Federal Reserve press conference, 2024-05-01 — Chair Jerome Powell

Question (Howard Schneider, Reuters): Thank you. Howard Schneider with Reuters. A question and follow-up if I could, do you consider the current policy rate still—are you confident that it’s sufficiently restrictive to get inflation back to 2 percent?
Answer: So I do think the evidence shows, you know, pretty clearly that policy is restrictive and is weighing on demand, and there are a few places I would point to for that. You can start with the labor market. So demand is still strong—the demand side of the labor market, in particular—but it’s cooled from its extremely high level of a couple years ago, and you see that in job openings. You saw it—more evidence of that today in the JOLTS report, as you’ll know. It’s still higher than pre-pandemic. But it has been coming down both in the Indeed report and the JOLTS report. That’s, that’s demand cooling. The same is true of quits and hiring rates, which have essentially normalized. I also look at the—we look at surveys of workers and—pardon me—surveys of workers and businesses, and [they] ask workers, “Are jobs plentiful?” and ask businesses, “Are workers plentiful? Is it easy to find workers?” And you’ve seen that the answers to those have come back down to pre-pandemic levels. You also see in interest-sensitive spending, like housing and investment—you also see that higher interest rates are weighing on those activities. So I do think it’s clear that, that policy is restrictive.

Question (Howard Schneider, Reuters): Sufficiently restrictive, I guess.
Answer: So I would say that we believe it is restrictive, and we believe [that] over time it will be sufficiently restrictive. That will be a question that, that the data will have to answer.

Question (Howard Schneider, Reuters): So as a follow-up, if inflation continues running roughly sideways as it has been, the job market stays reasonably strong, unemployment low, and expectations are anchored and maintained, would you disrupt that for— Stable, roughly. Would you disrupt that for the last half point on PCE?
Answer: You know, I don’t want to get into complicated hypotheticals. But I would say that, you know, we’re committed to retaining our current restrictive stance of policy for as long as is appropriate. And we’ll do that.

Question (Jeanna Smialek, New York Times): Thanks for taking our questions, Chair Powell. I wonder—you know, obviously Michelle Bowman has been saying that there is a risk that rates may need to increase further, although it’s not her baseline outlook. I wonder if you see that as a risk as well, and, if so, what change in conditions would merit considering raising rates at this point?
Answer: So I think it’s unlikely that the next policy rate move will be a hike. I’d say it’s unlikely. You know, our policy focus is really what I just mentioned, which is— which is how long to keep policy restrictive. You ask, what would it take? You know, I think we’d need to see persuasive evidence that our policy stance is not sufficiently restrictive to bring inflation sustainably down to 2 percent over time. That’s not—that’s not what we think we’re seeing, as I—as I mentioned, but that’s—something like that is what it would take. We’d look at the totality of the data in answer to that question. That would include inflation, inflation expectations, and all the other data too.

Question (Jeanna Smialek, New York Times): Would that be—would that be a reacceleration in inflation?
Answer: Well, I think, again, the test—what I’m saying is, if we were to come to that conclusion that policy weren’t tight enough to achieve that, so it would be the totality of all the things we’d be looking at. It could be expectations. It could be a combination of things. But, if we—if we reach that conclusion—and we don’t see evidence supporting that conclusion—that’s what it would take I think for us to take that step.

Question (Christopher Rugaber, Associated Press): Thank you, Chris Rugaber at Associated Press. You didn’t mention the idea that rates are at a peak for the cycle and didn’t mention the idea that it might be appropriate to cut rates later this year as you have in previous press conferences. So has the Fed sort of dropped its easing bias? Where are you standing on that?
Answer: So, on—let me address cuts. So, obviously, our decisions that we make on our policy rate are going to depend on the incoming data, how the outlook is evolving, and the balance of risks, as always. And we’ll look at the totality of the data. So I think, and we think, that policy is well positioned to address different paths that the economy might take. And we’ve said that we don’t think it would be appropriate to dial back our restrictive policy stance until we’ve gained greater confidence that inflation is moving down sustainably toward 2 percent. So, for example, let me take a path: If we did have a path where inflation proves more persistent than expected and where the labor market remains strong, but inflation is moving sideways and we’re not gaining greater confidence, well, that would be a case in which it could be appropriate to hold off on rate cuts. I think there’s also other paths that the economy could take, which, which would cause us to want to consider rate cuts. And those would be—two of those paths would be that we do gain greater confidence, as we’ve said, that inflation is moving sustainably down to 2 percent, and another path could be, you know, an unexpected weakening in the labor market, for example. So those are paths in which you could see us cutting rates. So I think it really will depend on the data. In terms of peak rate, you know, I think, really, it’s the same question. I, I think the data will have to answer that question for us.

