Federal Reserve press conference, 2024-06-12 — Chair Jerome Powell

Question (Steve Liesman, CNBC): Thank you, Mr. Chairman. Steve Liesman, CNBC. Just wondering if you could walk me through the Committee’s average inflation forecast—core PCE is now forecast to be 2.8 percent by the year-end. It’s already 2.75, and after today’s number, there were several forecasts on the street that it would be 2.6 at the end of this month. Does that tell you that the average official expects no further progress in inflation and, in fact, that it’s going to get worse? And if you have this wrong, doesn’t it mean that you sort of—you, you could have wrong the outlook for rates there?
Answer: Yeah. So what’s going on there is that we had very low readings in the second half of last year—June through December, really. And we’re now lapping those. So as you go through the 12-month window, a very low reading drops out, and a new reading comes in. The new reading gets added to the 12-month window. So it’s just a, a slight element of conservativism that we’re, we’re assuming a certain level of—of, you know, incoming monthly PCE and core PCE numbers. We’re assuming, you know, good, but not great, numbers. And if you put that on top of where we are now, you get a very slight increase in the 12-month—in the 12-month, you know, reading. Now, do we have high confidence that that’s right? No. It’s just the kind of conservative way for forecasting things. If we were to get more readings like today’s reading, then, of course, that wouldn’t be the case. So it’s just a forecasting device. I think, I think—let me say that we welcome today’s reading and then hope for more like that.

Question (Steve Liesman, CNBC): But if it comes in—just to follow up—if it comes in the way you forecast it, it would seem strange for you to be cutting rates at all in context of a rising core PCE. Thank you.
Answer: Yeah—no. I mean, I think we’ve, we’ve—what we said is that we don’t think it’ll be appropriate to, to reduce rates and begin to loosen policy until we have more confidence that inflation is moving back down to 2 percent on a—on a sustainable basis. And that’s the—that’s the test we’ve applied. I don’t know that—I think if we—I don’t know that this rules that in or out. I mean, really, it’s, it’s a forecast—a fairly conservative forecast month by month that would lead to slightly higher, you know, 12-months rates by the end of the year. If we get, you know, good—better readings than that, then you will see that come down or, or remain the same. If you’re at 2.6, 2.7 [percent], you know, that’s, that’s a really good place to be.

Question (Nick Timiraos, Wall Street Journal): And if I could quickly follow up—did, did you or any of your colleagues change your interest rate projections after 8:30 or whenever you got the inflation numbers today?
Answer: So we—this happens too often, but it, it does happen. It just is, you know—data came—I think it happened a couple of meetings ago—a few meetings ago. So when that happens—when there’s an important data print during the meeting, first day or second day— what we do is, we, we make sure people remember that they have the ability to update. We tell them how to do that. And, and some people do; some people don’t. Most, most people don’t. But I’m not going to get into the specifics, but you have the ability to do that. So that, you know—what’s in the SEP actually does reflect the data that we got today to the extent you can, you know, reflect it in one day. I think we’ll, you know—you will see PPI tomorrow. We’ll know more about the PCE [inflation] reading as the month goes on. But the initial CPI reading and its, you know, kind of first-level translation to, to PCE [inflation] we did have this morning. We were briefed about it, and people were able to consider whether they should make changes. And, as I said, you know, some people generally do, but most people generally don’t.

Question (Jonnelle Marte, Bloomberg): Hi, Chair Powell. Jonnelle Marte from Bloomberg. As you noted, the labor market is now in many ways back to where it was before the pandemic. I wondered if you could comment on how officials are viewing that. So do you think that there still needs to be more cooling in the labor market to bring inflation all the way down to 2 percent, or is there any sense that maybe the labor market is more vulnerable now to higher rates now that many of those imbalances have eased?
Answer: Sure. So by, by so many measures, the labor market was, was kind of overheated two years ago. And we’ve seen it gradually move back into much better balance between supply and demand. So, what have we seen? We’ve seen labor force supply come up quite a bit through immigration and through recovering participation. That’s ongoing, mostly now through the immigration channel. But still, we’ve had some increases in prime-age labor force. In terms of on the demand side, you know, we’ve seen—well, we’ve seen quits moving down. We’ve seen job openings moving down. We’ve seen wage increases moving from very, very high levels a couple of years ago back down to more sustainable levels. We have seen unemployment creep up now sixth-tenths over the course of, of a year or so very, very gradually. So you put all that together—what you have is still-low unemployment, still 4 percent unemployment—historically low. But it’s moved up a little bit—it’s softened a bit—and, and, you know, that’s an important statistic. But, but more than that, you’ve got strong job creation. You, you have payroll jobs still coming in strong, even though, you know, there’s an argument that they may be a bit overstated but still they’re, they’re still—they’re strong. So that’s what we see. We, we watch the labor market, of course, and the economy as a whole—but the labor market very carefully—and that’s what we see. We see gradual cooling—gradual moving toward better balance. We’re monitoring it carefully for signs of, of something more than that, but we really don’t see that.

