Federal Reserve press conference, 2020-09-16 — Chair Jerome Powell

Question (Nick Timiraos, Wall Street Journal): Good afternoon, Chair Powell. Nick Timiraos from the Wall Street Journal. You’ve been very clear about the Committee’s intention on rates, not even thinking about thinking about raising rates, and today showing low rates even as unemployment falls to 4 percent and inflation rises to 2 percent. My question is about asset purchases. Does the guidance today apply to the current asset purchase pace? Are there any macroeconomic conditions under which you would favor increasing the monthly pace of Treasury and MBS purchases? And under what conditions would a decrease in the monthly pace of purchases be appropriate? Thank you.
Answer: Thank you. So we say in our postmeeting statement that we’ll continue to increase our securities holdings “at least at the current pace” over coming months “to sustain smooth market functioning and help foster accommodative financial conditions.” That latter part is an updating of our guidance to reflect what I’ve been saying in these press conferences for some time and what other central banks have acknowledged, which is that the purchases are fostering accommodative financial conditions as well. That amounts to roughly $80 billion a month of Treasuries and $40 billion net per month for MBS. So we do—we do think that these purchases have been effective in, in restoring orderly market conditions and have supported the flow of credit to households and businesses, including by fostering more accommodative financial conditions, which, of course, we think is a good thing. So, in terms of going forward, I would just say this: There are various ways and margins that we can adjust our tools going forward, and we’ll continue to monitor developments. And we’re prepared to adjust our plans as appropriate.

Question (Nick Timiraos, Wall Street Journal): If I could—if I could follow up, I suppose the question I have is, why give guidance on one policy tool but not give guidance on the other policy tool when the Fed has talked about those two policy tools working together?
Answer: So we, we think our—we think our policy stance is appropriate today, and we’re prepared to adjust it going forward as we, as we see appropriate. And today we believe that particularly this very strong forward guidance—very powerful forward guidance that we’ve announced today will provide strong support for the economy. Effectively, we’re saying that rates will remain highly accommodative until the economy is far along in its recovery, and that, that should be a very powerful statement in supporting economic activity. Now we’re buying $120 billion in securities per month across the—across the Treasury curve. That’s also adding to accommodation. We do have the flexibility to adjust that tool and, and the rate tool and, and other tools as well. But as for right now, we think—we think that our policy setting is appropriate to support the expansion. We did—we said from the beginning that we would first try to provide some support and stability and relief in the first phase of the crisis, the acute phase, and then we would support the expansion when it came. Well, it’s here. And it’s well along. And so that’s why we changed our guidance today, and we do have the flexibility to do more when we think it’s appropriate.

Question (Jeanna Smialek, New York Times): Hi, Chair Powell. Thanks for taking my question. Jeanna Smialek, New York Times. I was wondering, you beefed up your language on financial stability in the long-run statement that you unveiled with your Jackson Hole speech last month. I’m wondering if you could kind of walk us through how you think about financial stability concerns as a factor in guiding and interpreting increases. You know, would financial stability concerns on their own be enough to merit changes in the fed funds rate? Or would they have to come in conjunction with an overheating on inflation or some sort of dramatic drop in the unemployment rate? If you could, sort of, give us an outline of your thinking there, please.
Answer: So what we said in our Statement on Longer-Run Goals and Monetary Policy Strategy was that the Committee’s policy decisions reflect “its longer-run goals, its medium-term outlook, and its assessment[s] of the balance of risks, including risks to the financial system that could impede the attainment of the Committee’s goals.” So that’s what we said about financial stability. And today we said that we’d “be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of our [the Committee’s] goals.” But you asked specifically about, about financial stability. One thing I would say is that financial—that monetary policy should not be the first line of defense—is not the first line of defense on financial stability. We look to more appropriate tools in the first instance as a first line of defense, and those would be regulation, supervision, high capital, high liquidity, stress testing—all of those things, macroprudential tools. All of those things are, are really the first line of defense on financial stability. But we always leave open the idea that we will not ignore those kinds of risks and other kinds of risks, more broadly, that could impede the attainment of our goals in, in setting monetary policy. So that’s, that’s really how we think about it, but principally that, you know, other tools are the—are the frontline, as I mentioned.