Question (Nick Timiraos, Wall Street Journal): Nick Timiraos of the Wall Street Journal. Chair Powell, to what extent has the easing in financial conditions since November contributed to the reacceleration in growth, and do you now expect a period of sustained tighter financial conditions will be needed to resume the sort of disinflation the economy saw last year?
Answer: So I think it’s hard to know that. I think we’ll be able to look back, you know, from down the road and look back and understand it better. You know, if you look at—let’s look at growth. Really, what we’ve seen so far this year in the first quarter is growth coming in about consistent with where it was last year. I know GDP came in lower, but you don’t see an acceleration in growth. I mean, the thought would be that financial conditions loosened in, in, December, and that caused an uptick in activity, and that caused inflation. Presumably, that’s what we’re tightening in the labor market. You don’t really see that happening. What you see is economic activity at a level that’s roughly the same as, as last year. So, you know, what’s causing this inflation? You know, we’ll, we’ll have a better sense of that over time. I don’t know that there’s an obvious connection there, though, with easing of financial conditions. In terms of tightening, you’re, you’re right. Rates are certainly higher now and have been for some time than they were before the December meeting. And they’re higher, and that’s tighter financial conditions. And, you know, that’s appropriate, given what inflation has done in the first quarter.

Question (Nick Timiraos, Wall Street Journal): You’ve said in the past that stronger growth wouldn’t necessarily preclude rate cuts. I wonder, would continued strength in the labor market change your view about the appropriate stance of policy if it was accompanied by signs the wage growth was reaccelerating?
Answer: So I just want to be careful that we don’t target wage growth or the labor market. And remember what we saw last year: very strong growth, a really tight labor market, and a historically fast decline in inflation. So—and that’s because we know there are two forces at work here. There’s the unwinding of the pandemic-related supply-side distortions and demand-side distortions, and there’s also monetary policy, you know, restrictive monetary policy. So I wouldn’t rule out that something like that can continue. You know, I wouldn’t give up, at this point, on further things happening on the supply side either because, you know, we do see that companies still report that there are supply-side issues that they’re facing. And also, even when the supply-side issues are solved, it should take some time for that to affect economic activity and ultimately inflation. So there are still those things. So I don’t like to say that either strong—either growth or, or a strong labor market, in and of itself, would automatically create problems on inflation, because, of course, it didn’t do that last year. You ask about wages. We also don’t—we don’t target wages. We target price inflation. It is one of the inputs. The point with wages is, of course, we, like everyone else, like to see high wages, but we also want to see them not eaten up by high inflation. And that’s really what we’re trying to do, is to cool the economy and work with what’s happening on the supply side to bring—to bring the economy back to 2 percent inflation. Part of that will probably be having wage increases move down incrementally toward levels that are more sustainable.

Question (Rachel Siegel, Washington Post): And, with hindsight, are there any signs that you can look back on now, looking at the reports from January or February or March, that suggested something more worrying than just expected bumpiness?
Answer: I—you know, not really. You know, what, what—so I thought it was appropriate to reserve judgment until, until we had the full quarter’s data, until we saw the March data. And so take a step back. What do we now see in the first quarter? We see strong economic activity, we see a strong labor market, and we see inflation. We see three inflation readings, and so I think you’re at a point there where you should take some signal. We don’t like to react to one or two months’ data, but this is a full quarter. And I think it’s appropriate to take signal now, and we are taking signal. And the signal that we’re taking is that it’s likely to take longer for us to gain confidence that we are on a sustainable path down to 2 percent inflation. That’s the signal that we’re taking now. Yeah.

Question (Steve Liesman, CNBC): Mr. Chair, if I could—Steve Liesman, CNBC. If I could follow up on that: What particular areas were sort of temporary or blips in the inflation data in the first quarter? What’s the dynamic by which you expect them to work out in the coming months and quarters?
Answer: Yeah. So we will—you know, we will put the thing—we have put the thing under a microscope. I will say, nothing is going to come out of that that’s going to change the view. I think that, in fact, we didn’t gain confidence and that it’s going to take longer to get that confidence—but—confidence. I just think—you know the story. What’s happened since December is you’ve seen higher goods inflation than expected, and you’ve seen higher nonhousing services inflation than expected. And those two are working together to, to sort of be higher than we had thought. And there are stories behind how that happened, and, you know, we—I think—I think my expectation is that we will, over the course of this year, see inflation move back down. That’s, that’s my forecast. I think my confidence in that is lower than it was because of the data that we’ve seen. So, you know, we’re looking at those things. We also continue to expect, and I continue to expect, that housing services inflation, given where market rents are, those will show up in measured housing services inflation over time. We believe that it will. It just—it looks like the lag—that there are substantial lags between when, you know, lower market rates turned up and—for new tenants and when it shows up for existing tenants or for in-housing services.

