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FOMC Press Conference December 11, 2019


CHAIR POWELL. Good afternoon, everyone. To begin, I’d like to say a few
words about Paul Volcker, who, as you know, passed
away earlier this week. Paul Volcker served as Federal
Reserve Chair from 1979 to 1987. He accomplished many
things during his long and distinguished career
at the Fed and elsewhere. Of course, he’s best known
for leading the fight to tame the double-digit
inflation that he inherited as Chair, thus laying the
foundation for the prosperity and price stability
we enjoy today. But what is perhaps most
admirable about him-more than his many
accomplishments-was his character. He believed that there
is no higher calling than public service, and he dedicated the lion’s
share of his life to it. With courage, integrity,
and tenacity, he always pursued the policies that he believed would
ultimately benefit all Americans. My colleagues and I continue to draw inspiration
from his example. Turning to today’s meeting,
my colleagues and I decided to leave our policy
rate unchanged after lowering it a total
of percentage point at the previous three meetings. As always, we base our decisions
on judgment of how best to achieve the goals
Congress has given us: maximum employment
and price stability. Our economic outlook remains
a favorable one despite global developments and ongoing risks. With our decisions through
the course of the past year, we believe that monetary
policy is well positioned to serve the American people by supporting continued economic
growth, a strong job market, and inflation near our
symmetric 2 percent goal. The economic expansion
is in its 11th year, the longest on record. Household spending
has been strong, supported by a healthy job
market, rising incomes, and solid consumer confidence. In contrast, business investment
and exports remain weak, and manufacturing output has
declined over the past year. As has been the case for some
time, sluggish growth abroad and trade developments have
been weighing on those sectors. Even so, the overall economy
has been growing moderately. And with a strong household
sector and supportive monetary and financial conditions, we expect moderate
growth to continue. As seen from FOMC participants’
most recent projections, the median expectation for
real GDP growth slows slightly over the next few years
but remains near 2 percent. The unemployment rate has
been near half-century lows for well more than
a year, and the pace of job gains remains solid. Participation in the
labor force by people in their prime working years, ages 25 through 54,
has been increasing. And wages have been
rising, particularly for lower-paying jobs. People who live and work in low- and middle-income
communities tell us that many who have struggled to
find work are now finding new opportunities. Employment gains have been
broad based across all racial and ethnic groups and
all levels of education. These developments underscore
for us the importance of sustaining the expansion so that the strong job
market reaches more of those left behind. We expect the job
market to remain strong. The median of participants’
projections for the unemployment rate
remains below 4 percent over the next several years. Inflation continues to
run below our symmetric 2 percent objective. Over the 12 months
through October, total PCE inflation
was 1.3 percent, and core inflation-which
excludes volatile food and energy prices and
is a better indicator of future inflation-was
1.6 percent. While low and stable inflation
is certainly a good thing, inflation that runs persistently
below our objective can lead to an unhealthy dynamic in
which longer-term inflation expectations drift down, pulling
actual inflation even lower. In turn, interest rates would
be lower as well and closer to their effective lower bound. As a result, the scope for
interest rate reductions to support the economy in a future downturn
would be diminished, resulting in worse
economic outcomes for American families
and businesses. Against the backdrop
of a strong economy and supportive monetary policy, we expect inflation
will rise to 2 percent. The median of participants’
projection rises to 1.9 percent next year
and 2 percent in 2021. We’re strongly committed to achieving our symmetric
2 percent inflation goal. Over the course of the past
year, our views about the path of interest rates that would
best achieve our employment and inflation objectives
changed significantly, as the economy faced
some important challenges from weaker global growth
and trade developments. As the year progressed,
we adjusted the stance of monetary policy to
cushion the economy from these developments and
to provide some insurance against the associated risks. In addition, inflation pressures
were unexpectedly muted, strengthening the case for a more supportive
stance of policy. Rather than modestly
increasing the target rate for the federal funds
rate this year, as seemed appropriate a
