Federal Reserve press conference, 2022-06-15 — Chair Jerome Powell

Question (Howard Schneider, Reuters): Thank you. Howard Schneider with Reuters. Two related questions. Chair Powell, do you feel you boxed yourself in with the language you used at the last press conference on 50 basis point hikes in June and July? And would you please give us as detailed a sense as you can of what role you played in reshaping market expectations so quickly on Monday?
Answer: So, as you know, we always aim to provide as much clarity as we can about our policy intentions subject to the inherent uncertainty in the economic outlook, because we think monetary policy is more effective when market participants understand how policy will evolve, when they understand our objective function, our reaction function. And in the current highly unusual circumstances with inflation well above our goal, we think it’s helpful to provide even more clarity than usual—again, subject to uncertainty in the outlook. And I think over the course of this year, financial markets have responded and have, generally, shown that they understand the path we’re laying out. Of course, it remains data dependent. And so that’s what we generally think about guidance, and that’s why we offer it. And, of course, when we offered that—when I offered that guidance at the last meeting, I did say that it was subject to the economy performing about in line with expectations. I also said that if the economy performed—if data came in worse than expected, then we would consider moving even more aggressively. So we got the CPI data and also some data on inflation expectations late last week, and we thought for a while, and we thought, well, this is the appropriate thing to do. So then the question is, what do you do? And do you wait six weeks to do it at the next meeting? And I think the answer is, that’s not where we are with this. So we decided we needed to go ahead, and so we did. And that’s really—that’s really how we made the decision.

Question (Nick Timiraos, Wall Street Journal): Thanks. Nick Timiraos. Chair Powell, you’ve said that you like your policy to work through expectations. And now, obviously, this decision was something quite different from how you and almost all of your colleagues had set those expectations during the intermeeting period. And I know you just said that what changed was really the inflation data—the inflation expectations data. But I’m wondering, on the inflation expectations data, was there something you saw that was unsettling enough to risk eroding the credibility of your verbal guidance by doing something so different from what you had “socialized” before?
Answer: So if you look at a broad range of inflation expectations—so you’ve got the public, you’ve got surveys of the public and of experts, and you’ve also got market based. And I think if you look across that broad range of data, what you see is that expectations are still in the place, very much in the place, where short-term inflation is going to be high but comes down sharply over the next couple of years. And that’s really where inflation expectations are. And also, as you get away from this episode, they get back down close to 2 percent. And so this is really very important to us—that that remain the case. And I think if you look for most measures, most of the time, that’s what you see. If we even see a couple of indicators that bring that into question, we take that very seriously. We do not take this for granted—we take it very seriously. So the preliminary Michigan [survey] reading—it’s a preliminary reading; it might be revised—nonetheless, it was quite eye-catching, and we noticed that. We also noticed that the index of common inflation expectations at the Board has moved up after being pretty flat for a long time, so we’re watching that, and we’re thinking, “this is something we need to take seriously.” And that is one of the factors, as I mentioned—one of the factors in our deciding to move ahead with 75 basis points today was what we saw in inflation expectations. We’re absolutely determined to keep them anchored at 2 percent. That was one of the reasons—the other was just the CPI reading.

Question (Nick Timiraos, Wall Street Journal): So if you saw a movement like that again, another tick-up in inflation expectations, would that put a 75 or even 100 basis point increase in play at your next meeting?
Answer: We’re going to—I’ll just say, we’re going to react to the incoming data and appropriately, I think. So I wouldn’t want to put a number on what that might be. The main thing is to get rates up, and then pretty soon, we’ll be in an area where we’re—I think as you get closer to the end of the year, you’re in a range where you’ve got restrictive policy, which is appropriate. Forty-year highs in inflation—we think that policy is going to need to be restrictive, and we don’t know how restrictive. So I think that’s how we’ll take it.

