WASHINGTON (MaceNews) – The transcript of Federal Reserve Chair Jerome Powell’s post-FOMC news conference:
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>> Good afternoon, everyone. Welcome. My colleagues and I remain squarely focused on our dual mandate to promote maximum employment and stableness for the American people.
We understand the hardship that high inflation is causing and remain strongly committed to bringing inflation back down to the 2% goal. Price stability is the responsibility of the Federal Reserve. Without price stability the economy does not work for anyone. In particular, without price stability we will not achieve the strong labor market conditions that benefit all.
Since early last year the FOMC has tightened the stance of monetary policy raised up to 5.25 percentage points and reduced securities holdings at a brisk pace.
The stance of policy is restrictive, mean that tight policy is putting downward activity on inflation and the full effects of inflation have yet to be felt.
Today we decided to leave the policy interest rate unchanged and continue to reduce our security holdings.
Given how far we have come, along with the uncertainties and risks we have faced, the economy is proceeding carefully. We will make decisions about extent of additional policy firming and how long it will remain restrictive based on the totality of incoming data and monetary risks.
Recent indicators suggest that economic activity has been expanding at a strong Patriots, well above earlier expectations.
In the 3rd quarter, real GDP has expected to risen and outsized annual rate by 4 PA 9% boosted by consumer spending.
Activity in the housing sector has flattened out after picking up over the summer and largely reflecting higher mortgage rates. Higher interest rates appear to be weighing on business-fixed investments.
The labor market remains tight but supply and demand conditions tend to come in better balance. Payroll job gains averaged 266,000 jobs per month, a strong pace that is nonetheless below the same earlier in the year.
The unemployment rate remains low at 3.8%. Strong job creation has been accompanied by an increase in the supply of workers. The labor force participation rate has moved up since late last year, particularly for individuals aged 25 to 54 years. Immigration has rebounded to pre-pandemic levels. Nominal wage growth has shown some signs of easing, and job vacancies have declined so far this year.
Although the jobs to workers gap has narrowed, labor demand still exceeds the supply of available workers.
Inflation remains well above our longer-run goal of 2%.
Total PCE prices rose 3.4% over the 12 months ending in September, excluding the volatile food and energy categories, core PCE prices rose 3.7%.
Inflation has moderated since the middle of last year and readings over the summer were quite favorable. But a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal.
The process of getting inflation sustainably down to 2% has a long way to go. Despite elevated inflation, longer-term inflation expectations appear to remain well-cankered as reflected in a broad range of surveys of households, businesses and forecasters, as well as measures from financial markets.
The fed's 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 I rising purchasing power, especially for those least able to meet 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 and we have decreased our securities holdings by more than $1 trillion. Our restrictive stance of monetary policy is putting downward pressure on economic activity and inflation.
The Committee decided a today's meeting to maintain the target range for Federal funds rate as 5.25 to 5.5 and continue the process of significantly reducing our securities holdings. We are committed to achieving a stance of monetary policy sufficiently restrictive to bring inflation sustainably down to 2% over time, and to keeping policy restrictive until we are confident that inflation is on a path to that objective.
We are attentive to recent data showing the resilience of economic growth and demand for labor. Evidence of growth persistently above potential, or the tightness in the labor market is no longer easing, could put further progress on inflation at-risk and could warrant further tightening of monetary policy.
Financial conditions have tightened significantly in recent months driven by higher, longer--term bond yields, among other factors. Because of persistent changes in financial conditions can have implications for the path of monetary policy, we monitor financial developments closely.
In light of the uncertainties and risks, and how far we have come, the Committee is proceeding carefully. We will continue to make our decisions meeting by meeting, based on the totality of the incoming data and the implications for the outlook and economic activity and inflation, as well as the balance of risks.
In determining the extent of policy firming returning inflation to 2% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags of which monetary policy effects economic activity and inflation, and economic and financial developments.
We remain committed to bringing inflation back down to the 2% goal and keeping longer-term inflation expectations well-anchored.
