Federal Reserve press conference, 2019-06-19 — Chair Jerome Powell

Question (Nick Timiraos, Wall Street Journal): Nick Timiraos, Wall Street Journal. Chair Powell, did you consider a rate cut today? Specifically, was it one of the options—the policy options in the Tealbook? And is the Committee considering moving, given all the uncertainty you addressed, moving its— changing its policy before the next meeting?
Answer: So the Committee had, you know, our usual long discussion of global and domestic economic and financial conditions and then spent this morning talking about monetary policy. And I came to the view that I expressed to you, which is that we’re going to be monitoring—monitoring the crosscurrents and the other items that we’ve mentioned, but that we’d like to see more going forward. Particularly, we’d like to see whether these risks continue to weigh on the outlook. So, generally, as I mentioned, many on the Committee do see a strengthened case—eight of those, a strengthened case for cutting rates. Eight actually wrote down rate cuts. A number of others see that the case has strengthened. But the Committee wanted to see more, as I mentioned. And I also mentioned that some of these—some of these developments have been of quite recent vintage. And so we do expect that we’ll be learning a lot more on all of these issues in the near term. And that’s our focus.

Question (Nick Timiraos, Wall Street Journal): Do you think something could change before the next meeting?
Answer: I’m sure that things will change before the next meeting. I expect a full range of data and information on all of these issues that we are looking at. I think we’ll learn a great deal more about them. And I think that’s—we think that that’s the right way to move here. Again, many of these developments happened, you know, part of the way through the last intermeeting period. Only seven weeks ago, we had a great jobs report and came out of the last FOMC meeting feeling that the economy, and our policy, was in a good place. So we want to see—we want to see and we want to react to developments and trends that are sustained, that are genuine, and not react just to data points or just to changes in sentiment, which can be volatile. At the same time, we are—we’re quite mindful of the risks to the outlook and are prepared to move and use our tools as needed to sustain the expansion.

Question (Martin Crutsinger, Associated Press): Marty Crutsinger with the AP. You had your first dissent in your time as Chairman. Does that give us a sense that there was debate among a group that was pushing for a rate cut this time? And how do you—do you expect further dissents going forward?
Answer: Let me let me say the same thing as I said the last time, before there had been any dissents, and that is that I think the process of careful, thoughtful dissent is a very healthy one, and I’ve always believed that. And I feel like you make better decisions when you hear a disparity of views. So I really do look at it that way. I would add, though, that the support for the path we took for the policy statement that we adopted was quite broad.

Question (James Politi, Financial Times): James Politi with the Financial Times. Mario Draghi at the ECB yesterday sent a strong signal of new stimulus for the euro zone. Do you think that such actions to ease policy at other central banks around the world will put more pressure on the Fed to do the same?
Answer: Well, first, I think all central banks are focused on their domestic— their mandates are domestic, and they’re focused on economic conditions from a domestic standpoint. And that goes for the European Central Bank, it goes for the Fed, it goes for all central banks. So that’s our principal focus. So it could cut either way. You know, I would think that, to the extent you see stronger financial conditions and stronger activity in the ECB after a rate cut, that would support—tend to support activity.3 So we’re really focused on, you know, the risks to our—on the baseline outlook, which is still a pretty favorable one, and the risks to those outlooks. That’s our principal focus.

Question (Howard Schneider, Reuters): Thanks. This is the first time that you’ve been really issuing SEPs in an era when rates are going to be going down. Just two sort of related questions: Is there concern that you’ll be causing a sort of “dot deflation” by telling people, “Well, don’t buy your car now, because it’ll get cheaper in six months because we’re cutting rates,” and that that could sort of fulfill itself? And, secondly, on inflation, that was a pretty big drop in expected PCE, yet, you know, without reacting to it, are you not sort of undermining your own credibility in terms of commitment to the 2 percent target? 3 Chair Powell intended to say “stronger activity in the euro area.”
Answer: I see. Okay, right. Okay. So let me let me answer the inflation question first. So we’re saying that we know—I noted in the statement and also in my—what I said here. We saw that market-based measures of inflation expectations, breakevens, dropped. We noted that also in the statement. And I noted it as a reason for us to—one of several reasons why it feels to us that the case for more accommodation has strengthened. So we find that notable. Not only that, the actual forecast for inflation for this year, among FOMC participants, dropped a couple of tenths. So that means a more prolonged shortfall of inflation. Let me say, on inflation, it’s something I’ve been concerned about for quite a long time. It’s one of the principal reasons why I called for the review. In a world where policy rates are going to be closer to the effective lower bound, then, just as a general matter, we need to be really strong on 2 percent inflation. So I think, you know, we certainly don’t want to be seen as weak on inflation, and I don't believe we are. In terms of the dots, you’re right, this is the first time, I believe, we’ve had—we’ve talked about cutting in the “dot era.” I guess the dot era began in January 2012. And, you know, we’re working our way through it. And I think it’s just something we do. You know that my view on the dots is that they, overall, provide useful information for people, but that we need to do our absolute best to explain what they are and what they are not. Speaking of which, they are not a forecast of the group, they’re not discussed or debated at the meeting, they’re an input to policy more than an output of policy, and they’re also only the most likely case. So, in a situation where there’s relatively high uncertainty, there’s the most likely case, but the second most likely case might only be a little bit less likely. But that doesn’t show up in the dot. The dot is either one thing or it’s another. So I just would say that, if you pay too close attention to the dots, then you may lose sight of the larger picture.

