Federal Reserve press conference, 2024-03-20 — Chair Jerome Powell

Question (Steve Liesman, CNBC): Steve Liesman, CNBC. Mr. Chairman, the projections show somewhat higher core inflation. They also show somewhat stronger growth. What should we infer from this notion that, on average, rates were kept the same this year, but inflation is higher and growth is higher. Does it mean more tolerance for higher inflation and less of a willingness to slow the economy to achieve that target?
Answer: Well, it doesn’t—no, it doesn’t mean that. What it means is that, you know, we’ve seen incoming—as I pointed out in my opening remarks, we did mark up our growth forecast and so have many other forecasters, so the economy is performing, performing well. And the inflation data came in a little bit higher is a separate matter, and I think that caused people to write up their inflation. But nonetheless, we continue to make good progress on bringing inflation down. And so—

Question (Steve Liesman, CNBC): When you—just to follow up: When you say that you’re willing to either maintain the rate for longer, is—what is the tolerance of the Federal Reserve for inflation coming in above its 2 percent target?
Answer: We’re strongly committed to bringing inflation down to 2 percent over time. That is—that is our goal, and we will achieve that goal. Markets believe we will achieve that goal. And they should believe that, because that’s what—that’s what will happen over time. But we stress “over time.” And so I think we’re, we’re making projections that do show that happening. And we’re committed to that outcome, and we will bring it about.

Question (Rachel Siegel, Washington Post): Okay. And will you be able to get overall inflation down to target if housing doesn’t break through quickly, and does that affect the timing for eventual cuts this year?
Answer: We will get aggregate inflation down to 2 percent over time. We will. And, and I would assume that we’ll continue to see is—we’ll see goods prices coming into a new equilibrium where they’re going down perhaps not as quickly as they had been earlier this year, where housing services inflation will come back down as, as current market rents are suggesting will happen and where nonhousing services will move back down. Some combination of those three things—and it may be different from the combination we had before the pandemic—will be achieved and will bring inflation back down to 2 percent sustainably.

Question (Nick Timiraos, Wall Street Journal): Nick Timiraos of the Wall Street Journal. Chair Powell, during your congressional testimony this month, you said that your test for making the first change to interest rates does not require you to be terribly comfortable that inflation is at 2 percent because interest rates are well above neutral. At the same time, you said here after the last meeting that the first cut is highly consequential. Can you reconcile these views for me? If rates are well above neutral, why would the first cut be highly consequential? Is that because you anticipate one cut would be followed by one or two more along the lines of the recalibration you made in 2019, which itself was modeled on the mid-cycle adjustment of 1995?
Answer: It’s more—I would put it more in the context of what I said in our— in my opening remarks that the risks are really two-sided here. We—we’re in a situation where, you know, if we ease—if we ease too much or too soon, we could see inflation come back, and if we ease too late, we could do unnecessary harm to employment and people’s working lives. And so, you know, we do see the risks as two-sided, so it is consequential. We want to be careful. And, fortunately, with the economy growing, with the labor market strong, and with inflation coming down, we can approach that question carefully and let the data speak on that. That’s really what I was thinking.

Question (Nick Timiraos, Wall Street Journal): How much of that inflation that we’ve seen so far this year do you chalk up to one-off calendar adjustment effects following a period of high inflation versus some change in the trend we saw in the second half of last year?
Answer: I want to start by being—saying I always try to be careful about dismissing data that we don’t like. So you need to check yourself on that, and I’ll do that. But— so I would say the January number, which was very high—the January CPI and PCE numbers were quite high. There’s reason to think that there could be seasonal effects there. But, nonetheless, we don’t want to be completely dismissive of it. The February number was high, higher than expectations, but we have it at currently well below 30 basis points core PCE, which is not terribly high. So it’s not like the January number. But I take the two of them together, and I think they haven’t really changed the overall story, which is that of inflation moving down gradually on a sometimes-bumpy road toward 2 percent. I don’t think that story has changed. I also don’t think that those readings added to anyone’s confidence that we’re moving closer to, to that point. But, you know, we didn’t—the last thing I’ll say is we didn’t excessively celebrate the good inflation readings we got in the last seven months of last year. We didn’t take too much signal out of that. What you heard us saying was that we needed to see more that we could, you know—we wanted to be careful about that decision, and we’re not going to overreact, as well, to these two months of data, nor are we going to ignore them.

