–Don’t See the ‘Stag’ or the ‘Flation’
WASHINGTON (MaceNews) – Federal Reserve Chair Jerome Powell, answering questions in his post-FOMC news conference Wednesday, said he is still confident of more progress against inflation this year, was vague about the possibility of one or more 2024 rates cuts and said he doesn’t understand any fear about stagflation.
The transcript of his news conference follows:
JEROME POWELL: Good afternoon. My colleagues and I remain squarely focused on our dual mandate to promote maximum employment and stable prices for the American people. The economy has made considerable progress toward our dual mandate objectives. Inflation has eased substantially over the past year. While the labor market has remained strong.
And that’s very good news. But inflation is still too high. Further progress in bringing it down is not assured. And the path forward is uncertain. We are fully committed to returning inflation to our 2% goal.
Restoring price stability is essential to achieving a stable market that benefits all. Today the FOMC decided to leave our policy interest rate unchanged. And to continue to reduce our securities holdings. Though at a slower pace.
Our stance on monetary policy has been putting downward pressure on economic activity and inflation. And the risks to achieving our employment and inflation goals have moved toward better balance over the past year. However, in recent months, inflation has shown a lack of further progress toward our 2% objective. And we remain highly attentive to inflation risks.
I’ll have more to say about monetary policy after briefly reviewing economic developments. Recent indicators suggest economic activity has continued to expand at a solid pace. Although GEP growth moderated from 3.4% in the fourth quarter of last year to 1.6% in the first quarter. Private domestic final purchases, which excludes inventory, and government spending and ex-pores, and usually sends a clearer signal on demand, was 1.2% in the first quarter. As well as the second half of 2023.
Consumer spending has been robust over the past several quarters. Even as high interest rates have weighed on housing and equipment investment. Improving supply conditions have supported resilient demand. And the strong performance of the U.S. economy over the past year.
The labor market remains relatively tight. But supply and demand conditions have come into better balance. Payroll job gains averaged 276,000 jobs per month in the first quarter. While the unemployment rate remains low, at 3.8%.
Strong job creation over the past year has been accompanied by an increase in the supply of workers. Reflecting increases in participation among individuals aged 25 to 54 years. And the continued strong pace of immigration. Nominal wage growth has eased the past year. And the job to workers gap has narrowed. But labor demand still exceeds the supply of available workers.
Inflation has eased notably over the past year. But remains above our longer run goal of 2%. Total PCE prices rose 2.7% in the 12 months ending in March. Excluding the volatile food categories, PCE prices rose 2.8%.
Inflation data received so far this year have been higher than expected. Some measures of short-term inflation expectations have increased in recent months. Longer term inflation expectations appear to be more anchored. As reflected in a broad range of surveys of households, businesses, and forecasters. As well as 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 it erodes purchasing power. Especially for those least able to meet the highest cost of essentials. Like food, housing and transportation.
We are strongly committed to returning inflation to our 2% objective. The committee decided at today’s meeting to maintain the target range for the federal funds rate. And significantly increase our holdings at a slower. Over the past year as inflation has declined, the risks to achieving our employment and inflation goals have moved toward better balance. The economic outlook is uncertain, however. And we remain highly attentive to inflation risks.
We stated that we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2%. So far this year, the data have not given us that greater confidence. In particular, and as I noted earlier, readings on inflation have come in above expectations.
It is likely that gaining such greater confidence will take longer than previously expected. We are prepared to maintain the current target range for the federal funds rate as long as appropriate. We’re also prepared to respond to an unexpected weakening in the labor market.
We know that reducing policy restraint too soon or too much can reduce the progress we’ve seen on inflation. At the same time, reducing policy restraint too late or too little could unduly weaken economic activity and employment.
In considering any adjustments to the target range for the federal funds rate, the committee will carefully assess incoming data, the evolving outlook, and the balance of risks. Policy is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate.
We will continue to make decisions meeting by meeting. Turning to our balance sheet, the committee decided at today’s meeting to slow the pace of decline in our securities holdings. Consistent with the plans we released previously.
