Federal Reserve press conference, 2022-03-16 — Chair Jerome Powell

Question (Howard Schneider, Reuters): So, in that context, what would trigger you to go faster or slower on the rate hikes? “Ongoing increases” doesn’t really tell us whether this is going to come in bigger chunks or evenly paced through the year.
Answer: So, you know, the way we’re thinking about this is that every meeting is a live meeting. And we’re going to be looking at evolving conditions. And if we do conclude that it would be appropriate to move more quickly to remove accommodation, then we’ll do so. I can’t be perfectly specific about it, but that’s certainly a possibility as we go through the year.

Question (Rachel Siegel, Washington Post): Thank you, Michelle. And thank you, Chair Powell, for taking our questions. I’m curious if you can be specific on when you expect to see inflation will start to come down, especially with the combination of rates going up, fiscal aid dissipating from the economy, and supply chains getting better? And if you don’t start to see that, how will you signal it? What will you be looking for? And what will you be looking for over the course of the year? Thank you.
Answer: So I guess I would say that at the—before the invasion of Ukraine by Russia—so let’s go back to that. I would have said that the expectation was that inflation would peak sometime in the first quarter, maybe the end of the first quarter of this year, and then maybe stay at that level or a little bit lower and then start to come down in the back half of the year. So now we’re, you know, we’re getting—we’re going—we’re already seeing a little bit of short- term upward pressure in inflation due to higher oil prices, natural gas [prices] a little bit but not so much for us since we have our own natural gas supply, other commodities prices. The other thing is that you’re seeing supply chain issues around shipping and around, you know, lots of countries and companies and people not wanting to touch Russian goods. So that’s going to mean more tangled supply chains. So that could actually push out [in time] the relief we were expecting on supply chains generally. So I guess I would say that the expectation is still that inflation will begin to come down in the second half of the year. But if you look at where I read the SEP headline median, we still expect inflation to be high this year, lower than last year, and then we expect—though, particularly with the effects of the war, but also the data we’ve seen so far this year—we expect inflation to remain high through the middle of the year, begin to come down, and then come down more sharply next year.

Question (Nick Timiraos, Wall Street Journal): Nick Timiraos of the Wall Street Journal. Chair Powell, over the last six months, the Fed has shifted its policy stance quite a bit. Six months ago, you were still buying assets. Most officials weren’t projecting any interest rate increases this year. And yet, despite the shift over the last six months, real rates are as negative today as they were then. So how concerned are you that further inflation surprises will offset the effects of recent policy firming by leading real rates to stay at levels that do not actually provide much restraint to the economy? Thanks.
Answer: So that’s one of many ways of capturing the situation, which is that we—the Committee really does understand that the time for rate increases and for shrinking the balance sheet has come. And I would just say, I would go back to “the economy is very strong,” as I mentioned. Tremendous momentum in the labor market. We expect growth to continue. As I—it’s clearly time to raise interest rates and begin the balance sheet shrinkage. And I just wanted to say that as I looked around the table at today’s meeting, I saw a Committee that’s acutely aware of the need to return the economy to price stability and [is] determined to use our tools to do exactly that. You couched it in terms of real rates. I would say, if you look at the SEP, you’ve got people getting close to or even above, in many cases, their estimate of the longer-run neutral rate. So I understand that doesn’t do it for real rates. But if you go out a year or two, many people are, in their forecasts, are having tight policy from a real interest rate standpoint. So that’s something that we’re focused on. Of course, it’s a highly uncertain environment. And, you know, we don’t know what’s going to happen. But we do know that we’re going to deploy our tools to achieve our goals—and that includes the price-stability goal.

