Federal Reserve press conference, 2023-07-26 — Chair Jerome Powell

Question (Steve Liesman, CNBC): Mr. Chairman, thank you. You have, I think a couple of times in your opening remarks, talked about this language “in determining the extent of additional policy firming that may be appropriate.” Should we take that to mean that additional hikes are likely on the way? And should we also believe that all future meetings—say, September and November— are live, or are you in an every-other-meeting mode? Thank you.
Answer: So we haven’t made a decision to go to every other meeting. It’s not something we’ve looked at. We’re going to be going meeting by meeting, and as we go into each meeting, we’re going to be asking ourselves the same questions. So we haven’t made any decisions about, about any future meetings, including the pace at which we’d consider hiking. But we’re going to be assessing the need for further tightening that may be appropriate—you read the language—“to return inflation to 2 percent over time.” I would say that the intermeeting data came in broadly in line with expectations: Economic activity remained resilient, job creation remains strong while cooling a bit, and the June CPI report actually came in a bit better than expectations for a change. And the June CPI report, of course, was welcomed, but it’s only one report, one month’s data. We hope that inflation will follow a lower path, as was—that will be consistent with the CPI reading, but we don’t know that, and we’re just going to need to see more data. So, what are we going to be looking at? Really, it will be the broader, the whole broader picture, and starting with—we’re looking for moderate growth, right? We’re looking for supply and demand through the economy coming into better balance, including, in particular, in the labor market. We’ll be looking at inflation. We’ll be asking ourselves, does this whole collection of data, do we assess it as suggesting that we need to raise rates further? And if we make that conclusion, then we will go ahead and raise rates. So that’s how we’re thinking about the next meeting and, you know, how we’re thinking about meetings going forward potentially, but, you know, we’re now mainly thinking about the next meeting. I will also say, since we’re talking about it, between now and the September meeting, we get two more job reports, two more CPI reports. I think we have an ECI report coming later this week—which is [an] employment compensation index—and lots of data on economic activity. All of that information is going to inform our decision as we go into that meeting. I would say it is certainly possible that we would raise funds again at the September meeting if the data warrant it, and I would also say it’s possible that we would choose to hold steady at that meeting. We’re going to be making careful assessments, as I said, meeting by meeting, and I’ll close by saying we’ve raised the federal funds rate now by 525 basis points since March 2022. Monetary policy, we believe, is restrictive and is putting downward pressure on economic activity and inflation.

Question (Jeanna Smialek, New York Times): Thank you. Thanks for taking our questions, Chair Powell. Obviously, you updated the language around growth in the statement today. You know, we’ve seen the Barbie movie numbers. We’ve seen everyone going to Taylor Swift concerts this summer. It seems like the American consumers are in pretty good shape, and it does seem like growth is sort of picking back up a little bit or at least doing well. And I wonder, from your perspective, if that continues, if we see growth not just stabilizing but doing, you know, performing well this summer, is that a problem because it’s inflationary, or is it good news because it suggests that a soft landing is more likely? Just how are you thinking about that sort of trajectory?
Answer: Yeah. So I would say it this way: The overall resilience of the economy, the fact that, that we’ve been able to achieve disinflation so far without any meaningful negative impact on the labor market, the strength of the economy—overall, that’s a good thing. It’s good to see that, of course. It’s also—you see consumer, consumer confidence coming up and things like that. That will support activity going forward. But you’re, you’re right, though. At the margin, stronger growth could lead, over time, to higher inflation, and that would require an appropriate response for monetary policy. So we’ll be watching that carefully and seeing how it evolves over time.

Question (Nick Timiraos, Wall Street Journal): If I could follow up: Last month you said there were benefits to moderating the pace of increases because it would give you more information to make decisions. Would another CPI report like the one we just had in June allow you to at least maintain that slower pace and defer until the fall any decision on whether you need that second rate hike?
Answer: So I’m just going to tell you again what we’re going to do. In September, we’re going to look at, at two additional job reports, two additional CPI reports, lots of activity data, and that’s what we’re going to look at, and we’re going to make that decision then. And that decision could, could mean another hike in, in September, or it could mean that we decide to maintain at that level. And, again, the question we’re going to be asking ourselves is, is the overall signal one that we need to do more, that we need to tighten further? And if we get that signal, whenever we get it, then—and that’s the collective judgment of the Committee— then we will move ahead. If we don’t, you know, then, then we’ll have the option of maintaining policy at that level, but it’s, it’s, you know, it’s really dependent so much on the data, and we just don’t have it yet.