Specifically, the cap on treasury redemptions will be lowered from the current 60 billion per month to 25 billion per month as of June 1. Consistent with the committee’s attention to hold primary securities in the longer one, we’re leaving the cap on (?) unchanged for one month.
And we will n’. With principle payments running currently about $15 billion per month, the total portfolio run-off will amount to roughly $40 billion per month. A decision to slow the pace of run-off does not mean that our balance sheet will ultimately shrink by less than it would otherwise. But rather allows us to approach its ultimate level more gradually.
In particular, slowing the pace of run-off will help ensure a smooth transition. Reducing the possibility that money markets experience stress. And thereby ensuring our holdings that are consistent with reaching the level of ample reserves.
We’re committed to bring inflation down to our 2% goal. And by keeping our expectations anchored. Achieving 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. I look forward to your questions.
AUDIENCE MEMBER: Thank you. Howard Schneider approximate Reuters. Are you still confident that the policy rate is restrictive to get inflation back to 2%?
JEROME POWELL: I do think that the evidence shows pretty clearly that policy is restrictive and is weighing on demand. And there are a few places I would point to for that. You could start with the labor market. So, demand is still strong. The demand side of the labor market, in particular. But it’s cool from its extremely high level of a couple of years ago. You see that in job openings. You see more evidence of that today in the Jols Report as you know.
It has been coming down in the Indeed Report and Jolts Report. Same is true of quits and hiring rates. Which have essentially normalized. I also look at — we look at surveys of workers and — pardon me. Surveys of workers in businesses. And ask workers, are jobs plentiful? And ask businesses, are workers plentiful? Is it easy to find workers?
You’ve seen that the answers of those have come back down to pre-pandemic levels. You see in spending, like house and investment, you also see that higher interest rates are weighing on those activities. I do think it’s clear that policy is restrictive.
AUDIENCE MEMBER: Sufficiently restrictive, I guess?
JEROME POWELL: So, I would say that we believe it is restrictive. And we believe, over time, it will be sufficiently restrictive. That will be a question that the data will have to answer.
AUDIENCE MEMBER: As a follow-up, if inflation continues running roughly sideways, as it has been, the job market stays reasonably strong. Unemployment low. And expectations are anchored and maintained. Would you disrupt that?
JEROME POWELL: Expectations are not anchored?
AUDIENCE MEMBER: Are anchored or stable roughly, would you disrupt that for the last half point on PCE?
JEROME POWELL: I don’t want to get into complicated hypotheticals. I would say, you know, we’re committed to retaining our current restrictive stance of policy as long as it is appropriate. And will do that.
AUDIENCE MEMBER: Thanks for taking our questions, Chair Powell. I wonder, you know — obviously, Michelle Bowman has been saying there’s a risk that risks — although it’s not her outlook. Do you see that as a risk as well? What change in conditions would consider merit raising rates at this point?
JEROME POWELL: I think it’s unlikely that the next policy rate move will be a hike. I would say it’s unlikely. You know, our policy focus is really what I just mentioned. Which is how long to keep policy restrictive.
You ask what would it take? We need to see persuasive evidence that our policy stance is not sufficiently restrictive to bring inflation down to 2%. That’s not what I think we’re seeing, as we mentioned. We look at the totality of the data to answer that question.
That would include inflation. Inflation expectations and all the other data, too.
[ Speaker off mic ]
JEROME POWELL: I think, again, the test — what I’m saying is if we were to come to that conclusion. That policy weren’t tight enough to achieve that. So it would be the totality of all the things we’re looking at. It could be expectations. It could be a combination of things. If we reach that conclusion. And we don’t see evidence supporting that conclusion, that’s what it would take, I think, for us to take that step.
AUDIENCE MEMBER: Thank you. Chris Rugaber, Associated Press. You didn’t mention the idea it might be appropriate to cut rates later this year. As you have in previous press conferences. So has the Fed sort of dropped its easing bias? Where are you standing on that?
JEROME POWELL: So, let me address cuts. So, obviously, our decisions we make on our policy rate will depend on the incoming data. How the outlook is evolving. And the balance of risks, as always. We’ll look at the totality of the data. We think that policy is well positioned to address different paths that the economy might take.