Reducing inflation is likely to require a period of below-potential growth and softening of labor market conditions. Restoring price stability is essential to the stage for achieving maximum employment and stable prices over the longer run.
To conclude, we understand that our actions affect communities, families and businesses across the countries. Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve maximum employment and financial goals.
Thank you, and I look forward to your questions.
>> Howard Schneider with Reuters. Thank you, Chair, for doing this. You reference the long-term volumes. To what degree is that action by the Feds at this meeting?
>> Thank you for your question. I will talk about bond yields but I want to take a second to set the broader context in which we are looking at that. With the you look at the economy first, inflation has been coming down, but it is still running well above the 2% target. The labor market has been rebalancing, but it is still very tight by many measures. GDP growth is strong but many forecasters are forecasting it will be slow.
As for the Committee, we are committed to achieving a stance of monetary policy sufficient to bring inflation down to 2% over time, and we are not confident yet we have achieved such a stance, so that is the broader context into which this strong economy and all the things I said that, is the context in which we are looking at this question of a race.
Obviously we are monitoring, we are attentive to the increase in longer-term yields which have contributed to a tightening of broader financial conditions since the summer. As I mentioned, persistent change ifs broader financial conditions can have implications for the path of monetary policy. In this case the tighter financial conditions we are seeing from higher long-term rates and also from other sources like the stronger dollar and lower equity prices could matter for future rate decisions, as long as two conditions are satisfied.
The first is the tighter conditions would need to be persistent. And that is something that remains to be seen. But that is critical. You know, things are fluctuating back-and-forth. That is not what we are looking for. With financial conditions we are looking for persistent changes that are material.
The second thing is that the longer-term rates that have moved up, they can't simply be a reflection of expected policy moves from us that we would then, if we didn't follow through on them, then the rates would come back down.
I would say on that, it does not appear that an expectation of higher near-term policy rates is causing the increase in longer-term rates.
In the meantime, though, perhaps the most important thing is that these higher Treasury yields are showing through the higher borrowing costs for households and businesses and they will weigh on economic activity to the extent that tightening persists and the mind's eye goes to the 8%, near 8% mortgage rate, which could have pretty significant effect on housing, so that is how I would answer your question.
>> A quick follow-up, in your opening statement just now, you seem tight that you are not yet confident that financial conditions are restrictive enough to finish the fight. Is that true?
>> CHAIRMAN POWELL: Yes, that is exactly right. To say it a different way, we haven't made any decisions about future meetings. We have not made a determination and we are not confident at this time we have reached such a stance. We are not confident that we haven't or we have. That is the way we are going to be going into these future meetings, is to be, you know, determining the extent of additional further policy tighten that may be appropriate to return inflation to 2% over
>> Hi, Chair Powell, are there peaks expected next year and costs to an extend
>> CARA WALTON: Let me start by saying we have not made a decision about December. Some data on -- we will be looking at all those things into December. We haven't made a decision.
I would say the idea it would be difficult to raise again after stopping for a meeting or two is just not right. The Committee will always do what it thinks is.
>> CHAIRMAN POWELL: At the time. We haven't made any decisions about December. We didn't talk about making a decision in December today. Really, it was a decision for this meeting and understanding broader things.
>> Chair Powell, did the Fed staff put a recession back into the baseline forecast in the materials for today's meeting. And how much does the tightening and financial conditions substitute for rate hikes if the tightening is persistent. You said maybe a quarter point when we had the bank failures in the spring. What is something presumably more straightforward and more familiar to simulate?
>> CHAIRMAN POWELL: So, I guess I don't want to answer your question about the recession, but the answer is no. I think I have to answer it since we did publicly say in the minutes, you will know anyway in the minutes, the staff did not put a recession back in.
Maybe it would be hard to see how you would do that if you look at the activity we have seen recently, which is not really indicative of a recession in the near-term. In terms of how to think of translation into rate hikes, I think it is just too early to be doing that.
