WASHINGTON (MaceNews) – The following is the Federal Reserve’s transcript of Fed Chair Jerome Powell’s news conference Wednesday, which followed the Federal Open Market Committee police statement:
OPENING STATEMENT IN PROGRESS: substantially more evidence to give confidence that inflation is on a sustained downward path.
Price pressures remain evident across a broad range of goods and services. Russia’s war against Ukraine has boosted prices for energy and food and has contributed to upward pressure on inflation. The median projection in the SEP for a total PCE inflation is 5.6% this year and falls to 3.1% next year. 2.5% in 2024 and 2.1% in 2025.
Participants continue to see risks to inflation as weighted to the upside. Despite elevated inflation, 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. But that is not grounds for complacency. The longer the current bout of high inflation continues, the greater the chance that expectations of higher inflation will become entrenched.
The Feds monetary policy actions are guided by mandate to promote max employment and stable prices for inAmerican 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 higher cost 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’re strongly committed to returning inflation to our 2% objective. At today’s meeting the committee raised the target range for the federal funds rate by a half percentage point bringing the target range to 4 and a quarter to 4.5%. And we are continuing the process of significantly reducing the size of our balance sheet. With today’s action we have raised interest rates by four and a quarter percentage points this year. We continue to anticipate that ongoing increases in the target range for the federal funds rate will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.
Over the course of the year, financial conditions have tightened significantly in response to our policy actions. Financial conditions fluctuate in the short-term in response to many factors. But it is important that over time, they reflect the policy restraint that we’re putting in place to return inflation to 2%.
We are seeing the effects on demand in the most inter sensitive sectors of the economy such as housing. It will take time, however, for the full effects of monetary restraint to be realized especially on inflation. In light of the cumulative tightening of monetary policy and the lags in which it affects economic activity and inflation, the committee decided to raise the interest rates by 50 basis points today, a step down from the 75 basis point pace seen over the previous four meetings. Of course 50 basis points is still a historically large increase and we still have some ways to go.
As shown in the SEP, the median projection for the appropriate level of the federal funds rate is 5.1% at the end of next year. A half percentage point higher than projected in September. The median projection is 4.1% at the end of 2024 and 3.1% at the end of 2025 still above the median estimate of its longer run value. Of course these projections do not repeated a committee — represent a committee decision or plan and no one knows with anyone certainty where the economy will be a year or more from now.
Our decisions will depend on the totality of incoming data and their implications for the outlook for economic activity and inflation. And we will continue to make our decisions meeting by meeting and communicate our thinking as clearly as possible. We’re taking forceful steps to moderate demands so it comes into better alignment with supply. Our overarching focus is using our tools to bring inflation back down to our 2% goal and to keep longer term inflation expectations well anchored. Reducing inflation is likely require a sustained period of below trend growth and some softening of labor market conditions. Restoring price stability is essential to set the stage for achieving max employment and stable prices over the long run. This historical record cautions strongly against prematurely loosening policy. We’ll stay the course until the job is done. To conclude, we understand that our actions affect communities, families and businesses across the country. Everything we do is in service to our Paullic mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals. Thank you. I’ll look forward to your questions.
>> Steve leesman, CNBC. You talked about the importance of market conditions reflecting the policy restraint you put in place. Since the November meeting, the 10-year has declined by 60 basis points. Mortgage rates have come down. High yield credit spreads have come in. The economy accelerated the stock market is up 6%. Is this listening — loosening financial conditions a problem and if so, do you need to do something about that and how would I do something about that, thank you.
>> CHAIRMAN POWELL: So as I mentioned, it is important that overall financial conditions continue to reflect the policy restraint that we’re putting in place to bring inflation down to 2%. We think the financial conditions have tightened significantly in the past year but our policy actions work through financial conditions and those in turn affect economic activity, the labor market and inflation. What we control is our policy moves and communications we make. Financial conditions anticipate and react to actions. I’d add our focus is not on short-term moves but persistent moves and many, many things of course move financial conditions over time.
I would say it’s our judgment today that we’re not as sufficiently restrictive policy stance yet which is why we say that we’d expect that ongoing hikes will be appropriate. And I’d point you to the SEP again for our current assessment of what that peak level will be. As you will have seen, 19 people filled out the SEP this time, and 17 of those 17 wrote down a peak rate of 5% or more in the fives. So that’s our best assessment today for what we think the peak rate will be. You will also know that at each subsequent SEP during the course of this year we actually increased our estimate of what that peak rate will be. And today the SE bushings shows overwhelmingly FOMC participants believe that inflation risks are to the upside so I can’t tell you confidently that we won’t move up our estimate of the peak rate again at the next SEP. I don’t know what we’ll do. It will depend on future data. What we’re writing down today is our best estimate of what we think that peak rate will be based on what we know. Obviously if the inflation data comes up worse, that could move up or down if inflation data are softer.