And we’ve said that we don’t think it would be appropriate to dial back our restrictive policy stance. Until we’ve gained greater confidence that inflation is moving down sustainably to 2%. Let me take a path. If we had a path where inflation proves more persistent than expected. And where the labor market remains strong. But inflation is moving sideways. And we’re not gaining greater confidence.
That would be a case in which it could be appropriate to hold off on rate cuts. I think there are other paths that the economy could take. Which would cause us to want to consider rate cuts. Two of those paths would be that we do gain greater confidence, as we said. If inflation is moving sustainably down to 2%. Another path could be an unexpected weakening in the labor market, for example.
Those are paths in which you could see us cutting rates. I think it really will depend on the data. In terms of peak rate, I think really it’s the same question. I think the data will have to answer that question for us.
AUDIENCE MEMBER: Could you just follow that? On the path you might not cut, you mentioned it would be inflation persistence. Inflation, would that be the key data in making that decision? Could you expand a bit more on that? Thank you.
JEROME POWELL: Again, it’s — we’ve set ourselves a test. For us to begin to reduce policy restriction, we want to be confident that inflation is moving sustainably down to 2%. For sure, one of the things we would be looking at is the performance of inflation. We would be look at inflation expectations. We would be looking at the whole story. Clearly, incoming inflation data would be at the very heart of that decision.
AUDIENCE MEMBER: Nick Timiraos, Wall Street journal. To what extent has the easing since November contributed to the reacceleration in growth? Do you now expect a period of sustained tighter conditions will be needed to assume the disinflation the economy saw last year?
JEROME POWELL: I think it’s hard to know that. I think we’ll be able to look back down the road. And look back and understand it better. You know, if you look at — let’s look at growth.
Really, what we’ve seen so far this year in the first quarter is growth coming in about consistent with where it was last year. I know GDP came in lower. Financial conditions loosened in December. And that caused an uptick in activity. And that caused inflation. Or tightening in the labor market. You don’t really see that happening.
What you see is economic activity at a level that’s roughly the same as last year. So, you know, what’s causing this inflation? We’ll have a better sense of that over time. I don’t know that there’s an obvious connection there with easing of financial conditions.
In terms of tightening, you’re right. Rates have been higher now. And have been for some time before they were at the December meeting. And that’s appropriate. Given what inflation has done in the first quarter.
AUDIENCE MEMBER: You’ve said in the past that stronger growth wouldn’t necessarily preclude rate cuts. Would continued strength in the labor market change your view about the appropriate stance of policy if accompanied by the signs that wage growth was reaccelerating?
JEROME POWELL: I want to be careful we don’t target wage growth and the labor market. Remember last year, we saw really strong growth, a tight labor market. And historically fast decline in inflation. And that’s because we know that there are two force at work here.
There’s the unwinding of the pandemic-related supply side distortions. And demand side distortions. And there’s also monetary policy. Restricted monetary policy.
I wouldn’t rule out that something like that can’t continue. I wouldn’t give up at this point on further things happening on the supply side. Because we do see that companies still report that there are supply side issues they’re facing.
And also even when the supply side issues are solved, it should take some time for that to affect economic activity and ultimately inflation. There are still those things. I don’t like to say either growth or a strong labor market in and of itself would automatically create problems on inflation.
Of course, it didn’t do that last year. You asked about wages. We also don’t target wages. We target price inflation. It is one of the inputs. The point with wages is, of course, we — like everyone else — like to see high wages. But we also want to see them not eaten up by high inflation.
And that’s really what we’re trying to do. Is to cool the economy. And work with what’s happening on the supply side. To bring the economy back to 2% inflation. And part of that will probably be having wage increases move down incrementally. Toward levels that are more sustainable.
AUDIENCE MEMBER: Hi, Chair Powell. Rachel Siegel from the Washington Post. Thank you for taking our questions. You talk about inflation moving slowly down to 2%. It’s May now. Do you have time this year to cut three times? Just given the calendar?