year ago, we reduced it by percentage point. This shift has helped
support the economy and has kept the
outlook on track. The medians of participants’
projections for economic growth, the unemployment rate, and
inflation are little changed from a year ago, aside from a lower inflation
projection for 2019. Of course, that is the function of monetary policy-to
adjust interest rates to promote employment and
price stability in response to forces acting on the economy. We believe that the
current stance of monetary policy will
support sustained growth, a strong labor market, and inflation near our
symmetric 2 percent objective. As long as incoming information about the economy
remains broadly consistent with this outlook,
the current stance of monetary policy likely
will remain appropriate. Looking ahead, we will
be monitoring the effects of our recent policy actions, along with other information
bearing on the outlook, as we assess the appropriate
path of the target range for the federal funds rate. Of course, if developments
emerge that cause a material
reassessment of our outlook, we would respond accordingly. Policy is not on
a preset course. Finally, I wanted to note that we’ve been purchasing
Treasury bills and conducting repurchase
operations, consistent with the plan
we announced in December. These technical operations
are aimed at maintaining an
ample level of reserves and addressing money
market pressures that could adversely
affect the implementation of monetary policy. Our operations have gone well so
far; pressures in money markets over recent weeks
have been subdued. To address possible pressures in
money markets over the year-end, we’ve been conducting term repo
operations spanning year-end. We stand ready to adjust the
details of our operations as appropriate to keep
the federal funds rate in the target range. Thank you, and I’ll be happy
to take your questions. HOWARD SCHNEIDER. [Inaudible remark] Sorry-Howard
Schneider with Reuters. Sorry about that. So I was struck by the, sort
of, disconnect that exists here between the behavior of
unemployment and inflation. You seem to have unemployment
penciled in here now for three years
running-more-underneath the longer-run level, yet inflation
never really accelerates. So what are we to make of that? CHAIR POWELL. Well, that’s-what’s
happening there is the fact that the relationship
between resource utilization, or unemployment, and inflation
has just gotten weaker and weaker over the years. If you go back 50 years,
you would have seen that, when there was-when
labor markets were tight and unemployment was low,
inflation moved right up. And then as the Fed got
control of inflation, the connection got weaker and
weaker and weaker, to the point where there’s still
a connection, but it’s-it’s a very faint one. And I-what that suggests
is that you would need to keep policy somewhat
accommodative. And we believe that policy
is somewhat accommodative, and we think that that’s the
appropriate place for policy to be in order to
drive up inflation. HOWARD SCHNEIDER. If I could follow up on that-I
mean, it’s faint to nonexistent, though, it seems to me, so
this suggests that, really, your policy lever as it exists
now isn’t really influencing prices at all. So, in that case, what do
you do to reach your target? CHAIR POWELL. You know, I don’t
think that’s right. I mean, we-the-again, the
relationship between slack in the economy and inflation
is weak, has been weak. The coefficient is
something like 0.1. So it’s much, much lower than
it used to be, but I don’t know that it’s gone down any
more in the last decade. It just is quite faint. But it’s still there. I mean, you can see it. If you look-look at where wages
were three or four years ago, they were running
around 2 percent. And now the whole group
of different wage measures that we monitor has moved
up to 3 and 3½ percent, and that suggests tightening. The same thing is true, but
much less true, of inflation, the relationship
between-in a way, the wage Phillips curve
has a higher coefficient than the price Phillips
curve does. But we do still see
some relationship, and that’s what you’re
seeing in those numbers. STEVE LIESMAN. Mr. Chairman, Steve
Liesman CNBC. You’ve used the analogy to 1998 to describe the rate cuts
we just went through, and I’m wondering if we can
sort of continue the analogy. Within seven months of
those ’98 rate cuts, the Fed took them
back and then some. So, were these those
kind of rate cuts, the kind that you need to take
back, or are we at a place now where we’re at a
neutral rate-“take back,” I mean if those risks that
you say we’re cushioning from don’t materialize in the way you think-or is this
now a new sort of steady state for the economy at this
rate, this is the right rate for the economy that you see
going forward and don’t need to take those rate cuts back? CHAIR POWELL. So there’s similarities,
conceptual similarities, I think, between the
two instances during that long expansion, I
