WASHINGTON (MaceNews) – The following is a transcript of Federal Reserve Chair Jerome Powell’s news conference Wednesday following the meeting of the Federal Open Market Committee:
>> Good afternoon, everyone. My colleagues and I remain squarely focused on our dual mandate to promote maximum. Good afternoon, everyone. My colleagues and I remain squarely focused on our dual mandate to promote maximum.
Early last year the FOMC has significantly tightened the stance of monetary policy. We have raised.
Early last year the FOMC has significantly tightened the stance of monetary policy. We have raised our policy interest rate by 5.25 percentage points and have continued to reduce security holdings at a brisk pace. We have covered a lot of ground and the full effects of our tightening have yet to be felt.
Today we decided to leave the interest rate unchange the and continue to reduce securities holdings.
Looking ahead we are in a position to proceed carefully in determining the extent of additional policy firming that may be appropriate. Our decisions will be based on our ongoing assessments of the incoming data and the evolving outlook and risks. I will have more to say about monetary policy after briefly reviewing economic developments.
Recent indicator suggests that economic activity has been expanding at a solid pace and so far this year growth in real GDP has come in above expectations. Recent readings on consumer spending have been particularly robust. Activity in the housing sector has picked up somewhat, though it remains well below levels of a year ago largely reflecting higher mortgage rates. Higher interest rates also appear to be weighing on business fixed investment. In our summary of economic projections, Committee participants resized up their assessments of real GDP growth with the median for this year now at 2.1%.
Participants expect growth to cool with the median projection falling to 1.5% next year. The labor market remains tight with supply and demand conditions continue to come into better balance. Over the past three months, payroll job gains averaged 150,000 jobs per month, a strong pace that is nevertheless well below that seen earlier in the year.
The unemployment rate ticked up in August but remains low at 3.8%. The labor force participation rate has moved up since late last year particularly for individuals aged 25 to 54 years. Wage growth has shown some signs of easing and job vacancies have declined this year. Although the jobs to workers gap has narrowed, labor demand still exceeds the supply of available workers. FOMC participants expect the rebalancing in the labor market to continue, easing upward pressures on innation. The median unemployment rate in the SEP rises at the end of this year to 4.1% over the next two years.
Inflation remains well above our longer run goal of 2%. For data we estimate that total PCE prices road 3.4% over the 12 months ending in August and that excluding the volatile food and energy categories, core PCE prices rose 3.9%. Inflation has moderated somewhat since the middle of last year and longer term inflation expectations appear to remain well anchored as reflected in a broad range of surveys of households, businesses and forecasters as well as measures from financial markets.
Nevertheless, the progress, the process of getting inflation sustainably down to 2% has a long way to go. The median projection in the SEP for total PCE inflation is 3.3% this year falls to 2.5% next year and reaches 2% in 2026. The Feds monetary policy actions are guided by our mandate to promote maximum employment and stable prices for the American people.
My colleagues and I are acutely aware that high inflation imposes significant hardship as it erodes purchasing power especially for those least able to make the higher costs of essentials like food, housing and transportation. We are highly attentive to the risks that high inflation poses to both sides of our mandate and we are strongly committed to returning inflation to our 2% objective.
As I noted earlier, since early last year we have raised our policy rate by 5.25 percentage points. We see the current stance of monetary policy as restrictive, putting downward pressure on economic activity, hiring and inflation. The policy rate by 5.25 percentage points. We see the current stance of monetary policy as restrictive putting downward pressure on economic activity, hiring, and inflation.
Targetra range for The Fed rail funds rate — and to continue the process of significantly reducing our securities holdings. We are committed to achieving and sustaining a stance of monetary policy that is sufficiently restrictive to bring inflation down to our 2% goal over time. In our SEP, FOMC participants wrote down their individual assessments of an appropriate path for The Fed rail funds rate based on what each participant judges to be the most likely, I’m sorry, the most likely scenario going forward. If the economy evolves as projected the median participant projects at the appropriate level of the federal funds rate will be 5.6% at the end of the year.
5.1% at the end of 2024 and 3.9% at the end of 2025. Compared with our June summary of economic projections the median projection is unrevised for the end of this year, but has moved up by .5 percentage point at the end of the next two years. These projections, of course, are not a Committee decision or plan. If the economy does not evolve as projected the path of policy will adjust as appropriate to foster maximum employment and price stability goals.
We will continue to make our decisions meeting by meeting based on the totality of the incoming data and the applications for economic outcome and inflation as well as the balance of risks. Given how far we have come, we are in a position to proceed carefully as we assess the incoming data and the evolving outlook and risks. Real interest rates now are well above mainstream estimates of the neutral policy rate, but we are mindful of the inherent uncertainties in precisely gaging the stance of policy.