Question (Steve Liesman, CNBC): If I could just follow up: Is there a bit of a contradiction in the idea that you are reducing quantitative tightening, which is sort of an easing, while you’re holding rates steady at a restrictive rate to try to slow and cool the economy and inflation? Thank you.
Answer: I wouldn’t say that. No. I mean, the active tool of monetary policy is, of course, the interest rates. And this is—this is a long—a plan we’ve long had in place to slow, really not in order to, you know, provide accommodation to the economy but to—or to be less restrictive to the economy. It really is to ensure that the process of shrinking the balance sheet down to where we want to get it is a smooth one and doesn’t wind up in—with financial market turmoil the way it did the last—the last time we did this and the only other time we’ve ever done this.

Question (Claire Jones, Financial Times): Claire Jones, Financial Times. Thanks a lot for the opportunity to ask the questions. Just to go back to the answer before the previous one, it seemed to suggest that you think the likeliest path of inflation is one that’s going to allow you to have a situation where rates are lower at the end of the year than they are right now. It’d be good if you could just confirm whether or not that’s a correct reading. And the Q1 GDP print has led to some—some to start mentioning the term “stagflation” with respect to the U.S. economy. Do you or anyone else on the FOMC think this is now a risk? Thank you.
Answer: Yeah. I’m not dealing really in likelihoods. I think there are—there are paths that the economy can take that would involve cuts and there are paths that wouldn’t. And I don’t have great confidence in which of those paths—I think I would say my personal forecast is that we will begin to see further progress on inflation this year. I don’t know that it will be enough, sufficient. I don’t know that it won’t. I think we’re going to have to let the data lead us on that. In terms of your question—your second question was stagflation. I guess I would say I was around for stagflation, and it was, you know, 10 percent—10 percent unemployment. It was high single-digits inflation. Right now we have—and very slow growth—so right now we have 3 percent growth, which is, you know, pretty solid growth I would say, by any measure, and we have inflation running under 3 percent. So I don’t—I don’t really understand where that’s coming from. And, in addition, I would say most forecasters, including our forecasting, was that last year’s level of growth was very high—3.4 percent in, I guess, the fourth quarter, you know— and probably not going to be sustained and would come down. But that would be—that would be our forecast. That wouldn’t be stagflation. That would still be to a very healthy level of growth. And, of course, with inflation, you know, our—we will return inflation to 2 percent, and that won’t be—so I don’t see the “stag” or the “flation,” actually. [Laughter]

Question (Michael McKee, Bloomberg): Michael McKee from Bloomberg Radio and Television. The Vice Chair of the FOMC said recently that he’s willing to consider the idea that potential growth has moved up. And, of course, he’s “Mr. Potential Growth/r*.” Do you share that view, and would that imply that maybe policy isn’t tight enough?
Answer: So I think I would take that question this way: We saw a year of very high productivity growth in 2023, and we saw a year of, I think, negative productivity growth in 2022. So I think it’s hard to draw from the data. I mean, the question is, will productivity run—there are two questions. One is: Will productivity run persistently above its longer-run trend? I don’t think we know that. In terms of potential output, though, that’s a separate question. We’ve had a—what amounts to a, a significant increase in the potential output of the economy that’s not about productivity. It was about having more labor, frankly, both through—in 2022, both through participation and also through immigration. So we’re very much—like other forecasters and economists—getting our arms around what that means for potential output this year and next year—and last year for that matter, too. So I think—in that case, I think you really do have a significant increase in potential output, but you’ve also got—so you’ve got more supply. But those people also come in, they work, they have jobs, they spend. So you’ve also got demand. So it—there may be—it may be that you get more supply than you get demand at the beginning, but, ultimately, it should be neither inflationary nor disinflationary over, over a longer period.

Question (Michael McKee, Bloomberg): You said earlier that, at this point, you’re not really considering rate increases. If growth is higher, but you’re not considering rate increases, does that imply that you’re more worried about causing the economy to slow too much than you are about inflation taking off again?
Answer: No. I think we, we believe our policy stance is in a good place and is appropriate to the current situation. We believe it’s restrictive, and, you know, we—our evidence for that, I went over earlier. You see it in the labor market. You see it in inflation-sensitive spending, where demand has clearly come down a lot over the past few years. And that’s, that’s more from monetary policy, whereas the supply side of things that are happening are more on the supply side. So that’s how I would think about it.