The main reason is we don't know how persistent this will be. You can see how volatile it is. Different kinds of news will affect the level of rates. I think any kind of estimate that was precise would hang out there and have a great chance of looking wrong very quickly.
So, I think we could say the financial conditions have clearly tightened and you can see that in the rates that consumers, households and businesses are paying now. And over time that will have an affect. We don't know how persistent it will be and it would be of the to translate that into a way I would be comfortable communicating how many rate hikes that is.
>> What makes you confident in the tighter financial conditions will slow above-trend growth when 500 basis point, the rate hikes, QT, and the minor banking crisis have not, thus far.
>> CHAIRMAN POWELL: That is the way our policy works, with lags of course. But if you raise the interest rates you see the effects on the economy. You see what is happening in the housing market now. You will see, if you look at surveys, it is not a good time, they think to buy durable goods of various kinds because rates are so high now.
We are getting reports from housing that the effects of this could be quite significant. But you are right. This has been a resilient economy. It has been surprising in its resilience and there are a number of possible reasons why that may be.
Our job is to achieve maximum employment and price stability, so we take the economy as it comes. It has been resilient, so we just take it as it is.
>> Terms of the threshold of what could warrant further tightening, above-trend growth or loosening of the labor market tightness seems to suggest more powerful than one quarter point rate hike would be necessary. I am curious if that is how the Committee sees it competencies so, we identified those factors.
Those are not the only factors or specific test we will apply with metrics behind it.
We are looking at the broader picture, what is happening with our progress toward the 2% inflation goal. Is the labor market continuing to broadly cool off an achieve a better balance. We will be looking at that. We look at growth for two men date goals and broader financial conditions, so we will look at all those things as we reach a judgment, whether we need to further tighten policy. If we do reach that judgment, we will tighten policy.
>> In terms of the financial conditions, if that is offsetting the need to potentially again raise rates what, is the potential impact on the trajectory of rate cuts? Could we see that maybe pulled forward or see more than the September SEP indicated?
>> CHAIRMAN POWELL: So, the fact is, the Committee is not thinking about rate cuts right now at all. We are not talking about rate cuts. We are still very focused on the first question, which is, have we achieved a stance of monetary policy that is sufficiently restrictive to bring inflation down to 3% over time sustainably? That is the question we are focusing on.
The next question, as you know, will be for how long will we remain restrictive? We said there, we will keep policy restrictive until we are confident that inflation is on sustainable path down to 2%. That will be the next question.
But honestly right now, we are tightly focused on the first question. The question of rate cuts doesn't come up, because I think the first -- it is so important to get that first question, you know, as close to right as you can.
>> Mr. Chairman, I assumed there was a tightening bias in the economy. You look at the tightening stance policy to the extent you may need to additionally hike, but you didn't say earlier super sufficiently restrictive among forecast or rate hikes among most members of the Committee. But then you said you haven't maid a determination. Would you say the bias right now is it is neutral, there is no can be to hike good night and the Committee has moved largely off of this forecast for two hikes -- I am sorry, one additional hike?
>> CHAIRMAN POWELL: No, I wouldn't say that at all. I would say, the language looking at it here, in determining the extent of additional policy-firm that may be.
>> CHAIRMAN POWELL: To return inflation to 2% over time, that is question we are asking.
>> Is it right to think of that as a bias still in the Committee here?
>> CHAIRMAN POWELL: We haven't used that term but it is fair to say that is the question we are asking, should we hike more. In September we wrote down one additional rate hike, but, you know, we will write down another forecast, as you know, in December.
>> Thank you, Chris -- Associated Press. Since the last meeting, the autoworkers strike has finished, oil prices have leveled off but then you have the outbreak of war between IDD and Hamas. How are you thinking of those affecting the economy going forward?
>> CHAIRMAN POWELL: There are significant issues. Global tensions that go between Israel and Hamas. Our job is to monitor those things for economic implications. The UAW strike appears to be coming to an end.
