Federal Reserve press conference, 2024-11-07 — Chair Jerome Powell

Question (Colby Smith, Financial Times): Thank you. Given the expectation that the election outcome will produce policies that would meaningfully impact the U.S. economy next year, how is the Committee taking these proposals into account for upcoming decisions, including potentially the next one in December? And, and can you give us any more sense of how proactive or reactive the Fed is prepared to be to changes in economic policies with the next Administration?
Answer: Sure. So let me say that in the near term, the election will have no effects on our policy decisions. As you know, many, many things affect the economy, and anyone who writes down forecasts in their job will tell you that the economy is quite difficult to forecast, looking out past the very near term. Here, we don’t know what the timing and substance of any policy changes will be. We therefore don’t know what the effects on the economy would be—specifically, whether and to what extent those policies would matter for the achievement of our goal variables: maximum employment and price stability. We don’t—we don’t guess, we don’t speculate, and we don’t assume. Now, just in principle, it’s possible that any Administration’s policies or, or policies put in place by Congress could have economic effects over time—over time that would matter for our pursuit of our dual-mandate goals. So, we—along with countless other factors, forecasts of those economic effects would be included in our models of the economy and would be taken into account through that channel.

Question (Nick Timiraos, Wall Street Journal): Chair Powell, Nick Timiraos from the Wall Street Journal. Roughly one year ago when the 10-year Treasury was flirting with 5 percent and 30-year mortgage rates were near 8 percent, you noted how higher borrowing costs, if they were sustained, could weigh on economic activity. Given that you’ve said you believe policy is restrictive and the Fed is now dialing back that restriction, are the growth risks presented by higher U.S. Treasury yields today any different from those you identified one year ago when inflation was still meaningfully above your target?
Answer: So I would just say this. We’ve watched the, the run-up in bond rates, and it’s, it’s nowhere where it was, of course, a year ago. I guess that, you know, the long- run rates are well below that level. So we’re watching that. Things have been moving around, and we’ll see where they settle. I think it’s too early to really say where they settle. Ultimately, I’m sure we’ve all read these decompositions of what, you know—and I certainly have, but it’s not really our job to provide our specific decomposition. I will say, though, that it appears that the moves are not, not principally about higher inflation expectations. They’re really about a sense of more likely to have stronger growth and perhaps less in the way of downside risks. So that’s what they’re about. You know, we do take financial conditions into account. If they—if they’re persistent and if they’re material, then we’ll certainly take them into account in our policy. But I would say we’re not at—we’re not at that stage right now. It’s just something that we’re watching. And, again, these things don’t really have mainly to do with, with Fed policy, but to do with other factors in the economy.

Question (Nick Timiraos, Wall Street Journal): If I could follow up—is the September SEP—are those rate projections still valid? Do they still seem relevant given where we are now?
Answer: You know what? It’s—you get halfway through the cycle between the last set and the next set. I, I wouldn’t want to comment one way or the other. You know, people are—let’s talk about the data we’ve gotten since the last meeting. So, in the main, the economic activity data have been stronger than expected. The NIPA revision was stronger. Certainly, the September employment report was stronger; the October report, not stronger; retail sales, stronger. So, overall, though, I think you take away a sense of, of some of the downside risks to economic activity having, having been diminished, with the NIPA revisions in particular, and so, overall, feeling, feeling good about economic activity. So I think we would factor that in. At the same time, we got one inflation report, which was—it wasn’t terrible, but it was— it was a little higher than expected. So I think, really, the question is, is December. And, you know, by December we’ll have—we’ll have more data: I guess one more employment report, two more inflation reports, and lots of other data, and, you know, we’ll make a decision as we get to December.