Question (Victoria Guida, Politico): Hi, Chair Powell. So, looking at the Summary of Economic Projections, you all have inflation coming down over the course of the year to 4.3 percent. And then you also have rates going up to what appears to still be below roughly what would be estimated to be the neutral rate, although I know that’s a little bit uncertain. So I was just wondering, how much of inflation coming down do you see as actually being as a result of the Fed itself raising rates? And then also, if I could just ask, given that Sarah Bloom Raskin withdrew her nomination, what do you expect to do with the regulatory portfolio? Do you expect to assign a Governor in charge of that?
Answer: Okay. So part of inflation coming down at the very beginning is clearly to do with factors other than our policy, and those would include, potentially, the supply chain is getting a little bit better, certainly base effects. You’re lapping—as you know, when you look at a 12-month trailing window, you’re lapping very high inflation in March, April, May, June of last year. So there should be some effects from that in the 12-month picture. Really what we’re looking for, though, is month-by-month inflation coming down. And so it’s really, it’s all the things we’ve been talking about, you know, that really haven’t helped much, including the shift away from goods and back to services, including supply chains getting better, including labor force participation—all those things that have been sticky and not happening. But a big part of it is, though, is the base effects I mentioned as well. You know, I think monetary policy starts to bite on inflation, and on growth, with a lag, of course. And so you would see that more in ’23 and ’24. But also, remember we started talking about rate increases last year. For some months now, financial conditions have already incorporated a significant number of rate increases. So it doesn’t start today. The effect, the moves are already priced into the market for a few months now. So the clock is running on that, and I think some of that will be seen in the second half of the year as well. So on the regulatory portfolio, I would just say this. You know, we have an obligation to carry out under the law in supervision and regulation, and we’re doing that. That’s what we’re doing. The committee is not active. So what’s happening is, things are coming to the full Board, and we’re voting on them. We’re getting our business done. You know, we got the stress tests done. We’ve looked at, you know, a number of proposals for mergers and things like that. So we’re working ahead. Of course, we don’t have a Vice Chair for Supervision, as you mentioned. But we’re making do with the situation we have. And a good number of things have come straight to the Board for approval.

Question (Neil Irwin, Axios): Hi, Chair Powell. It’s Neil Irwin at Axios. Thanks for taking our questions. In the statement of economic projections, we see a forecast of median 1.9 percent fed funds rate at the end of the year, 2.8 end of next year. Wondered whether that aligns with your own expectations, in particular on that point of overshooting the long-term neutral rate. And, also, if you can tell us anything about how that might be paced: front-loaded, back-loaded. How high is the bar for doing 50 at one meeting?
Answer: So I don’t—Neil, I’ve never talked about my own SEP projection. It’s in there, but I, you know, I think Fed Chairs have generally not done that, because we just haven’t done it. It’s because we’re, you know, we have to put together the consensus on the Committee and present that consensus. So I wouldn’t talk about my individual one. And in terms of the pacing of it, I would just point out that that is—there’s seven remaining meetings this year. This isn’t something we discuss or debate or agree on. But there’s seven remaining meetings, and there’s seven rate hikes. I would add there’s also the shrinkage of the balance sheet, which, you people do the math different ways, but that might be the equivalent of another rate increase just from the runoff of the balance sheet. So I don’t—but I don’t know. We haven’t made any decisions on front-end loading or going steadily through the year. And, as I mentioned, you know, if you look at the SEP, a good number of participants do see more than seven or eight increases this year. And I can’t give you, I’m not going to try to give you a really specific test for what it would take to do that. But I will say this, that we’ll be looking at the data as they come in. We’ll be looking to see whether the data show expected improvement on inflation. We’ll be looking at the inflation outlook and making a judgement. And we’ll be going—each meeting is a live meeting. And if we conclude that it would be appropriate to raise interest rates more quickly, then we’ll do so.

Question (Edward Lawrence, Fox Business): Yes. Thank you, Chair Powell. Thank you, Michelle, for the question. I have a more basic question. The last time the CPI inflation—I know you look at PCE, but CPI inflation—was as high as it is was July of 1981, when the effective federal funds rate was 19.2 percent. But given the current data, how far behind the curve of inflation do you believe the Federal Reserve is, in your mind?
Answer: So I just would say a couple things. We have the tools that we need, and we’re going to use them. And, as you can see, we have a plan over the course of this year to raise interest rates steadily and also to run off the balance sheet. We will take the necessary steps to ensure that high inflation does not become entrenched, while also supporting a strong labor market. And, as I mentioned, if we conclude that it would be appropriate to move more quickly, we’ll do so. I’ll leave it to others to make the judgment you asked for.

Question (Colby Smith, Financial Times): Thank you, Michelle. Chair Powell, how concerned is the Committee about the notable pickup in services inflation, which is perhaps less likely to self-correct? And to what extent does it alter both the Committee’s confidence that long-term inflation expectations will not de-anchor in the coming months as well as the balance of risks that the Fed may need to raise interest rates further above neutral than indicated in the dot plot? Thank you.
Answer: Thank you. So, of course, that’s something we’re watching report by report. And we’re certainly, we noticed it in the last meeting. And it’s part of the overall picture. We have expected services inflation to move back up to where it was, and that’s part of what’s happening is, in the case of some services, prices are still getting back up to where they were before the crisis. In other cases, it’s pretty clear that inflation has spread more broadly across services. And, yes, that is concerning. In the meanwhile, we see some progress on the good side. But, really, in this latest report, it was confined to vehicles, which is, admittedly, a large category. So, you know, as I mentioned, the Committee acutely feels its obligation to move to make sure that we restore price stability and is determined to use its tools to do so.