>> Gina Smialek, New York Times. You suggest the Fed will make another three quarter percent rate increases in 2023. Do you anticipate that being in 25 basis point increments, 50 point, how you see the speed playing out going forward and I wonder what you’re looking at as you determine when to stop.
>> CHAIRMAN POWELL: So — so as I’ve been saying, as we have gone through the course of this year, as we lifted off and got into the course of the year and we saw the — how strong inflation was and how persistent, it was important to move quickly. The speed and pace was the most important thing. Now that we’re coming to the end of this year, we have raised 425 basis points this year, and we’re into restrictive territory, it’s now not so important how fast we go. It’s far more important to think what is the ultimate level and then at a certain point, the question will become how long do we remain restrictive. I’d say the most important question now is no longer the speed. So that applies to February as well. So I think we’ll make the February decision based on the incoming data and where we see financial conditions where we see the economy, and that will be the key thing but I mean, for that decision, but — ultimately, that question about how high to raise rates is one we’d make looking at progress on inflation and where financial conditions are and making assessment of whether policy is restrictive enough, I’ve told you today, we have an assessment that we’re not as restrictive enough stance even with today’s move and we laid out our individual assessments of what we would need to do to get there.
At a certain point though, we’ll get to that point and then the question will be how long do we stay there. And there is a strong view — the strong view on the committee is we’d need to stay there until we’re really confident that inflation is coming down in a sustained way and we think that will be some time.
If you look at — if you can break inflation down into three buckets, the first is goods inflation and we see now as we have been expecting from a year and a half that supply conditions would get better and ultimately (?) chain gets fixed and demand settles down and maybe goes back to services and we start to see goods inflation going down. We’re starting to see that in this report and the last one.
Then you go to housing services. We know the story there is that housing services inflation has been very, very high and will continue to go up actually as rents expire and have to be renewed, they’ll be renewed into a market where rates are higher than they were when the original leases were signed. But we see that the new leases that are — that the rate for new leases is coming down so once we work our way through that backlog, that inflation will come down sometime next year.
The third piece which is something like 55% of the index PCE and core inflation index is non-housing related core services. And that’s really a function of the labor market largely at the biggest cost by far in that sector is labor and we do see a very, very strong labor market. One where we haven’t seen much softening and job growth is high and wages are high. Vacancies are quite elevated. And really there is an imbalance in the labor market between supply and demand. So that part of it, which is the biggest part, is likely to take a substantial period to get down.
The other — the goods inflation has turned pretty quickly now after not turning at all for a year and a half. Now it seems to be turning. But there is an expectation really that the services inflation will not move down so quickly so we’ll have to stay at — so we may have to raise rates higher to go where we want to go. That’s why we’re running down the high rates and why we’re expecting they’ll have to remain high for a time.
>> Howard schneider with Routeers. This is really approaching stall speed. Half a percentage point is not much. You described labor market unemployment rate as representing some softening. It’s nearly a full percentage point rise and that’s well in excess of what has historically been with recession. Why wouldn’t this be considered a recessionary projection by the Fed?
>> CHAIRMAN POWELL: Well, I’ll tell you what the projection is. I don’t think it would qualify as a recession because you’ve got positive growth. The expectations in the SEP are basically as you said, which is we’ve got growth at a modest level which is half a percentage point. That’s positive growth. It’s slow growth. It’s well below trend. It won’t feel like a boom. It will feel like very slow growth. In that — in that condition, labor market conditions are softening a bit. Unemployment does go up a bit. I’d say many analysts believe that the natural rate of unemployment is actually elevated at this moment so it’s not clear the forecasts and inflation are above the natural rate of unemployment. We can never identify its location with great precision. But that 4.7% is still a strong labor market. If you look — you’ve got — the reports we get from the field are that companies are very reluctant to lay people off other than the tech companies which is a story unto itself. Generally companies want to hold on to the workers they have because it’s been very, very hard to hire. You have all the vacancies far in excess of the number of employed people. It doesn’t sound like a labor market where a lot of people need to be put out of work. So there are channels through which the labor market can come back into balance with relatively modest increases in unemployment, we believe. None of that is guaranteed but that’s what the forecast reflects.