Question (Christopher Rugaber, Associated Press): Hi. Chris Rugaber at Associated Press. So consumer confidence in the economy is rising, likely in large part because of, of the declines in headline inflation. You also see wages are also rising faster than prices now after trailing them for a long time. How much are Americans truly harmed by inflation at its current level, headline level of 3 percent? And with that in mind, when do you put some weight back on the employment side of the dual mandate?
Answer: So I guess I’d say it this way: First, it is—it is a good thing that headline inflation has come down so much, because that’s really what the public experiences. And, and I would say that having headline inflation move down that much almost creates a—it will strengthen the broad sense that, that the public has that inflation is coming down, which will in turn, we hope, help inflation continue to move down. So you are really—sorry, your question was?

Question (Christopher Rugaber, Associated Press): Well, I mean, you’ve talked for many press conferences now about the harm created by inflation, how hard it is for people. So how much of that are we still seeing with inflation now down at 3 [percent]?
Answer: So I guess I would put it this way. We, we—I’d say it this way: It’s really a question of, how do you balance the two risks, the risk of doing too much or doing too little? And, you know, I would say that, you know, we’re coming to a place where, where there really are risks on both sides. It’s hard to say exactly whether, whether they’re in balance or not, but as our—as our stance has become more restrictive and inflation moderates, we do increasingly face that risk. But, you know, we, we need to see that inflation is durably down that far, you know. As you know, we think, and most economists think, that core inflation is actually a better signal of, of where headline inflation is going, because headline inflation is affected greatly by volatile energy and food prices. So we would want core inflation to be coming down, because that’s what we think—that’s—core is signaling where headline is going to go in the future. And core inflation is still pretty elevated, you know? There’s reason to think it can come down now, but it’s, it’s still quite elevated, and so we think we need to stay on task, and we think we’re going to need to hold, certainly, hold policy at a restrictive level for some time. And we need to be prepared to raise further if that—if we think that’s appropriate.

Question (Michael McKee, Bloomberg): At this point, you say the policy is restrictive, but all year long we have seen growth surprise to the upside, unemployment to the downside, and inflation, lately, to the downside. So I’m wondering, by definition, should you be restrictive enough right now under these conditions? Do you think you might need to do more, because I’m curious about what you see as inflation dynamics now? Is the economy still moving in a direction where it creates more inflation? People talk about base effects and higher energy costs, and now we have some large labor settlements. Or is the economy disinflating, and you’re just, you’re able to go back to the old Fed policy of opportunistic disinflation?
Answer: So I’ll just say again, the broader picture of what we want to see is, we want to see easing of supply constraints and normalization of pandemic-related distortions to demand and supply. We want to see economic growth running at moderate or modest levels to help ease inflationary pressures. We want to see continued restoration of supply and demand balance, particularly in the labor market. And all of that should lead to declining inflationary pressures. Now what we see is, we see those pieces of the puzzle coming together. And we’re seeing evidence of those things now, but I would—I would say that what, what our eyes are telling us is that policy has not been restrictive long, restrictive enough for long enough to have its full desired effects. So we intend, again, to keep policy restrictive until we’re confident that inflation is coming down sustainably to our 2 percent target, and we’re prepared to further tighten if that is appropriate. And we think the process, you know, still probably has a, a long way to go.

Question (Colby Smith, Financial Times): So we shouldn’t assume that every other meeting is the lowest tightening frequency, let’s say? It could be, you know, longer intervals in between as well?
Answer: I think we’re—look, I think we’re going to—we’re going to make a decision about the next meeting, and then we’re going to make a decision about the one after that. And I think it’ll sort itself out.