Question (Steve Liesman, CNBC): Thank you. Mr. Chairman, I wonder if you can help me understand the kind of logic, if there is one, in the SEP here. As I look at the median forecast, for example, for unemployment, it runs for the three-year window below the long-run rate. I look at inflation being above, over the three-year window, the long-run—or call it the neutral—rate, so the economy still runs hot. And that is all true in a regime when you run at least for two years the funds rate above the long-run rate. I guess my question is this: Are you not create—giving a forecast here that essentially suggests you will be continuing to run further “behind the curve”—and never really get in front of inflation, because the economy will continue to run hot? And, kind of on a related issue: You said earlier [that] inflation will take longer to return to price stability than we had originally expected. Isn’t that a choice you’re making? And, if so, why are you making that choice to let inflation run above price stability longer than you’d like?
Answer: Right. So our, if you look, our—first of all, there is no—you’re looking at medians. But understand that there’s no, it’s not something we voted on. It’s not a plan. But if you look, people do have their in—by the end of this year, broadly, people are at or close to or, in some cases, above their estimates of longer-run neutral interest rate. Okay. So that should stop pushing—that should, in other words, that should be a removal of accommodation for monetary policy, basically. At the same time, we will have done significant balance sheet runoff. And you can think of that as further. In the next year, and just looking at the median, you’re now above the, you know, above the, what people estimate to be the longer-run median. And also, in many people’s forecasts, that actually amounts to, you know, tight policy under, in real rates as well. So why does unemployment remain at 3.5 percent? You know, it—I mean, a couple points. One is the connection between—in the economy we had before the pandemic, the connection between inflation and the level of the unemployment rate was not very tight. But this is—clearly, what this is is an expectation that, really it amounts to that, the idea that wage increases, which are now running above the level that would be consistent over the long run with 2 percent inflation, will move back down to levels which are still very attractive, full-economy kind of—full-employment kind of wages, but not to a point where they’re pushing up inflation anymore. And, as I mentioned, there are a lot of factors causing inflation to come down. And, you know, the reality is, there are many, many moving pieces, and we don’t know what will actually happen. But no matter what happens, this is a Committee that is determined to use its tools to make sure that higher inflation does not become entrenched. And so we are determined on that front, and we’ll deal with what comes. This is a modal, or most likely, expectation. But we’ll deal with what comes, whether it’s better or worse.

Question (Christopher Rugaber, Associated Press): Hi. Thank you. Well, let me follow up a bit on that. I mean, there are a lot of economists skeptical that you can reduce inflation as much as you’ve penciled in without raising the unemployment rate. And I’m wondering, just what are the mechanisms you see in reducing demand? I mean, outside housing and autos, how do higher fed [funds] rates reduce consumer demand unless it’s through higher unemployment? Thank you.
Answer: Well, if you take a look at today’s labor market, what you have is 1.7-plus job openings for every unemployed person. So that’s a very, very tight labor market— tight to an unhealthy level, I would say. So, in principle, if you were—let’s say that our tools work about as you described, and the idea is, we’re trying to better align demand and supply, let’s just say in the labor market. So it would actually, if you were just moving down the number of job openings so that they were more like one to one, you would have less upward pressure on wages. You would have a lot less of a labor shortage, which is going on pretty much across the economy. We’re hearing from companies that they can’t hire enough people. They’re having a hard time hiring. So that’s really the thinking there, is, you know, these are fairly well-understood channels, interest sensitive. And, basically, across the economy, we’d like to slow demand so that it’s better aligned with supply; give supply, at the same time, time to recover; and get into a better, you know, a better alignment of supply and demand. And that, over time, should bring inflation down. And I’ll say again, though, you know, we don’t have a perfect crystal ball about the future, and we’re prepared to use our tools as needed to restore price stability. You know, as I mentioned in my opening remarks, without price stability, there—you really can’t have a sustained period of maximum employment. It’s our—one of our most fundamental obligations is to maintain and restore, in this case, price stability. So we’re very committed to that. Of course, the plan is to restore price stability while also sustaining a strong labor market. That is our intention, and we believe we can do that. But we have to restore price stability.

Question (Richard Miller, Bloomberg): When you say “move to a more normal setting” for financial conditions, that suggests to me that you want financial conditions to tighten further from where we are now. Am I drawing the right inference from that?
Answer: Well, yes. So I would say, we look at a broad range of financial conditions. And, of course, when we tighten monetary policy, we do expect that they will adjust in sync over time with monetary policy. It’s not any particular financial condition, but a broad range of financial conditions. They will reflect to some extent—they reflect any number of things. But, yes, we need our policy to transmit to the real economy. And it does so through financial conditions, which means that, as we tighten policy or remove accommodation so that it’s at least less accommodative, that broader financial conditions will also be less accommodative.