>> Thanks, Nick Timiraos of the Wall Street Journal. The slowing down rate rises appears to have been socialized at the last meeting largely between the past two CPI reports showed decelerating in line with the committee’s forecast this year. You talked about making decisions meeting by meeting and being mindful of the legs of policy. Does that mean all things equal you would feel more comfortable probing where the terminal rate is by moving 25 basis point increments including the beginning of the next meeting in
>> CHAIRMAN POWELL: I haven’t made a judgment on what size rate hike to make at the last meeting but, you know, what you said is broadly right which is having moved so quickly, and having now so much restraint that is still in the pipeline, we think that the appropriate thing to do now is to move to a slower pace. And, you know, that will allow us to feel our way and, you know, get to that level, we think, and better balance the risks that we face. So that’s the idea. It makes a lot of sense it seems to me. Particularly if you consider how far we’ve come.
But again, I can’t tell you today what the actual size of that will be. It will depend on a variety of factors including the incoming data in particular. The state of the economy. The state of financial conditions.
>> The CPI report did come out last week. Do you think it will change some of the forecasts?
>> CHAIRMAN POWELL: Absolutely not. As a — just a matter of practice, the SEP reflects any data that comes out during the meeting. And participants know they have the — they can make changes to their SEP during the meeting, you know, well in advance of the press conference so we’re not running around. But that’s not the case. It’s never the case that the SEPs don’t reflect an important piece of data that came in on the first day of the meeting.
>> Hi, Rachel seagull from the Washington Post. Thank you for taking our question. I’m wondering if we can talk about the projection for the unemployment rate. Why has The Fed raised its unemployment projection? Is it because the model suggests a higher terminal rate would automatically cause a higher unemployment rate or the labor market is not as strong?
>> CHAIRMAN POWELL: It’s not about the strength of the labor market. The labor market is clearly very strong. It’s more about by now, we had expected — we continually expected to make faster progress on inflation than we have ultimately. And that’s why the peak rate for this year goes up between this meeting and September meeting. You see that — the fact we made less progress than expected on inflation. That’s why unemployment goes up because we’re having to tighten policy more. So it didn’t go up by much in the meeting I don’t think. But that’s the idea, is slower progress on inflation, tighter policy, probably higher rates, probably held for longer just to get to where you — the kind of restriction that you need to get inflation down to 2%.
>> Do you have a sense of in order to get to that number, how much of that could be caused by layoffs versus vacancies trimming or changes to the labor force population rate?
>> CHAIRMAN POWELL: It’s very hard to say. You know, you can look — they can look at history and history would say that in a situation like this, the declines in unemployment would be more meaningful I think than what you see written down there. So why do we think that’s the case?
First there is this huge overhang of vacancies meaning that vacancies can come down a fair amount and we’re hearing from many companies that they don’t want to lay people off. So that they’ll keep people because it’s been so hard. I think we have — it feels like we have a structural labor shortage out there where there are four million fewer people, a little more than four million in the workforce available to work than there is demand for workforce. The fact that there is a strong labor market means that companies will hold on to workers and it may take longer and also means that the costs in unemployment may be less. We’ll find out imperically but I think that’s a reasonably possible outcome and you do hear many, many labor economists believe that it is. So we’ll see though.
>> Thank you. Colby Smith with the Financial Times. How should we interpret the higher core inflation forecast for 2023 in the SEP? Does that not then suggest that the policy rate currently forecasted for next year should actually be higher than the 5.1 medium estimate penciled in?
>> CHAIRMAN POWELL: Well, I think that’s one of the reasons it went up is that Core came in stronger this year. What you see is our best estimate as of today really, as of today, for how high we need to raise rates to — how much we need to tighten policy to create enough, you know, restrictive policy to slow economic activity and soften the labor market and bring inflation down through the channels. That’s all you — that’s the estimate. Best estimate we make today. And as I mentioned, we’ll make another estimate for the next SEP and we’ll of course between meetings we do the same thing and don’t publish it.
>> Hi. Victoria Guida with Politico. You’re more pessimistic about what inflation will look like next year. I’m wondering given we have seen some cooling in inflation, is that primarily because of wage growth that you expect wage growth to be sort of a head wind?