Question (Howard Schneider, Reuters): Thanks. Howard Schneider with Reuters. So, among your colleagues, there have been people who’ve said they feel that very little transmission has taken place so far from monetary policy into the economy, and there are those who feel, they say, it’s happened very fast this time, and it’s kind of up to date. Where are you on that continuum?
Answer: So there’s a long-running debate about the lags between changes in financial conditions and the response to those changes from economic activity and inflation, right? So we know that in the modern era, financial conditions move in anticipation of our decisions, and that has clearly been the case in this cycle. So, in a sense, the clock starts earlier than it—than it used to. But that doesn’t necessarily change the process from that point on, and it’s not clear that it has. We also—this is—I’ll tell you what we know and then what we don’t know. We know that financial conditions affect economic activity and inflation with a lag that can be long and variable, or lags, plural, that can be long and variable—a lot of uncertainty around the length of the lags. And, by the way, that’s just one component of the broader uncertainty that we face. So I’ll tell you how I—how I think about this. First, the first thing to say is, we’re determined to bring inflation down to 2 percent over time, and we will use our tools to do that. No one should doubt that. I would look at it this way, though. The real federal funds rate is now in meaningfully positive territory. If you take the nominal federal funds rate, subtract the mainstream estimate of near-term inflation expectations, you get a real federal funds rate that is well above most estimates of the longer-term neutral rate. So I would say, monetary policy is restrictive, more so after today’s decision, meaning that it is putting downward pressure on economic activity and inflation. We’ll keep monetary policy restrictive until we think it’s not appropriate to do so. So that’s how I think about it. I mean, if I sum it up, I would say: We’ve come a long way. We are resolutely committed to returning inflation to our 2 percent goal over time. Inflation has proved, repeatedly, has proved stronger than we and other forecasts—forecasters have expected, and at some point, that may change. We have to be ready to follow the data, and given how far we’ve come, we can afford to be a little patient, as well as resolute, as we let this unfold.

Question (Howard Schneider, Reuters): On the—on the credit side, I’m wondering if you saw anything in the—in the latest SLOOS data that made you think you’re getting a quantum of credit contraction beyond what you’d expect. The bank lending data really is—the growth rate’s edging down towards below, heading below zero, which is usually, you know, a recession indicator.
Answer: So I guess that the SLOOS will come out early next week, and I would just say it’s broadly condition—consistent with what you would expect. You’ve got lending conditions tight and getting a little tighter. You’ve got weak demand, and, you know, it, it gives a picture of pretty tight credit conditions in the economy. I think it’s really hard to tease out whether—how much of that is from this source or that source, but I think what matters is, the overall picture is of tight and tightening lending conditions. And that’s, that’s what the SLOOS will say.

Question (Rachel Siegel, Washington Post): I see. And just to follow up, do you think that of those two sources, that core will rely more heavily on seeing an impact from rate hikes, or is there a more even split there, too?
Answer: I think monetary policy is going to be important going forward because we, we’re sort of reaping now the benefits of the—of the reversal of some of the very specific pandemic things. We’re seeing that with goods, in particular, with supply chains and shortages moving, and we’re seeing—so I think going forward, monetary policy will be important, particularly in that, in the sector, in the nonhousing services sector.

Question (Edward Lawrence, Fox Business): Thank you, Chair Powell. First, let me compliment your tie, the choice of tie. It’s a good color. So thanks for taking our questions. So the Beige Book, it said, “Input cost pressures remained elevated for services firms but eased notably” for manufacturing sectors. Is that an indication that there’s a, a wage inflation pressure? And how do you target pressure on the wage inflation without pushing the economy into a recession?
Answer: So I think that, as it relates to goods, it’s really an indication that supply chains and, and shortages are easing. And so, what was the first part of it?