Oil prices have flattened out. They haven't gone down, or I guess they have gone down a little bit from their earlier peak. Another one is the possibility of a government shutdown. We don't know about that one. So, there is plenty of risk out there.
But I would go back to the bigger picture from our standpoint, which is a very strong economy, strong labor market, making progress on the labor market, making progress on inflation, and we are very focused on getting confident that we have achieved the stance of monetary policy that is sufficiently restrictive. That is really our focus.
>> One quick thing. Last month you had gone to York, Pennsylvania, where you talked to a lot of small business owners. I am curious, what sentiments did you are hear from them or what did you pick up on, and was there anything that surprised you the most in terms of what they talked about?
>> CHAIRMAN POWELL: I wouldn't say I was terribly surprised. I was very impressed by York as a town with the real strategy. I would say it is very impressive what the people there have put together in the face of, you know, some difficult longer-run trends about offshoring of manufacturing, that kind of thing. They have done a great job as a city, I think.
What you hear is consistent there, which is people are really suffering under high inflation. You were there. We talked to some people who were feeling that in their businesses, and other people who were feeling it in their home lives, as well.
It is painful for people, particularly people who, you know, don't have a lot of extra financial resources, who are spending most of their incoming income on the essentials of life.
So, we know that. That wasn't new, but that did come through very clearly in the conversations we had in York. I walked away from that, even just thinking that we really -- the best thing we can do for the US is to restore price stability, fully restore price stability, and not fail in that task, and do it as quickly as possible, but also with the least damage we can.
>> Hi, Chair Powell. Rachel Siegel from the Washington Post. You have talked about the pain coming from the ineconomy in or to get inflation down but since the economy has not reflected what was expected of the rate hikes, can you say how you look at that now in terms of the labor market and overall growth.
>> CHAIRMAN POWELL: Well, I think everywhere has been gratified to see we have been able to achieve pretty significant progress on inflation without seeing the kind of increase in unemployment that has been typical of rate hiking cycles like this one. That is historically unusual and very welcome result.
And the same is true with growth. We have been saying we need to see below potential growth. Growth has been strong, yet we are still seeing this. I think -- I still believe and my colleagues for the most part still believe it is likely to be true. Not a certainty, but likely we will need to see some slower growth and softening in the labor market conditions to get to -- to fully restore price stability.
So, it is only a good thing that we haven't seen, and I think I know why. Since lifting off I think we understood there are two processes at work here. One the unwinding of distortions and demand to the pandemic and responses to pandemic.
The other is restrictive monetary policy, moderating demand and giving the supply side time and space to recover. So, you see those two forces now working together to bring down inflation. But it is that first one that can bring down inflation without the need for higher unemployment or slower growth. It is supply side improvements like shortages and bottlenecks and that kind of thing going away.
It is getting a significant increase in the size of the labor market now, both from labor force participation and immigration. That is a big supply-side gain that is really helping the economy, and part of why GDP is so high. Because we are getting that supply.
So, we welcome that. But I think those things will run their course, and we will probably still be left -- we think and I think -- still be left with some ground to cover to get back to full price stability. That is where monetary policy and what we do with demand is still going to be important.
>> Against that backdrop, if you got clarity often lags and an economy resilient to high rate increases, does that suggest to you there isn't necessarily this huge wave of tightening coming into the tight library and it may have already come into effect?
>> CHAIRMAN POWELL: I continue to think it is very hard to say. It was one year at this meeting, the 4th of the &%F0 5 full basis point hikes. So a year since then. I think we are seeing the effects of all the hikes we did last year and this year, we are seeing it.
But, for example, an example of where you wouldn't have felt this yet is debt that had been termed out, but it will come due and have to get rolled over next year or the year after. Little things like that where the effects are taking time to get into the economy.