Question (Christopher Rugaber, Associated Press): Hi, Chris Rugaber, the Associated Press. Thank you. In the projections, there is an increase in the neutral rate, as you know, and higher rates—¼ point higher rates projected in 2025, 2026. Can you speak about why, [what] might be behind that? Is there a real sense here that the economy has perhaps changed in some way that higher rates will be needed in the future? Thank you.
Answer: So you’re right. They’re pretty modest changes, but you’re right. There was an uptick in the longer-run rate, and also there’s a 25 basis point increase in ’25 and ’26. In terms of, are rates going to be higher in the longer run, if that’s really your question, I don’t think we know that. I think it’s, it’s—we think that rates were generally low during the pre-pandemic post–Global Financial Crisis era for reasons that are mostly, you know, important, slow-moving, large things like demographics and productivity and that sort of thing—things that don’t move quickly. But I don’t think we know. I mean, my instinct would be that rates will not go back down to the very low levels that we saw, where, all around the world, there were long- run [real interest] rates that were at or below zero in some cases. I don’t see rates going back down to that level. But I think there’s tremendous uncertainty around that.

Question (Jeanna Smialek, New York Times): Jeanna Smialek, the New York Times. Thank you for taking our questions. Per your comment to Ann that a weakening in the labor market would be a reason to potentially cut rates or at least a consideration in making a rate cut, would continued strength in the labor market be a reason to hold off on rate cuts? And just in general, if labor supply continued to rebound in 2024, the way it did in 2023, what would stronger hiring and possibly stronger growth mean for the path forward on policy?
Answer: Yeah. So, so, if what we’re getting is a lot of supply and a lot of demand, and that supply is actually feeding demand because workers are getting paid and they’re spending and that’s, you know—what you would have is potentially kind of what you had last year, which is a bigger economy where inflationary pressures are not increasing. In fact, they were decreasing. So you can have that if you have a continued supply-side activity that we had last year with—both with supply chains and also with, with growth in the size of the labor force.

Question (Jeanna Smialek, New York Times): But—so strong hiring in and of itself would not be a reason to hold off on rate cuts?
Answer: No, not all by itself. No. I mean, we saw—you saw last year very strong hiring and inflation coming down quickly. We now have a better sense that a big part of that was supply-side healing, particularly with, with growth in the labor force. So, in and of itself, strong job growth is not a reason, you know, for us to be concerned about inflation.

Question (Neil Irwin, Axios): Hi, Chair Powell. Neil Irwin with Axios. How do you assess the state of financial conditions right now, and particularly—in particular, do you view the kind of easing in financial conditions since the fall as consistent and compatible with what you’re trying to achieve on the inflation mandate?
Answer: So we think—there are many different financial conditions indicators, and you can kind of, you know, see different answers to that question. But, ultimately, we do think that financial conditions are weighing on economic activity, and we think you see that in—a great place to see it is in the labor market, where you’ve seen demand cooling off a little bit from the extremely high levels. And there I would point to job openings, quits, surveys, the hiring rate. Things like that are really demand. There are also supply-side things happening, but I think those are demand-side things happening. You know, we saw—that’s been a question for a while. We did see progress on inflation last year—significant progress, despite financial conditions sometimes being tighter, sometimes looser.