Question (Edward Lawrence, Fox Business): Yes. Thank you for doing this, Chairman. Edward Lawrence from Fox Business Network. How do you reconcile the conflicting economic data coming in? You know, on one hand, you have strong overall growth. Consumer spending is strong. On the other hand, manufacturing numbers were a little bit weaker, you have growth in jobs but coming in a little weaker, and then you have low inflation. And then, specifically, what data are you looking at that you decided not to have a rate cut? Why didn’t you do that? [0:24:15.5]
Answer: Well, you gave a pretty good picture. I mean, it’s a complicated picture, and, you know, the answer is, we look at all of it. But I would say, the big pieces of it are this: The baseline outlook has been a good one, and that has basically been consumer spending coming back up in the second quarter. That is coming true. And consumer spending is at a healthy level, and that makes sense. You’ve got a tight labor market. You’ve got companies in surveys saying that labor is scarce. You’ve got workers in surveys saying that jobs are plentiful. You’ve got wages going up. You’ve got high levels of household confidence. So, all of that, underlying fundamentals for the consumer spending part of the economy, which is 70 percent of the economy, is quite solid. Job creation, if you take a three-month average, is still well above, you know, the entry—level of entry into the workforce. So that part of the economy is solid. You mentioned manufacturing, and we’re seeing this all around the world. Manufacturing, investment, and trade have been weaker. It’s not solely a domestic issue, and it may be that there are a range of factors that are contributing to that, including, for example, what China has done over the last couple of years in working to bring down its leverage. Some of it may be uncertainty over your supply chains due to trade developments. The Boeing 737 issues may be contributing in their own way. So there—lower oil prices are contributing to lower investment, although they’re also leading to lower gas prices, which supports spending. So there are many, many things. There isn’t any one thing that explains it all. But it’s something that we’re watching. But you do see growth in services, so you—this pattern around the world of weak manufacturing but growth in the far larger part of the services economy, which has led to low unemployment, good job creation, rising wages, that’s kind of the two big pieces of it that you see. Then you see the crosscurrents. If you lay the crosscurrents on top of that—concerns about global growth and trade developments—you have the full picture. And I think what that picture—what we took away from that picture is that we’d like to see more, that we do see these risks, and what we want to do is, we want to watch and see whether they continue to weigh upon the outlook.

Question (Nancy Marshall-Genzer, Marketplace): Do you think the Fed will be involved in regulating Libra then?
Answer: You know, we have—we don’t have plenary authority over cryptocurrencies as such. They play into our world through consumer protection and money laundering and things like that. But, I would say that, you know, through international forums, you know, we have significant input into the payment system and, as you know, play an important role in the payment system here in the United States.

Question (Greg Robb, MarketWatch): Thank you, Chairman Powell. Greg Robb from MarketWatch. I want to take you back to Chicago and the review of your monetary policy strategy. And something interesting, I think, is developing, is that outside experts are excited and are—like the idea of the Fed shifting your inflation target up to 4 percent—around there, roughly, I guess. They think that that would, you know, help monetary policy, and that there’s no—2 percent is not, like, sanctimonious or anything, or whatever, sacred. It seems that you’ve taken that off the table. So I was wondering if you could discuss that. Have you taken it off the table? And then, if so, why, or—and what’s your thoughts on that? Thank you.
Answer: We have—we’ve said that we wouldn’t look at raising the target rate for inflation. We did say that. And the reason is, it’s become a global norm, 2 percent. Our statutory mandate is price stability. And so we’re actually taking a less—we’re looking at less radical ideas, such as how to make the 2 percent inflation objective more credible. This gives me a chance to say a couple things about the review and Chicago, in particular. So it’s a new thing for us. It’s something that—I thought it was both appropriate and important for us to do. It’ll be a yearlong, or even longer, process, looking at our strategy, tools, and communications. And it’s meant to be a way to open ourselves up, to let the sunshine in, and have dialogue and criticism with the constituencies that we serve. We’ve had a series of Fed Listens around the country at every Reserve Bank, and we had an academic conference earlier this month, with seven papers written and criticized, and leading global experts. But I’ll just say, again, that the heart of the conference was the two panels on—with practitioners in low and moderate income—who live in low- and moderate-income communities and are part of those communities. And they were—there, I think, people were quite struck by their intervention, which was really uniformly around how important maximum employment is and what it means in their communities. You know, the idea being, they haven’t had, you know, a bull market in these communities. They haven’t had, just, a booming economy. What they have had is low unemployment, lots of social problems. And just now, you have, you know, companies who want to hire and are bringing people into the—providing opportunities for people to come into the labor force to an extent not seen in quite a long time. And that is, I think, you know, for someone who does this work, that was very focusing and motivating, too. So I think everybody thought, you know, that’s—that was really quite worth doing. I mean, there was some thought at the beginning that we should—some people recommended that we just talk to, you know, econ Ph.D.’s about this, but, no, that’s not what we chose to do, and we’re glad this is the choice we made.

