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

Question (Colby Smith, Financial Times): Okay, just a quick follow-up: I mean, given all the stress and the uncertainty that you’ve also alluded to in the statement, how seriously was a—was a pause considered for this meeting?
Answer: So we considered—we did consider that in the days running up to the meeting, and you see the decision that we made, which I’ll say a couple things about. First, it was supported by a very strong consensus, and I’ll be happy to explain why. And, really, it is that the intermeeting data on inflation and the labor market came in stronger than expected and, really, before the recent events, we were clearly on track to continue with ongoing rate hikes. In fact, as of a couple of weeks ago, it looked like we’d need to raise rates over the course of the year more than we had expected at the time of the SEP in December—at the time of the December meeting. We are committed to restoring price stability, and all of the evidence says that the public has confidence that we will do so—that we’ll bring inflation down to 2 percent over time. It is important that we sustain that confidence with our actions as well as our words. So we also assess, as I mentioned, that the events of the last two weeks are likely to result in some tightening credit conditions for households and businesses and thereby weigh on demand, on the labor market, and on inflation. Such a tightening in financial conditions would work in the same direction as rate tightening. In principle, as a matter of fact, you can think of it as being the equivalent of a rate hike or perhaps more than that; of course, it’s not possible to make that assessment today with any precision whatsoever. So our decision was to move ahead with the 25 basis point hike and to change our guidance, as I mentioned, from ongoing hikes to some, some additional hikes maybe—some policy firming may be appropriate. So going forward, as I mentioned, in assessing the need for, for further hikes, we’ll be focused as always on the incoming data and the evolving outlook and, in particular, on our assessment of the actual and expected effects of credit tightening.

Question (Steve Liesman, CNBC): Do you have concerns that the recent—that the hike you did today could further exacerbate the problem in the banks?
Answer: No. I mean, with our monetary policy, we’re, we’re really focused on macroeconomic outcomes. In particular, we’re focused on, on this potential credit tightening and what can that produce in the way of tighter credit conditions. I think when we think about the situation with the banks, we’re focused on our—on our financial stability tools, in particular our lending facilities, the debt—sorry, the discount window, and also the new facility.

Question (Nick Timiraos, Wall Street Journal): Nick Timiraos, the Wall Street Journal. Chair Powell, in your testimony two weeks ago, you had indicated you thought the terminal rate would be higher. Obviously, that was before the stress in the banking sector. And I realize there’s a lot of uncertainty, but can you—can you explain at all to what extent your forecasts or those of your colleagues or those of the Board staff incorporated today a material tightening of credit availability because of the stress in the banking sector, or are you waiting to see it in the data before you incorporate that potential tightening into your forecasts?
Answer: So, you know, we have just come from an FOMC meeting and, you know, the people who write the minutes will be very carefully counting, but I’ll tell you what I heard. What I heard was significant number of people saying that they anticipated there would be some, some tightening of credit conditions and that would really have the same effects as, as our policies do, and that therefore they were including that in their assessment and that if that did turn out not to be the case, in principle you would need more rate hikes. So some people did reflect that in their FOMC—in their SEP forecasts. I think there may also just have been— remember, this is 12 days ago. You know, we’re trying to assess something that just is so recent and it’s people—you know, it’s very difficult, there’s so much uncertainty. So December was a good place to start, and we wound up with—we wound up with very similar outcomes for December. And, you know, in a way, the early—the data in the first part—the first five weeks of the intermeeting period pointed to stronger inflation and stronger labor markets. So that pointed to higher rates. And then this, this latter part kind of—the possibility of credit conditions tightening really, really offset that, effectively.

Question (Nick Timiraos, Wall Street Journal): To follow up: Have you considered at all whether your primary tool, the funds rate, is going to be enough to sustain the kind of tighter financial conditions that you believe will be necessary without doing significant damage to the banking sector? Have you, for example, considered changing reserve requirements, selling assets out of the System Open Market Account, as a way to better achieve tighter financial conditions that don’t accelerate deposit erosion, for example, from banks?
Answer: You know, we know that we have other, other tools in effect, but no, we think our monetary policy tool works, and we think, you know, many, many banks—our rate hikes were well telegraphed to the market, and many banks have managed to handle them.