JEROME POWELL: Yeah. I’m not really thinking of it that way. What we said is that we need to be more confident. And we’ve said — my colleagues and I today have said that we didn’t see progress in the first quarter. And I’ve said that it appears then that it’s going to take longer for us to reach that point of confidence.
I don’t know how long it will take. I can just say that when we get that confidence, then rate cuts will be in scope. And I don’t know exactly when that will be.
AUDIENCE MEMBER: With hindsight, are there any signs you can look back on now, looking at the reports from January, February or March that suggested something more worrying than just expected bumpiness?
JEROME POWELL: You know, not really. So I thought it was appropriate to reserve judgment until we had the full quarter’s data. Until we saw the March data. Take a step back.
What do we now see in the first quarter? Strong economic activity. We see a strong labor market. We see inflation. We see three inflation readings. I think you’re at a point there where you should take some signal.
We don’t like to react to one or two months’ data. But this is a full quarter. We are taking signal. And the signal we’re taking is it’s likely to take longer for us to gain confidence that we’re on a sustainable path to 2% inflation. That’s the signal we’re taking.
AUDIENCE MEMBER: Mr. Chair, Steve Leisman from CNBC. If I can follow up on that. What’s the dynamic in which you expect them to work out in the coming months or quarters?
JEROME POWELL: Yeah. We have put the thing under a microscope. I will say nothing is going to come out of that that’s going to change the view, I think. That, in fact, we didn’t gain confidence. And that’s it’s going to take longer to get that confidence. I just think — you know the story.
What’s happened since December is you’ve seen higher goods inflation than expected. You’ve seen higher not housing services inflation than expected.
Those two are working together to be higher than we thought. There are stories behind how that happened. And, you know, I think my expectation is that we will, over the course of this year, see inflation move back down. That’s my forecast.
I think my confidence in that is lower than it was. Because of the data we’ve seen. So, you know, we’re looking at those things. We also continue to expect — and I continue to expect that housing services inflation, given where market rents are. Those will show up in measured housing services inflation over time. We believe it will. It looks like there are substantial lags between when lower market rates turned up for new tenants. And when it shows up for existing tenants or for in-housing services.
AUDIENCE MEMBER: If I could follow up. Is there a bit of a contradiction in the idea that you are reducing quantitative tightening? Which is sort of an easing? While you’re holding rates steady to try to cool the economy and inflation? Thank you.
JEROME POWELL: I wouldn’t say that, no. The active tool of monetary policy, of course, is interest rates. This is a plan we’ve long had in place. To slow really. Not in order to provide accommodation to the economy.
Or to be less restrictive in the economy. It’s really to ensure that the process of shrinking the balance sheet down to where we want to get it is a smooth one. And doesn’t wind up with financial market turmoil. The way it did the last time we did this. And the only other time we’ve ever done this.
AUDIENCE MEMBER: Mr. Chairman, Craig Torres from Bloomberg. Given the data since March, has the probability in your mind no cuts this year increased or stayed the same? That’s the first question. Second question. Chair Powell, you joined the board in 2012. I’m sure you remember, as I do, what the recovery was like.
Lawyers, accountants. All kinds of highly qualified people who couldn’t get jobs. Given your history there, I wonder if there’s an argument for being more patient with inflation here. We have strong productivity growth. That’s helping wages go up.
We have good employment. So, it seems to me there’s a lot of hysteria about inflation. I agree, nobody likes it. But is there an argument for being patient and working with the economic cycle to get it down over time? Thank you.
JEROME POWELL: So, on your first question, I don’t have a probability estimate for you. But all I can say is that, you know, we’ve said that we didn’t think it would be appropriate to cut until we were more confident. That inflation was moving sustainably at 2%.
Our confidence in that didn’t increase in the first quarter. And, in fact, what really happened was we came to the view that it will take longer to get that confidence. And I think there are — I think the economy has been very hard for forecasters broadly to predict its path.
But there are paths to not cutting. And there are paths to cutting. It’s really going to depend on the data. In terms of the employment mandate, to your point, if you go back a couple of years.
Our sort of framework document says when you look at the two mandate goals. If one of them is further way from goal than the other, then you focus on that one. It’s actually the time to get back there times how far it is from the goal. And that was clearly inflation.