>> CHAIRMAN POWELL: We’re going into next year with higher inflation than we thought. So we’re actually moving down to the level that we’re moving down to next year is still a very large drop in inflation from where inflation is now. More than a 1% change in inflation. But remember that the jumpoff point at the beginning of the year is higher. So, you know, we — we’re moving down still by a very large chunk. I don’t think it’s — I don’t think the policy is having any less effect. It’s just starting from a higher level at the end of 2022. So we’re getting down — I believe the meeting is 3 and a half%. That’s a pretty significant drop it inch inflation. Where is it — in inflation.
Where is it coming from? From the goods sector clearly. By the middle of next year we should begin to see a lower inflation from the housing services sector. And then, you know, the big question is how much will you see from the largest, the 55% of the index which is the non-housing services sector and, you know, that’s where you need to see — we believe you need to see a better balancing of supply and demand in the labor market so it’s not that we don’t want wage increases. We want strong wage increases. We just want them to be at a level that’s consistent with 2% inflation right now if you — if you put into — factor in productivity estimates, standard productivity estimates, wages are running well above what is consistent with 2% inflation.
>> Thanks. Hi, Neil (?) with Axios. Some colleagues say they can’t imagine rate cuts in 2023. That’s certainly not implied by the SEP. What’s your view of the likelihood of any rate cuts next year? What circumstances might make that plausible? Is
>> CHAIRMAN POWELL: Our focus right now is really on moving our policy stance to one that’s restrictive enough to assure a return of inflation to 2% goal over time. It’s not on rate cuts. And we think that we’ll have to maintain a restrictive stance of policy for some time. Historical experience caution strongly against premukerly — prematureically loosening policy. I wouldn’t say we’re considering rate cuts and a sustained way so that’s — that’s the test I’d articulate and you’re correct, there are not rate cuts in the SEP for 2023.
>> Steve Matthews with Bloomberg. Let me ask you about China in the last few weeks, China has abandoned its COVID policy and been reopening pretty strongly. I’m wondering if you see that as disinflationary because you’re seeing supply chains improve or inflationary because it obviously brings a lot more demand globally and proves the global outlook for growth and commodities prices.
>> CHAIRMAN POWELL: You’re right. Those two things will offset each other. Weaker output in China will push down on commodity prices but could interfere with supply chains ultimately and could push inflation up in the west. It’s very hard to say how much — how those two will offset each other and doesn’t seem likely the overall net effect will be material on us. But to your point, China faces a very challenging situation in reopening. We have seen waves of COVID all around the world can interfere with economic activity. China a very critical manufacturing place for manufacturing and exporting. Their supply chains are very important. And China faces a reopening — they have backed away from their COVID restriction policies and could be significant increases in COVID and we’ll have to see. It’s a risky situation.
But again, it doesn’t seem like it’s likely to have material overall effects on us.
>> Hi. Chris, Associated Press. Thank you for taking my question. I wanted — I wondered if you could comment about yesterday’s inflation report. It shows inflation cooling in all three categories you laid out. Are you starting — are you confident you’re seeing real progress on getting inflation under control? Are you still worried it could slip into some kind of unentrenched, you know, upward spiral?
>> CHAIRMAN POWELL: Right. So the data that we received so far for October and November, we don’t have some of the — we have some remaining data to get in November but they clearly show a welcome reduction in the month of price increases. It will take substantially more evidence to give confidence that inflation is on a sustained downward path. So the way we think about it is this. This report is very much in line with what we have been expecting and hoping for. It provides greater confidence in the forecast of declining inflation. As I mentioned we have been expecting — forecasting significant declines in overall inflation and core inflation in the coming year. This is the kind of reading it will take to support that. So really this gives us greater confidence in our forecast rather than at this point changing our forecast.
In terms of the pieces we have been expecting goods inflations to come down as supply chain pressures eased. That’s happening now. Housing services, as I mentioned, there is good news in the pipeline as long as housing — new housing leases show declining inflation. That will show up around the middle of next year so that should help and the big piece again is core services exhousing which is very important and we have — we have a ways to go there. You see some beginning signs there but ultimately that’s the big — more than half as I mentioned of PCE core index and it’s very fundamentally about the labor market and wages.
If you look at wages, look at the average hourly earnings number we got with the last payrolls report. You don’t really see much progress in terms of average hourly earnings coming down. There may be composition effects and other effects in that so we don’t put too much weight on any one report. These things can be volatile month to month. But we’ll be looking for wages moving,you know, down to more normal levels where workers are doing well and ultimately their gains are not being eaten up by inflation.
>> Michael McKey from Bloomberg radio and television. There is a little disconnect between the optimistic view you expressed about the economy and changes you’ve made in the SEP. I’m wondering if you’re reacting to the fact that the markets have loosened financial conditions or if you feel the Fed may be a little behind on inflation whether — the recent disinflation we’re seeing is transitory or not, and how this affects the idea of a soft landing if you’re projecting just half a percent growth for this year.