Question (Edward Lawrence, Fox Business): Thank you, Mr. Chairman. Edward Lawrence from Fox Business. So GDP growth is about 2 percent. Inflation—[Un]employment is about 4 percent. It feels a lot like a steady state, and we have 3 percent inflation. So if the data remains the same that you’re seeing, and I know you said you don’t see a rate hike, but it stands to reason that you would need a rate hike to get from 3 to 2 percent inflation. So was there any discussion about a rate hike in today’s meeting, and, you know, are you satisfied with 3 percent inflation for the rest of the year?
Answer: Well, of course we’re not satisfied with 3 percent inflation. “Three percent” can’t be in a sentence with “satisfied.” [Laughter] So we will return inflation to 2 percent over time but over time. And we think our policy stance is, is appropriate to do that. So if we were to conclude that policy is not sufficiently restrictive to bring inflation sustainably down to 2 percent, then that would be what it would take for us to want to increase rates. We don’t see that. We don’t see evidence for that. So that’s where we are.

Question (Edward Lawrence, Fox Business): Was there discussion about a rate hike at all?
Answer: So the policy focus has been on—has really been on what to do about, about holding the current—the current level of restriction. That’s really—that’s part of the policy. That’s where the policy discussion was in the meeting.

Question (Edward Lawrence, Fox Business): I wanted to follow [up] on the 3 percent. Is there a time frame of persistent inflation that would trigger a rate hike?
Answer: There isn’t any rule. You can’t look to a rule. You know, these are— these are going to be judgment calls. You know, clearly restrictive monetary policy needs more time to do its job. That, that is pretty clear, based on what we’re seeing. How long that will take and how patient we should be is going to depend on the totality of the data, how the outlook evolves.

Question (Victoria Guida, Politico): Hi. Victoria Guida with Politico. You’ve talked about your commitment to being apolitical and nonpartisan. And I was just wondering, given that it’s an election year, is the bar for rate changes higher close to an election? And, similarly, is there a significant economic difference between, you know, starting to cut in, say, September versus December?
Answer: So we’re, we’re always going to do what we think the right thing for the economy is when we come to that consensus view that it’s the right thing to do for the economy. That’s our record. That’s what we do. We’re not looking at anything else. You know, it’s hard enough to get the economics right here. These are difficult things, and if, if we were to take on a whole, another, set of factors and use that as a new filter, it would reduce the likelihood we’d actually get the economics right. So that’s how we think about it around here. And, you know, we’re at peace over it. We know that we’ll do what we think is the right thing, when we think it’s the right thing. And we’ll all do that. And that’s, that’s how everybody around here thinks. So I can’t say it enough, that we just don’t—we just don’t go down that road. If you go down that road, where do you stop? And, and so we’re not on that road. We’re on the road where we’re serving all the American people and making our decisions based on the data and how those data affect the outlook and the balance of risks.

Question (Victoria Guida, Politico): And then, is there a significant difference between, you know, whether you start in, say, September versus December?
Answer: —a significant difference between an institution that takes into account all sorts of political events and one that doesn’t. That’s where the significant difference is, and, you know, we’re—we just don’t do that. I mean, you can go back and read the transcripts for every—this is my fourth election, fourth presidential election here. Read all the transcripts, and see if anybody mentions, in any way, the pending election. It just isn’t part of our thinking. It’s not what we’re hired to do. If we start down that road, again, I don’t know how you stop. So.

Question (Nancy Marshall-Genzer, Marketplace): Hey, Chair Powell. Nancy Marshall-Genzer from Marketplace. You mentioned consumers, and consumers are feeling the weight of interest rates right now. Mortgage rates are up, as are rates for car loans, credit cards. People looking to borrow are very discouraged. That’s reflected in their views on the economy. What would you say to them?
Answer: Well, the thing that hurts everybody, and particularly people in the lower-income brackets, is inflation. If you’re a person who’s living paycheck to paycheck, and suddenly all the things you buy—the fundamentals of life—go up in price, you, you are in trouble right away. And so, with those people in mind, in particular, what we’re doing is, we’re using our tools to bring down inflation. It will take some time, but we will succeed. And we will bring inflation back down to 2 percent, and then people won’t have to worry about it again. That’s what we’re doing, and we know that it’s painful and inconvenient. But the dividends will be paid and will be very large. And, and everyone will share in those dividends, and we’ve made quite a lot of progress if you can think about it. I think core—I think headline—core PCE [inflation] peaked at 5.8 [percent]. Now it’s at—anyway, headline peaked at 7.1. Now it’s at 2.7. Don’t want to get that wrong.