Our focus was very much on inflation. And this is what we refer to in the statement. As inflation has come down now to below 3% on a 12-month basis, we’re now focusing on the other goal. The employment goal now comes back in to focus. So we are focusing on it.
And that’s how we think about that.
AUDIENCE MEMBER: Claire Jones, Financial Times. Thanks a lot for the opportunity to ask the questions. Just to go back to the answer before the previous one. It seems to suggest that you think the likeliest path of inflation is one that’s going to allow you to have a situation where rates are lower at the end of the year than they are right now. It would be good if you can just confirm whether or not that’s a correct reading.
And the key GDP printers led to the term stagflation with respect to the U.S. economy. Do you or anyone else on the FOMC think this is now a risk? Thank you.
JEROME POWELL: I’m not dealing, really, in likelihoods. There are paths that the economy can take that would involve cuts. And there are paths that wouldn’t. I don’t have great confidence in which of those paths.
I would say my personal forecast is that we will begin to see further progress on inflation this year. I don’t know that it will be enough, sufficient. I don’t know that it won’t. We’re going to have to let the data lead us on that.
In terms of your second question was stagflation. I was around for stagflation. It was 10% unemployment. It was high single digits inflation. And very slow growth.
Right now we have 3% growth. Which is pretty solid growth, I would say. By any measure. And we have inflation running under 3%. So I don’t really understand where that’s coming from.
In addition, I would say most forecasters, including our forecasting, was that last year’s level of growth was very high. 3.4% in, I guess, the fourth quarter. And probably not going to be sustained. And would come down. But that would be our forecast. That wouldn’t be stagflation. That would still be to a very healthy level of growth.
Inflation, we will return inflation to 2%. And I don’t see the stag or the flation, actually.
[ Laughter ]
AUDIENCE MEMBER: Michael McKee from Bloomberg television. The vice chair has said that potential growth has moved up. Of course, he’s Mr. Potential growth, our star. Do you agree with that? And would that suggest that policy maybe isn’t tight enough?
JEROME POWELL: I think I would take that question this way. We saw a year of very high activity growth in 2023. And we saw negative productivity growth in 2022. So, I think it’s hard to draw from the data.
The question is, will productivity run — there are two questions. One is will productivity run persistently above its longer run? I don’t think we know that. In terms of potential output, though, that’s a separate question. We’ve had what amounts to a significant increase in the potential output of the economy that’s not about productivity. It was about having more labor, frankly. Through participation but also through immigration.
So, we’re very much like other forecasters and economists. Getting our arms around what that means for potential output this year and next year. And last year for that matter, too. In that case, I think you really do have a significant increase in potential output.
But you’ve also got more supply. But those people also come in. They work. They have jobs. They spend. You’ve also got demand. There may be — it may be that you get more supply than you get demand at the beginning. But ultimately it should be neither inflationary or disinflationary over a longer period.
AUDIENCE MEMBER: You said earlier that at this point, you’re not really considering rate increases. If growth is higher but you’re not considering rate increases, does that imply that you’re more worried about causing the economy to slow too much? Than you are about inflation taking off again?
JEROME POWELL: No. I think we believe our policy stance is in a good place. And is appropriate to the current situation. We believe it’s restrictive. And, you know, our evidence for that, I went over earlier. You see it in the labor market. You see it in spending. Where demand has come down a lot over the past few years.
And that’s more from monetary policy. Where the supply side of things that are happening are more on the supply side. So that’s how we think about it.
AUDIENCE MEMBER: Thank you, Mr. Chairman. Edward Lawrence from Fox Business. GDP growth is about 2%. Employment is about 4%. It feels like a steady state. We have 3% inflation. If the data remains the same that you’re seeing — I know you said you don’t see a rate hike. It stands to reason you would need a rate hike to get from 3% to 2% inflation. Was there any discussion about a rate hike in today’s meeting? And are you satisfied with 3% inflation for the rest of the year?
JEROME POWELL: Well, of course we’re not satisfied with 3% inflation. 3% can’t end a sentence with satisfied. So we will return inflation to 2% over time. And we think our policy stance is appropriate to do that.