We are prepared to raise rates further if appropriate, and we intend to hold policy at a restrictive level until we are confident that inflation is moving down sustainably toward our objective. In determining the extent of additional policy firming that may be appropriate to return inflation to 2% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary sub policy affects economic activity and inflation, and economic and financial developments.
We remain committed to bringing inflation back down to our 2% goal and to keeping longer term inflation expectations well anchored. Reduced — restoring price stability is he is into the set the stage for reaching maximum employment and stable prices over the longer run.
To conclude, we understand that our actions affect communities, families and businesses across the country. Everything we do is in service to our public mission. We at The Fed will do everything we can to achieve our maximum employment and price stability goals. Thank you, and I look forward to your questions.
>> Coal by Smith is the financial times what makes the Committee inclined to think that the funds rate at this level is not restrictive especially when officials are forecasting a slightly more benign inflation outlook for the year, there is known uncertainty about policy lags, head winds have emerged from the looming government shutdown, the end of federal child care funding, resumption of student debt payments. Things of that nature.
>> So I guess I would characterize the situation a little bit differently. So we decided to maintain the target range for The Fed rail funds rate where it is at 5.25 to 5.5% and we stay we are committed to achieving and sustaining a stance of money tear policy that will bring down inflation. We said that. But the fact that we decided to maintain the policy rate at this meeting doesn’t mean we have decided that we have or have not at this time reached that stance of monetary policy that we are seeking.
If you looked at the SEF as you obviously will have done a majority of participants believe it is more likely than not that we will, that it will be appropriate for us to raise rates one more time in the two remaining meetings this year. Others believe that we have already reached that. So it’s something where we are not making a decision by deciding about that question by deciding to just maintain the rate and await further data.
>> AUDIENCE: So right now it’s still an open question about sufficiently restrictive. You are not saying today that we’ve reached this level.
>> No. Clearly we are just, what we decided to do was maintain a policy rate and await further data. We want to see convincing evidence, really, that we have reached the appropriate level and we have seen progress and we welcome that, but we need to see more progress before we will be willing to reach that conclusion.
>> AUDIENCE: And just on the 2024 projections, what’s behind that shallower path for interest rate cuts and the need for real rates to be 50 basis points higher?
>> So I would say it this way. First of all, interest rates, real interest rates are positive now. They are meaningfully positive, and that’s a good thing. We need policy to be restrictive so that we can get inflation down to target and we are going to need that to remain to be the case for some time. So I think, you know, remember that, of course, the SEP is not a plan that’s negotiated or discussed as a plan. It’s a cumulus really and what you see are the medians. It’s accumulation of individual forecasts from 19 people and what you are seeing is the median. I wouldn’t want to bestow upon it that that’s really a plan.
What it reflects, though, is that economic activities have been stronger than we expected, stronger than I think everyone expected expected so what you are seeing is this is what people believe as of now will be appropriate to achieve what we are looking to achieve, which is progress toward our inflation goal as you see in the SEP.
>> Let’s go to Rachel.
>> AUDIENCE: Hi, Chairman Powell, Rachel Siegel from “The Washington Post,” thanks for taking our questions. How would you characterize the debate around another hike or holding steady.
Is it discussion around lag times fear of too much slowing, too little slowing? Could you walk us through what the disagreement was about at the meeting.
>> CHAIRMAN POWELL: So the proposal at the meeting was to maintain our current policy stance, and I think there was obviously unanimous support for that. But this, of course, is an SEP meeting to people write down what they think and you have got, you have some, I think seven wrote down no hike at this meeting, or between now and the end of the year and I think 12 wrote down another single hike in one of the next two meetings that we have between the end of the year.
So it wasn’t like we were arguing over that. People were stating their positions and what people are saying is let’s see how the data come in. We want to see, we want to see that these good inflation readings we have been seeing for the last three mornings, we want to see that it’s more than three months. We want to see, because the labor market report that we received, the last one we received was a good example of what we do want to see. It was a combination of across a broad range of indicators continuing rebalancing of the labor market.
So those of our two mandate variables. That’s the progress we want to see. I think people, they want to be convinced, they want to be careful not to jump to a conclusion really one way or the other, but just be convinced that the data, you know, support that conclusion. And that’s why given how far we’ve come and how quickly we’ve come, we are actually in a position to be able to proceed carefully as we assess the incoming data and the evolving outlooks and risks and make these decisions meeting by meeting.