Question (Nancy Marshall-Genzer, Marketplace): No, you don’t. Quick follow-up—are current interest rates really doing that much, though, to fight inflation right now for those consumers?
Answer: Yes. I mean, I think—I think that restrictive monetary policy is doing what it’s supposed to do, and it’s—but it’s also, in this case unusually, working alongside and with the healing of the supply side. This, this—what was different this time was that a big part of the source of the inflation and the reason why we’re having this conversation is that we had this supply-side kind of collapse, with shortages and bottlenecks and all that kind of thing. And so—and this was to do with the shutting down and reopening of the economy and other things that, that really raised demand. So, many factors did that. So I think now you see those two things working together, the reversal of those supply and demand distortions from the pandemic and the response to it, along with restrictive monetary policy. Those two things are working to bring down inflation, and we’ve made a lot of progress. Let’s remember how far we’ve come. And we have a ways to go. We’ve got work left to do, but we’re not looking at the very high inflation rates that we were seeing two years ago.

Question (Courtenay Brown, Axios): Courtenay Brown from Axios. Thanks for taking our questions, Chair Powell. I wanted to follow up on something you mentioned earlier on housing inflation. There’s kind of been this long-awaited disinflation in shelter that still hasn’t arrived. So I guess two questions, how do you explain the substantial lags between some of the private- sector data we’re seeing and the government data, and how confident are you that rents will be helpful on the inflation front in the coming months?
Answer: So, essentially, there are—there are a number of places in the economy where there are just lag structures built into the inflation process, and housing is one of them. So when you have—when, when someone goes to—a new person goes to rent an apartment, that’s called market rent, and you can see market rents are barely going up at all. The inflation in those has been very low. But it takes—before that, they were incredibly high. They sort of led the, the high part. So what happens is, those market rents take years, actually, to get all the way into rents for tenants who are rolling over their leases. Landlords don’t tend to charge as much of an increase to a rollover tenant, for whatever reason. And what that does is it builds up a sort of an unrealized portion of increases when there have been big increases. And what happens is, you know—it’s complicated, but the story is it just takes some time for that to get in. Now I am confident that, as long as market rents remain low, this is going to show up in measured inflation, assuming that market rents do remain low. How—what will be the exact timing of it? I think we’ve learned that the lags are longer. We now think significantly longer than we thought at the beginning, and so confident that it will come but not so confident in the timing of it. But, yes, I expect that, that this will happen.

Question (Jennifer Schonberger, Yahoo Finance): Thank you, Chair Powell. Jennifer Schonberger with Yahoo Finance. You sort of backed away from the notion that the economy would need to encounter pain for inflation to come back down. But, given the sticky inflation data in the first quarter, can disinflation still happen along a relatively painless path for the economy, or is some softening in the labor market and the economy likely needed to bring inflation back down?
Answer: So you’re right. I think we thought, and most people thought, there would have to be probably significant dislocations somewhere in the economy, perhaps the labor market, to get inflation all the way down from the very high levels it was at at the beginning of this episode. That didn’t happen. That’s a tremendous result. We’re very, of course, gratified and pleased that that hasn’t happened. And, if you look at the dynamics that enabled that, it really was that this, the—that so much of the gain was from the unwinding of things that weren’t to do with monetary policy but the unwinding of the distortions to the economy, you know, supply problems—supply-side problems and also some, some demand issues as well. The unwinding of those really helped inflation come down. Now, as I’ve said, I’m not giving up on that. So I think—I think it is possible that, that those forces will still work to help us bring inflation down. We can’t—we can’t be guaranteed that that’s true, though. And so we’re—you know, we’re trying to use our tools in a way that keeps the labor market strong, and the economy strong, but also helps bring inflation back down to 2 percent sustainably. We will bring inflation down to 2 percent sustainably. We hope we can do it without, you know, without significant dislocations in the labor market or elsewhere.

Question (Kyle Campbell, American Banker): And then do you need to resolve issues with the capital proposal in order to advance other parts of the regulatory agenda, or do you expect to continue to make progress on those other agenda items? Thank you.
Answer: You know, there’s no mechanical rule in place there. But I would say that the, you know, the Basel III process is by far the most important thing and really is, I think, occupying us at this time in terms of what’s, what’s—what we’re moving ahead with.