So if we were to conclude that policy is not sufficiently restrictive to bring inflation sustainably to under 2%, then that would be what it would take for us to want to increase rates. We don’t see that. We don’t see evidence of that. That’s where we are.
AUDIENCE MEMBER: Was there a discussion about a rate hike at all?
JEROME POWELL: The policy focus has been on — has really been on what to do about holding the current level of restriction. That’s part of the policy. That’s where the policy discussion was in the meeting.
AUDIENCE MEMBER: I wanted to follow up on the 3%. Is there a timeframe of persistent inflation that would trigger a rate hike?
JEROME POWELL: There isn’t any rule. You can’t look to a rule. These are going to be judgment calls. Clearly restrictive monetary policy needs more time to do its job. That’s pretty clear based on what we’re seeing.
How long that will take and how patient we should be depends on the totality of the data. How the outlook evolves.
AUDIENCE MEMBER: Hi. Victoria Guida with Politico. You talked about being nonpartisan. Being an election year, is the bar for rate hikes higher close to an election? Similarly, is there a significant economic difference between, you know, starting to cut in, say, September versus December?
JEROME POWELL: So, we’re always going to do what we think the right thing for the economy is when we come to that consensus view that it’s the right thing to do for the economy. That’s our record. That’s what we do. We’re not looking at anything else. It’s hard enough to get the economics right here.
These are difficult things. And if we were to take on a whole other set of factors and use that as a new filter, it would reduce the likelihood we would actually get the economics right. That’s how we think about it around here. We’re at peace over it. We know we’ll do what we think is the right thing. When we think it’s the right thing. And we’ll all do that.
That’s how everybody around here thinks. So, I can’t say it enough. We just don’t go down that road. If you go down that road, where do you stop? And so we’re not on that road. We’re on the road where we’re serving all the American people. And making our decisions based on the data. And how those data affect the outlook and the balance of risks.
AUDIENCE MEMBER: And then is there a significant difference between, you know, whether you start in, say, September versus December?
JEROME POWELL: There’s a significant difference between an institution that takes
into account all sorts of political events and one that doesn’t. That’s where the significant difference is. We just don’t do that. You can go back and read the transcripts forever.
This is my fourth election. Fourth presidential election here. Read all the transcripts. See if anybody mentions, in any way, the pending election. It just isn’t part of our thinking. It’s not what we’re hired to do. If you start down that road, I don’t know how you stop.
AUDIENCE MEMBER: Thank you, Chair Powell. Question about the labor market. You mentioned a few times that the labor market is normalizing. Certainly today’s Jols data suggested they’re getting back to pre-pandemic levels. Wage level is still quite stronger than before the pandemic. I wonder if you could share your analysis of why that’s happening. Is that a lagging indicator?
JEROME POWELL: Go back to where wage increase has peaked essentially a couple of years ago. Essentially all wages have come down substantially to that. But they’re not down to where they were before the pandemic. They’re still roughly a percentage point higher.
We’ve seen pretty consistent progress. But not uniformly. You’ll note the ECI reading from Tuesday was expected to be — to have come down. And essentially it was flat year-over-year, I think. Roughly.
So, yeah, that part of it is bumpy. And, again, we don’t target wage increases. But, you know, in the longer run, if you have wage increases running higher than productivity would warrant, then there will be inflationary pressures.
Employers will raise prices over time if that’s the case. We’ve seen progress. It has been inconsistent. We have seen a substantial decline overall. But we have a ways to go on that.
[ Speaker off mic ]
AUDIENCE MEMBER: You mentioned consumers. Consumers are feeling the weight of interest rates right now. Mortgage rates are up. As are car loans and credit cards. People are discouraged to borrowing. That’s their views on the economy. What would you say to them?
JEROME POWELL: The thing that hurts everybody, and particularly people in the lower income brackets, is inflation. If you’re a person living paycheck-to-paycheck. And suddenly all the things you buy, the fundamentals of life, go up in price. You are in trouble right away.
So with those people in mind, in particular, what we’re doing is using our tools to bring down inflation. It will take some time. But we will succeed. We will bring inflation back down to 2%. And then people won’t have to worry about it again. That’s what we’re doing.