Question (Jeanna Smialek, New York Times): Just to follow up quickly, if, if other tools aren’t forthcoming, would financial stability concerns in and of themselves be enough to warrant a rate hike?
Answer: So, you know, what we said again in the [Statement on] Longer-Run [Goals and Monetary Policy Strategy]—you know, in our consensus statement is that we, you know—“policy decisions reflect … the balance of risks, including risks to the financial system that could impede the attainment of the Committee’s goals.” So the test would be, you know, does a majority of the Committee feel that, that monetary policy is, is triggering that? And that, that would be—that would be the test. And, you know, it’s not something that we’ve done. We do monitor financial stability concerns, of course, intensely and regularly. We try to use our other tools on them, but we, we do keep them in mind as we think about monetary policy.

Question (Steve Liesman, CNBC): I’m sorry, if I could just follow up without being simplistic about this. But why wouldn’t—if the Committee was confident that it could reach its new goal of aiming for inflation above 2 percent, why wouldn’t one of those years at least show inflation being above 2 percent on the median forecast?
Answer: Because it—we think, looking at everything we know about inflation dynamics in the United States and around the world over recent decades, we expect it will take some time. We expect that the economy will recover quickly now, but that that pace will slow as, as people go back to work. And we’ll still have an area of the economy—a big area of the economy—that struggles. There will be slack in the economy. The economy will be below maximum employment, below full demand. And that will tend to wear—to put downward pressure on inflation. So we think that once we get up closer to maximum employment, we think that inflation will come back, generally. And, I mean, that’s sort of what happened during the last long expansion. It’s a slow process, but—but there is a process there. Inflation does move up over time. We do expect that will continue today, and we expect that our, our guidance is powerful and will help that outcome. We think that—that effectively saying that policy will remain highly accommodative until the economy is very far along in its recovery should provide strong support for the economy and get us there sooner rather than later.

Question (Michael Derby, Dow Jones Newswires): [Inaudible] taking my question. Should we expect any further evolutions in forward guidance, say, maybe an adoption of something akin to the Evans rule that we had a few years ago? Or is there something else that the Fed might be considering in the future?
Answer: Well, so we think that the forward guidance we adopted today is appropriate and, as I mentioned, powerful. Effectively, what it says is that we’ll, we will keep policy where it is now—keep the rate policy where it is now until unemployment reaches the Committee’s assessments or levels that are—sorry, not unemployment, labor market conditions reach levels that are consistent with the Committee’s assessments of maximum employment, until inflation reaches 2 percent, and until it’s on track to go above 2 percent moderately for some time. So that’s very strong forward guidance, and we think that that will be durable guidance that will provide significant support to the economy in coming years. So that’s, that’s really our thinking on, on forward guidance on rates.