So, I think we have to make monetary policy under great uncertainty about how long the lags are. Trying to get a clear answer and say, I am going to assume this, is really not a good way to do it. This is one of the reasons why we have slowed the process down this year, was to give monetary policy time to get into the economy, and it takes time. We know that. You can't rush it.
So, doing -- slowing down is giving us, I think, a better sense of how much more we need to , do if we need to do more.
>> Michael McKee from blockberg TV and radio. I am trying to connect-the-dots here. One thing about Rachel's question you said you need slower growth, lower than trend growth. Has that changed?
And, two, it sounds to me like you are saying the dots fly out the window, every meeting is live with the possibility for rate increase right now, doesn't matter about the turn of the year. And there is not an objective way to determine whether or not you have got enough tightening in the system.
It is just going to be a subjective judgment meeting by meeting?
>> CHAIRMAN POWELL: Let's talk about the dot plot first. The dot plot is a picture in time of what the people in the Committee think is in light of personal policy in light of their own personal economic forecast. In principle, when things change, that is not planned that anybody agreed to or we will do. That is a forecast that would change, for example.
I mean, many things could change that would cause people to say I would not write down that dot six weeks later. Think of the number of things that could change your mind on that.
I think the efficacy of the dot flat probably decays between the three month period between that meeting and the next meeting. But nonetheless it is out there. We personally update the forecast but we don't formally update the dot plot.
So, we are trying to be transparent about how we think about these things. We are laying out how we think of these things and my colleagues and I will be thinking in terms of how we process the data. So, we are not really looking at -- in terms of growth, what I said was below potential. What you have here recently is growth that is temporarily -- potential growth is elevated for a year or two right now over its trend level.
So, the right way to think about it is what is the potential growth issue? People think trend growth over a long period of time is a little less than 2%, or I would say just around 2%.
But what we have had is with the improvement in the size of the labor force, as I mentioned, through both participation and immigration, and with the better functioning in the labor market, and with the unwinding of the supply chain and shortens and those kinds of things, you are seeing elevated potential growth, catch-up growth that can happen in potential.
That means you could be growing at 2% this year and still be growing below the increase in the potential output of the economy. I hope that is clear. that is really what is going on. That is why I would say it is below potential.
>> But to clarify what I asked about meeting by meeting. Are we essentially supposed to assume now it is a meeting by meeting, live meeting with a chance of a rate increase that will be decided on subjective criteria rather than objective at each meeting?
>> CHAIRMAN POWELL: I mean, I don't know that I want to just accept anybody's crackvasion. I will tell you how we are doing this. We are going meeting by meeting, asking ourselves whether we achieved a stance of policy sufficiently restrictive to bring inflation down 2% over time. That is the question we are asking.
We are looking at the full range of economic data, including financial conditions and all those things we look at. We have come very far with this rate hiking cycle, very far.
You saw the spread at the September meeting of, it is a relatively small spread of people think one or two additional hikes, so you are close to the end of the cycle. That was an impression as of, I believe, September. It is not a promise of plan or the future. So, we are going into the meetings one-by-one. We are looking at the data.
As I mentioned, we are also being careful, proceeding carefully, because we can proceed carefully at this time. Monetary policy is restrictive. We see its effects, particularly in enter-sensitive spending and other channels, so that is how I think of it.
>> Axios. In light of the run up in long-term yields we have seen in the last several weeks have you seen any pace consideration in the long-term program and higher term premium was in danger of mandate and goals, would that be reason of thinking about slowing of QT or think of that more around questionable reserves.
>> CHAIRMAN POWELL: The Committee is not considering the changing the pace of the Balance Sheet runoffs. That is not something we are considering. I know he there are many candidate explanations for why rates have been going up, and QT is certainly on that list, although it could be playing a small effect. At 3.3 trillion in reserves, I think it is hard to make a case that reserves are even close to scarce so that is not something we are looking at right now.
>> I want to ask about the basil 3 end-game capital proposal. You got a lot of pushback from different aspect of the proposal and you, yourself, expressed some reservations. I am curious, could you expect finalling that proposal without significant changes?