We know it’s painful and inconvenient. But the dividends will be paid in the long run — will be very large. And everyone will share in those dividends. And we’ve made quite a lot of progress. If you think about it.
I think core PCE peaked — headline peaked at 7.1. Now it’s at 2.7. Don’t want to get that wrong.
AUDIENCE MEMBER: No, you don’t. Are (?) doing enough to fight inflation for those consumers right now?
JEROME POWELL: Yes. Restrictive monetary policy is doing what it’s supposed to do. But it’s also, in this case, unusually, working alongside and with the healing of the supply side. What was different this time was a big part of the source of the inflation. And the reason why we’re having this conversation. Is we had this supply side kind of collapse. With shortages, bottlenecks and that kind of thing.
And this was to do with the shutting down and reopening of the economy. And other things that really raised demand. So many factors did that. So, I think now you see those two things working together. The reversal of those supply and demand distortions from the pandemic. And the response to it. Along with restrictive monetary policy. Those two things are working to bring down inflation.
We’ve made progress. Let’s remember how far we’ve come. We have work to do. But we’re not looking at the very high inflation rates we were seeing two years ago.
AUDIENCE MEMBER: Courtney Brown from Axios. Thank you for taking our questions. There’s been this long-awaited disinflation in shelter that hasn’t arrived. So two questions. How do you explain the substantial lags between some of the private sector data we’re seeing and the government data?
And how confident are you that rents will be helpful on the inflation front in the coming months?
JEROME POWELL: Essentially, there are a number of places in the economy where there are just lag structures built into the inflation process. And housing is one of them. So when you have — when someone goes — a new person goes to rent an apartment. That’s called market rent. You can see market rents are barely going up at all.
Inflation in those has been very low. But it takes — before that, they were incredibly high. They sort of led the high part. So, what happens is those market rents take years, actually, to get all the way into rents for tenants who are rolling over their leases.
Landlords don’t tend to charge as much of an increase to a rollover tenant for whatever reason. What that does is it builds up sort of an unrealized portion of increases. When there have been big increases. It’s complicated. The story is, it just takes some time for that to get in.
As long as market rents are low, this will show up in inflation. Assuming market rents do remain low. What will be the exact timing of it? I think we’ve learned the lags are longer. We now think significantly longer than we thought at the beginning.
So confident it will come. But not so confident in the timing of it. But, yes, expected that this will happen.
AUDIENCE MEMBER: Thank you, Chair Powell, for taking questions. This is — feels like that may be ending in 2024, based on some of the economic data from Europe, U.S., Japan and those Central Banks as well. So what considerations or risks does a period of more divergent global economic trajectories and Central Bank policies present for the FOMC?
JEROME POWELL: So, you’re right. I think that may happen. You know, we all serve domestic mandates, right? So I think the difference between the United States and other countries that are now considering rate cuts is that they’re just not having the kind of growth we’re having.
They have — their inflation is performing about like ours, or maybe a little better. But they’re not experiencing the kind of growth we’re experiencing. So we actually have the luxury of having strong growth and a strong labor market. Very low unemployment. High job creation. And all of that.
And we can be patient. We will be careful and cautious, as we approach the decision to cut rates. Whereas I think other jurisdictions may go before that. In terms of the implications, you know, I think obviously the markets see it coming. It’s priced in now.
So, I think the markets and economies can adapt to it. And I think we haven’t seen, in addition, for the emerging market economies, we haven’t seen the turmoil that was more frequent 20, 30 years ago. I think that’s partly because emerging market economies have much more credibility on inflation.
So, they’re navigating this pretty well this time.
AUDIENCE MEMBER: Thank you, Chair Powell. Jennifer Schonberger with Yahoo! Finance. Given sticky inflation data in the first quarter, can disinflation still happen along relatively painless path for the economy? Or is some softening in the labor market and economy likely needed to bring inflation back down?
JEROME POWELL: You’re right. I think we thought — and most people thought there would have to be probably significant dislocations somewhere in the economy. Perhaps the labor market. To get inflation all the way down from the very high levels it was at, at the beginning of this episode.