Question (Jeanna Smialek, New York Times): Jeanna Smialek from the New York Times. Thanks for taking our questions, Chair Powell. When it comes to December, what will you be looking at specifically as you try to make that decision? And then, as of the Fed’s economic projections in September, you, you had written down four quarter-point interest rate cuts in 2025. Do you still think that those are likely? Is that sort of the baseline outlook at this point, or has that shifted? And if it shifted at all, can you—can you give a little bit of, of detail as to why?
Answer: You know, I can’t. We don’t fill out a—we don’t fill out an SEP, and I can’t characterize one that wasn’t filled out today. So I can’t really speak for kind of exactly where the—where the Committee is. I would just say, for December, we’re going to be—again, in every meeting—we’re going to be looking at the incoming data and how that affects the outlook. As you know, we’re in the process of recalibrating from a fairly restrictive level at 5.33 percent. After today’s move, we’re down 75 basis points. And we’re, we’re asking ourselves, “Is that where we need to be?” You know that we’re, we’re trying to steer between the risk of moving too quickly and perhaps undermining our progress on inflation or moving too slowly and allowing the labor market to weaken too much. We’re trying to, to be on a middle path where we can maintain the strength in the labor market while also enabling further progress on inflation. We think that’s where we are, but that’s the question we’re going to be asking in September and, and in other meetings. And, again, I can’t really update you on the Committee’s thinking, because we don’t fill out an SEP at this meeting.

Question (Jeanna Smialek, New York Times): Yes, total—totally appreciate that. I guess when it comes to your own thinking, do you think that that—a full percentage point of rate cuts in 2025—is a reasonable outlook?
Answer: Again, I’m going to wait—we’re going to wait and see how things come in in December. I mean, I—it’s just—I would put it this way: We’re on a path to a more neutral stance. And, and that’s very much what we’re on. That has not changed at all since September. And, you know, we’re just going to have to see where the—where the data lead us. We have, you know, a whole six weeks of data to look at to make that decision in December. Obviously, I’m not ruling it out or in, but, but, you know, I would say—you know, I would say that, you know, again, we didn’t update the SEP, so I’m not going to characterize, you know, where the Committee would be.

Question (Steve Liesman, CNBC): Steve Liesman, CNBC. Mr. Chairman, you talked about higher rates, perhaps from an expectation of higher growth. You didn’t talk about it in terms of expectations of higher deficits. Is that something you think might be behind the recent rise in interest rates, and is that—are rising deficits a concern to you?
Answer: So we don’t comment on fiscal policy, and, again, I don’t have a lot more to say on, on what’s driving bond yields. In terms of, of policy changes, though, let me give you a sense of how this, this works in the ordinary case. Let’s say Congress is considering a rewrite of the tax laws; it doesn’t matter what’s in the content. So we would follow that. At a certain point, we’d, we’d think we see the outline, so we’d start to model it. And then we’d wait, and we’d wait, and, at a certain point, the staff would brief the FOMC and say, you know, “This is—these are the likely effects.” There’s lots and lots of literature on the effects of tax policy changes on various parts of the economy. So we’d, we’d try to get smart on that. And then the law actually passes, and, you know, you’d start to put it—you’d probably run an alternative simulation before that happens, just to keep people trying to understand it. Then, then when it actually passes, it goes into the model, along with a million other things. So, you know, these—we have a very large economy. Many things are affecting it at any given time. And, you know, a law change of some kind would go in there, but—it would go in, but it would—you know, it’s a process that takes some time. Clearly, the legislative process takes a lot of time. And, of course, the real question is not the effect of that law. It’s all of the policy changes that are happening. What’s the net effect and, you know, the overall effect on the economy at any given time? So I think that’s a—that’s a process that takes a lot of time and that we go through all the time with every Administration, constantly. And I just—this will be no different. But, you know, right now, we’re—there’s nothing to—there’s nothing to model right now. It’s such an early stage. We don’t know what the policies are, and once we know what they are, we won’t—we won’t have a sense of, you know, when they’ll be implemented or, or all those sorts of things. So I think I would just say— —we’re not doing that now, and all that will take time, and it will be very much regular order when we do do that.