Question (Neil Irwin, Axios): Hi, Chair Powell. Neil Irwin from Axios. Thanks for taking our questions. The late-breaking kind of decision to go to 75 basis points—do you worry that that will make policy guidance a less effective tool in the future? And should we think of that as a kind of symmetrical reaction function if we start to get soft readings on inflation or if the labor market starts to roll over?
Answer: To take your second question first, yes. I mean, I think we’re— again, we’re going, we’re resolved to take this on, but we’re going to be flexible in the implementation of it. Sorry—and your [first] question was [about] guidance. So, again, the overall exercise is that we try to be—provide as much clarity about our policy intentions as we can, because we think that makes monetary policy work better. There’s always a tradeoff, because you have to live with that guidance, and so you do it, and it helps a lot of the time. I, frankly, think this year has been a demonstration of how well it can work. With us having really just done very little in the way of raising interest rates, financial conditions have tightened quite significantly through the expectations channel, as we’ve made it clear what our plans are. So I think that’s been a very healthy thing to be happening. And I would hope that our—it’s always going to be—any guidance that we give is always going to be subject to things working out about as we expect. And, in this particular situation, you know, we’re looking for something specific, and that is progress on inflation. We want to see progress. We want to see—inflation can’t go down until it flattens out, and that’s what we’re looking to see. And if we don’t see that, then that’s the kind of thing that will—even if we don’t see progress for a longer period, that could cause us to react. But we will. Soon enough, we will be seeing some progress at some point. And we’ll react [as] appropriate to that, too. But I would like to think, though, that our guidance is still credible, but it’s always going to be conditional on what happens. This is an unusual situation, to get, you know, some data late in, during blackout, pretty close to—very close to our meeting. Very unusual to [have] one that would actually change the outcome. So I’ve only seen—in my 10-years-plus here at the Fed, I’ve only seen something like that, even close to that, one or two times. So I don’t think it’s something that’ll come up a great deal.

Question (Colby Smith, Financial Times): Are you more concerned now that to bring down inflation, it’s going to require more than just some pain at this point?
Answer: Again, I think that—I do think that our objective, and this is what’s reflected in the SEP, but our objective, really, is to bring inflation down to 2 percent while the labor market remains strong. I think that what’s becoming more clear is that many factors that we don’t control are going to play a very significant role in deciding whether that’s possible or not. And there I’m thinking, of course, of commodity prices, the war in Ukraine, supply chain [developments], things like that, where we really—the monetary policy stance doesn’t affect those things. But having said that, there is a path for us to get there—it’s not getting easier; it’s getting more challenging because of these external forces—and that path is to move demand down, and you have a lot of surplus demand. Take, for example, in the labor market. So you have two job vacancies, essentially, for every person actively seeking a job, and that has led to a real imbalance in wage negotiating. You could get to a place where that ratio was at a more normal level, and you wouldn’t—you would expect to see those wage pressures move back down to a level where people are still getting healthy wage increases, real wage increases, but at a level that’s consistent with 2 percent inflation. So that’s a possibility. And you could say the same thing about some of the product markets where there’s just excess capacity and really where the strong demand has gone into—sorry, where they’re capacity constrained, right? So you have, effectively, what we think of as a vertical supply curve or close to it. So demand comes in, and it’s very strong, and it shows up in higher prices—not higher quantities, not more cars, because they can’t make the cars because they don’t have the semiconductors. So in principle, that could work in reverse. When demand comes down, you could see—and it’s not guaranteed—but you could see prices coming down more than the typical economic relationships that you see in the textbooks would suggest, because of the unusual situation we’re in on the supply side. So there’s a pathway there. It is not going to be easy, and there—again, it’s our objective, but, as I mentioned, it’s going to depend to some extent on factors we don’t control.

Question (Rachel Siegel, Washington Post): Hi, Chair Powell. Thank you for taking our questions. Rachel Siegel from the Washington Post. So the new projections show the unemployment rate ticking up through 2024. Is a higher unemployment rate necessary in order to combat inflation? And what is lost if the unemployment rate has to go up and people lose their jobs in order to control inflation? Thank you.
Answer: So you’re right. In the SEP, we have unemployment going up to 4 point—the median is 4.1 percent—of course, [there is] a range of actual forecasts. And I would characterize that, if you were to get inflation down to, you know, on its way down to 2 percent and the unemployment rate went up to 4.1 percent, that’s still a historically low level. We hadn’t seen—we hadn’t seen rates, unemployment rates below 4 percent until a couple years ago for—we’d seen it for, like, one year in the last 50. So the idea that—3.6 percent is historically low in the last century. So a 4.1 percent unemployment rate with inflation well on its way to 2 percent—I think that would be—I think that would be a successful outcome. So we’re not looking to have a higher unemployment rate. But I would say that I would certainly look at that as a successful outcome.