Question (Victoria Guida, Politico): Hi. Victoria Guida with Politico. I wanted to ask—you, along with the FDIC and the Treasury—the Fed Board decided to invoke the systemic risk exception to allow uninsured depositors to be protected at these two banks. I was just wondering if you could speak to why that decision was made. Was it purely a confidence issue, or was there a concern that there would be some sort of economic contagion or financial contagion from the failure of these banks?
Answer: The issue was really not about those specific banks, but about the risk of a contagion to, to other banks and to the financial markets more broadly. That was the issue.

Question (Victoria Guida, Politico): Okay, and then can you also—just to follow up, can you speak to the role that you will be playing in the Fed’s internal investigation on its supervision and regulation?
Answer: So Vice Chair Barr is, is of course leading that review. And he’s responsible for it in his capacity as Vice Chair for Supervision. We—I realized, you know, right away that, that there was going to be a need for review. I mean, the question we’re all asking ourselves over that first weekend was, how did this happen? And so what we did was, early Monday morning, we sat down and said, “Let’s do this.” And he, he was obviously going to lead it in his capacity. So I don’t—my role was to announce it, and I get briefed on it, but I’m not involved in, in the work of it.

Question (Howard Schneider, Reuters): Hi, Chair Powell. Howard Schneider from Reuters. So I want to go back to your February press conference. You mentioned the word “disinflation,” I believe, 9 or 10 times, a process that you felt was—I forget the word you used—but gratefully under way, or something like that. Is disinflation still occurring in the U.S. today?
Answer: Yes. I mean, what actually happened, Howard, was I got the question 12 times, so it’s—maybe it’s a feature, not a bug. But, so, but yeah, absolutely the same—the story is intact, so it’s really three parts, right? Goods inflation has been coming down now for six months; it’s proceeding more slowly than we would have liked, but it’s certainly proceeding. Housing services is, is really a matter of time passing. We continue to see the new leases being signed at much lower levels of inflation. So that’s 44 percent of the—of the core PCE index, where you’ve got a story that’s ongoing. Where we didn’t have in February, and we still don’t have now, is a sign of progress in the nonhousing services sector. And that is, you know, that’s just something that will have to come through softening demand and perhaps some softening in labor market conditions. We don’t see that yet. And that’s, that’s of course 56 percent of the index. So the story is pretty much the same. I will say that the inflation data that we got, to your point, really pointed to stronger inflation.

Question (Howard Schneider, Reuters): If I could follow up on that, I was curious why you don’t see more coming from the credit crunch, because it seems to me that’s something that you’d actually welcome to a degree and expect. And are you not seeing more coming from that because you don’t know, or because you just don’t want to have another round of wishful thinking?
Answer: So it’s really just a question of not knowing at this point. There’s a great deal of literature on the connection between tighter credit conditions, economic activity, hiring, and inflation. Very large body of literature. The question is, how significant will this credit tightening be and how sustainable it will be? That’s, that’s the issue. And we don’t really see it yet, so, so people are making estimates, you know, people are publishing estimates, but it’s very kind of rule-of-thumb guesswork almost at this point. But we think it’s, it’s potentially quite real and that argues for, you know, being alert as we go forward. As we think about further rate hikes for us, we’ll be paying attention to the actual and expected effects from that.

Question (Jeanna Smialek, New York Times): Hi, Chair Powell. Jeanna Smialek from the New York Times. Thank you for taking our questions. I wonder if you could talk a little bit—I know that you’ve got your internal review coming, but I wonder if you could talk a little bit about what you think happened with oversight at Silicon Valley Bank and whether this suggests that something about regulation and supervision needs to actually change going forward. And I wonder, you know, how can the American people have confidence that there aren’t other weaknesses out there in the banking system, given that this one got missed, as you noted?
Answer: So let me say what, what I think happened, and then I’ll come to the questions around supervision. So, at a basic level, Silicon Valley Bank management failed badly—they grew the bank very quickly, they exposed the bank to significant liquidity risk and interest rate risk, didn’t hedge that risk. We now know that supervisors saw these risks and, and intervened. We know that the public saw all this. We know that SVB experienced an unprecedentedly rapid and massive bank run. So this is a—this is a very large group of connected depositors—concentrated group of connected depositors in a very, very fast run, faster than historical record would suggest. So as for us—so for our part, we’re doing a review of supervision and regulation. My only interest is that we identify what went wrong here. How did this happen is the question. What went wrong? Try to find that. We will find that. And then make an assessment of what are the right policies to put in place so that it doesn’t happen again, and then implement those policies. It would be inappropriate for me at this stage to offer my views on what the answers might be. You know, I simply can’t do that. Vice Chair Barr is leading this, and I think he’s testifying next week. So—but that will be up to him. So that’s really where it is. You know, the, the review is going to be thorough and transparent. It is clear—really to your last question—it’s clear that we do need to strengthen supervision and regulation. And I, I assume that there will be recommendations coming out of the report, and I, I plan on supporting them and supporting their implementation.