Question (Michael McKee, Bloomberg): Michael McKee with Bloomberg Radio and Television. Can you give us more color on how the Committee is thinking about inflation dynamics now? What we’ve seen at the beginning of the year, are they more one-off increases that will fade, or is there more of a secular turn with goods prices rising again and service prices staying sticky? And also housing prices have been sort of the Godot of this cycle, in that you keep expecting them to go down, and they don’t. How does the Committee see this playing out forward, since you’ve raised your inflation forecast?
Answer: So I see the Committee looking at the two months of data and asking the same question you’re asking and saying we’re just going to have to see what the data show. As I mentioned, you can look at January, which is a very high reading and you can—and I think many people did see the possibility of seasonal adjustment problems there. But, again, you don’t want to—you’ve got to be careful about dismissing the parts of the data that you don’t like. So then February wasn’t, wasn’t as high, but it was higher. So the question is, what are we going to see? You know, we tend to see a little bit stronger—this is in the data—a little bit stronger inflation in the first half of the year, a little bit less strong later in the year. We’re going to— we’re going to let the data show. I don’t think we really know whether this is a bump on the road or something more. We’ll have to find out. In the meantime, the economy is strong, the labor market is strong, inflation has come way down, and that gives us the ability to approach this question carefully and feel more confident that inflation is moving down sustainably at 2 percent when we take that step to begin dialing back our restrictive policy.

Question (Michael McKee, Bloomberg): Well, you’ve talked about the desire to have confidence that inflation is continually moving down. Have the recent numbers we’ve gotten for inflation data dented that confidence at all?
Answer: It certainly hasn’t improved our confidence—it hasn’t raised anyone’s confidence. But I would say that the story is really essentially the same and that is of inflation coming down gradually toward 2 percent on a sometimes-bumpy path, as I mentioned. I think that’s what you still see. We’ve got nine months of 2½ percent inflation now, and we’ve had two months of kind of bumpy inflation. We were saying that we’ll—it’s going to be a bumpy ride. We consistently said that. Now here are some bumps, and the question is, are they more than bumps? And we just don’t—we can’t know that. That’s why we are approaching this question carefully. It is very important for everyone that we serve that we do get inflation sustainably down. And I think the historical record, it’s—every situation is different, but the historical record is that you need to approach that question carefully and try to get it right the first time and not have to come back and raise rates again perhaps if you cut inappropriately— prematurely.

Question (Edward Lawrence, Fox Business): Thank you, Mr. Chairman. Edward Lawrence with FOX Business. I wanted to ask you, you received a letter from—well, the Federal Reserve is an independent body, understanding Congress has oversight over that. You received a letter from Senators Elizabeth Warren and Sheldon Whitehouse that said—calling on you to lower interest rates—to cut interest rates because this has “the potential that it may remain too high for too long, has halted advances in deploying renewable energy technologies and delayed significant climate and economic benefits from these projects.” So has higher interest rates caused that?
Answer: Have they—well, first of all, I respect our—you know, in our system of government, it is Congress that has oversight responsibility over the Fed. We place a tremendous amount of importance on our engagements with Congress and always treat them with great respect. In this case, I would say, those are, you know—our mandate is for maximum employment and price stability and the other things that we do, and that’s what we’re trying to accomplish. We’re trying to do that in a way that sustains the strong growth we’re seeing, the strong labor market we’re seeing, but allows us to make further progress with inflation. That’s how we can best serve the public and leave the other issues, which in many cases are incredibly important, such as those you mentioned, leave those to the people who have responsibility for those.

Question (Edward Lawrence, Fox Business): There was another letter from two dozen lawmakers saying that the higher rates are squeezing the working people. How do these letters affect what you guys are doing, policy-wise?
Answer: We receive these letters with respect, and we write careful responses and address concerns. We listen, again, because we’re talking to the people who, in our system of government, have oversight over our activity. So that’s—but at the end of the day, we take that on board, but we have to make our judgments, and we have to “stick to our knitting”— which is maximum employment, price stability, supervise and regulate the banks, work on the payment system: the things that we do.