Question (Jean Yung, MNI): Hi, Chair Powell. I wanted to ask about the balance sheet discussion you had at this meeting. Can you give us any more details? Did you discuss whether to cap runoffs or whether to increase those caps over what period, if there were any details?
Answer: Yes. Thank you for asking. So, at our meeting today and yesterday, we made excellent progress toward agreeing on the parameters of a plan to shrink the balance sheet. And I’d say we’re now in a position to finalize and implement that plan so that we’ll actually begin a runoff at a coming meeting. And that could come as soon as our next meeting in May. That’s not a decision that we’ve made. But I would say that that’s how well our discussions went in the last two days. So a couple things just to add. We’ll be mindful of the broader financial and economic context when we make the decision on timing, and we always want to use our tools to support macroeconomic and financial stability. We want to avoid adding uncertainty to what’s a highly uncertain situation already. So all of that will go into the thinking of the timing around this. In terms of the—I would say this. I don’t want to get too much into the details, because we’re literally just finalizing them. But the framework is going to look very familiar to people who are familiar with the last time we did this. But it’ll be faster than the last time. And, of course, it’s much sooner in a cycle than last time. But it will look familiar to you. And I would also say that there’ll be—I’m sure there’ll be a more detailed discussion of our—in the minutes to our meeting that come out in three weeks, where I expect that it will lay out, you know, pretty much the parameters of what we’re looking at, which I think will look quite familiar.

Question (Michael McKee, Bloomberg): If I could follow up by asking—I guess what you’d call it is the “Paul Volcker” question: You don’t think unemployment is going to rise significantly, but, if it does, does that temper your desire to keep raising rates?
Answer: The goal, of course, is to restore price stability while also sustaining a strong labor market. We have a dual mandate, and they’re sort of equal. But, as I said earlier, you know, price stability is an essential goal. In fact, it’s a precondition, really, for achieving the kind of labor market that we want, which is a strong and sustained labor market. We saw the benefits of a long expansion, a sustained labor market. It pulled people back in, and there were really no imbalances in the economy that threatened the long expansion. It, just, the pandemic arrived; it was just a completely exogenous event. So that’s how we’re thinking about it. We, of course, want to achieve, you know, price stability with a strong labor market. But we do understand also that, really, you can’t have maximum employment for any sustained period without price stability. So we need to focus on price stability particularly, because the labor market is so strong and the economy is so strong. We feel like the economy can handle tighter monetary policy.

Question (Brian Cheung, Yahoo): Hi, Chair Powell. Hopefully no tech issues here on this front. Wanted to ask just kind of the broad question about how you are communicating what the Fed’s doing here today to the average American who might not be reading the dot plots or understanding what the SEP is. How is the 25 basis point hike today and then the signaling on future Fed policy going to address the inflation that they’re feeling at the stores on a daily basis?
Answer: Sure. So I guess I’d start by just assuring everyone that we’re fully committed to bringing inflation back down and also sustaining the economic expansion. We do understand that these higher prices, no matter what the source, have real effects on people’s well- being. And, really, high inflation takes a toll on everyone. But it’s really, especially, on people who use most of their income to buy essentials like food, housing, and transportation, where—I mean, we’ve all seen charts that show, if you’re a middle-income person, you’ve got room to absorb some inflation. If you’re at the lower end of the income spectrum, it’s very hard because you’re spending most of your money already on necessities, and the price is going up. But it’s punishing for everyone. So it has been a difficult time for the economy. But we do anticipate that inflation will move back down, as I mentioned earlier. It may take longer than we like, but I’m confident that we’ll use our tools to bring inflation down. You asked about rates. So the way that works, I would explain, is, as we raise interest rates, that should gradually slow down demand for the interest-sensitive parts of the economy. And so what we would see is demand slowing down, but just enough so that it’s better matched with supply. And that brings—that will bring inflation down over time. That’s our plan.