Question (Michael McKee, Bloomberg): Michael McKee from Bloomberg Radio and Television. You’ve been very consistent in saying that the Fed would be raising interest rates and then holding them there for quite some time. Following today’s decision, the markets have now priced in one more increase in May, and then every meeting the rest of this year they’re pricing in rate cuts. Are they getting this totally wrong from the Fed, or is there something different about the way you’re looking at it, given that you’re now thinking that moves might be appropriate as opposed to ongoing?
Answer: So we published an SEP today, as you will have seen, and it shows that basically participants expect relatively slow growth, a gradual rebalancing of supply and demand in the labor market, with inflation moving down gradually. In that most likely case, if that happens, participants don’t see rate cuts this year. They just don’t. I would just say: As always, the path of the economy is uncertain, and policy is going to reflect what actually happens rather than what we write down in the SEP. But that’s not our baseline expectation.

Question (Michael McKee, Bloomberg): Well, if I could follow up and ask, as you look forward into the rest of the year here, are you saying that what you see and the 5.1 percent basically consensus is based on being—it will be sufficiently restrictive? Or is it leavened by the idea of you don’t know what's going to happen? In other words, what should people think about in terms of how the Fed thinks about how far it is from the terminal?
Answer: It’s going to depend. Remember, we’re looking—for purposes of our monetary policy tool, we’re looking at what’s happening among the banks and asking, is there going to be some tightening in credit conditions? And then we’re thinking about that as effectively doing the same thing that rate hikes do. So, in a way, that substitutes for rate hikes. So, the key is, we have to have—policy has got to be tight enough to bring inflation down to 2 percent over time. It doesn’t all have to come from rate hikes: It can come from, you know, from tighter credit conditions. So we’re looking at, and we, we—it’s highly uncertain how long the situation will be sustained or how significant any of those effects would be, so we’re just going to have to watch. In the meantime, you know—obviously, at the end of the day, we will do enough to bring inflation down to 2 percent. No one should doubt that.

Question (Edward Lawrence, Fox Business): Thank you, Mr. Chairman. Edward Lawrence from Fox Business. Inflation has been rather sticky, so do you need help from the fiscal side to get inflation down faster?
Answer: We don’t assume that. We don’t give advice to the fiscal authorities, and we assume that—we take fiscal policy as, as it comes to our front door, stick it in our model along with a million other things. We have responsibility for price stability. The Federal Reserve has responsibility for that. And nothing’s going to change that. So—and we will get inflation down to 2 percent in time.

Question (Edward Lawrence, Fox Business): And if I can follow on that, but they’re working—the spending that’s happened is working against what you are doing, right? So it’s prolonging inflation.
Answer: You have to look at, at the impulse from spending because spending was, of course, tremendously high during the pandemic, and then, as the pandemic programs rolled off, spending actually came down, so the—this sort of fiscal impulse is actually not what’s driving inflation right now. It was—it was at the beginning perhaps part of what was driving inflation, but that’s not really the story now.