Question (Rachel Siegel, Washington Post): Would that include people losing their jobs?
Answer: We’re not—again, we’re not, we don’t seek to put people out of work, of course. We never think, “Too many people are working, and fewer people need to have jobs.” But we also think that you really cannot have the kind of labor market we want without price stability. And we have to go back and establish price stability so we can have that kind of labor market, and that’s a labor market where workers are getting wage increases—maybe the workers at the lower end of the spectrum are getting the biggest wage increases, as they were before the pandemic—where participation is high, where there’s lots of job opportunities, where it’s just a really—I mean, the labor market we had before the pandemic was—that’s what we want to get back to. And you see disparities between various groups at historic lows. We’d love to get back to that place. But, to get there—it’s not going to happen with the levels of inflation we have. So we have to restore that, and it really is in service, in the medium and longer term, of the kind of labor market we want and hope to achieve.

Question (Matthew Boesler, Bloomberg): And given the new projections for the unemployment rate, could you talk a little bit about what accounts for such reduced confidence against, say, a month ago or three months ago that inflation will largely normalize on its own as these supply-side issues get worked out? Thanks.
Answer: Well, yeah, I think you’ve seen—again, we’ve been expecting progress, and we didn’t get that. We got sort of the opposite. So I also think the situation, really—since the consequences of the Ukraine war become more and more clear, what you’re seeing is the situation getting more difficult. And you look around the world—I mean, lots of countries are—lots of countries are looking at inflation of 10 percent, and it’s largely due to commodities prices. But all over the world, you’re seeing these effects. And so—and we’re seeing them here: gas prices at all-time highs, and things like that. That’s not something we can do something about. So that is really—and, by the way, headline inflation, headline inflation is important for expectations. People—the public’s expectations, why would they be distinguishing between core inflation and headline inflation? Core inflation is something we [on the Committee] think about because it is a better predictor of future inflation. But headline inflation is what people experience. They don’t know what core is. Why would they? They have no reason to. So that’s—expectations are very much at risk due to high headline inflation. So it’s become—the environment has become more difficult, clearly, in the last four or five months, and hence the need for the policy actions that we took today. Hence our resolution to get rates up and, ultimately, get them to where we think they need to be in coming months.

Question (Edward Lawrence, Fox Business): So then as you are raising rates in this economy, how closely are you watching consumer spending, or is there something—another indicator that you’re watching more closely?
Answer: It would be hard to watch anything much more closely than we watch consumer spending, but we watch everything. We watch business fixed investment, which actually has softened a bit. And we watch—we’re responsible for watching everything. Consumption is 60-some percent of the economy, two-thirds of the economy, so, naturally, we spend a lot of time on that. And, again, there’s a lot going on—there are a lot of flows back and forth—but, ultimately, it does appear that the U.S. economy is in a strong position and well positioned to deal with higher interest rates.

Question (Michael McKee, Bloomberg): Thank you, Mr. Chairman. Michael McKee from Bloomberg Radio and Television. Are you targeting headline inflation now or core inflation? In other words, how far would you chase oil prices if they keep going up? If that’s going to be the component that drives expectations, would you risk recession for a headline rate if the core rate is holding steady or starting to go down?
Answer: So the—we’re responsible for inflation in the law. And inflation means headline inflation. So that’s our ultimate goal. We, of course, like all central banks do, look very, very carefully at core inflation because it is—it’s a much better predictor, and it’s much—it’s a much better predictor of where inflation is going, and it’s also more relevant to our tools. As I mentioned, the parts that don’t go into core are mostly outside the scope of our tools, so we look at that. But it’s—the current situation is particularly difficult because of what I mentioned about expectations. We can’t affect, really—I mean, the energy prices are set by global commodity prices. And most of food—not all of it, but most food prices are pretty heavily influenced by global commodity prices, too. Also other things. So we can’t really have much of an effect. But we have to be mindful of the potential effect on inflation expectations [coming] from headline [inflation readings]. So it’s a very difficult situation to be in, and we— again, we can’t do much about the difference between [headline and core inflation rates due to] the elements that make up headline that are not in core.

Question (Michael McKee, Bloomberg): Could I just, as a follow-up, get a clarification on the SEP? When the members gave their forecasts, when were they inserted into the record? Were they revised after the CPI or Michigan numbers came out? In other words, does the SEP, as we have it now, reflect the same factors that led you to go to a 75 basis point move?
Answer: The SEP is of one piece. It reflects all of the economic readings. It also reflects the 75 basis point increase. This is important. So people had that in hand when they—when their SEPs were submitted. So it’s—in other words, it’s not in addition to what’s in the SEP. The SEP—everyone’s SEP reflects their thinking about this rate increase and what’s going forward.