>> AUDIENCE: In your view, I know nothing has been decided but what would one more hike at the end of the year do to the economy or inflation? And on the other side what no hike do if you could gain that out for us?
>> CHAIRMAN POWELL: You could make the argument that it won’t matter but we are trying obviously as a group it’s a tight cluster of where we think that policy stance might be, but we are always going to be learning from data. We have learned all through the course of the last year that actually we needed to go further than we had thought. You go back a year and what we wrote down, it’s actually gotten higher and higher.
So we don’t really know until, and that’s why, again, we are in a position to proceed carefully at this point. A year ago we proceeded pretty quickly to get rates up. Now, we are fairly close, we think, to where we need to get. It’s just a question of reaching the right stance. I wouldn’t attribute huge importance to one hike in macroeconomic terms. Nonetheless, we need to get to a place where we are confident that we have a stance that will bring inflation down to 2% over time.
That’s what we need to get to. And we have been moving toward it as we have gotten closer to it, we slowed the pace at which we’ve moved. I think that was appropriate. And now that we are getting closer, again, we have the ability to proceed carefully.
>> AUDIENCE: Steve Leaseman CNBC. I want to return to Kolby’s question. What is it saying about the Committee’s view of the inflation dynamic in the economy that you achieved the same forecast inflation rate for next year, but need another half a point of the funds rate on it? Does it tell us that the Committee believes inflation to be more persistent, requires more medicine effectively, and I guess a related question is if you are going to project a funds rate above the longer run rate for four years in a row, at what point do we start to think, hey, maybe the longer rate or the neutral rate is actually higher? Thank you.
>> CHAIRMAN POWELL: To I guess I would point more to rather than pointing to a sense of inflation having become more persistent, I wouldn’t think, that’s, we have seen inflation be more persistent over the course of the past year but I wouldn’t say that’s something that’s appeared in the recent data. It’s more about stronger economic activity, I would say.
So if I had to attribute one thing, again, we are picking medians here and trying to attribute one explanation, but I think broadly, stronger economic activity means rates, we have to do more with rates and that’s what that meeting is telling you. In terms of what the neutral rate can be, you know, we know it by its works. We only (Audio fading in and out).
(Silence).
It may, of course, be that the neutral rate has risen. You do see people — you don’t see the median moving, but you do see people raising their estimates of the neutral rate. And it’s certainly plausible that the neutral rate is higher than the longer run rate. Remember, what we write down in the SEP is the longer run rate. It is certainly possible that the neutral rate at this moment is higher than that.
And that that’s part of the explanation for why the economy has been more resilient than compacted. Member — expected.
>> AUDIENCE: Howard Shy with Reuters. Thank you. So you said several times that the economy needed a period of below-trend growth to get inflation consistently back to 2%. You kind of get that in 2024 a little bit. 1.5% is a touch below what is the estimate of potential, so the fact that you are getting so much done at so much less cost, does that represent a change in how you think inflation workses, a change in how you think the economy works, a change in the mix of supply healing versus demand destruction that’s necessary to achieve this.
>> CHAIRMAN POWELL: Yes, of course, it is a good thing that we’ve seen how meaningful rebalancing in the labor market without an increase in unemployment, and that’s because we are seeing that rebalancing in other places. In, for example, job openings, and in the jobs worker gap. You are also seeing supply side. So that’s happening.
I would though we, I still think, and I think broadly people still think that will have to be some softening in the labor market that it come through more supply as we have seen well. The natural rate we think is coming down, which is the supply side thing so that the gap between any given unemployment rate that’s lower than that and the natural rate comes down. That’s a way for supply, that’s the way for the labor market to achieve a better balance. So all of those things are happening.
You are right, in the median forecast we don’t see a big increase in unemployment. We do see an increase. And but that’s, that really is just playing forward the trends we have been seeing. That is not guaranteed. There may come a time when unemployment goes up more than that, but that’s really what we have been seeing is progress without higher unemployment for now.
>> AUDIENCE: So just to boil that down for a second. We have gone from a very narrow path to a soft landing to something different. Would you call the soft landing now a baseline? Expectation?
>> CHAIRMAN POWELL: No. No. I would not do that. I would just say — what would I say about that? I’ve always thought that the soft landing was a plausible outcome, that there was a path, really, to a soft landing. I have thought that and I’ve said that since we lifted off.
It’s also possible that if the path is narrowed and it’s widened apparently ultimately this may be decided by factors that are outside of our control at the end of the day, but I do think it’s possible, and I also think, you know, this is why we are in a position to move carefully, again, that we will restore price stability. We know that we have to do that.