That didn’t happen. That’s a tremendous result. We’re very gratified and pleased that didn’t happen. If you look at the dynamics, it’s that so much of the game was from the unwinding of things that weren’t to do with monetary policy. But the unwinding of the distortions to the economy.
You know, supply side problems. And also some demand issues as well. The unwinding of those really helped inflation come down. Now, as I’ve said, I’m not giving up on that. I think it is possible that those forces will still work. To help us bring inflation down. We can’t be guaranteed that that’s true, though. So, we’re trying to use our tools in a way that keeps the labor market strong. And the economy strong. But also helps bring inflation back down to 2% sustainably.
We will bring inflation down to 2% sustainably. We hope we can do it without significant dislocations in the labor market. Or elsewhere.
AUDIENCE MEMBER: Speaking of dislocations in the labor market, in terms of cutting, you said if there were weakness in the job market, that could be a reason to cut rates. If the unemployment rate were to tick above 4%. But inflation not back down to your 2% target, how would you look at that? Would the unemployment rate backing back up above 4% catch your attention?
JEROME POWELL: An unexpected weakening is the way I characterized it. I’m not going to try to define exactly what I mean by that. But it would have to be meaningful. And get our attention. And lead us to think that the labor market was really significantly weakening. For us to want to react to it.
A couple of tenths in the unemployment rate would probably not do that. It would be a broader thing. That would suggest that it would be appropriate to consider cutting. Whether you decide to cut will depend on all the facts and circumstances. Not just that one.
AUDIENCE MEMBER: Chair Powell, thanks for taking the question. Kyle Campbell with American Banker. You said that broader material changes are needed for the Basil 3 end game proposal. And you said it’s on table. Have you had time to sit with the public commentary process? And understand the options available to you?
Do you have a better sense of whether reproposal will be necessary? And do you have a timeline in mind for when some sort of movement will be made on that front? Either a reproposal? Or a move to finalize?
JEROME POWELL: Let me start by saying that the Fed is committed to, you know, completing this process. And carrying out Basil 3 end game that’s faithful to Basil. And comparable to what the other jurisdictions are doing. We haven’t made any decisions on policy. Or on process. At all. Nothing. No decisions have been made. I’ll say again, though. If we conclude that reproposal is appropriate, we won’t hesitate to insist on that.
AUDIENCE MEMBER: And then do you need to resolve issues with the capital proposal in order to advance other parts of the regulatory agenda? Or do you expect to make progress on those other agenda items?
JEROME POWELL: You know, there’s no mechanical rule in place there. The Basil 3 process is, by far, the most important thing.
And I think what’s really moving us ahe
AUDIENCE MEMBER: Mark Hamrick. Allowing fire range of views or even descent. We don’t see many descenting views. How do you avoid group think and avoid a higher risk of a policy mistake? Thank you.
JEROME POWELL: If you listen to — and you all do listen to my 18 colleagues on the FOMC, you’ll see we do not lack for diversity. It’s one of the great aspects. We have 12 banks. Where they have their own economic staff. Not the people who work on the board.
So each reserve bank has its own culture around monetary policy. It’s own approach and that kind of thing. It guarantees you a diversity of perspective. I think the perspectives are very diverse.
In terms of dissents, we have dissents. And a thoughtful dissent is a good thing. Someone really makes you think. That kind of thing. All I can say from my standpoint is I listen carefully to people. I try to incorporate their thinking. Or do everything I can to incorporate their thinking into what we’re doing.
And I think many people, they feel that’s happening. For most people, most of the time, that will be enough. It’s not frowned upon. Or illegal. Or against the rule or anything like that. It just is the way things come out.
I think we have a very diverse group around the table. Frankly, more diverse than it used to be in many dimensions. More diverse from the obvious. Gender and demographic ways. But also we have more people who are not Ph.D. economists.
We have people from business, the law, and academia. Things like that. I think you do have quite a bit of diverse perspectives. We read about lack of diversity. And we look around the room and say I don’t understand what they’re talking about. But I get the question. Thank you very much.
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