Question (James Politi, Financial Times): Thanks for taking the question. James Politi with the Financial Times. Do you consider today’s enhanced forward guidance to have actual accommodation to the—to the U.S. economy from a monetary perspective and sort of deliver further support for the economy? Or is it just a tweak to your existing policy stance? And, in terms of fiscal support, do you assume in your own projections—not just, you know, private forecasters—that additional fiscal support will be forthcoming? Or do you expect weaker growth or a—or a larger contraction rather this year if no fiscal support is forthcoming?
Answer: So, in terms of the effects, so I think what we’ve done is—is more or less aligned with the consensus statement today. So it’s, it’s in line with what, what might have been expected. As I mentioned, I think over time it will provide very powerful support for this economy as we move forward. In a sense, it’s consistent with expectations, so I don’t—I’m not looking for a big reaction right now. But I think, over time, again, guidance that we expect to retain the current stance until the economy is—has moved very far toward our goals is a strong and powerful thing. And I think that will be supportive of the economy over time. In terms of additional fiscal support, I guess your question is, what would happen if— yes, so, people have different assessments, and, and different participants in the FOMC made different assessments on their own. I think broadly, though, there is an expectation among private forecasters and among FOMC participants that there will be some further fiscal action. And there does seem to be an appetite on the part of all the relevant players to doing something. The question is, how much and when? And so I would just say that if—and it’s very hard to say. So, so far the economy has proven resilient to the—to the lapsing of the—to the, of the CARES Act unemployment— enhanced unemployment benefits. But there’s, there’s certainly a risk, though, that, that those who are unemployed have saved—appear to have saved some of those benefits, and they’ll, they’ll now spend them, and that, as the months pass, if, if there’s no follow-up on that, if there isn’t additional support and there isn’t a job for the—some of those people who are, are from industries where, where it’s going to be very hard to find new work, then you’ll—that will start to show up in economic activity. It’ll also show up in things like evictions and foreclosures and, and, you know, things that will scar and damage the economy. So that’s a downside risk. So I, I think the real question is, is, when and how much and what will be the—what will be the contents? And, you know, no one—no one has any certainty around that, but, broadly speaking, if we don’t get that, then there would certainly be downside risks through the— certainly through the channel I mentioned.

Question (Anneken Tappe, CNN): Thanks for taking my question. Chairman Powell, given the recent update to the policy framework and repeated calls for this in the Fed Listens events, is the Fed open to other measures of the economy, such as income inequality and affordability of housing?
Answer: So we—you know, we monitor everything we think is important in the U.S. economy. And in that—in a broad sense, all of it goes into thinking about monetary policy. You mentioned inequality. So, you know, disparities in, in income and in financial well- being by various demographic and racial categories is something we monitor carefully. Inequality, which I would point to—it’s a multifaceted thing. But I would point to the relative stagnation of incomes for people at the lower end of the income spectrum and also lower mobility. So those are things that hold back our economy. They are. The thing is, we don’t really have the tools to address those. We, we have interest rates and bank supervision and financial stability policy and things like that, but we can’t—we can’t get at those things through our tools. When we lower the federal funds rate, that supports the economy across a broad range of, of people and activities, but we can’t—we don’t have the ability to target particular groups. Notwithstanding that, we, we do talk about it, because these are important features of our economy. And we—you know, I, I think those are—those distributional issues are, are issues that are really for our elected officials. And I would say, I take them seriously as holding back our economy. The productive capacity of the economy is limited when not everyone has the opportunity, has the educational background and, and the health care and all the things that you need to be an active participant in our workforce. So I think we can—if we want to have the, the highest potential output and the—and the best output for our economy, we need that prosperity to be very broadly spread in the longer run. And I—again, I would just say, the Fed—you know, we can talk about those things a lot. And in, in—when we think about maximum employment in particular, we do look at individual groups. So high unemployment in a particular racial group like African Americans when—you know, we would look at that as we think about whether we’re really at maximum employment. We would look—we would look at that along with a lot of other data. So the answer is, we do look at all those things and, and do what we can with our tools. But, ultimately, these are issues for elected representatives.

Question (Edward Lawrence, Fox Business): Yes, thank you, Chairman Powell, for the question. I just wanted some clarity here. At what point do you think it’s prudent to shift the bond purchases from market stability—as you had said, from the shorter-term maturities to more longer-term, more stimulus-related?
Answer: So, you know, we think our—we think that our asset purchases are doing both the thing—both those things today. We think, clearly, there’s been great progress, in terms of market function. If you remember, early in the spring when the acute phase of the pandemic hit, market function was very low. And it’s improved rapidly and, and in many respects is, is in a good place now. We also, though, think that these asset purchases, which total $120 billion a month—you know, which is much larger than, for example, the last asset purchase program during the Global Financial Crisis and the recovery therefrom—we think that that’s also providing accommodative financial conditions and supporting growth. And we think that’s fine. We’re also aware that we, we—there are ways we can adjust that, you know, to do various things—you know, make it smaller, make it larger, and also target different sectors of the—of the curve. And, you know, we’re, we’re going to continue to monitor developments, and we’re prepared to adjust our plans as appropriate.