We know the public depends on us doing that, and we know that we have to do it so that we can achieve the kind of labor market we all want to achieve which is an extended period, sustained period of strong labor market conditions that benefit all. We know that.
The fact that we’ve come this far let’s us really proceed carefully as I keep saying. So I think that’s the end we are trying to achieve. I wouldn’t want to handicap the likelihood of it though. It’s not up to me to do that.
>> AUDIENCE: Nick Timeros Wall Street Journal. Chair Powell, both you and Vice Chair Williams have indicated that sufficiently restrictive will be judged on a real rather than nominal basis implying some scope for nominal rate cuts next year. The price pressures will continue to subside. Is the FOMC focused on targeting a real level of policy restriction? And can you explain what would constitute enough evidence that will allow the FOMC to normalize the nominal stance of policy while keeping real policy settings sufficiently restrictive?
>> CHAIRMAN POWELL: We understand that it’s a real rate that will matter and that needs to be sufficiently restricted. And, again, I would say you know, you know sufficiently restrictive only when you see it. It’s not something you can arrive at with confidence in a model or in various estimates and so what are we seeing? We are seeing through a combination of the unwinding of the pandemic-related demand and supply distortions and monetary policies work in suppressing demand or alleviating very high demand, the combination of those two things is actually working. You are seeing inflation coming down. It’s principally now in goods. Also in housing services.
You begin to see effects of it in non-housing services as well. So I, we think that that is working. And I think as we have said, we want to reach that, we want to reach something that we are confident gets us to that level, and I think confidence comes from seeing, you know, enough data that you feel like, yes, okay, this feels like we can for now decide that this is the right level, and just agree to stay here. We are not permanently deciding not to go higher but let’s say if we get to that level.
Then the question is how long do you stay at that level and that’s another set of questions. Forenow the question is trying to find that level where we think we can stay there. And we haven’t gotten to a point of confidence about that yet.
>> AUDIENCE: Inflation projection forethis year and even then it seems possible the core PCE inflation could come in even lower than the median at 3.7%. Would you see a case to raise rates still if it turned out that you were going to achieve the same real rate this year because the decline in inflation proceeds somewhat better than you currently anticipate?
>> CHAIRMAN POWELL: The decision that we make at each meeting and certainly at the last two meetings this year is going to depend on the totality of the data, so the inflation data, the labor market data, the growth data, the balance of risks and the other events that are happening out there.
We take all of that into account. So I can’t really answer a hypothetical about one piece of that. It will be trying to reach a judgment over whether we should move forward with another rate hike overall and whether that would increase our confidence that, yes, this is an appropriate move and it will help us be more confident that we’ve gotten to the level that we need to get to.
>> AUDIENCE: Thanks chair Powell. Following up on Nick’s question, John Williams, the New York fed president has said things to the effect of next year as we see inflation kind of, again, to Nick’s point, as we see inflation coming down, we are going to need to reduce interest rates to make sure we are not squeezing the economy hard aer and harder over time. I wonder if that’s basically the logic that you apply? Is that how you think about it.
I also wonder in the last press conference you said something to the effect of it’s a full year out, those discussions and people interpreted that to mean that you didn’t see a possibility for rate cut in the first half of next year. I wonder if that was what you meant by that or whether, you know, how you are thinking about that timing?
>> CHAIRMAN POWELL: No. So when I answer these questions about hypothetical, about cutting, I never intending to send a signal about timing. I’m just answering them as the question is expressed. So, please, I wouldn’t want to be taken that way. Sorry. As we go into next year, that’s the question we will be asking is taking into account lags and everything else we know about the economy, and everything we know about monetary policy. The time will come at some point, and I’m not saying when, that it’s appropriate to cut.
Part of that may be that real rates are rising because inflation is coming down. Part of it may be that it will be all of the factors that we see in the economy. That time will certainly come at some point and what you see is us writing down, you know, a year ahead estimates of what that might be. And there is so much uncertainty around that.
In the moment we will do what we think makes sense. No one will look back at this and say, hey, we made a plan. It’s not like that at all. These are estimates made a year in advance that are highly uncertain, and that’s how it is.
>> AUDIENCE: Thanks so much, chair Powell. Neil Irwin. I wonder how I think about the question whether the strong GDP growth we’re seeing is driven by excess demand, and relatedly if GDP keeps coming in hat, even the absence of inflation resurgence, would that be on its own a reason to consider more tightening?
>> CHAIRMAN POWELL: So on the first question, I mean, we are looking at GDP very, very carefully to try to understand really what’s the direction of it, what’s driving it, and it’s a lot of consumer spending. It’s, the consumer has been very robust in spending. So that is, that’s how we are looking at it. I’m sorry, your second question was?