guess in ’95 and ’98, when the Fed cut three times
only to resume raising rates. And the notion just is that it’s
a-the economy needed slightly more accommodative policy,
but it wasn’t the end of the expansion, right? And that’s the same situation
we believe we’re in here. So this is that we did, in fact,
turn out to do three rate cuts. That wasn’t in the
plan, you know, in any kind of specific
way at the beginning. So that’s the same. What’s different is, you have
a very different-you have very different structural
characteristics in the economy, particularly around inflation. So now, as you can see,
inflation is barely moving up, notwithstanding that
unemployment is at 50-year lows and expected to remain there. So the need for rate
increases is less. And, by the way, this is-it’s
a good thing that, you know, we think we can-I
think we’ve learned that unemployment can
remain at quite low levels for an extended period of time without unwanted upward
pressure on inflation. In fact, we need some
upward pressure on inflation to get back to 2 percent. It’s quite different
in ’95 and ’98 when there were those
two adjustments. So, I would say,
similarities and differences. MICHAEL MCKEE. The BIS concluded in-I did
the same thing as Howard. Michael McKee, Bloomberg
radio and television. The BIS concluded in September that the repo spike was
not a one-off confluence of random events but reflected
structural and regulatory issues that could lead to a recurrence. I’d like to ask you if you
agree with the BIS findings. And, given that we’re
approaching year-end for the markets, will you be
taking any extra steps to ensure that funding is available in
the repo and FX swaps markets? There was a report yesterday from Credit Suisse suggesting
there’s a good chance that we will see disruptions,
and one of the reasons they put for it is that the Fed is at
this point buying only T-bills, and the market wants
to sell coupons. Do you have any plans
to sell coupons? CHAIR POWELL. So I’m going to take a little
step back, and I will-I will get to your specific questions on
the year-end and on T-bills. So I guess I want to
start by stressing that these are very
important operational matters but that are not likely to have
any macroeconomic implications. We’d decided back in January to
remain an ample-reserves regime, and that means we will be
setting the federal funds rate-the range for
the federal funds rate through our administered
rates and not through active management
of the level of reserves. We’re committed to robustly
implementing that framework, as you can see by our actions. And the purpose of all this,
let’s remember, is to assure that our monetary policy
decisions will be transmitted to the federal funds rate, which in turn affects
other short-term rates. We have the tools to accomplish
that, and we will use them. The purpose of all this is not
to eliminate all volatility, particularly in the repo market. So, taking you back,
this-as you know, we had very gradually allowed
the balance sheet to shrink, we slowed that gradual
pace by half in March, and then we ended it in July. Meanwhile, we had
surveyed all of the banks, and particularly the large banks
who hold a lot of the reserves, and said, “What’s your lowest
comfortable level of reserves?” We got those numbers, we added
them up, we added a buffer, and it came out sort of at
a level that was well below where we were in September. And yet we saw, actually,
in September that reserves-the markets acted as though reserves
had become scarce. So what had happened
was that liquidity, which actually existed, didn’t
flow into the repo market, and that had effects on
the federal funds rate. So the question is,
why did that happen? And we’ve been very carefully
looking at the reasons why that might have happened. There are-there are payments
issues, there have been a number of supervisory and regulatory
issues raised-we’re looking carefully at those. We’re open to ideas for
modifying supervisory and regulatory practice in ways
that don’t undermine safety and soundness, and a number of ideas are under-under
examination there. To go through it sort of by-in
time, we started off, really, on September 17 with
overnight operations. By October 11 we had created
and put into effect a plan. That plan is in effect. It’s working. I think, for the last
couple of months, repo markets have
been functioning well, short-term rates are stable,
markets are functioning. So you asked about year-end. Temporary upward pressures on short-term money market rates
are not unusual around year-end. And our-both our repo operations and Treasury bill purchases are
intended to mitigate the risks that such pressures
pose to our control of the federal funds rate. We think that the
pressures appear manageable, and we stand ready to adjust
the details of our operations as necessary to keep the federal
funds rate in the target range. Our strategy has
been-essentially, the key to our strategy
is to supply reserves in the near term through-through