Question (Simon Rabinovitch, The Economist): Okay. Great. Obviously, inflation is some ways away from target. Unemployment, though, if you look at the projection for the full year of 4.0 percent, in February, we were already at 3.9 percent, so quite close to the median projection. Are you concerned at all that—notwithstanding the very strong jobs growth—that in fact there may be some cracks appearing in the employment market? You talked about a significant deterioration in the labor market being a condition for easing rates. What would constitute that in your books? Thank you.
Answer: So we, of course, monitor—it’s one of our two goal variables. We all monitor the labor market very, very carefully. And I don’t see those cracks today. And I, you know—we follow all the possible stories that are out there about, about there being cracks, but the overall picture really is a strong labor market. The extreme imbalances that we saw in the early parts of the pandemic recovery have mostly been resolved. You’re seeing high job growth. You’re seeing big increases in supply. You’re seeing strong wage growth, but wage growth is gradually moderating down to more sustainable levels. In many, many respects, the things are returning more to their state in 2019, which we can think of as normal for this purpose. That’s job openings and quits. And surveys of workers and businesses are always interesting on this: You know, how tight is the—how easy is it to find a job? How hard is it—how easy it is to find a worker? Those have both—those surveys have both come down. So the labor market is—it’s in good shape. You know, you do see things like the low— the low hiring rate, and people have made the argument that if, if layoffs were to increase, that would—that would mean that the net would be fairly quick increases in unemployment. So that’s something we’re watching, but we’re not seeing it. Of course, initial claims are very, very low and, if anything, have tracked down a little bit. So—watching it carefully. Don’t see it. And when I say something—I, I use the term “unexpected” weakening of the labor market. So, you know, we do expect the unemployment rate to—the forecast is that it would move up, I think, closer to what we see as the longer-run sustainable level. That’s just—that’s just people’s forecast, individual forecasts. But we’re talking about something that’s unexpected. That’s where I’ll leave it, though.

Question (Steve Matthews, Bloomberg): Steve Matthews with Bloomberg. You mentioned at the beginning of the press conference that the Committee thought it might be appropriate to slow the pace of asset runoff fairly soon. I’m wondering is—when you say fairly soon, does that mean that the Committee would meet about this again in May and a decision could be reached that soon? And I was wondering if you could also just describe the scope of what the Committee is discussing here. You’re at $95 billion of caps right now. Would that be cut about in half or something in that nature? Thank you.
Answer: So that is what we’re discussing essentially is—and we’re not discussing all the other many other balance sheet issues. We will discuss those in due course. But what we’re really looking at is slowing the pace of runoff. There isn't much runoff among MBS—in MBS right now, but there is in Treasuries. And we’re talking about going to a lower pace. I don’t want to give you a specific number because we haven’t made a—haven’t had an agreement or decision, but that’s the idea. And that’s what we’re looking at. In terms of the timing, I said fairly soon. I wouldn’t want to try to be more specific than that, but you get the idea. The idea is—and this is in our longer-run plans—that we may actually be able to get to a lower level, because we would avoid the kind of frictions that can happen. Liquidity is not evenly distributed in a system. And there can be times when, in the aggregate, reserves are ample or even abundant, but not in every part. And those parts where they’re not ample, there can be stress, and that can cause you to prematurely stop the process to avoid the stress. And then it would be very hard to restart, we think. So something like that happened in ’19 perhaps. So that’s what we’re doing. We’re looking at what would be a good time and what would be a good structure, and “fairly soon” is words that we use to mean fairly soon.

Question (Steve Matthews, Bloomberg): And will there be a discussion about returning to an all- Treasuries balance sheet at some point?
Answer: So that—our, our longer-run goal is to return to a balance sheet that is mostly Treasuries. I do expect that, once we’re through this, we’ll come back to the other issues about the composition and the maturity and revisit those issues, but it’s, you know, not urgent right now. We want to get this, this decision made first and then we can, when the time is right, come back to the other issues.

Question (Victoria Guida, Politico): Well, is it also because you’re not sure exactly how the reserve supply will react once the overnight reverse repo facility drops near—at zero?
Answer: Well, I think we broadly think that, once [take-up at] the overnight [reverse] repo [facility] stabilizes, either at zero or close to zero, that, as the balance sheet shrinks, we should expect that reserves will decline pretty close to dollar-for-dollar with that. That’s what we think.

Question (Nancy Marshall-Genzer, Marketplace): Hi, Nancy Marshall-Genzer with Marketplace. Chair Powell, you said you’re waiting to become more confident that inflation’s getting to your 2 percent goal before you cut rates. Can you just sum up more specifically what data you’re looking at that would give you that confidence?
Answer: Sure. So we’re—most importantly, we’re looking at the incoming inflation data and the contents of it and what they’re telling us, so that’ll be—and also the various components—so obviously that’s what we want. We want more confidence that inflation is coming down sustainably toward 2 percent. And, I mean, of course we’ll also be looking at all the other things that are happening in the economy. We’ll look at the totality of the data, including everything essentially as we make that assessment. But the most important thing will be the inflation data coming in.