>> AUDIENCE: GDP stays hot but without inflation.
>> CHAIRMAN POWELL: I think the question is GDP is not a mandate. Maximum employment and stability are the mandates. The question is does GDP, is the heat we see in GDP is it a threat to our ability to get back to 2% inflation. That’s the question. It’s not a question about GDP on its own. It’s you are expecting to see this improvement continued rebalancing in the labor market and inflation moving back down to 2% in a sustainable way. We have to have confidence in that, and we would be looking at GDP just to the extent that it threatens one or both of those.
>> AUDIENCE: Hi, Victoria Buda, Politico. There are multiple external factors playing out right now. We see rising oil prices. We see auto workers striking. There is the looming very real possibility of a government shutdown. I was wondering for each of those things, could you talk about how you are thinking about how that might affect the course for The Fed and the economy?
>> CHAIRMAN POWELL: There is a long list, and you hit some of them, but it’s the strike, it’s the government shutdown, resumption of student loan payments, higher long-term rates, oil price shock. There are a lot of things that you can look at, and, you know, so what we try to do is assess all of them and handicap all of them. Ultimately though there is so much uncertainty around these things. To strike with, the strike, first of all, we absolutely don’t comment on the strike as we have no view on the strike one way or the other but we do have to make an assessment of its economic effects to do our jobs.
>> So the thing about it is it’s so uncertain. Economic effects, it could affect, we have looked back at history. It could affect economic output, hiring and inflation, but that’s going to depend on how broad it is and how long it’s sustained for. And it also depends how quickly production can make up for lost production.
So none of those things are known now. It’s very, very hard to know. So you just have to leave that uncertain, and we will be learning, I think, over the course of the next intermeeting period.
(Silence). We don’t comment on that. It hasn’t traditionally had much of a macroeconomic effect. Energy prices being higher, that is a significant thing. Energy prices being up can affect spending, it can affect over time a sustained period of higher energy prices can affect consumer expectations about inflation.
We tend to look through short-term volatility and look at core inflation, but so the question is how long will higher prices sustain? We have to take those macroeconomic effects into account as well.
Those are some of mine. I’m not sure if I hit them all, but ultimately, you are coming into this with an economy that appears to have significant momentum. And that’s what we start with, and but we do have this collection of risks that you mentioned.
>> AUDIENCE: Craig Torres, Bloomberg news. I was surprised to hear you say that a soft landing is not a primary objective. This economy is seeing added supply in a way that could create long-term inflation stability. We have prime age labor force participation moving up where people can add skills. Workers want to work. We have a boom in manufacturing construction. We have had a decent spade of home building, and since inflation is coming down with strong GDP growth, we may have higher productivity.
All are good for The Fed’s longer run target of low inflation. And if we lose that in a recession, aren’t we opting for the awful history that we had in 2010. So are you taking this into account as you pursue policy? Thank you.
>> CHAIRMAN POWELL: To begin, a soft landing is a primary objective and I did not say otherwise. I mean, that’s what we have been trying to achieve for all of this time.
The real point though is the worst thing we can do is to fail to restore price stability because the record is clear on that. If you don’t restore price stability, inflation comes back and you go through, you can have a long period where the economy is just very uncertain and it will affect growth, it will affect all kinds of things. It can be a miserable period to have inflation constantly coming back and The Fed coming in and having to tighten again and again.
So the best thing we can do for everyone, we believe, is to restore price stability. I think now today we actually, we have the ability to be careful at this point and move carefully. That’s what we are planning to do. So we fully appreciate the benefits of being able to continue what we see already, which is rebalancing in the labor market and inflation coming down without seeing an important large increase in unemployment, which has been typical 6 other tightening cycles, so.
>> AUDIENCE: Hi, thank you, Chris Rugay, associated press. When you look at the dis-inflation that has taken in place so far, do you see it mostly as a result of what some economists are calling the low hanging fruit which is unwinding of supply chain snarls and other pandemic obstructions or is it more a broad disinflationary trend that involves most goods and services across the economy? Thank you.
>> CHAIRMAN POWELL: If I understood your question, it’s, I would say it this way. I think we knew from the time, from before when we looked, we knew that bringing inflation back down was going to take as I call it the unwinding of these distortions to both supply and demand that happened because of the pandemic and the response. So that unwontedding was going to be important. In addition monetary policy was going to help. It was going to help supply side heel by — healgy cooling demand off and better aligning supply with demand. So those two forces were always going to be important. It’s very hard to pull them apart. They work together.