both overnight and term repo, and, at the same time, we’re
raising the underlying level of reserves through
bill purchases. I’ll take that now. We’ve said bills-bill purchases. We’ve also said that we were
willing to adapt our strategy. We’re not at this place, but
if it does become appropriate for us to purchase other
short-term coupon securities, then we would be prepared to
do that if-if the need arises. So-but we don’t-we
don’t-we’re not in that place. It looks-it very much looks like the bill-so those bill
purchases are going well, just according to expectations. I mean, the other thing I’ll
say is that we’re in, you know, very regular contact with market
participants all the time. We’ll be providing-we’ll
be continuing that, and we’re prepared to
adjust our tactics. We’re-we’re focused on-on
year-end as well and prepared to adjust our operations
as appropriate. MICHAEL MCKEE. The follow-up to that
would be, where are we with the possibility of
a standing repo facility? CHAIR POWELL. So, on the standing repo
facility, as you know, we’ve actually had
a couple of meetings where we’ve discussed that. I think the standing repo
facility is something that’ll take some time to evaluate
and create the parameters of and put into place. At the moment what
we’re focused on is, you know-we’re now
focused on year-end. I should also mention that after
the year-end, the sense of it is that as the underlying level
of reserves moves up because of bill purchases, as that
happens, there will come a time when it will be appropriate
for overnight and term repo to
gradually decline. We don’t know-we can’t
know today what the timing of that will be, but that’s the
way-that’s the way we see it going over time. HEATHER LONG. Heather Long from
the Washington Post. A number of your colleagues
have said explicitly that they do not think the FOMC
should raise interest rates until core inflation
is back at 2 percent. They think there
should be a rule. Where do you personally
stand on that? CHAIR POWELL. Well, as I mentioned, actually,
at the last press conference, we think our policy
rate is appropriate and will remain appropriate
as long as incoming data are
broadly in keeping with our-with our outlook. And in order to move
rates up, I would want to see inflation
that’s persistent and that’s significant-a
significant move-up in inflation that’s also
persistent before raising rates to address inflation concerns. That’s my view. HEATHER LONG. So is this de facto policy
of the Committee then? I guess I’m wondering
why it’s not sort of codified in a statement. CHAIR POWELL. We haven’t-we haven’t tried
to turn it into some sort of, you know, official
forward guidance. It happens to be my view that
that’s what it would take to want to move interest
rates up in order to deal with inflation. JEANNA SMIALEK. Hi, Chair Powell. Jeanna Smialek with
the New York Times. Just following up on Heather’s
question-so if you look at the SEP today, it looks like inflation is never
overshooting 2 percent and is only getting up to 2
percent by the end of 2021, yet rates are increasing
in 2021. So, I guess, how do
we square that circle, with interest rates increasing
before inflation ever really moves up in some
meaningful overshooting way? CHAIR POWELL. I think what you’re seeing
is, you’ve got a full year of the median being flat, which
is, we think, accommodative, modestly accommodative,
and inflation not moving up very much, as
we’ve discussed. And that underscores,
I think, the challenge of getting inflation to move up. The Committee has wanted
inflation to be at 2 percent, squarely at 2 percent, for-ever
since I arrived in 2012. And it hasn’t happened,
and it’s just-it’s because there are
disinflationary forces around the world, and they’ve
been stronger than, I think, people understood them to be. In terms of those
out-year rate increases, what’s you’re-you’re looking at
rate increases more than a year into the future, and, you know, people will have
their own explanations for why they do that, but
we-really, none of us have much of a sense of what the
economy will be like in 2021. So I think what may
be behind some of that is just the
thought that, over time, it would be appropriate-if
you believe that the neutral rate is 2½
percent, it would be appropriate for your rates to move
up in that direction. I will also say to you that a
number of people wrote down, and you can’t see this
at this level of detail, but-today-but a number of
people did write down overshoots of inflation as appropriate-under
appropriate policy. BRENDAN GREELEY. Brendan Greeley from
the Financial Times. Given that inflation-whichever
measure you choose-has either sort of remained where it is or
not increased over the past year as you’ve been dropping
the policy rate, what is it that gives
you confidence that the Fed has the tools to
get inflation back up to target or even overshoot as
you just indicated that some people are
considering doing? CHAIR POWELL. Well, it’s just that there is