Question (Christopher Condon, Bloomberg): Thank you, Michelle. Good afternoon, Chairman Powell. You have emphasized many times, including today, that the Fed can only lend and not spend, and sometimes the latter is what’s really needed. But to the extent that a $600 billion lending program for small and midsize companies could help, what exactly is wrong with the design or function of the Main Street Lending Program, which has purchased just, I think, $1.4 billion in loans so far? Eric Rosengren at the Boston Fed has said recently that Congress should clarify how much risk it wants the program to take. But Congress has already appropriated substantial funds for the 13(3) programs, and these are funds that are explicitly designed to absorb losses. Meanwhile, my colleagues who cover the banking sector say they’re being told by commercial banks that the Treasury Department is advising them to target zero losses—zero losses in Main Street Program loans. So, if I may, why is it that the Federal Reserve, the Congress, and the Treasury apparently cannot agree on a loss tolerance that should be applied to the Main Street Lending Program in a way that would allow badly needed credit to reach these companies? Thank you.
Answer: Sure. So, a couple things about Main Street. It, it reaches the whole nation. It’s got more than half of the banking industry assets signed up among the banks that are part of it, and it’s making loans. The number is more like—it’s close to $2 billion now. So the numbers are going up. Banks are joining; borrowers are coming. And it’s significant. It’s, it’s relatively small now, but it can scale up in response to economic conditions, should that be— should that be appropriate. You know, if you look out in the lending world, surveys generally find that, that firms are not citing credit constraints as a top problem. And that, that is a lot of PPP, bank credit lines, and syndicated loans. There’s a lot of credit being let out there. So—but you’re right. We, we are looking at some things. We’re looking at—some lenders are concerned about the underwriting expectations. So banks are going to—their approach is likely to be that they’re going to underwrite this loan roughly the same as they underwrite any loan. They’re keeping part of it, and, you know, what, what we want to do is make sure that—that they know that they should take the payment deferrals and other things in, in place, and also that—you know, it’s, it’s really—it’s really a, a facility for, for companies or borrowers that, that don’t have access to, to “regular way” borrowing now. Otherwise, why would we need Main Street? So that’s what we're working on. And we’ll be doing some, some—we’ll be making some changes in that respect. I don’t—I saw what President Rosengren said. I, I can’t really comment directly on that. I just would say that, you know, this is 13(3). If you look at the law under section 13(3), it’s very clear that we are to make loans only to solvent borrowers. And, and the CARES Act is quite specific in keeping all of the terms of, of section 13(3) in effect, including the requirement that we, you know, gather good evidence that the borrower is solvent. This was—this law was amended in, you know, under—in Dodd-Frank, and the idea was, was to make it challenging and put hurdles in place before we made loans—at the time, the thinking was to banks. So now we—now we’re using that same law for, for smaller business borrowers, and, you know, it doesn’t—it’s not a perfect fit. And, and, I would also just say, for many borrowers, they’re in a situation where their business is still relatively shut down, and they won’t be able to service a loan, and so they may need more fiscal support. Having said that, we’re, we’re continuing to work to, to improve Main Street, to make it more broadly available—make it pretty much to any company that needs it and that can service a loan.

