank you.
Answer: We can—we can make changes to bank regulation and supervision. I don’t know that we have the ability to make changes, for example, in mortgage payments, if that’s what you’re thinking of, or credit card payments. That’s really—that’s something that could be legislative, or it could just be what the—what the banks themselves are doing. There’s been a tremendous amount of forbearance on the part of the banks, and I guess our role there would be to encourage it, but those are not decisions that we hold any legal authority to make, and we—by the way, we have encouraged those decisions. I hope that’s responsive to your question.

Question (Scott Horsley, NPR): Thank you, Mr. Chairman. I know you’re loathe to weigh in too heavily on fiscal policy, but given your forecast for elevated unemployment rates, do you think it’s important that Congress extend the $600 a week extra unemployment benefits?
Answer: I think we try to keep our comments on fiscal policy at a high level, and I’ll—I’ll come to your specific question, but I would just say this: This is the biggest economic shock in the U.S. and in the world, really, in living memory. We went from the lowest level of employ—unemployment in 50 years to the highest level in close to 90 years, and we did it in two months. Extraordinary. And, appropriately, the response from fiscal authorities has been large, forceful, and very quick by—by the standards of these things. Roughly $3 trillion Congress has authorized, and that’s benefiting households; laid-off workers; small, medium, and large businesses; hospitals; state and local governments—14 percent of GDP. It is—it’s in a class by itself, in terms of both the size and the speed of it, and it’s also pretty innovative. You know, the—both the PPP and the unemployment insurance are quite innovative in the American context, and there were difficulties in implementing it, but that’s really a function of—of their novelty, I think. Those programs—by the way, let me add: The Fed also—we both innovated and acted forcefully, progressively, proactively, and aggressively as well. If you put those together, all of that is making a difference now. You look at the income data. The expanded unemployment insurance and also the stimulus checks have gone a long way to replacing lost income from—from job loss. I think you’re seeing it in the job market data. Many are giving the PPP credit on that front and—and in keeping small businesses going. So it’s—so far, it’s a good response, and it’s having—it’s having a big effect. You—you get to—the question is, it’s big—everyone can see that it’s big. Is it going to be big enough? And that—that is the question. And—and the question for—for—the question that I’ve been concerned about, really, is this issue of longer-run damage to the economy. We’re—we’re—we’re doing a fair job of getting through these first few months, more than a fair job. The question, though, is, that group of people who won’t be able to go back to work quickly, what about them? And that could be many millions of people, you know, parts— who worked in parts of the economy that will be the slow ones to recover. And, you know, we want those people back in the labor force. We want them getting jobs. So—and—and they’re going to need possibly—probably will need further support. So I will just say this: It’s possible that we will need to do more, and it’s possible that Congress will need to do more. In terms of the $600 unemployment insurance, I wouldn’t—I wouldn’t try to give Congress advice on the specifics of that. I—I know they’re looking at—I mean, I—I know from both talking to people and—and reading the papers that they’re looking at a whole bunch of different possible approaches going forward, and some of those seem kind of promising. So, you know, we’re happy to give advice if people ask for it but—but probably not—not publicly.

Question (Edward Lawrence, Fox Business): Thank you, Chairman Powell, for the question. On Main Street lending facilities, you know, in May we saw 55—at least 55 companies file for bankruptcy. Do you think that it is too late, first of all? Second of all, the future of these facilities—is this a one-year impact to the economy through these facilities, or is this a multiple-year? If so, how many years?
Answer: We have, you know, significant interest, we think. And also, remember, lots and lots of companies are getting financed, too. The—the banks are lending. The markets are open. You know, you have a—a—a much better lending climate than—than certainly than we had in February and March. We don’t think it’s too late, though. We—we— and we do expect it to be up quite soon. In terms of the timing of these things, so, you know, we’ll leave them open as—we’ll leave them open for new loans as long as they need to. That’ll be a decision we make, of course, with our colleagues at the Treasury Department. And, at a certain point, there won’t be a need for further loans, and—and then the assets will—will be there. And so if that’s—I don’t know if that’s a part of your question too, but I would just say that, at that point, you know, the—the useful role of the—of the Federal Reserve is probably close to an end at that point. We don’t have any expertise in managing pools of credit assets, loans—if you will—or bonds, and we, you know, we don’t want to be made—we don’t really want to be part of the decisions that have to be made to manage such a portfolio, so we’d be looking to have that done either someplace else or, you know, by—by a third party or at the Treasury Department or something. And we’re, you know, we’re working on ideas for that. But our real focus now is on—is getting these facilities going and—and getting them to do the job that they—they need to do.

Question (Michael McKee, Bloomberg): Mr. Chairman, Michael McKee, Bloomberg Television and Radio. I came across a statistic the other day that amazed me. Since your March 23 emergency announcement, every single stock in the S&P 500 has delivered a positive return. And I’m wondering, given the levels of the market right now, whether you or your colleagues feel there is a possible bubble blowing that could pop and set back the recovery significantly, or that we might see capital misallocation that will leave us worse off when this is over. Second, inequality is not just about wages, it’s also about wealth. And a number of studies have suggested that by keeping rates low for so long and targeting the markets after the great financial crisis, that the Fed did contribute to wealth inequality in this country. And I’m wondering if you think there is some tweak or some message you could give that would affect that.
Answer: What we’ve targeted is broader financial conditions. If you go back to the end of February and early March, you had—basically, the world markets realized at just about the same time—I remember that Monday—that there was going to be a global pandemic, and that this possibility that it would be contained in one province in China, for all practical purposes, was not going to happen. It all—it was—you know, it was Iran, Italy, Korea, and then it became clear in markets. From that point forward, investors everywhere in the world, for a period of weeks, wanted to sell everything that wasn’t cash or a—a short-term Treasury instrument. They didn’t want it to have any risk at all. And so what happened is, markets stopped working. They stopped working, and companies couldn’t—couldn’t borrow. They couldn’t roll over their debt. People couldn’t borrow. So that’s—that’s the kind of situation that can be very—financial turbulence and malfunction—a financial system that’s not working can greatly amplify the negative effects of what was clearly going to be a major economic shock. So what our tools were—were put to work to do was to restore the markets to function. And I think, you know, some of that has really happened, as I—as I mentioned in my opening remarks, and that’s a good thing. So we—we’re not looking to achieve a particular level of any asset price. What we want is investors to be pricing in risk like markets are supposed to do. Borrowers are borrowing. Lenders are lending. We want the markets to be working. And, again, we’re not looking to—to a particular level. I think our—our principal focus, though, is on—on the state of the economy and on the labor market and on inflation. Now, inflation, of course, is—is low, and we think it’s very likely to remain low for some time, below our target. So, really, it’s about getting the labor market back and getting it in shape. That’s—that’s been our major focus. And I would say, you know, we—if we were to hold back because—we would never do this, but—the idea that, just the concept that we would hold back because we think asset prices are too high—others may not think so, but we just decided that that’s the case—what would happen to those people? You know, what would happen to the people that we’re actually legally supposed to be serving? We’re supposed to be pursuing maximum employment and stable prices, and that’s what we’re pursuing. We’re also pursuing financial stability, but there you have a banking system that is so much better capitalized, so much stronger, better aware of its risks, better at managing its risks, more highly liquid. You have all of those things. And they’ve been lending. They’ve been taking in deposits. They’ve been a source of strength in this situation. So I would say that, you know, we’re tightly focused on our real economy goals. And— and, again, not—we’re not—we’re not focused on moving asset prices in a particular direction at all. It’s just we want markets to be working, and I think, partly as a result of what we’ve done, they—they are working. And, you know, we hope that continues. Thank you very much.