Question (Jonnelle Marte, Bloomberg): As a quick follow-up—the surveys that make up the jobs report are, are showing different tales. There’s been some divergence, especially, we saw, in the last report that we got on Friday. So how do you interpret that, and, and how does it change your view on the labor market?
Answer: So sometimes it’s—you can’t reconcile the differences. You just have to, have to—have to look at it and, and try to understand. And that’s why it always makes sense to look at a series, you know, in 6—in 3, 6, and 12 months of things rather than just one report. But you’re right to point to the last report, where it was your—job losses in the household survey—job gains, big job gains in the establishment survey. So, I mean, we’re left with ambiguous results, and we have to deal with that uncertainty around data. Nonetheless, the overall picture is one of a strong and gradually cooling—gradually rebalancing labor market. Job openings, while they’ve come way down, are still, you know, greater than the number of unemployed people. The jobs–workers gap is still a significantly positive number—greater than it was before the pandemic. So, overall, we’re looking at what is still a very strong labor market but not the superheated labor market of two years ago or even one year ago.

Question (Jeanna Smialek, New York Times): Jeanna Smialek, New York Times. Thanks for taking our questions. In the Summary of Economic Projections, the long-run interest rate forecast moved up a bit. I wonder if we should read that as a sign that you think that policy is not sort of as restrictive as we’ve previously expected. You know, how should we interpret what that means about how the Committee views its current policy setting?
Answer: So two things about that—one, one is this—you’re right, it did move up. But, but I want to remember to point out that the long-run neutral rate of interest is, is a long-run concept. It, it really is a theoretical concept—can’t be directly observed. And what it is is the, the interest rate that would hold the economy at equilibrium—maximum employment and price stability—potentially, potentially years in the future where there are no shocks. So it’s— it’s a little bit—it’s not something we observe today. Today we’ve got a very specific economy with all kinds of shocks we’re still getting over from the pandemic. So it’s—I, I don’t think that the, the concept of r-star—it’s a very important concept in economics and in what we do. But, honestly, it doesn’t really get you where you need to be to think about what appropriate policy is in the near term. But I, I—back to your original question, people have been gradually writing it up because I just think people are coming to the view that rates aren’t—are less likely to go down to their, their pre-pandemic levels, which were, you know, very low by recent history measures. Now, we, we can’t really know that. That’s, that’s an interesting dispute and discussion to have now, but, ultimately, we think that things like the neutral rate are driven by longer-run, slow-moving forces. And, you know, there’s a really good question about whether, whether those really have changed or whether, instead, rates and the economy are experiencing a, a series of persistent but, ultimately, temporary shocks. That’s been the debate, and we can’t know. But in the meantime, we’re making policy with the economy that we have—with the distortions that we have. And I, I also—to your other point, I, I think it is—it is the case that as time has gone by, the question of “How restrictive is policy?” has become one that everyone’s asking, and we’re asking it, too. And, you know, my answer has been that policy is restrictive. The question of whether it’s sufficiently restrictive is going to be one we, we know over time. But I think for the reasons I’ve talked about at the last press conference and, and other places, I think the evidence is pretty clear that policy is restrictive and is having, you know, the effects that we would hope for.

Question (Howard Schneider, Reuters): Thanks, Chair Powell. Howard Schneider, with Reuters. Just to—just to carry that a little further, should we read this as a conclusion that the combination of tipping to one cut this year and acknowledging further progress on inflation as kind of a mark to market on the level of restrictiveness that you need—that you, in fact, have concluded that you weren’t quite there yet?
Answer: I’d be reluctant to try to draw that conclusion. I, I think this is about, you know, looking at the incoming data and asking, “How much progress are we making on inflation, and how is the rest of the economy doing? Is the labor market still strong?” That’s what we’re thinking about. You know, you can—you can translate it into the—into the language you’re talking about, but, to me, the focus is more on, we have a goal, which is price stability, and another goal, which is maximum employment. How are we doing there? We think we’ve got a good, strong labor market still. We think we’ve been making progress toward the price- stability goal. And then for a while, there was a pause. And we look at today’s thing, and we think, “Well, that’s a good reading, and we hope we get more like that.” And, you know, in the meantime, we’re asking, “Is our policy stance about right?” And I think we think, “Yes, it’s about right.” We’re prepared to adjust that as appropriate, but we think—we think we’re getting the things that we would want to get, broadly speaking. And that’s why we’ve been at this policy rate now for almost a year.