Question (Christopher Condon, Bloomberg): And can you just very briefly address the reports that the Treasury is advising banks to target zero losses? Is that appropriate?
Answer: I can’t say. I don’t—I don’t know about that. I haven’t heard those reports. You know, again, if you think about it, we, we weren’t—we’re, we’re going to have to go through the banking system to do this. We—we’re not going to have a hundred thousand or a million loan officers working for the Fed and the Treasury. So we’re going to go through the banking system, and the banks—banks like to make good loans. That’s what they do. They’re trained to make good loans. So you should expect that they—and we expect that they will do some underwriting. We also want them to take some risk, obviously, because that was the point of it. And the question is, how do you dial that in? It’s, it’s not an easy thing to do. And, you know, we’re getting some loans made, and we’re hopeful that we’ll, that we’ll clarify this and that credit will continue to flow.

Question (Christopher Rugaber, Associated Press): Hi, thanks for taking my question. Chair Powell, you’ve talked a couple of times about parts of the economy that may not recover as fast as we’ve seen so far. Presumably you’re referring to airlines, hotels, other sections—you know, parts of the economy that rely on close contact. How are you thinking about that, in terms of its overall impact? Is that sector large enough to say keep unemployment above—you know, far above your maximum goals? Are you expecting that to come back with a vaccine? Or are a lot of those folks going to have to find, you know, new jobs in new industries? And should we expect the Fed will keep rates at zero until all of that reallocation is done? Thank you.
Answer: Yes, we—of course, we can’t be—we can’t be really sure we know the answers to those questions. But I would say, the, the likely path is that the—that the expansion will continue. And it’s, as I said, it’s well along, and it’ll move most easily through the parts of the economy—it’ll still take some time, but the parts of the economy that weren’t exactly directly affected, that didn’t involve getting people in large groups together to feed them, to fly them around, to put them in hotels, do entertainment, things like that—those are going to be the places that are—that are very challenging. So there will also be the—you know, the places that are affected that way. And that’s going to be challenging for, for some time. It just is. And we don’t really know how long that will be. It’s—you know, it’s millions of people. As I mentioned, we had 11 million—something like 11 million people in the payroll survey have gone back to work out of 22 million who went—who lost their jobs in March and April. So that’s half of them. So, 11 million— particularly if the pace of, of returning to work slows down, it’s going to leave a large—a large group of people. And it’ll be very meaningful from a macroeconomic standpoint. And our commitment is not to forget those people. As I mentioned, we want—you know, the sense of our forward guidance is that policy will remain, as we’ve said, highly accommodative until the— until the expansion is well along—really, very close to our goals. And even after, if we do lift off, we will keep policy accommodative until we actually have a moderate overshoot of inflation for some time. So those are powerful commitments that we think will, will support the full recovery, including those people, as long as it takes.

Question (Michael McKee, Bloomberg): Mr. Chairman, Michael McKee from Bloomberg Radio and Television. Based on what you were just saying about keeping policy accommodative for a very long time into the recovery, lower-for-longer as far out as three years in your latest projections, is that basically it for the Fed? In other words, since interest rates are your main tool, the things you can do would push down on interest rates. But is it really—is it the case now that the only additional stimulus that can come to the economy is from the fiscal side?
Answer: Well, no, I wouldn’t—I certainly would not say that we’re out of ammo. Not at all. So, first of all, we, we do have lots of tools. We’ve got the lending tools, we’ve got the balance sheet, and we’ve got further forward guidance—further forward guidance. So we, we—there’s still plenty more that we can do. We do think that our—that our, our rate policy stance is an appropriate one to support the economy. We think it’s powerful. And, as I mentioned, you know, this is the kind of guidance that will provide support for the economy over time, the idea being that policy will remain highly accommodative until the recovery is well along—really, very close to our goals—and then will remain accommodative even after we lift off. So I think that’s, that’s a really strong place for, for rate policy to be. But, again, we have the other margins that we can still use. So, no. Certainly, we’re not out of ammo.