Question (Jo Ling Kent, NBC News): And as a quick follow-up to that, you know, obviously, the Federal Reserve walking this very complicated fine line, trying to avoid a recession. For the consumers out there who are worried about their jobs in a possible recession, what do you say to that?
Answer: Well, I, you know, I say that our intention is to bring inflation back down to 2 percent, while still sustaining a strong labor market and that the economy is very strong. If you look at where forecasts are, people are forecasting growth that’s strong within the context of U.S. potential economic output. So—and we expect that to continue. And to the extent the data come in different, then, of course, our policy will adapt. But we do believe that our policy is the appropriate one for this forecast, and we believe that we can bring down inflation. We believe that we can do so while sustaining a strong labor market. The labor market is—it’s not strong in the ordinary sense of the word. We have not seen a labor market where there are 1.7 job openings for every unemployed person or where there, if you add job openings to those who are employed, that’s actually substantially a larger number than the size of the workforce, than the number of people who actually count themselves as in the workforce. So this is a situation where demand is higher than supply. And when that happens, prices go up. And they—so we need to use our tools to move supply and demand back. And we don’t think we need to do this alone. There will be other factors helping that happen. But we certainly are prepared to use our tools—and we will.

Question (Nancy Marshall-Genzer, Marketplace): Hi, Chair Powell. Thanks for taking the question. You’ve been talking a lot about rising wages, which, on the one hand, is a great thing, but are we possibly seeing the beginning of a wage–price spiral?
Answer: So the way I would say it is this: We, first of all, I would agree with the premise that wages moving up is a great thing. You know, that’s how the standard of living rises over time. And, generally, it’s driven over long periods by rising productivity. But what we have now, if you look at these, the wage increases that we have, we look at a—we’re blessed with a range of measures of wages that all measure different things. But right now, they’re all showing the same thing, which is that the increases—not the levels, but the increases—are running at levels that are well above what would be consistent with 2 percent inflation, our goal, over time. And that may be—we don’t know how persistent that phenomenon will be. It’s very hard to say. And that’s really, I think, the sense of your question about a wage–price spiral; is that something that’s going to start happening and become entrenched in the system? We don’t see that. You can see, for example, in some sectors that got very high wage increases early on, those wage increases looked like they may have slowed down to a normal level. But it comes back to, you know, what I’m saying here—which is, there’s a misalignment of demand and supply, particularly in the labor market. And that is leading to wages moving up at ways that are not consistent with 2 percent inflation over time. And so we need to use our tools to, you know, guide inflation back down to 2 percent. And that would be in the context of an extraordinarily strong labor market. We think this labor market can handle, as I mentioned, tighter monetary policy. And the overall economy can as well. But, yes, wages are moving up faster than is consistent with 2 percent inflation, but it’s good to see that moving up. But it wouldn’t be sustainable over too long of a period to see them moving up that much higher. And that’s because of this misalignment between supply and demand. We expect to get more labor supply. We did last time. We got more than we expected during the last cycle. This time, we’ve gotten much less than expected. So it’s not easy to predict these things. But we do expect that we’ll get people coming back in the labor market, particularly as COVID becomes less and less of a factor in many people’s lives, something we all wish. But, so that’s how we think about it.

Question (Don Lee, Los Angeles Times): Hi, Chair Powell. I think you said to the Senate earlier this month that, in hindsight, the Fed should have moved earlier. And it sounds like today that you don’t think that the Fed is late. And, just wanted to get your clarification on that. And if it is, if you still think that the Fed is “behind the curve,” how much “behind the curve” is it?
Answer: Right. So we are not—we don’t have the luxury of 20/20 hindsight in actually implementing real-time decisions in the world. So, you know, so the question is—the right question is, did you make the right decisions based on what you knew at the time? But that’s not the question I was answering, which is knowing what you know now. So I think if we knew now—of course, if we knew now that these supply blockages, really, and the inflation resulting from them in collision with, you know, very strong demand, if we knew that that was what was going to happen, then in hindsight, yes. It would have been appropriate to move earlier. Obviously, it would be. But, again, we don’t have that luxury. And then, so, but that’s a separate question from your other question, which is “behind the curve.” And, you know, I don’t have the luxury of looking at it that way. You know, we are, we have our tools—powerful tools—and the Committee is very focused on using them. We’re acutely aware of the need to restore price stability while keeping a strong labor market. And what I saw today was a Committee that is strongly committed to achieving price stability, in particular, and prepared to use our tools to do that. We’re not going to let high inflation become entrenched. The costs of that would be too high. And we’re not going to wait so long that we have to do that. No one wants to have to really put restrictive monetary policy on, in order to get inflation back down. So, frankly, the need is one of getting back up, getting rates back up to more neutral levels as quickly as we practicably can and then moving beyond that, if that turns out to be appropriate. And, as you can see, it is appropriate in the sense that, [in] people’s [contributions to the] SEPs, they do write down levels of interest rates that are above their estimate of the longer-run neutral rate. And there’s also a range of estimates, too, as you will see if you look at the details of the SEP. But thanks for your question.