Question (Victoria Guida, Politico): Hi, Victoria Guida from Politico. I wanted to ask about how you’re measuring progress, especially since you’ve now started front-loading rate hikes more. You’ve talked about how you want to see inflation coming down over a series of reports, and I guess I’m curious whether you think inflation data itself is a really good indicator or whether you might be concerned that it’s a lagging indicator or that it might send confusing signals given that, as you’ve talked about, there are sort of supply and demand aspects. And I guess my question is, do you think that inflation will tell you—inflation data will tell you when you’ve gone to where you need to go, or do you just feel like maybe it’s better to overshoot than to undershoot?
Answer: So I think the role that we can play—maybe the way to get at this is to say that the role that we can play is around demand, right? And we’ll be able to see—the areas that we can affect are those associated with excess demand, and we’ll be able to see our effect on, for example, job openings in real time. And that would tell us what’s—that would tell us about wages. Wages are not principally responsible for the inflation that we’re seeing, but, going forward, they would be very important, particularly in the service sector. Sorry, I’m not sure I’m getting to your question.

Question (Victoria Guida, Politico): My question is, is inflation data itself the best indicator for when you’re getting to where you need to go, or might it lead you to go too far?
Answer: There’s always a risk of going too far or going not far enough, and it’s going to be a very difficult judgment to make, or maybe not—maybe it’ll be really clear. But we’re—and we’re quite mindful of the dangers. But I will say, the worst mistake we could make would be to fail, which—it’s not an option. We have to restore price stability. We really do, because everything—it’s the bedrock of the economy. If you don’t have price stability, the economy’s really not going to work the way it’s supposed to. It won’t work for people—their wages will be eaten up. So we want to get the job done. This inflation happened relatively recently. We don’t think that it’s affecting expectations in any kind of fundamental way. We don’t think that we’re seeing a wage–price spiral. We think that the public generally sees us as very likely to be successful in getting inflation down to 2 percent, and that’s critical. It’s absolutely key to the whole thing that we sustain that confidence. So that’s how we’re thinking about it.

Question (Brian Cheung, Yahoo Finance): Hi, Brian Cheung with Yahoo Finance. I just want to expand, I guess, on what you just said now about the general public feeling like you can get this done. You talk about consumer sentiment being down, also inflation expectations being up, recession just broadly being dinner table talk. Does the general feel among American households and also businesses square with your explanation of the economy, given that the description of inflation in the statement didn’t change between May and June? Thanks.
Answer: So, clearly, people don’t like inflation—a lot. And many people are experiencing it, really, for the first time, because we haven’t had anything like this kind of inflation in 40 years. And it’s really something people don’t like. And they’re experiencing that, and that’s showing up in their—in surveys and in all kinds of ways. And we understand that, and we understand the hardship that people are experiencing from high inflation, and we’re determined to do what we can to get inflation back down. So that’s really what we’re saying. We’re not—I’m not—clearly, it’s an incredibly unpopular thing, and it’s very painful for people. I guess what I’m saying is, the question, the really critical question from the perspective of doing our job is making sure that the public does have confidence that we have the tools and will use them and they do work to bring inflation back down over time. It will take some time, we think, to get inflation back down, but we will do that.

Question (Nancy Marshall-Genzer, Marketplace): Hi, Chair Powell. Nancy Marshall-Genzer with Marketplace. Do you still think a softish landing is possible, and how would you define that at this point considering the revised projections for unemployment, GDP, inflation?
Answer: So I think what’s in the SEP would certainly meet that test. If you see—you’re looking at getting back down to almost a 2 percent inflation by 2024, and the unemployment rate is still as low as 4.1 percent. That would be—I would call that as meeting that test. Do I still think that we can do that? I do. I think there’s—I think there’s—I don’t want to be the handicapper here. I just—that is our objective, and I do think it’s possible. Like I said, though, I think that events of the last few months have raised the degree of difficulty, created great challenges. And, again, the answer to the question, can we still do it—there’s a much bigger chance now that it’ll depend on factors that we don’t control, which is, fluctuations and spikes in commodity prices could wind up taking that option out of our hands. So we just don’t know, but we’re focused on—very, very focused on getting inflation back down to 2 percent, which we think is essential for the benefit of the public and also to put us on a path back to a sustainably strong labor market like the one we had before the pandemic.