>> CHAIRMAN POWELL: So, that proposal is out for comment. We expect a lot of comment. We won't get those comments until well into next year. We extended the deadline, and we will take them seriously and we will read them.
I will say what I do expect, we will come to a -- we are a consensus-driven organization. We will come to a package that has broad support on the board.
>> Is broad support mean more support than the proposal had?
>> CHAIRMAN POWELL: It means broad support.
>> Bloomberg. So, in addition'd to persistence, when you look at long-term Treasury yields, what else are you watching to evaluate how the tighter financial conditions are hitting the economy and if it will lessen the need for further tightening, also do you think the higher yields could affect banking stress?
>> CHAIRMAN POWELL: So, what do we look at? We look at a very wide range of financial conditions. In fact, you will know different organizations publish different financial conditions indexes, which can have, you know, 7 or 8 variables, or they can have 100 variables, so, there is a very rich environment. We tend to look at a few of them. I will not give you the names but a few of the common ones people look at. Like the level of the dollar, the level of equity prices, the level of rates, the credit spreads, sometimes they are pulling in credit availability, things like that.
So, it isn't any one thing. We would never look at, for example, long-term Treasury rates in isolation. Nor would we ignore them, but we would look at them as part of a broader picture. And they do play a role, of course, in many of the major standard financial condition indexes.
Your second question was banking stress. It is something we are watching. We did have -- there were issues with interest rate risks, and also, you know, funding, uninsured deposits into March, the things we went through in March and there after, so we have been working a lot with financial institutions to make sure they have good funding plans and good -- and that they have a plan for how to deal with the kind of portfolio, unrealized losses that they have.
We do think the banking system is quite resilient. We had a handful of bank failures, but that is what we are out there doing.
>> Thank you, Mr. Chair. Last week you and your colleagues put forward a proposal to lower the cap on debit card swipe fees for comment. Can you talk a little about the considerations there, what it would mean for merchants, banks and consumers? Also what you all are seeing in terms of the use of both debit and credit cards in the payment system?
>> CHAIRMAN POWELL: You are right. We put a proposal out for comment, is what we did. This is a job that Congress signed, as you, of course, know, and all we can do is faithfully implement the statute. That is all we are trying to do. What else can we really do?
It is a 90-day comment period. We typically don't comment on these things once they are out for comment. We do know that stakeholders, and we know they will use this opportunity to express their views. They have not been shy about that. That is critical, and that is what I can say about that now.
>> Thank you, Chair. Edward Lawrence with fox business. The last three months the year-over-year inflation was 3%, 2% remains the Federal Reserve target, but with no raid increase today, how long would you be okay then with a 3%, 3%-plus overall inflation?
>> CHAIRMAN POWELL: You know, the progress will probably come in lumps and be bumpy, but we are making progress. I think the core piece came down by almost 60 basis points in the 3rd quarter. So, the best thing I could point to would be the September SEP, where the expectation was that inflation by the end of next year on a 12-month trailing basis would be well into the 2s, and the year after that, further into the 2s. So, that is -- if you look historically, that is sort of consistent with the way inflation comes in.
It does take some time. As you get further and further from those highs, it may actually take a longer time.
But the good news is we are making progress. Monetary policy is restrictive. We feel like we are on a path to make more progress, and it is essential that we do.
>> But you said in the past doing too little on interest rates could take years to fix. But the cost of doing too much could be easily fixed. How robust was the debate about this pause on the doing too little side?
>> CHAIRMAN POWELL: That is always the question we are asking ourselves. We know that if we fail to restore price stability, the risk is that expectations of higher inflation get entrenched in the economy and we know that is really bad for people. Inflation will be both higher and more volatile. that is a prescription for misery, so we are really committed to not let that happen.
For the first year or so of our tightening cycle, the risk was all on the side of not doing enough. We have come far enough that the risks, you know, have gotten more two-sided. You can't identify that with a lot of precision, but it does feel like the risks are more two-sided now.