Question (Don Lee, Los Angeles Times): Well, if I could follow up, is—is it the Fed’s aim to get back to 3.5 percent or even lower?
Answer: Yes, absolutely. You know, I, I can’t be precise about a particular number, but let me just say, there was a lot to like about 3½ percent unemployment. It’s not a magic number. No one would say that number is the touchstone or that is, you know, maximum employment. I would just say, you asked about 3½ percent. A 3½ percent unemployment rate showed, you know, gains being shared very widely across the income spectrum—in fact, going more to people at the bottom end of the spectrum. It showed labor force participation coming up as—up above many estimates of its trend, as people who’d been out of the labor force were being pulled into a tight job market. There’s a lot to like about a tough—a tight job market, particularly in a world where we didn’t see inflation. So, yes, we’d love to get back to that. I mean, I would say, we would like to get back—rather than to a particular number, we’d like to get back to a strong labor market where wages are moving up, where people can find work, where labor force participation is holding up nicely. That’s what we’d really love to get back to. Now, of course we would—we need inflation to perform in line with, with our framework. But the good news is, we think we can have quite low unemployment without raising troubling inflation.

Question (Nancy Marshall-Genzer, Marketplace): Hi, Nancy Marshall-Genzer with Marketplace. Chair Powell, I want to follow up on the wealth gap issue. I know you were—that you have limited tools. But are there things that you can do, possibly in the area of research and maybe expand your research on racial economic gaps?
Answer: You know, we do—we are gifted with a, a substantial group of researchers who really cover the waterfront. And we do a significant amount of research on racial disparities in—across multiple variables, including wealth, as you asked about. So we do that. And we also—remember, we have our Division of Consumer and Community Affairs, which is present in communities around the country. And the Reserve Banks all have very active community affairs groups. They’re present in communities around the country. So it wasn’t just the Fed—Fed Listens events. It’s more, just, over a long period of time we, we are in contact with people in those communities to understand their experience of the economy. We serve all Americans, and we know that. And we’re going to use our tools to, to reflect that fact. So the answer is “yes.” We do quite a bit of research, and I suppose we could do more, but we really do a lot. And we contribute to those fields and those assessments of, of the state of the economy. And we do that not just because it’s interesting and important, but because it’s important for the economy and important for our mandate. We are assigned “maximum employment.” Now, what does that mean? As I mentioned earlier, it doesn’t mean a particular headline unemployment number. What it means is maximum employment. So, you know, we look at—look at that in many, many different variables, and we ask ourselves whether those variables are—those labor market conditions are consistent with our assessments of what would constitute maximum employment. And that would include all of the things that we’re talking about.

Question (Greg Robb, MarketWatch): Hi, Greg Robb from MarketWatch. Thanks for this. I want to go back to the new forward guidance that you have. And you said that it’s powerful, but you’ve already have two dissent—two dissenting voters on it. And I was wondering if there’s other, other people who argued against it. And what do you say to the two who dissented? It looks like President Kashkari wanted a simpler forward guidance, and President Kaplan thought that the current guidance you have was fine for now. So, like, how did you argue back on those, on those arguments? Thank you.
Answer: I wouldn’t—I don’t want to comment particularly on, on the two dissenters, but they, they consent—they dissented from, of course, different perspectives, and, and that should be clear. That’s their—they’re not they’re sort of on, on two sides of the, of the discussion. But I would say this: I am blessed —with having a Committee of highly thoughtful people who bring diverse life experiences and diverse careers, and, of course, diverse views to our work. And I wouldn’t have it any other way. I wouldn’t. So, so I would just say, the right—in our discussions the last couple of days, the whole Committee, everybody on the Committee is very supportive of the Statement on Longer-Run Goals and Monetary Policy Strategy and what’s in there—very, very broad support, unanimous support for that. Everyone sees the, the changes in the underlying economy and sees, in their own way, the need to address those—and including the changes we made to the employment mandate and to inflation so that we’re now at flexible average inflation targeting. Of course, there would be—this is—you know, we’re the first major central bank to adopt this framework. There’s no cookbook, and we—you know, this is the first guidance under our new framework. So, of course there would be a wide range of views, and you would expect that. And it’s actually a healthy thing. So I welcome that discussion. I would also say this: You know, this is all about credibility, and we understand perfectly that we have to earn credibility. This, this facility—this, this framework has to—we have to support it with our actions. And I think today is a very good first step in doing that. It is strong, powerful guidance. It is—it ties in very nicely with the Statement of [on] Longer-Run Goals and Monetary Policy Strategy. We had quite a robust discussion, and there are, there are different ideas on how to do this, but I—that’s just, that’s just the way it is when you have a diverse group of highly thoughtful and effective people. And so I’m pleased with where it came out.