Question (Evan Ryser, MNI): Evan Ryser, Market News International. Thank you, Chair Powell. I was wondering if the Fed has initiated a review of the conduct of monetary policy over the last two years or so, given the inflation, and will that be shared with the public? And then, secondly, given the illiquidity and the extraordinary volatility in financial markets, are you concerned that QT will make that worse?
Answer: So, of course, we’ve been looking very carefully and hard at why inflation picked up so much more than expected last year and why it proved so persistent. We— it’s hard to overstate the extent of interest we have in that question morning, noon, and night. But you have to understand the context. For—really, the context is this: For decades before the pandemic and the reopening, you had a world where inflation was dominated by disinflationary forces such as declining population or aging demographics, let’s call it that, globalization enabled by technology, other factors, low productivity. So and that’s how all the models work is, decades and decades of data—they look at that. It’s a very flat Philips curve world, and the supply shocks tend to be transient, right? So we have now experienced an extraordinary series of shocks, if you think about it: the pandemic, the response, the reopening, inflation, followed by the war in Ukraine, followed by shutdowns in China—the war in Ukraine potentially having effects for years here. So we’re aware that a different set of forces are driving the economy—we have been, obviously, for quite a while. But this is a different—these forces are different. Inflation is behaving differently, and, in our thinking, it really is a question of very strong demand. But you couldn’t get this kind of inflation without a change on the supply side, which is there for anybody to see, which is these blockages and shortages and people dropping out of the labor force and things like that. So that’s how we’re looking at it. And we’ve done a lot of work internally on, and thinking about, what all that means. You don’t—the thing is, you don’t know whether those forces are—to what extent are they going to be sustained? In other words, will we go back to a world where it looks a little more like the old world, or are we really going to be in a world where major supply shocks go on and on? The history is, you see these waves of supply shocks, as you did in the ’70s, and then they go away, and sort of there’s a “new normal,” and things settle down. But, honestly, we don’t know what that’s going to be. In the meantime, we have to find price stability in this new world and maximum employment in this new world where, clearly, inflationary forces are—you’re seeing them everywhere. Again, if you look around the world at where inflation levels are, it’s absolutely extraordinary. It’s not just here. In fact, we’re sort of in the middle of the pack, although I think we have, of course, a different kind of inflation than other people have, partly because our economy is stronger and more highly recovered. So that’s what we’re doing. We’ve done a lot of introspection and work on that and—sorry, on QT, we’ve communicated really clearly to the markets about what we’re going to do there. Markets seem to be okay with it. We’re phasing in—Treasury [security] issuance is down quite a lot, quite a lot from where it’s been, so I have no reason to think—markets are forward looking, and they see this coming. I have no reason to think it will lead to illiquidity and problems. It seems to be kind of understood and accepted at this point.

Question (Mark Hamrick, Bankrate): Mr. Chairman, Mark Hamrick with Bankrate. I wonder what your assessment is about the outlook for the housing market, given the years-long increase in home prices and now the sharp rise in mortgage rates. And all that, of course, given the heightened sensitivity around the housing market given the fact that it was a trigger for the great financial crisis over a decade ago. Thank you.
Answer: Sure. So rates were very low—a good place to start is that rates were very, very low for quite a while because of the pandemic and the need to do everything we could to support the economy when unemployment was 14 percent and the true unemployment rate was well higher than that. And that was a—rates are low, and now they’re coming back up to more normal, or above, levels. So, in the meantime, while rates were low and while demand was really high, obviously demand for housing changed from wanting to live in urban areas to some extent to living in single-family homes in the suburbs, famously. And so the demand was just suddenly much higher. And we saw prices moving up very, very strongly for the last couple of years. So that changes now, and rates have moved up—we’re well aware that mortgage rates have moved up a lot—and you’re seeing a changing housing market. We’re watching it to see what will happen. How much will it really affect residential investment? Not really sure. How much will it affect housing prices? Not really sure. It’s—I mean, obviously, we’re watching that quite carefully. You would think over time—I mean, so there’s a tremendous amount of supply in the housing market of unfinished homes, and as those come on line—whereas the supply of finished homes, inventory of finished homes that are for sale, is incredibly low, historically low. So it’s still a very tight market. So prices may keep going up for a while even in a world where rates are up. So it’s a complicated situation. We watch it very carefully. I would say if you’re a homebuyer, somebody or a young person looking to buy a home, you need a bit of a reset. We need to get back to a place where supply and demand are back together and where inflation is down low again and mortgage rates are low again. So this will be a process whereby we—ideally, we do our work in a way that the housing market settles in a new place and housing availability and credit availability are at appropriate levels. So thank you very much.