>> CHAIRMAN POWELL: So if I — I think I got your question. So, you know, one thing to say is I think our policies in getting into a good place were restrictive and we’re getting close to the level of sufficiently restrictive MFB we laid out today what our best estimates are to get there. And I mean, it boils down to how long we think the process is going to take. And of course we’re — we welcome these better inflation reports for the last two months. They’re very welcome but I think we’re realistic about the broader project. So that’s all — that’s the point I’d make. You know, we see goods prices coming down. We understand what will happen with housing services. But the big story would really be the rest of it and there is not much progress there, and that’s going to take some time. I think my view and my colleagues’ view is this will take time and we’ll hold policy for a sustained period so — so two good monthly reports are, you know, very welcome. Of course they’re very welcome. But we need to be honest with ourselves that there is inflation, 12-month core inflation is 6% CPI. That’s three times the 2% target. Now it’s good to see progress but let’s understand we have a long ways to go to get back to price stability.
>> Do you think the soft landing is no longer achievable?
>> CHAIRMAN POWELL: I don’t say that. I wouldn’t say that. I’d say this. To the extent we need to keep rates higher and for longer and inflation, you know, moves up higher and higher, I think that narrows the runway but lower inflation readings if they persist in time could certainly make it more possible. I don’t think anyone knows whether we’ll have a recession or not. And if we do, whether it’s going to be a deep one or not. It’s not knowable. And certainly, you know, lower inflation reports were they to continue for a period of time would increase the likelihood of — put it this way. Of a return to price stability that involves significantly less of an increase in unemployment than would be expected given historical record.
>> Hi, Chairman Powell. Brian Chung, NBC News. You warned Americans of pain but with The Fed expected to raise rates higher than when you first said that, wondering where we are on that pain and how you’d explain that to Americans if — that would be 1.6 million Americans out of jobs.
>> CHAIRMAN POWELL: So the largest amount of pain, the worst pain would come from a failure to raise rates high enough and from allowing inflation to become entrenched in the economy so that the ultimate cost of getting it out of the economy would be very high in terms of unemployment meaning very high unemployment for extended period of times. The kind of thing that had to happen when inflation got out of control and The Fed didn’t respond aggressively or soon enough in a prior episode 50 years ago.
So that’s really the worst pain, would be if we failed to act. What we’re doing now is raising interest rates for people. So people are paying higher rates on mortgages and that kind of thing. There will be softening in the labor market conditions and I wish there were a completely painless way to restore price stability. Thereisn’t. And this is the best we can do. I do think though that — markets are pretty confident it seems to me that we’ll get inflation under control and I believe we will. We’re certainly highly committed to do that.
>> Thank you. Grady Tremble with Fox Business. You reiterated and the committee reiterated the commitment to the 2% inflation target. I wonder is there ever a point where you re-evaluate that target and maybe increase the target if it’s stickier than even you think it is.
>> CHAIRMAN POWELL: That’s just — so changing our inflation goal is something we’re not think ing about. It’s not something we’re not going to think about. It’s — we have a 2% inflation goal and we’ll use our tools to get inflation back to 2%. I think this isn’t the time to be thinking about that. There may be a longer run project at some point but that is not where we are at all. The committee — we’re not considering that and not going to consider that under any circumstances. We’re going to keep our inflation target at 2% and use our tools to get inflation back to 2%.
>> Thank you, Chairman Powell. Nicole Goodpines, CBS Business. I wonder if you’re paying close attention to a sector or even income level. How do you factor potential exacerbations of inequality into your risk calculations especially given the (?) recovery of 2020.
>> CHAIRMAN POWELL: So the — I would go back to the labor market we had in 2018, 2019, 2020. What that looked like was wage increases for the people at the lowest level of the income spectrum were the largest. The gaps between racial groups and gender groups were at their smallest in recorded history. That’s — all that because of a tight labor market. A tight labor market which had inflation running, you know, a tick below 2% and the economy growing at its potential.
So that seems like something that would be really good for the economy and country if we could get back to that. We want to get back to a long expansion where the labor market can remain strong over an extended period of time. That’s a really good thing for workers in the economy and we’d love to get back to that. That’s what our goal is.