Question (Steve Liesman, CNBC): If I could just follow up on Nick’s question—are the current rates something you feel like you need to lean against, in that they go against the direction of policy by being—adding restriction to the economy? Or do you just take them as a given or perhaps a signal that you should do less?
Answer: I—look, I just think—the first question is, how long will they be sustained? If you remember the 5 percent 10-year, people were drawing massively important conclusions only to find, you know, three weeks later that the 10-year was 50 basis points lower. So, you know, it’s material changes and financial conditions that last, that are persistent, that really matter. And we don’t know that about these. What we’ve seen so far? You know, we’re watching it. We’re reading. You know, we’re doing the decompositions and reading others, but right now it’s not a major factor in, in how we’re thinking about things.

Question (Edward Lawrence, Fox Business): So you’re quickly trying to get to that neutral rate that you see, or do you foresee that you have some time to get there?
Answer: Nothing in the economic data suggests that the Committee has any need to be in a hurry to get there. We are seeing strong economic activity. We are seeing ongoing strength in the labor market; we’re watching that carefully, but we do see maintaining strength there. And so we think that the right way—the right way to find neutral, if you will, is carefully, patiently. Again, that’s not meant to have a specific meaning other than we—to the extent—to the extent the economy remains strong, we have the ability to, to take advantage of that as we try to navigate that middle path between the two risks.

Question (Victoria Guida, Politico): Can you follow up on is—do you think that legally that you’re not required to leave?
Answer: No.

Question (Michael McKee, Bloomberg): Michael McKee from Bloomberg Radio and Television. You talk a lot about what the data are telling you and how you are dependent on the data. But in terms of forward-looking assessments of the economy, what are you hearing from CEOs or other officials around the country? What did you hear today from the regional Bank presidents about what companies and consumers think about where the economy is going from here, rather than looking backwards? And does that match up with what your forecasts have been and what you think the appropriate policy path should be?
Answer: So it’s hard to characterize a, you know, really interesting set of discussions we had, and, of course, you’ll see them in the minutes in three weeks. But I would say this. I think, you know, the comments from our Reserve Bank colleagues and from the CEOs that they talk to are pretty constructive on the economy right now—pretty constructive, feeling that the labor market is, is, you know, back to normal to the point where it’s no longer that much of a discussion topic in their world, whereas two years ago, it was all they were talking about. So they feel like the labor market’s in balance. People feel good about where the economy is. Demand is obviously pretty strong. And, you know, you’re seeing, what, 2.8 percent growth in the third quarter estimated. Maybe the year is 2½. This is—this is—you know, this is a strong economy. It’s actually remarkable how well the U.S. economy has been performing with, you know, strong growth, a strong labor market, inflation coming down. We’re, you know, really performing better than any of our global peers. And I think that is reflected in what you hear from—what I hear people hear from CEOs. I don’t get to talk to a lot of CEOs in my job, but I hear what others summarize from those. And, of course, I hear the Reserve Bank presidents do a lot of that, and it’s pretty constructive overall. Now, that’s not to say—there are areas of caution and things like that but, ultimately, overall pretty positive.

Question (Andrew Ackerman, Washington Post): Hi. It’s Andrew Ackerman with the Washington Post. I just wanted to follow up on the discussion earlier on fiscal policy. Your predecessors Greenspan and Volcker spoke up loudly when they thought large budget deficits endangered financial— economic or financial stability. Will you do that, too? And, right now, we’re in a period of full employment. We have large budget deficits and debt at historic, historic highs that are—and rising. Is that something you’d speak out against?
Answer: So, you know, I have said many times no more, no less than what the predecessors you mentioned have said. And what that is is that the U.S. fiscal—federal government’s fiscal path—fiscal policy is on an unsustainable path. The level of our debt relative to the economy is not unsustainable. The path is unsustainable. And we see that. And, you know, you’ve got a very large deficit at—you’re at full employment, and that’s expected to continue. So it’s important that we—you know, that that be dealt with. It is ultimately a threat to the economy. Now, I can say that. I don’t have oversight. We don’t have oversight over fiscal policy. I’ve said it on many occasions—just said it again.