I do think both of them are at work now, and I think they are at work in a way that shows you the progress that we are seeing.
>> AUDIENCE: Michael McOkay, Bloomberg television and radio.
What would justify that last move? Because the median forecast is for lower inflation, and given all of the known unknowns that you face, how much confidence do you have can investors have or the American people have in your forecasts?
>> CHAIRMAN POWELL: Well, forecasts are highly uncertain. Forecasting is very difficult. Forecasters are a humble lot with much to be humble about. But to get to your question though, what’s happened is growth has come in stronger, right, stronger than expected and that’s required higher rates.
Unemployment, you know, you also see that the ultimate unemployment rate is not as high, but that’s really because of we have been seeing in the labor market. We have seen more and more progress in the labor market without seeing significantly higher unemployment.
So we are continuing that trend. In terms of inflation, you are seeing the last three readings are very good readings. It’s only three readings. We were well aware we need to see more than three readings but if you look at June, July, August, you are looking at significant declines in core inflation, largely in the goods sector, also to some extent in housing services and a little in non-housing services. Those are the three buckets.
Headline inflation has come way down largely due to lower energy prices, some of which is now reseriousing. So I think — reversing. People should know that economic forecasting is very difficult, and these are highly uncertain forecasts, but these are our forecasts. They are, we have a very high quality people working on these forecasts and they stand up well against other forecasters, but just the nature of the business is the economy is very difficult to forecast.
>> AUDIENCE: Given the forecast that you have, what justified not moving today and what could justify moving in the future if you think —
>> CHAIRMAN POWELL: Well, I think we have come very far very fast in the (Audio fading out). In the rate increases we have made, and I think it was important at the beginning that we moved quickly, and we did. And I think as we get closer to the rate that we think the stance of monetary policy we think is appropriate to bring inflation down to 2% over time, you know, the risks become more two-sided and a risk of over tightening and the risk of under tightening becomes more equal, and I think the natural common sense thing to do is as you approach that, you move a little more slowly as you get closer to it. That’s what we are doing.
So we are taking advantage of the fact that we have moved quickly to move a little more carefully now as we, as we sort of find our way to the right level of restriction that we need to get inflation back down to 2%.
>> AUDIENCE: Thank you chair Powell, Jennifer Shaun burger with Yahoo! finance. With your focus on year over year PCE, isn’t it true that base effects are huge and that by the time you meet in November, that it’s more likely that you will have a low PCE number that would make you feel more comfortable? And secondly, how would the lack of key indicators like CPI, the jobs report impact your approach in upcoming meetings if we were to have a government shutdown? Thank you.
>> CHAIRMAN POWELL: I missed the first question, miss what factors.
>> AUDIENCE: The base factors.
>> CHAIRMAN POWELL: The base factors. Okay. So on that, we are looking at just, you can look at just monthly readings and see what the increase was from the prior month. So you are right, when you go back three, six, twelve months you can base factors, but we can adjust for that.
In terms of not getting data, again, we don’t comment on government shutdowns. It’s possible, if there is a government shutdown and it lasts through the next meeting it’s possible we wouldn’t be getting some of the data that we would ordinarily get and we, you know, we would have to deal with that. I don’t know, it’s hard for me to say in advance how that would affect that meeting.
It would depend on all kinds of factors I don’t know about now, but it’s certainly a reality that that’s a possibility.
>> AUDIENCE: Would you feel more comfortable that as those kind of fall out of the equation for the next couple of readings by November, would you feel more comfortable at that point?
>> CHAIRMAN POWELL: You know, yes. I mean, if you are looking — we can tell how much inflation has gone up in a given month, right, and that’s what we are looking at. And month by month, what’s the reading? And I think, I think what we are really looking at there is a tendency to look at shorter and shorter maturities, but they are incredibly volatile and they can be misleading.
That’s why we look at 12 months. But in this situation where it looks like we’ve had a bit of turn in inflation starting in June, we are looking at six months and even three months but really six months inflation, so you are looking at that period and over longer periods, that’s the right way to go. We don’t need to be in a hurry in getting to a conclusion about what to do. We can let the data evolve.
>> AUDIENCE: Thanks for the question chair Powell, Edward Lawrence with fox business. I want to focus on oil prices, we are seeing oil prices move up and that’s pushing the price of gas. How does that factor into your decision to raise rates or not because the last two inflation reports we see that overall inflation has actually risessen?