We are committed to getting inflation back down to our target over time, and we will.
>> Simon you are binvich with the economist. You talk about how the banking system is resilient. Part of that is from the bank term funding program you launched in March.
Given that bond prices have not recovered an prices are mounting, how likely is it you would have to extend the program in March of next year?
>> CHAIRMAN POWELL: Good question. We haven't really been thinking about that yet. It is November 1, and that is a decision we will be making in the 1st quarter of next year.
>> Quick second question about, about if it stays elevated next time around. How big of an input will that be in your December thinking?
>> CHAIRMAN POWELL: We look at a range of things. I think the UN thing got blown out of proportion a little bit. It with us a preliminary estimate that got revised away. I said it with us preliminary, but that didn't get picked up. So, we look at many, many things.
Really, look across the broad array of surveys and also market-based estimates. We do that really carefully at every meeting and between meetings. It is just clear that inflation expectations are in a good place, the public does believe that inflation will get back down to 2% over time, and it will. They are right.
So, there is no real crack in that armor. You can always find one reading that is a little bit out of whack, but, honestly, the bulk of them are just very clear that the public believes that inflation will come down. That, of course, we believe is critical in winning the battle.
>> Hi, Chair Powell. Thanks for taking our questions. I wanted to see if you could talk about the neutral rate. You mentioned today you are still debating whether rates are sufficiently restrictive. You recently said that evidence is suggesting policy is not too high right now.
I was curious if you could elaborate on that and whether that initial rate in your opinion has risen?
>> CHAIRMAN POWELL: So, first thing to say is that it is very important -- it is a very important variable in the way we think of monetary policy, but you can't identify it with any precision in realtime, and we know that.
You have to take your estimate with a grain of salt. What we know now is, you know, within a range of estimates of the neutral rate, policy is restrictive. And it is, therefore, putting downward pressure on economic activity, factoring in inflation.
So, we do talk about this. There is not debate or attempt to, you know, sort of agree as a group on whether our star is moving or not. Some think it has, some think it hasn't, that don't think it has.
Ultimately it is unnoble. Really, again, what we are focused on is looking at the data and giving ourself as little more time at looking carefully at the data and being careful in our moves. Does it feel like monetary policy is restrictive enough to bring inflation down to 2% over time? That is the question we are asking ourselves.
I think years from now the economists will be revising their estimates that existed on November 1, 2023. We can't really wait for that in making policy. We have to look -- we have to have those models and look at them and think about them, and ultimately you have to look at the effect the policy is having, accounting for the lags, which makes it difficult.
If I can follow-up on a wages point earlier. You talked about the inflation outlook, but I am curious if you have concerns whether wage inflation at a current level could risk pushing up overall inflation or reacceleration.
>> CHAIRMAN POWELL: So, if you look at the broad range of wages, wage increases have really come down significantly over the course of the last 18 months, to a level where they are substantially closer to that level that would be consistent with 2% inflation over time, making standard assumptions about productivity over time. So, it is much closer than it was. That is true of the ECI, which is the one that we got this week. It is true of average hourly earnings and computation around I, and all of them are kind of saying it, so that is great. You have to look at the group because any one of them can be idiosyncratic in any given reading, so that is what you see.
What you saw with the ECI reading, it comes out four times a year. If you look back a couple quarters it was much higher, came down substantially in June, and then the September reading was more level than the June reading, so in a way it was validating the describe and very close to our expectations internally, too.
So, I feel good about that. In my thinking, it is not the case that wages have been the principle driver of inflation, so far. Although I do think it is fair to say as we go forward, as monetary policy becomes more important relative to the supply-side issues I talked about in the unwinding of the pandemic-effects, it may be the labor market becomes more important over time, too.
>> Hi, Nancy Marshall, again, sir, with Marketplace.
Are you now as concerned about overshooting and raising interest rates too much, as you are about getting inflation down to the 2% target?