still, empirically, by many, many different-by the work
of many different analysts, there is a relationship
between resource utilization, by which I mean unemployment,
and inflation. It’s just relatively weak. And, by the way,
that’s not a bad thing. That means that we can run
at low levels of unemployment and have a historically good-in
some dimensions-labor market without having to
worry about inflation. It also means, though, that it’s
not easy to move inflation up. Now, you say, why
is there confidence? I mean, I would say
there’s more humility than there is confidence
in this at this point. It’s been very challenging to
get inflation to be at target. If you look around the
world, the United States, of all major economies,
has been closest to it but still hasn’t quite
been able to achieve it. And I would also point
out that this year, which has been a good
year for the economy, inflation-core inflation is
actually running at 1.6 percent, whereas it ran close to 2
percent most of last year. So it’s-it’s a real challenge, and-but I think we’re using
our tools as best we can to meet that challenge. NICK TIMIRAOS. Nick Timiraos, the
Wall Street Journal. So, Chair Powell, I want to
ask about the framework review, which obviously entails
some kind of debate around allowing an overshoot
of the 2 percent target. And in that-in that
context, is merely saying that you want inflation to rise above 2 percent a sufficient
strategy for getting inflation to stay at the target, or
would it compel some kind of policy action beyond
deferring future rate increases to achieve that outcome
if that’s the direction in which the Committee goes? In other words, it’s one thing
to accept inflation rising on its own opportunistically. But if inflation does not
materialize, would a change in the framework
necessarily make it easier to generate higher inflation? CHAIR POWELL. Well, I-you know, I think
the answer to the question of whether saying it is
enough to create credibility, the answer to that is “no.” And I think you have to
back that up with policy that supports the outcome, and
that’s what we’re trying to do. And so the-the changes
that we’re looking at to the framework are-I think
they take all of that on board, and-but they’re-what
they’re-what they are designed to do is to strengthen
the credibility of that-of that inflation target, but
only if followed by policy. Ultimately, it will take time to establish-to move
inflation expectations up from where they are, which appears
to be a bit below 2 percent, will not happen overnight. It’ll have to happen over
time as credibility is built. You know, the Fed has great
inflation credibility, but inflation expectations
are anchored at about their 25-year average, which is a few ticks
below 2 percent. EDWARD LAWRENCE. We talked a lot about
inflation-Edward Lawrence from Fox Business Network. We talked a lot about inflation. I want to ask you
about uncertainty. With the House announcing
that they will ratify USMCA and Canada and Mexico
signing off on it, do you see that uncertainty
easing now so the business investment
could pick up, or are the trade tensions with
China just that big elephant in the room where you might not
see those business investments pick up? CHAIR POWELL. Well, I did see the news today that it appears there’s an
agreement to move forward to vote on USMCA, and, of
course, it’s not our role to comment on particular
trade policies or criticize them one way or
the other or evaluate them. I will say, though, that
getting-if the deal were to be enacted, then it
would certainly remove some of the trade policy uncertainty,
and that would be, I believe, a positive for the economy. And I’ll say the same thing
about the negotiations with China, which haven’t
reached that point yet. We’ve been hearing
from our people that we talked to-the many,
many people and businesses that we talked to in-through
the Reserve Banks that wind up being written up
in the Beige Book, and they’ve been telling us
all year-for a year and a half, really, that trade policy
uncertainty is weighing on the outlook. And I do think that,
again, without commenting on it-in any way on the process
or the content of the agreement, I think that uncertainty-removal
of uncertainty around that would be a positive
for the economy as well. EDWARD LAWRENCE. Is one uncertainty
bigger than the other? Is-do you see-not commenting
on the deals themselves, is one uncertainty-
CHAIR POWELL. Well, I think you can-you
know, it’s-I think you can see that what’s been moving-one
way to look at it is, what’s been moving
financial markets? It’s been news about
the negotiations with China, not so much USMCA. I think the difference between
NAFTA and USMCA is-is smaller than the difference between
current, you know, arrangements with China and what’s
being negotiated. MATTHEW BOESLER. Hi, Matthew Boesler
at Bloomberg. Chair Powell, the Fed policy
review this year has largely been discussed in terms of the
inflation side of the mandate and the need to shore up