>> CHAIRMAN POWELL: Energy prices are very important for the consumer. This can affect consumer spending, it certainly can affect consumer sent will. Gas prices are one of the big things. It comes down to how persistent and sustained these energy prices are. The reason why we look at core inflation which excludes food and energy is that energy goes up and down like that and it doesn’t, energy prices mostly, mostly don’t contain much of a signal about how tight the economy is and don’t tell you much about where inflation is going.
However, we are well aware though that if energy prices increase and stay high, that will have an effect on spending, and it may have an effect on consumer expectations of inflation and things like that. That’s just things we have to monitor.
>> AUDIENCE: On the consumer they are putting more and more on the credit card. Consumers are seeing record credit spending. How long do you think the consumer can manage that debt at higher interest rates now? Are you concerned about a debt bubble related to that?
>> CHAIRMAN POWELL: I was saying that’s why we tend to look through energy moves that we can see as short-term volatility. Turning to consumer credit, of course, we watch that carefully. Consumer distress measures of distress among consumers were at historic lows quite recently, you know, during and after the pandemic. They are now moving back up to normal.
We are watching that carefully. But at this point these readings are not, they are not at troublingly high levels. They are just moving back up to what was typical in the prepandemic era.
>> AUDIENCE: Hi, Jean Young with M and I market news. Yields along the treasury curve has risen to their highest in years. What is The Fed’s view about what’s been driving that increase in recent weeks and how much can be attributed to macro explanations and how much to technical factors?
>> CHAIRMAN POWELL: So you are right, rates have moved up significantly. I think it’s always hard to say precisely, but most people do a common decomposition of the increase and the view will be it’s not mostly about inflation expectations. It’s mostly about other things, you know, either term premium or real yields. It’s hard to be precise about this. Of course, everyone has got models that will give a precise answer, but they give you different answers.
So essentially they are moving up. It’s not because of inflation. It’s because probably it has something to do with stronger growth, I would say, more supply of treasuries, you know, the common explanations that you hear in the markets kind of make sense.
>> AUDIENCE: Kyle Campbell, American Bank E. thank you for taking the questions. Just two on housing, you said slower shelter cost growth is in the pipeline and will reflect in inflation readings as new leases are signed, but there is also some questions out there about the way housing costs are measures, particularly the use of rental equivalents which are estimates from homeowners about what their homes would rent for if they were in the rental market.
So my question is how much of the effort to tame inflation both as its measured and felt by the broader public hinges on housing supply? And then as far as a constrained housing supply being sort of exacerbated by this sort of lock in effect of mortgages being higher now than they were at their recent historic lows, how is that going to impact future thinking about taking interest rates to that lower bound in the future?
>> CHAIRMAN POWELL: On the supply point, of course, supply is very important over time in setting house prices and for that matter rents. So supply is kind of structurally constrained, but in terms of where inflation is going in the near term though, as you obviously know, a lot of it is leases that are running off and being resigned or released at a level that’s not, it won’t be that much higher.
A year ago it would have been much higher than it was a year before. Now, if may be below or at the same level. As those leases are rolling offer we are seeing what we expect, which is measured housing services inflation coming down. Your second question was the lock-ins, how much is that affecting things really?
>> AUDIENCE: Is that going to affect your decisions to potentially bring rates down to their lower bound in the future, sort of creating that sort of bubble of buying (Audio fading out) lock in that sort of stagnates the housing market.
>> CHAIRMAN POWELL: I would look at the lock-in, the idea of being that people are in very low mortgage, very low rate mortgages, and in our future decisions in a future tight, in a future loosening cycle about whether we would cut rates (Audio fading out). No. I don’t think it would. I mean, I don’t think that’s, I think we would be looking at what, you know, fundamentally what rates does the economy need. And, you know, in an emergency like the pandemic or during the global financial crisis, you have to cut rates to the point — you have to do what you can to support the economy.
So I wouldn’t think that that would be a reason for us not to do that. It’s not something we are thinking about at all right now, but down the road I wouldn’t think so.
>> AUDIENCE: Hi, than my marshal againster with marketplace. Chair Powell, you have mentioned several things that would possibly weigh on consumer confidence, maybe cut back consumer spending, possible government shutdown, high gas prices. At this point would The Fed welcome a decrease in consumer spending? Would that help you get inflation closer to your 2% target?
>> CHAIRMAN POWELL: I wouldn’t say it that way, we are not looking for a decrease in consumer spending. It’s a good thing that the economy is strong. It’s a good thing that the economy has been able to hold up under the tightening that we’ve done. It’s a good thing that the label market is strong.
The only concern, and it just means this, if the economy comes in stronger than expected, that just means we will have to do more in terms of monetary policy to get back to 2%, because we will get back to 2%. Does that answer your question?