Question (Nancy Marshall-Genzer, Marketplace): Well, are there things that you would give more weight to, like wages?
Answer: Wages is one thing. We don’t—our target is not wages. It’s really inflation. But we would look to the fact that wages are still coming in very strong. But, but they’ve been—wage increases, that’s to say—wage increases have been quite strong, but they’re, they’re gradually coming down to levels that are more sustainable over time. And that’s what we want. We don’t think that—the inflation was not originally caused—we think, I don’t think, by mostly by wages. That wasn’t really the story. But we do think that, to get inflation back down to 2 percent sustainably, we’d like to see, you know, continuing gradual movement of wage increases at still high levels but back down to levels that are more sustainable over time.

Question (Mark Hamrick, Bankrate): Thank you. It’s Mark Hamrick with Bankrate. Mr. Chairman, April 27 will mark the 13th anniversary since a Fed Chairman began holding regular news conferences. How important is that higher transparency been in your view, both for the proper functioning of the central bank and also in accomplishing your mission? And is there more that you and your colleagues can do on the transparency front? And what might that look like?
Answer: I generally think—I mean, this movement actually started 30 years ago—30 years ago, when some academics posited that a more transparent central bank, if the public understands your reaction function, the markets will do your work for you. They’ll react to the data. And so it all happens that way and so there’s been a march toward greater and greater transparency. And that—certainly Chairman Bernanke advanced that, Chairman Greenspan did, Chair Yellen did, and I. You know, so we went from four press conferences a year to eight, so now every meeting really is “live” now. I think that’s a good innovation. I wouldn’t want to turn it back. We also have done a bunch of other things. You know, we have an annual supervision report, Financial Stability Report. I mean, there’s a long list of things that we’ve done. I think you—I mean, nothing comes to mind as really desperately in need of doing at this moment. We’re very transparent. We have no shortage of FOMC participants speaking to the public through the media. And so that channel is full, I would say. So I think it’s generally broadly helped and made things better. But not every day and in every way.

Question (Mark Hamrick, Bankrate): Well, to follow up: Has there ever been a day where you wanted to put that genie back in the bottle somewhat?
Answer: Of course not. [Laughter]

Question (Jennifer Schonberger, Yahoo Finance): Thank you, Chair Powell. Jennifer Schonberger with Yahoo Finance. Not to harp too much more on confidence and inflation, but you did say earlier in this press conference that the recent inflation data hasn’t raised anyone’s confidence. But when you testified before the Senate a couple weeks ago, you told lawmakers that you are “not far from receiving the confidence needed on inflation to begin cutting rates.” So are you still of that belief or not? What are we to take by those words, “not far?”
Answer: So let me say my main message at that—in those two days of hearings was really that the Committee needs to see more evidence to build our confidence that inflation is moving down sustainably toward our 2 percent goal, and we don’t expect that it will be appropriate to begin to reduce rates until we’re more confident that that is the case. I said that any number of times, so those were kind of the main part of the message. We repeated that today in our statement. I also—to the language you mentioned, I, I really pointed out that we had made significant progress over the past year, and what we’re looking for now is confirmation that that progress will continue. We had a series of inflation readings over the second half of last year that were really much lower. We didn’t overreact, as I mentioned. But that’s what I had in mind.

Question (Jennifer Schonberger, Yahoo Finance): But given that you said that PCE for February, 2.8 percent the estimate, and that we have been seeing PCE—core PCE coming down by a tenth of a percent every month, I mean, wouldn’t you be at about 2.4 percent this summer, June, July, to a point where you could cut then?
Answer: Well, we’ll just have to see how the data come in. We would, of course, love to get great inflation data. We got really good inflation data on the second—in the second part of last year. Again, we didn’t overreact to it. We said we needed to see more, and we said it would be bumpy. And now we have January and February, which I’ve talked about a couple of times. So, you know, we’re looking for more good data, and we would certainly welcome it. Thank you.