Question (Edward Lawrence, Fox Business): So, wage inflation. Like, how do you—how do you target wage inflation without pushing an economy into a recession?
Answer: I don’t—I don’t think we’re targeting wage inflation. I think what we’re—what we’re looking for is a broad cooling in labor market conditions. And that’s what we’re seeing. So wages have actually been gradually moving down. They’re still at levels what would—that would be consistent over a long period of time with 2 percent inflation. Nonetheless, we’re making progress there. And by so many indicators, labor market demand is cooling. You can—you can look at surveys by workers and businesses who see that. You can look at the quits rate normalizing. You can look at job openings coming down. You can look at just job creation in the, the establishment survey has, you know—it’s still at a high level, but it was at, really, an extraordinarily high level for most of the last two years. So you see cooling, particularly in private sector, in the last, you know, in the last report. So I think we see that, and it’s happening at a gradual pace. So that’s actually not a bad thing, in a sense, because if, if what we see is a labor market, very strong demand for labor, which is really the engine of the economy—people are getting hired, many people going back to work, getting wages, spending money—and that’s really what’s driving the economy but that it’s gradually slowing, it’s gradually cooling, that’s a good prescription for getting where we want to get.

Question (Edward Lawrence, Fox Business): But still we see a push to raise minimum wage. We’re seeing a lot of unions go on strike or threaten strike, and the common thing is, they come out with agreements like big pay increases, like UPS, and we have the autoworkers coming up. Are you concerned then about a trend of series of big unions, these contracts, pushing wage inflation then?
Answer: Not for us to comment on, on contract negotiations. Not our job, not our role. You know, we, we monitor these things, and we’ll keep an eye on them, but, really, that’s something that’s, that’s handled at that level and not—

Question (Victoria Guida, Politico): So if it’s sort of—sort of stubbornly in maybe the high 2s, you wouldn’t necessarily cut rates?
Answer: I’m not going—I’m not saying that at all. I’m not giving you any numerical guidance around that. I’m saying we would—we’d be comfortable cutting rates when we’re comfortable cutting rates, and that won’t be this year, I don’t think. It would be—you know, many people wrote down rate cuts for next year. I think the median was several for next year. And that’s just going to be a judgment that we have to make then, a full year from now, and it’ll be about how confident we are that inflation is, in fact, coming down to our 2 percent goal.

Question (Steve Matthews, Bloomberg): And is the reason for optimism that inflation has come down and you still have a strong labor market? I mean, does that add to the optimism?
Answer: I wouldn’t use the term “optimism” about this yet. I would—I would say, though, that there’s a pathway, and, yes, that’s, that’s a good way to think about it. We’ve, we’ve seen so far the beginnings of disinflation without any real costs in the labor market. And that’s, that’s a really good thing. I would just also say the historical record suggests that there’s very likely to be some softening in labor market conditions. And consistent with having a soft landing, you would—you would have some softening in labor market conditions, and that’s still likely as we—as we go forward with this process. But it’s a good thing to date that we haven’t— we haven’t really seen that. We’ve seen softening through other—not through unemployment, not through higher unemployment. We’ve seen softening through, you know, job openings coming down part of the way back to more normal levels; the quits rate, so people are not quitting as much; we’ve seen participation—people coming in, and so labor supply has, has improved, which has lowered the temperature in the labor market, which was quite overheated, you know, going back a year or so. So we’re seeing that kind of cooling, and that’s, that’s very healthy, and, you know, we hope it continues.

Question (Jeff Cox, CNBC): Thank you, Mr. Chairman. Jeff Cox from CNBC.com. You and other Fed officials in the past have suggested that you don’t need to keep hiking until inflation hits 2 percent, that—as long as you see continued progress. So I’m wondering, how close do you need to get with the inflation numbers coming down? How many months of data do you need to see that will—that will give you sufficient confidence, and how, how far does this fight need to go before you’re willing to kind of declare victory on it?
Answer: So the idea that we would keep hiking until inflation gets to 2 percent—it would be a prescription [for a policy] of going way past the target. That’s, that’s clearly not the appropriate way to think about it. So, and in fact, if you look at our forecast, we, we—the median participant—and, again, these are forecasting out years, so take them with a grain of salt. But people are cutting rates next year because, because, you know, the federal funds rate is at a restrictive level now. So if we see inflation coming down credibly, sustainably, then we don’t need to be at a restrictive level anymore. We can, you know, we can move back to a—to a neutral level and then below a neutral level at a certain point. I think we would, you know, we would—we, of course, would be very careful about that. We’d really want to be sure that inflation is coming down in a sustainable level. And it’s hard to make—I’m not going to try to make a numerical assessment of when and where that would be. But that’s the way I would think about it, is you’d start—you’d stop raising long before you got to 2 percent inflation, and you’d start cutting before you got to 2 percent inflation, too, because we don’t see ourselves getting to 2 percent inflation until—you know, all the way back to 2—until 2025 or so.