Question (Andrew Ackerman, Washington Post): Okay. Thank you. I guess the only other question is—to follow up on Victoria’s question—do you believe the President has the power to fire or demote you, and has the Fed determined the legality of a President demoting at will any of the other Governors with leadership positions?
Answer: Not permitted under the law.

Question (Simon Rabinovitch, The Economist): Thank you, Chair Powell. Simon Rabinovitch with the Economist. I know you don’t want to share your decomposition of bond yields, but if you look at the breakevens, it, it is clear that longer-term inflation expectations do seem to have risen up at about 2.5 percent, for example, on the five-year. That’s up half a point from when you cut in September. Do you have any concern at all that longer-term inflation expectations are deanchoring or, put another way, are anchoring at a slightly higher level? Thanks.
Answer: So we, we would be concerned if we saw—if we thought we saw longer-term inflation expectations anchoring at a higher level. That’s not what we’re seeing. We’re still seeing between surveys and market readings broadly consistent with—you know, I, I looked at the five-year, five-year earlier today, and it’s probably moved, but it’s just not—it’s just—it’s kind of right where it’s been, and also it’s pretty close to consistent with 2 percent PCE inflation. So that’s one that’s been a traditional one that we look at a lot. But, overall, expectations seem to be—and really have throughout this—in a place that’s consistent with 2 percent inflation. But you’re right to say we watch that very carefully, and we will not allow inflation expectations to drift upward. But that’s, that’s really why we reacted so sharply back in 2022 was, was to avoid that.

Question (Nancy Marshall-Genzer, Marketplace): Hi, Chair Powell. Nancy Marshall-Genzer with Marketplace. What is your plan if we start to see stagflation?
Answer: So that’s a—you know, the whole plan is not to have stagflation, so we don’t have to deal with it. So that’s our—that is actually our plan. [Laughter] You know, it’s, of course, a very difficult thing because you’re—you know, you’re—anything you do with interest rates will, will hurt one side or the other, either the inflation mandate or the—or the employment mandate. I would just say that, you know, we’ve, we’ve been able to see inflation come down a whole lot, you know, much closer to our goal without the kind of sharp increase in unemployment that has often accompanied programs of disinflation. So knock on wood, we’ve gotten this far without seeing a real weakening in, in the labor market. And we believe we can complete the inflation task while also keeping the labor market strong, and that, of course, is exactly what we’re trying to do.

Question (Nancy Marshall-Genzer, Marketplace): Can you rule out an interest rate hike next year?
Answer: I—no. I wouldn’t rule anything out or in that far away. But that’s certainly not, not our plan. I mean, our baseline expectation is that we’ll continue to move gradually down towards neutral, that the economy will continue to grow at a healthy clip, and that the labor market will remain strong. If you look at our—look at our—that will not change from the September SEP. You know, that is our baseline forecast. And, short of some exogenous event, it will—that will continue to be our forecast for the foreseeable future. So— but, ultimately, you know, it’s—we’re not in a—we’re not in a world where we can afford to rule, rule things out a full year in advance. It’s—there’s just too much uncertainty in what we do.

Question (Jean Yung, MNI): Hi, Chair Powell. Jean Yung with MNI Market News. I wanted to go back to a comment that you had made about Americans being quite unhappy about the cumulative price level rises over the past few years, even though now inflation is back on a path to 2 percent. Would it be appropriate for the Fed to undershoot for a while on its inflation goal under the average inflation-targeting regime so people have a chance to catch up?
Answer: No. That’s, that’s not the way our framework works. We’re aiming for inflation at, at 2 percent. We’re—we do not have—we do not think it would be appropriate to deliberately undershoot. And, you know, part of the problem there is that low inflation can be a problem, too, in a way. But that’s not part of our framework, and it’s not something we’re going to be—going to be looking at in our framework review. Thank you very much.