Question (Michael McKee, Bloomberg): But, to follow up: Is there any kind of concern for the housing industry or financial stability—banks—in leaving rates where they are for too long at this point?
Answer: On housing—you know, the housing situation is a complicated one. And you can see that’s a place where rates are really having, having a significant effect. I mean, ultimately, the best thing we can do for the housing market is to bring inflation down so that we can bring rates down so that the housing market can continue to normalize. There will still be a national housing shortage, as there was before the pandemic. There will still be one, but the distortions that we see now with lock-ins and things like that—you know, low mortgages—in terms of banks, the banking system has been, you know, solid, strong, well capitalized. Lending—you know, we’ve seen good performance by the banks. We had the turmoil earlier last year, but, you know, banks have been focusing on bringing up their liquidity, bringing up their capital, and having a risk—risk-management plans in place. So the banking system, you know, seems to be—seems to be in good shape.

Question (Christopher Rugaber, Associated Press): Thanks. Chris Rugaber at Associated Press. I was wondering if we can read—on inflation, if you can tell us a little more about where you see inflationary pressure in the economy. You mentioned labor markets coming into better balance, and inflation expectations appear to be well anchored. You’re seeing, you know, anecdotal stories of, the large chains like Walmart and Target are announcing price cuts—McDonald’s announcing a $5 meal deal. So people may still be unhappy about prices at the grocery store, but it doesn’t seem like there’s a lot of inflationary pressure left in this economy—and wonder if you could tell us more about that.
Answer: So I, I think it’s true that housing—that inflationary pressures have come down. But we still have—we’re still getting high inflation readings. So, you know—and I think you can see it in, in various places in—you know, in some parts of, of nonhousing services. You see elevated inflation still—and that’s probably to do with—it could be to do with wages. Goods prices have kind of fluctuated. There’s been a surprising increase in, in import prices on goods, which is kind of hard to understand. And, you know, may, may—we’ve taken some signal from that, but, you know—and, and, of course, housing services. You’re seeing—you’re continuing to see high readings there to some extent. That’s, that’s, you know, catch-up inflation from earlier pressures. But, I mean, overall, you’re right. Inflationary pressures have come down. As I mentioned, the labor market has come into better balance. Wages are still running, you know, I would say, above a, a sustainable path, which would be that of trend inflation and trend productivity. You’re still seeing wage increases moving above that. We, we haven’t thought of wages as being the principal, you know, cause of inflation. But at the same time, getting back to 2 percent inflation is likely to require a return to a more sustainable level, which is somewhat below the current level of increases in the aggregate.

Question (Rachel Siegel, Washington Post): Hi, Chair Powell. Rachel Siegel from the Washington Post. Thanks for taking our questions. There’s obviously a lot of focus on how many cuts could be expected this year. But can you give us a sense of what one cut by the end of the year would actually do to the economy—what you think would be a meaningful difference if there was a cut by the end of the year or even two?
Answer: I think if, you know—if you look back in 5 or 10 years and, and try to pull out the significance to the U.S. economy of one 25 basis point rate cut, you’d, you’d have quite a job on your hands. So that’s not how we look at it—you know, really, the whole rate path matters. And I, I do continue to think that when—you know, when we do start to loosen policy, that will show up in a significant loosening in financial market conditions. And the market will price in what it prices in. I don’t—I have no way of saying—we’re, we’re not at that stage, so I don’t know what we’ll be thinking about at that time. But it’s a consequential decision for the economy. And, you know, you want to—you want to get it right. And, fortunately, we have a strong economy, and we, we have the ability to, you know, approach this question carefully. And we will approach it carefully while we’re very much keeping an eye on, you know, downside economic risks, should they—should they emerge.