You know, in the near term, we have to use our tools to restore price stability but we can’t — what we have to think about is the medium and longer term. If you think about it, the country went through a difficult time. I think much more difficult than we can think it would happen here. But it really set up our economy for several decades of prosperity so price stability is something that really pays dividends for the benefit of the economy and the people in it over a very, very long period of time. So when it is lost for whatever reason, it has to be restored. And as quickly as possible. Which is what we’re doing.
>> In the short-term are you factoring in potential exacerbations in the economy?
>> CHAIRMAN POWELL: We do. We absolutely do. We look at — it’s a regular practice to talk about unemployment rates by different groups including racial groups and that sort of thing. We do. We keep our eye on that.
>> Hi. Nancy Marshal with Marketplace. What would you do if the economy slows so much that we enter recession before we see strong consistent signs that inflation is slowing, in other words, stagflation?
>> CHAIRMAN POWELL: So I don’t want to get into too many hypotheticals but, you know, we’ll — it’s hard to deal with hypotheticals. So let me just say that we have to use our tools to support maximum employment and price stability. I made it clear that right now the labor market is very, very strong near a 50-year low. You’re at or above max employment. In 50-year low and unemployment, vacancies are very high. Nominal wages are very high so the labor market is strong.
Where we’re missing is on the inflation side and missing by a lot on the inflation side so that means we need to really focus on getting inflation under control. And that’s what we’ll do. I think as the economy heals, the two goals come more into play. But right now, clearly the focus has to be on getting inflation down.
>> Thank you, Chairman Powell. Greg from Market. Watch. You spoke a little bit ago and said the U.S. looks like we have a structural labor shortage in the economy. Could you expand on that, talk about that and really are you talking about getting congress action on increasing legal immigration, things like that. Thank you.
>> CHAIRMAN POWELL: So what I meant by that with structural labor shortage is if you look at where we are now, as I mentioned, if you just look at demand for labor, you can look at vacancies plus people who racktually working and — who are actually working and take supply by labor like if you’re in the labor and looking for a job or have a job and more than four million people short. We don’t see despite very high wages and incredibly tight labor market, we don’t see participation moving up which is contrary to what we thought. The upshot is the labor market is actually — it’s three and a half million people smaller than it should have been based on pre-pandemic just assume population and reasonable growth and aging of the population, our labor force should be three and half million more than it is, and there is lots of easy ways to get to bigger numbers than that if you go back a few more years. So why is that? Part is accelerated retirements and people dropped out and are not coming back at a higher rate than expected. Part is that we lost a half a million people — close to half a million people who would have been working died from COVID and part of it is that migration has been lower. We don’t prescribe — it’s not our job to prescribe things. But I think if you ask businesses, you know, pretty much everybody you talk to says there are not enough people. We need more people. So I try to identify that in my — in the speech I gave a month ago but I stopped short of telling congress what to do because they gave us a job and we need to, you know, do that job.
>> Thank you, Chairman Powell. Jennifer Shaunberger with Yahoo Finance. You said raising rates and getting inflation back under control will be painful. Have you had discussions within the committee and addressed how long and/or how deep of a recession you would be willing to accept?
>> CHAIRMAN POWELL: No. I mean, what we do is make — we make our forecasts and we publish them quarterly, and, you know, if you look at those forecasts, those are forecasts for slow growth, for a softening labor market by which I mean unemployment goes up but not a great deal. And you see inflation coming down. You see rates going up a lot and inflation coming down. Those are the forecasts. That’s really what they show.
We — of course — we don’t — talk about, you know, this kind of a recession and that kind of a recession. We make the forecasts. The staff runs and you’ll see this if you look at the old teal books, runs alternative simulations of all different kinds at every meeting and we look at those too and those explore different things. That’s just — you know, upside and downside scenarios. Of course that’s responsible practice we carried on for many decades but no. We don’t — we haven’t asked ourselves that question.
>> Jean Young with Market News. I wanted to ask about the SEP again. If you are reaching peak rates around 5% in the first half of next year and inflation starts to decline materially, that would seem to make the real rate gradually more restrictive. Is that something that’s built into the projections and into models? Is that something you’d want to see?
>> CHAIRMAN POWELL: So we do know that. That’s something we’d know and see. As I mentioned, I wouldn’t see the committee cutting rates until we’re confident that inflation is moving down in a sustained way. That would be my test. I don’t see us as having a really clear and precise understanding of what the neutral rate is and what real rates are so that would mechanically happen. Really it will be a test of for — for cutting rates in the event it will be a question of do we actually feel confident that inflation is coming down in a sustained way. Thank you very much.
(End of press conference)
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