Question (Neil Irwin, Axios): Hi, Chair Powell. Neil Irwin with Axios. Two questions about aspects of the government’s response on Silicon Valley Bank two weekends ago. First, why is this new bank funding facility done under emergency 13(3) authority, as opposed to expansion of the discount window, changing the terms of the discount window that’s been around a long time? And, second, can you discuss the Fed’s role in the—in the FDIC guarantee of uninsured depositors and why there’s $143 billion on your balance sheets last week, supporting that deposit guarantee?
Answer: Sure. So 13(3) seemed like the right—we have a little more flexibility under section 13(3). We’ve done quite a lot under the discount window as well. We needed to do a special facility that was designed a certain way, so we did it under 13(3). Really no magic to that. It’s only available in unusual and exigent circumstances, and it has to be— meet certain requirements, but it seemed to be the right place. So with the FDIC, we’re just, we’re lending to the, in effect, we’re—we’re lending to the bridge bank. So that’s where the funds came from, and it’s—it’s a loan that’s 100 percent guaranteed by the FDIC, so there’s no risk in it for us.

Question (Christopher Rugaber, Associated Press): Thank you. Chris Rugaber at Associated Press. The SEB—SEP suggests one more rate hike, as does the change in the language in the statement and which suggests that you’re perhaps nearing the end of a cycle of rate hikes. Do you feel, though, that if inflation remains high, you’ll be able to resume additional hikes as needed, or have you somewhat tied your hands here with these signals about rate hikes coming to an end? Thank you.
Answer: No, absolutely not. No, we, if we need to raise hike—raise rates higher, we will. I think for now though we, we—as I’ve mentioned, we see the likelihood of, of credit tightening. We know that can have, you know, an effect on the macroeconomy, on demand, on labor market, on inflation, and we’re—we’re going to be watching to see what that is. And we’ll also be watching what’s happening with inflation and in the labor market. So we’ll be watching all those things, and of course we will—we will eventually get to [a] tight enough policy to bring inflation down to 2 percent. We’ll find ourselves at that place.

Question (Catarina Saraiva, Bloomberg): Can you confirm whether or not the Board knew about these escalations by the examiners in San Francisco?
Answer: I will have to come back to you on that. Yeah, I don’t know.

Question (Simon Rabinovitch, The Economist): Hi. Simon Rabinovitch with the Economist. Thank you very much. Chair Powell, you stated twice today that all depositors’ savings in the banking system are safe. Are you saying that de facto deposit insurance covers all savings? Shouldn’t Congress have a say in that? and, just by way of example, if a bank with less than $1 billion in assets failed, are you promising to bail out all of its depositors? Thanks.
Answer: Well, I’m not saying anything more than I’m saying. So—but what I’m saying is you’ve seen that we have the tools to protect depositors when there’s a threat of serious harm to the economy or to—or to the financial system, and we’re prepared to use those tools. And I think depositors should assume that their—that their deposits are safe.

Question (Nancy Marshall-Genzer, Marketplace): Hi, Chair Powell. Nancy Marshall-Genzer with Marketplace. Just wondering: How many financial institutions have been issued matters requiring attention or matters requiring immediate attention citations at this point?
Answer: How many? I don’t know. But those are serious—those are serious regulatory, in particular immediate attention, and that’s—and I guess there were six of them. So.

Question (Nancy Marshall-Genzer, Marketplace): And, and getting to the seriousness of it, how are you going to ensure that banks comply with these citations, take them seriously—how will you enforce them?
Answer: That is a great question and is right in the heart of what the review will be doing under Vice Chair Barr’s leadership. So that’s, I think that’s where—that’s what you think about. What can we do to make sure that—but, again, that’s not for me to answer today.

Question (Jennifer Schonberger, Yahoo Finance): Curious how you view financial conditions now and, if credit were to tighten enough, if that would prompt a rate cut.
Answer: So financial conditions seem to have tightened—and probably by more than the traditional indexes say, because traditional indexes are focused a lot on [interest] rates and [prices of] equities, and they don’t necessarily capture lending conditions. So we think that, though. So there are other measures which, if they’re focused on, you know—bank lending conditions and things like that—they show some more tightening. The question for us, though, is, how significant will that be and how, you know—what will be the extent of it and what will be the duration of it? And then—and then, you know, once you have—once you know that, there’s a fair amount of research about how that, with broad uncertainty bands—how that works its way into the economy [and] over what period of time. And so, you know, we’ll be looking to see the first part of that—like how serious is this, and does it look like it’s going to be sustained, and if it is, you know, it could easily have a significant macroeconomic effect, and we would factor that into our policy decisions. I mentioned with rate cuts, rate cuts are not in our base case, and, you know, so that’s all I have to say. Thank you very much.