Question (Jennifer Schonberger, Yahoo Finance): Thank you, Chair Powell. Jennifer Schonberger with Yahoo Finance. It’s been over four months since a handful of regional banks, including Silicon Valley Bank, failed. When you look at credit conditions now, given Banc of California’s acquisition of PacWest, does this acquisition suggest the full impact has not been felt, or are you comfortable saying that we’ve seen most of the ripple effects that may have occurred at this point? And how does this play into your outlook for policy?
Answer: So I don’t want to comment on any particular merger proposal, but I will say, things have settled down for sure out there. Deposit flows have stabilized. Capital and liquidity remain strong. Aggregate bank lending was stable quarter over quarter and is up significantly year over year. Banking-sector profits generally are coming in strong this quarter. And, overall, the banking system remains strong and resilient. Of course, we’re still watching, you know, the situation carefully and monitoring, you know, monitoring conditions in, in the banking sector. In terms of the, the actual effect on—if you think of a particular set of banks that were, were affected because of their size and business model and things like that, that were more affected by the turmoil in March than others, it’s very hard, as I mentioned; it’s very hard to sort of tease out the effects on this very large economy of ours from them tightening. They may be tightening a little bit more, probably are, than other banks. The SLOOS has been telling us for more than a year that banking conditions are tightening. That process is ongoing, and that will restrain economic growth. So I think—I think we have to take a step back from “I can’t separate those anymore.” I think—I think, basically, we’re just looking at the overall picture, which is one of tightening credit conditions. And that’s, that’s going to restrain economic activity. It is restraining economic activity. So that’s how I would look at it.

Question (Jennifer Schonberger, Yahoo Finance): And how is that informing your outlook for setting policy?
Answer: So I think we—that goes—that’s—an expected result of tightening interest rate policy is that—is that bank credit conditions—bank lending conditions would tighten as well. And so the question is, is it more effective this time because of what happened in May? I just don’t think we know that. I think we’re looking at the current data in GDP, and we’re seeing strong spending. We’re seeing a strong economy, and it’s made us confident that we can go ahead and raise interest rates now for the third time since the March events. And I—it seems like the economy is weathering this well, but, of course, we’re watching it carefully and, and expect to continue to do that.

Question (Megan Cassella, Barron's): Hi, Chair Powell. Thanks for taking our questions. Megan Cassella with Barron’s. I wondered on wages if you were at all concerned about any inflationary impact of wages now outpacing inflation, which is likely contributing to the boost in consumer sentiment and the continued strength of the consumer that we’ve been seeing.
Answer: Well, [growth in nominal] wages in excess of inflation means [that increases in] real wages are positive. Again, that’s a great thing. Of course, we want that. We want people to have [gains in] real wages. But we want wages to be going up at a level that’s consistent with, with 2 percent inflation over time. As I mentioned, [increases in] nominal wages have been coming down gradually, and that’s what we want to see. We expect to see more of that. That’s just more of what’s consistent over a longer period of time. We don’t really think that, that wages were an important cause of inflation in the first year or so of the outbreak. But I would say that wages are probably an important issue going forward. Labor market conditions broadly are going to be an important part of, of getting inflation back down, and that’s why we think we need some further softening in labor market conditions.

Question (Simon Rabinovitch, The Economist): Thank you, Chair Powell. Simon Rabinovitch with the Economist. You had said last month that this meeting this week was going to be a live one. In the event, the market had assigned a, you know, a roughly 99 percent probability to the rate move that you announced today. The decision was, of course, unanimous, and the statement was basically unchanged from last month. So may I ask, you know, to what extent was the meeting actually a live one? Was there ever any doubt over the past two days about what the decision was, was actually going to be?
Answer: Well, I mean, you could—“Was there doubt?” Look, I would say there’s a range of views on the Committee, and when you see the minutes in three weeks, you’ll see that. There’s a range of views about what we should do at this meeting and what we should do at the next meeting, and it’s a—it’s a process that we go through. Many times when we go into a meeting, the decision is not, you know, fundamentally in doubt. Nonetheless, we have the meeting, and some—some—some meetings are, you know, less uncertain than others, and I’ll just leave it at that.