>> AUDIENCE: I guess on the other hand, would you worry that that would contribute to a economic slowdown or a recession?
>> CHAIRMAN POWELL: That’s always a concern. I mean, concern number one is restoring price stability because in the long run that’s something we have to do so that we can have the kind of economy we really want, which is one with sustained period of tight labor market conditions that benefit all as I have said a couple of times.
So that said, of course, we also now, given how far we’ve come with our rate hikes and how quickly we’ve come here, we do have the ability to be careful as we move forward because of that consideration.
>> AUDIENCE: Thank you, chair Powell, Simon urvich with the economist. One of the farthers in the economic resilience to date appears to be a lesser degree of rate sensitivity than in the past. Obviously you have talked about households with long fixed rate mortgages, companies that refinanced before last year.
What is your thinking about the efficacy of rates and how that’s changed, and then related to that, how do you think about the distributional consequences in the sense that if you are a relatively wealthy household with a long fixed rate mortgage the past year has not been that tough with rates going up.
Where as if you are row lying on credit card to support your consumption, times are getting a love tougher a lot more quickly. Thanks.
>> CHAIRMAN POWELL: I guess it’s fair to say that the economy has been stronger than many expected given what’s been happening with interest rates. Why is that?
Where candidate explanations, possibly a number of them make sense. One is just that household balance sheets and business balance sheets have been stronger than we had understood, and so that spending has held up in that kind of thing. We are not sure about that. The savings rate for consumers has come down a lot. Questions whether that is substantial. It could just mean that the data effect is later.
It could also be that for other reasons the neutral rate of interest is higher for various rans. We don’t know that. It can also be that policy hasn’t been restrictive enough for long enough. And there are many candidate explanations. We have to, in all of this uncertainty make policy, and I feel like what we have right now is what’s still a very strong labor market and there are many candidate explanations. We have to in all of this uncertainty make policy and I feel like what we have right now is what’s still a very strong labor market.
>> AUDIENCE: Fixed rate mortgage you have been able to endure higher rates relatively easy. If you are living month to month off of your credit card. Current financing rates are punitive. My point there is that if you are someone who has a long fixed rate mortgage you have been able to endure higher rates relatively easily. If you are living month to month off of your credit card, current financing rates are punitive.
>> CHAIRMAN POWELL: Yes. So the point I would make there is that we are trying to get inflation back down. The people who are most hurt by inflation are the people who are on a fixed income. If you are a person who spends all of your income, you don’t really have any meaningful savings, you spend all of your income on the basics of life, clothing, food, transportation, heating, the basics.
And prices go up by 5, 6, 7%, you are in trouble right away. Whereas even middle class people have some savings and some ability to absorb that. It is for those people as much as anybody that we need to restore price stability. We want to do it as quickly as possible. Obviously we would like to do that, we would like the current trend to continue, which is that we are making progress without seeing the kind of increase in unemployment that we have seen in past things.
You are right though when we raise rates, people who are living on credit cards and borrowing are going to feel that more. They are. And, of course, people with lots of savings also have a much lower marginal propensity to consume, so they are not going to, it’s not going to affect them as much.
>> AUDIENCE: Thank you, chair Powell. Greg Rock from market watch. In the beige book recently, you can tell that The Fed has been surveying nonprofits and community groups about the economic health of low income Americans, moderate Americans. I have two questions about this.
Are you going to use that data to maybe come up with sort of like a quarterly survey of those groups, like the senior loan officer survey? And from your, and also the second question is from your recent readings of these surveys, how are low and moderate Americans doing? Is there this thing where like the GDP is strong because of wealthy Americans kind of driving things and I just wanted to get your sense of the health of that sector. Thank you.
>> CHAIRMAN POWELL: I don’t know about the quarterly survey that’s an idea we can take away and think about. In terms of how and moderate Americans, they clearly are suffering from high inflation. I think during the pandemic the government transfers that happened were very meaningful and if you know the surveys that we take showed that low and moderate income people were actually in very, very strong financial condition.
I think now it’s a very hot labor market, and you are seeing a high nominal wages, and you are starting to see real wages are positive by most measures. So I think overall households are in good shape. Surveys are a different thing. Surveys are showing dissatisfaction, and I think a lot of it is just people hate inflation, hate it.
And that causes people to say the economy is terrible, but at the same time they are spending money and their behavior is not what you would expect from the surveys. That’s kind of a guess at what the answer would be, but I think there is a lot of good things happening on household balance sheets and certainly in the labor market and with wages. The biggest wage increases haven’t gone to relatively low wage jobs and now with inflation coming down you will see real wages. Thanks very much.
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