>> CHAIRMAN POWELL: So, as I mentioned, I think for much of the last year-and-a-half, the concern was not doing -- not doing enough. It was not getting rates high enough in time to avoid having inflation expectations -- higher inflation expectations become entrenched, so that was the concern.
I think we reached now more than 18 months into this, you can see by the fact that we have slowed down, although we are still trying to gain conf what the.
>> CHAIRMAN POWELL: Stance is. You can see and I can see the risks are getting more balanced. The risk of doing too much versus too little are getting closer to balanced.
If you take off the mainstream estimate of projected inflation, you will see a real policy rate that is well above mainstream estimates of a neutral policy rate. That arithmetic. The proof is really in how the economy reacts, but I would say we are in a place where those risk are getting closer to being in balance.
>> When you say the proof is how the economy reacts. What are you doing to ensure we are not overshooting?
>> CHAIRMAN POWELL: Well, I think what we are looking at, is inflation still broadly cooling? Is it sort of validating the path we saw over the summer, where inflation was clearly cooling and coming down. We have seen periods like that before, and there hasn't been follow through of how the data has bounced back. So, are we seeing inflation still coming down? That is the first thing.
The second thing, in the labor market, what we have seen is a very positive rebalancing of supply and demand, partly through just much more supply coming online. With labor demands still clearly remaining very strong, when you have the kind of job growth we have had over the last quarter, it is still very strong demand.
You see wage increases coming down as we discussed, but coming down, you know, in a kind of gradual way. That is what we want to see, that whole set of processes continue.
I would not say there has been a structural change in consumption. I would say it has been certainly strong. A couple of things. We may have underestimated the Balance Sheet strength of households and small businesses. That may be part of it. There may be, you know, we have been like everyone else trying to estimate the number of -- the amount of savings that households have from the pandemic when they couldn't spend on services, really at all, or, you know, in-person services. There can still be more of that than we think. We still have to get to pre-pandemic savings. Clearly people are still spending. But the dynamic has been really strong job creation with, now, wages that are higher than inflation in the aggregate, anyway, and that raises real disposable income and that raises spending, which continues to drive more hiring.
So, you have had a really -- that whole dynamic has been -- and also at the same time, the pandemic effects are wearing off so that good availability, automobile availability is better. And from a business standpoint there are more people to higher hire and there is more labor supply so the whole thing has led to more growth and spending.
And we have been achieving progress on inflation in the middle of this. So, it has been a dynamic. The question is how long can that continue?
I think this -- the existence of this second set of factors at this time, which is the unwinding of the pandemic effects, that is what makes this cycle Jew sneak, I think. We are still learning. It took longer for that process to begin than we thought, and we are still learning about how it plays out. That is all we can do.
>> Thank you, Chair Powell. A quick question following up on an earlier one with regard to the Israel-Hamas conflict. The Fed's financial stability report says that the Israel-Hamas con inflict in Ukraine pose globallerieses including the disruption of food, engineer and other commodities and World Bank warning of a possible surge in oil price ifs the war spreads to other countries in the region. I wonder how the Fed is monitoring these developments in the Middle East, as you mention they are.
And just what the potential economic impact could be if the conflict spreads to other countries in the region. Thank you.
>> CHAIRMAN POWELL: I wouldn't want to speculate too much, but I will say, you know, really the question there is does the war spread more widely and does it start to do things like effect oil prices in particular, since this is Middle East we are talking about. The price of oil has not really reacted so much to this.
As the Ferrell open market committee, our job is to talk about understanding the economy and -- Federal open market Committee, it isn't clear that the conflict in the Middle East is on track to have significant economic effects. That doesn't mean it isn't incredibly important and something for people to take really important notice of, but it may or may not turn out to be something that matters to the Federal open market economy as an open market economy.
But it calls out risks, and that is what it is doing.
The war in Ukraine saying -- or did have immediately very significant macro economic implications because of the connection to commodities. So, thank you.
>> Thank you.
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