Question (Jo Ling Kent, CBS News): As just a quick follow-up here—you’ve indicated one interest rate cut sometime this year. And I know you don’t have a crystal ball up there, but a lot of people are watching and see, you know, borrowing money remains very expensive. For everybody who’s out there waiting on a rate cut, about when can consumers expect some relief?
Answer: Well, you know, I, I don’t have a precise date for you. But what we said is that we, we want to make sure that we’re confident that inflation is actually moving back down to 2 percent. And when we are, then we can look at loosening policy. So having that kind of confidence that inflation will be at 2 percent just—it just pays benefits to the whole economy, to all Americans, for a long period of time. We had that period for a very long time. We very much want to get back to a place where people can, can not think about inflation—it’s just not a concern in the everyday economic decisions that they make. We were there for a long time, and our goal is to get back to that place. And we’ve made good progress, and we’re just—we’re in the phase now of just, you know, sticking with it until we get it done.

Question (Edward Lawrence, Fox Business): Edward Lawrence, with Fox Business. Thank you for taking the question, Chair Powell. So I want to go back to jobs and the consumer. The last jobs report showed that over the past year, 634,000 more people took multiple jobs. That’s up 8.2 percent. And since January of 2021, we’ve seen prices rise 19 percent. So people are using their credit cards to pay for their lifestyle. What pressure points will signal to you that the slowing economy could maybe break companies in terms of hiring or break the consumer in terms of spending?
Answer: So, you know, we monitor all the things you mentioned and more. You know, what we’re seeing is, basically, spending was going up faster than disposable income during big parts of next year, so—last year, rather—and so what that—you’d expect to see is people spending more on their credit cards. That—that has been happening. Credit card balances have been going up. Credit card defaults have been going up. They’re not at high levels. Remember that after the pandemic, people were cooped up. They couldn’t spend money. They couldn’t go out to spend money; they could spend money from home. But households were in very, very strong—historically strong—financial shape. They’ve now worked off a lot of that. So we’re, we’re watching that carefully. And, you know, what do we see? That’s what we see. We, we see the same data that everybody else sees, but you’ve still got a household sector that’s in—that’s in pretty good shape. You know—but, nonetheless, it’s not in the kind of shape it was in a year or two ago. And we’re, you know—we’re carefully watching that.

Question (Victoria Guida, Politico): Hi. Victoria Guida with Politico. You’ve mentioned that unexpected weakening in the labor market would, would bring rate cuts sooner. And I was just wondering—can you talk a little bit about what that would look like? Is it more of, like, a quicker pace of people losing jobs? Is it more the level of the unemployment rate if it were to start to go above 4.2 or something like that? How are you thinking about what you’re looking for to see the job market unexpectedly weaken?
Answer: You know—you know, when I say “unexpectedly,” the first thing is more than, kind of, is in our forecast or in common forecasts—so, something more than that. But we’ll be looking at everything. You know, we’ll—the, the labor market, you know, has the ability—has, has the tendency sometimes to, to weaken quickly. So waiting for that to happen is, is not what we’re doing. You know, we’re watching very carefully; we’re looking at the balance of risks. I always point out the balance of risks, so—and, and also the fact that we look at, at all of it—the whole situation. So, you know, a decision to begin to—you know, to loosen policy could have several reasons associated with it at a given time. But I, you know, I would just— you know, we monitor all the—all the labor market data. And if we saw troubling—weakening more than—more than expected, then that would be something we’d consider responding to. But we’d look at the—we look at the broader context of what’s going on, too.

Question (Simon Rabinovitch, The Economist): Thank you, Chair Powell. Simon Rabinovitch with the Economist. May I ask—you mentioned, with the slightly higher PCE [inflation] readings earlier this year, that it wasn’t one or two months but three months that tipped you to be a bit more cautious in the rate outlook. Should we take from that that—you know, it looks like May will be quite good for PCE [inflation], as it was for CPI—does that imply that kind of two more good months would reinstill the confidence that rate cuts could be coming sooner than you currently project?
Answer: You know, I, I don’t actually have that kind of mechanical thing in, in my thinking. I, I get that, you know—as many good ones as we had bad ones—but it’s not like that. It’s the whole. It’s going to be the totality of the data—[including] labor market data, the growth data. In terms of inflation, you know, you’d, you’d want to see real progress that builds your confidence that we’re—that we are on a path down to 2 percent. And I, I don’t want to try to give you specific numbers of things, because that points to dates, and I, I just don’t think—we’re not at a point of being able to do that.