Question (Evan Ryser, MNI): If I could also ask about the SEP from June that showed rate cuts—do you expect the Fed to cut nominal rates next year while also continuing QT?
Answer: So that, that could happen. The question is, you know, is that consistent with, with—so if you think about both of them as normalization, imagine it’s a world where things are okay, and it’s time to bring rates down from what are restrictive levels to more normal levels. Normalization, in the case of, of the balance sheet, would be to reduce QT or to continue it, depending on where you are in the cycle. So they are two independent things. And, you know, really, the active tool of monetary policy is rates. But you can imagine circumstances in which it would be appropriate to have them working in what might be seen to be just different ways. But that wouldn’t be the case.

Question (Kyle Campbell, American Banker): Thanks, Chair Powell. Kyle Campbell with American Banker. I have a question about the discount window. I’m wondering if, since the bank failures of the spring, if you’ve seen signs that banks have taken more steps to be proactive in assuring that they’re ready to use that facility if they need to and if you have any sort of thoughts on whether policies might be appropriate for making sure that banks sort of test regularly to, to show that they are prepared to use it. Thanks.
Answer: So that’s a very important thing. Yes. And yes to both sides of that. You know, yes, banks are now working to see that they are ready to use the discount window, and we are strongly encouraging them to do that—banks broadly. We did find, as you know, during the events of March and that, you know, that it’s a little clunkier. It can be a little clunkier and not as quick as it needs to be sometimes. So why not be in a situation where, where you’re just much more ready in case you—in case you need to access the discount window?

Question (Mark Hamrick, Bankrate): Mr. Chairman, Mark Hamrick with Bankrate. You’ve talked in the past about getting the housing market back into better balance—excuse me—and also that the market might have bottomed. Where do you see that situation in balance, or lack thereof, right now, particularly with the restrained, constrained inventory of existing homes that might otherwise be coming onto market at a time when existing homeowners are reluctant to move and, of course, also all of that happening with the 30-year fixed-rate mortgage still around 7 percent on the heels of Fed tightening and with what you’re talking about tightening industry lending standards? Are we getting closer to balance or farther away? What’s your sense?
Answer: I think we’ve got a ways to go to get back to balance, really, for the reasons that you talked about. With existing homes, you know, there are many people who have low-rate mortgages, and whereas they might want to sell in a normal situation, they’re not going to because they have such, so much, value in their mortgage, whch means that supply of existing homes is really, really tight, which is keeping prices up. On the other hand, there’s, you know, there’s a lot of supply coming on line now, and, and there are people coming in. A lot of the buyers are, are, you know, first-time buyers coming in, buying at, you know, with these, you know, with these relatively elevated mortgage rates. But I think this will take some time to work through. Hopefully, more supply comes on line, and, you know, we, we work through it. We’re still living through the, you know, the aftermath of the—of the pandemic.

Question (Nancy Marshall-Genzer, Marketplace): Hi, Chair Powell. Nancy Marshall-Genzer with Marketplace. Russia has pulled out of an agreement allowing shipments of grains, safe passage through the Black Sea, and alternative routes at this point could be closed off. Just wondering, how could that contribute to higher food prices and inflation generally, and how closely are you watching that?
Answer: We are watching it, of course, very closely. And you’re right. The withdrawal from the Black Sea Grain Initiative does raise concerns about global food security, particularly for poorer countries that import a large share of their food. Grain prices did go up on this news, but they remain well below their peaks of last spring. And the moves that we’ve seen so far, I would say, are not expected to make a significant contribution to U.S. inflation. Of course, we will be watching that situation carefully.

Question (Nancy Marshall-Genzer, Marketplace): So you don’t think it would have a big effect on Fed policy at this point?
Answer: Doesn’t. You wouldn’t say so looking at what we—what we know now.