Question (Hannah Lang, American Banker): Hi, Chair Powell. Thanks so much for taking my question. I wanted to ask about commercial real estate. I, I know you had mentioned before how you weren’t sure if there was a way the Fed could support CRE borrowers. But I was just wondering if you had—if you’ve had any other continuing discussions on that and if there’s any potential way that the Fed could step in in that area.
Answer: So thank you for that question. You know, we’ve actually spent quite a bit of time on this as Secretary Mnuchin, I think, mentioned the other day. And I’ll say just a couple things. First, you know, our facilities are essentially always—they have to be, under the law—broad based and not so much targeting any single sector. Also, it’s important to remember that CRE, commercial real estate, benefits from several of our existing facilities. So the TALF takes commercial mortgage-backed securities and SBA commercial real estate deals. And the New York Fed purchases agency CMBSs directly. In addition, I would say, Main Street helps businesses pay their rent, you know. So we’re, we’re helping real estate, you know, in a number of other ways—commercial real estate. Also, CMBS issuance has resumed. Spreads have tightened on CMBS. There are a couple of issues. One is just that commercial properties with CMBS loans often have covenants—uniformly, I think, have covenants that forbid them to take on more debt. So you have a situation, and you have a situation where, where you—without a legal change or some kind of an innovation that defies discovery so far, you’re—you have a hard time providing mass relief with regard to real estate that’s in, in commercial mortgage-backed securities. So we’re still working on it. We’re still looking. I would say, it may be that further support for commercial real estate will require further action for Congress—from Congress.

Question (Brian Cheung, Yahoo Finance): Hi, Chairman Powell. So it seems like a lot of the new inflation framework is about shaping inflation expectations. But the average American who might be watching this might be confused as to why the Fed is overshooting inflation. So what’s your explanation to Main Street, to average people what the Fed is trying to do here and what the outcome would be for those on Main Street? Thanks.
Answer: That’s a very, very important question, and I actually spoke about that in my Jackson Hole remarks a couple weeks ago. It’s not intuitive to people. It is intuitive that, that high inflation is a bad thing. It’s less intuitive that inflation can be too low. And the way I would explain it is, is that inflation that’s too low will mean that interest rates are lower. There’s an expectation of future inflation that’s built into every interest rate, right? And to the extent inflation gets lower and lower and lower, interest rates get lower and lower. And then the Fed will have less room to cut rates to support the economy. And this isn’t some idle, you know, academic theory. This is what’s happening all over the world. If you, if you look at many, many large jurisdictions around the world, you are seeing that phenomenon. So we want inflation to be—we want it to be 2 percent, and we want it to average 2 percent. So if inflation averages 2 percent, the public will expect that, and that’ll be what’s built into interest rates. And that’s just—that’s all we want. So we’re not looking to have high inflation. We just want inflation to average 2 percent. And that means that, you know, in a downturn, these days, what happens is, inflation, as has happened now—it moves down well below 2 percent. And that means that we’ve said for, for—we would like to see and we will conduct policies so that inflation moves, for some time, moderately above 2 percent. So it won’t be—these won’t be large overshoots, and they won’t be permanent but to help anchor inflation expectations at 2 percent. So, yes, it’s, it’s a challenging concept for a lot of people. But, nonetheless, the economic importance of it is, is large. And, you know, those are the people we’re serving, and, you know, we serve them best if we can actually achieve average 2 percent inflation, we believe. And that’s why we changed our framework.