Question (Greg Robb, MarketWatch): But even those two panels that you just referenced, the people that spoke, they—when they were asked about, you know, 2 percent inflation or higher inflation, they kind of shrugged their shoulders, you know? So—is 4 percent inflation radical? And to who?
Answer: I don’t think it’s—I don’t think it’s a practical alternative. And I’ll tell you why. I think you see disinflationary pressures around the world. You see central banks having a hard time getting inflation up to their—close to their objective. We’ve done better than other large central banks that are not, you know, open economies, like the U.K., where you have big currency moves that move inflation around. So—but it’s quite challenging to get inflation— it’s been—even with very high levels of resource utilization, inflation has been lingering and not getting back up to target in a sustained, symmetric kind of a way. So saying that you’re going to go for 4 percent—I wonder how credible that will be.

Question (John Heltman, American Banker): Is there any intention, is there any plan on the part of the Fed or other regulators to sort of create any additional clarity for, or—and consistency, really—that’s the other point of guidance, right?—is to make sure everyone knows kind of what the supervisory expectations are for leveraged lending and for all—for anything, for that matter. Is anything else coming? Or is it just going to remain kind of, like, bilateral kind of conversations with banks?
Answer: You know, I think the issue isn’t that the banks don’t understand what the rules are. The issue is that the risk isn’t in the banks. It’s in—it’s out in those market-based vehicles. So I don’t, I don’t—you know, I no longer am day-to-day involved in this as I was before I took this job. But my sense is, though, that that’s really not the problem. I’m not saying it’s perfect, but I think we do understand what risks the banks are running. And really the question is, how concerned should we be about large holdings by market-based vehicles that I mentioned, and what risks do they present? And we’re very carefully assessing that. And we continue to take all these risks seriously. You know, I gave a whole speech about this a few weeks ago, so.

Question (Brian Cheung, Yahoo Finance): Hi. Brian Cheung with Yahoo Finance. I’m just wondering if you could expand a little bit on the labor market. So the statement noted that the labor market still remains strong, but the May jobs report that that we saw missed on estimates, but employment rates still stayed at 3.6 percent. I’m wondering how you reconcile that with the fact that we only got 3.1 percent year-over-year wage growth in that report. What does that tell you about employment, and by all standards compared to, say, a month ago or a year ago, are we closer or farther away from full employment or maximum employment?
Answer: You know, we have to be closer, because more jobs are being created than people are entering the labor force. The unemployment rate is lower. You know, by just lots and lots of numbers, the labor market is in a good place. You mentioned wages. So the level of wages is very consistent with what it should be, in the sense that it’s approximately equal to inflation plus productivity increases on an hourly basis. So what’s, I guess, a little surprising, though, is that you could reach these levels of unemployment late—you know, long into a cycle, let’s say, and not see even higher wages that are pushing up on inflation, because wages at this level, even though they’re growing at a healthy rate, at an appropriate rate, they’re not growing at a rate that would provide much upward thrust for inflation. So, you know, we watch—we watch all of this very carefully, and I think we’re very careful about not assuming that we’re, you know, that would—that there’s no more slack in the labor market. You know, we’ve all lived through—you know, when I got to the Fed, we were in the 8 percent–plus range, and it’s just gone down and down and down, and you haven’t seen wages picked up. You haven’t seen real signals that we’re at maximum employment. You have seen a tightening labor market. You know, it—the surveys that I mentioned will all show that the labor market has tightened, but not overtightened.

Question (Jean Yung, MNI): Hi, Jean Yung with Market News. I wanted to ask—did the FOMC discuss a change to its balance sheet policy at this meeting, perhaps ending runoffs earlier than planned? And would the Committee be inclined to do something like that if it lowers rates before September?
Answer: So, of course, we haven’t made any decisions yet. Balance sheet runoff is very close to the end of its planned life. I would say this: If we do provide more accommodation—again, we haven’t really addressed this—but if we do provide more accommodation, we’ll certainly keep in mind what we said earlier this year, which is that we’ll always be willing to adjust balance sheet policy so that it serves our dual-mandate objectives. Thank you very much.