Question (Kosuke Takami, Nikkei): Thank you for doing this. I, I am Kosuke Takami, with Nikkei. I would like to know about the impact of a stronger dollar on U.S. economic growth and prices. And I have no doubt that markets should determine the exchange rate, but in—Japan and some emerging markets are suffering from the strong dollar. So I want to know if it is having a positive impact on U.S. economy in total? Thank you.
Answer: So we don’t—actually, it’s our—it’s our finance ministry, the Treasury Department, that has a responsibility for thinking about and, and, if it sees fit, doing things about the level of the dollar. So for us, it’s just another financial variable. And you’re right—the dollar has been—has exhibited, exhibited some strength over the course of the last year or so because the U.S. economy is very strong. We don’t think of it as benefiting or hurting the U.S. We don’t—again, we don’t manage the level of the dollar. That’s, that’s not our— that’s not our job. It’s not. You know—and for, for our economy, what, you know, we’re trying to foster is maximum employment and price stability. And we feel like we’ve made good progress on, on both of those goals over the course of the past year.

Question (Jennifer Schonberger, Yahoo Finance): Thank you, Chair Powell. Jennifer Schonberger, with Yahoo Finance. You said you would cut rates before inflation falls to 2 percent. You’re forecasting inflation to end the year at 2.8 percent on core PCE. We’re at 2.8 percent, of course, on core PCE. Right now, you said the inflation forecast is conservative and that if you got to 2.6 to 2.7 [percent] on PCE [inflation], that would be a good place to be. You also indicated the job market has mostly normalized. So why not cut rates this summer just once—you’re well above neutral—to try to preserve the soft landing rather than risking waiting too long in the quest for confidence for inflation?
Answer: You know—so we are—we’re well aware of the two-sided risks here, let me just say. We, we understand that if we wait too long, that could come at the cost of economic activity, of employment, of the expansion. We understand that if we move too, too quickly, we could end up undoing a lot of the good that we’ve done and have to then start over, and it could be very disruptive. So we’re, we’re extremely aware of both of those risks and, and just basically trying to manage them. And what we said is that we’ll—that we’re—we don’t think it’ll be appropriate to, to begin to loosen policy until we’re more confident that inflation is moving down to 2 percent over time on a sustainable basis. That’s—that’s kind of been our test. Or there’s another test, which is, you know, an unexpected deterioration in labor market conditions. So I think that’s, that’s the right way for us to think about it. That’s our—that’s our dual mandate there. And, you know, we, we have a strong economy. We’ve got growth—all forecasts are very commonly around 2 percent. That’s a—that’s a strong growth rate for our economy. The labor market continues to print jobs at a pretty high rate. Unemployment is still low. So we have the ability now to approach this question carefully, and that’s, that’s what we’re doing.

Question (Jennifer Schonberger, Yahoo Finance): And just to follow, Chair Powell—do you need to be ahead of a weakening in the labor market? Otherwise, is it too late, given that the labor market is a lagging indicator—right?—when you look at the monthly jobs data?
Answer: Yeah, we, we completely understand that that’s the risk. And that’s, that’s not what we’re—that’s not our plan is to wait for things to break and then try to fix them. We’re, we’re trying to balance these two goals in a way that is consistent with our framework, and we think we’re doing that.

Question (Nancy Marshall-Genzer, Marketplace): Hi, Chair Powell. Nancy Marshall-Genzer, with Marketplace. Just one more question on housing—can you still cut rates with shelter prices high, or will you wait until they start to moderate a bit?
Answer: I wouldn’t—there isn’t any one thing—one variable, like housing prices moderating, that would really decide or decide against what we’re doing. We’ve got an overall test, which is greater confidence that inflation is moving down to 2 percent on a sustainable basis. That’s our overall test. Or, alternatively, we see unexpected weakening in the labor market. So those are—those are two different tests. I would say, you know, we’re not— we’re not looking at any one price in any one sector and saying, “That’s the one.” We don’t target housing prices, for example. And we don’t target wages. We, we target aggregate prices and overall employment, so—

Question (Nancy Marshall-Genzer, Marketplace): But if housing prices remain sticky, could that slow down the pace of rate cuts?
Answer: I think you’d look at the over—we’d be looking at the aggregate numbers and, and asking ourselves, “What’s going on here with inflation in the—at the aggregate level?” And, you know—and, of course, if, if—any price that contributed to ongoing inflation would, would matter. Any price that contributed to ongoing disinflation would matter, too, but I wouldn’t single out housing as having a, a special role there. Thank you very much.