inflation expectations. But it seems like the
message you’ve been getting from the Fed Listens events and also something else you’ve
recently acknowledged is that, you know, the Fed has also been
systematically overestimating labor utilization
throughout this expansion. So I’m wondering if you
could talk a little bit about the extent to which
the review is looking at the employment side
of the mandate as well. Are there any possibilities,
you know, for perhaps systematizing a more
asymmetric reaction function with regard to unemployment? Thank you. CHAIR POWELL. Yes. So the-you know, the
focus really is on how to use our strategies,
tools, and communications to achieve both sides
of the mandate. And you’re right, though, that we’ve talked here
a lot about inflation. And I think that the-I think,
more broadly, over a period of years-many years-we’ve been
learning that the natural rate of unemployment is lower. It’s just been-it’s in
estimates not just at the Fed, but among-broadly among
economists-labor economists have seen that the connection-that
we can sustain much lower levels of unemployment than
had been thought. And, as I mentioned,
that’s a good thing because that means we-we
don’t have to worry so much about inflation. And that’s-and you see
the benefits of that in today’s labor market. I-you know, the Fed Listens
events are about inflation to a much lesser
extent than they are about maximum employment. If you’ve-if you’ve listened
to or attended any of those, the discussion-we always
focus on inflation as well, but the discussion is really
around what’s happening in low- and moderate-income communities
and among small businesses. And I think you-you get a
perspective, which-you know, we were already getting that
from our extensive outreach to community groups and such. But it was help to get-helpful
to get it in the context of a monetary policy review. And I think that the fact
that these communities have so much-such high levels of
unemployment and low levels of labor force participation
tells you that there is slack out there. And I think that does also
inform our understanding of what we mean by
“maximum employment.” And it’s been a very
positive-I would say that the Fed Listens events have
been-have been extraordinarily positive, and they’re certainly
something we’ll repeat. You also see from the
business perspective that companies are taking all
kinds of measures to-you know, to look through things
on people’s résumés that would have perhaps
disqualified them in other kinds of environments, training
is moving up-you hear just a lot-there are a lot of
things going on that suggest that people at the margins of
the labor force are being pulled in and being given chances,
which is a great thing. MATTHEW BOESLER. Thanks. Sorry, if
I could just follow up briefly-is there
any way to sort of systematize these insights,
do you think, with, you know, in terms of-we talk a lot about,
for example, makeup strategies on the inflation side. Is there anything similar you
could do on the employment side? CHAIR POWELL. You know, I-I think we have kind of internalized-and this
isn’t-this isn’t news for today, this is something we’ve
been saying for, you know, for several years-you’ve seen
us moving down our estimates of the-of maximum employment. In fact, it’s already-it’s
already understood, I think, that-that there’s
more-even though we’re at 3½ percent unemployment,
there’s actually more slack out there, in a sense. And-and the risks of, you know, using accommodative
monetary policy, our tool, to explore that are
relatively low. And I think we know that, and I think the review
certainly underscores that, but that’s-that’s a
very important insight. VICTORIA GUIDA. Hi, Victoria Guida
with Politico. I wanted to ask more
about the-the repo issues and what you all are doing
beyond open market operations. Are you currently, for
example, telling examiners not to prefer reserves
over Treasuries for supervisory purposes? Are you talking to the
Treasury Department about maybe reducing
the level of volatility in their account at the Fed? And on the standing repo
facility, is it, you know, that you would be inclined
to do it, but you need to figure out the details? Or-or what would kind
of drive the decision on whether or not to do that? CHAIR POWELL. So, on Treasuries
versus reserves, we’ve done a ton
of work on that. We’ve talked to supervisors,
and-it’s interesting, if you look at the banks,
they’re all over the place on the composition of
their-of their buffer. So you have to have-you
have a business model, and that business model suggests
what your stress outflows will be, and that suggests what
your buffer should be. And you see them making
quite different choices. Some of them have lots of
reserves and, you know, fewer Treasuries, and then
they change their mind and they switch,
so it’s not obvious that there’s one
thing happening there. Notwithstanding that, we
have-we’ve gone out to try to understand that,
talking to supervisors. In terms of the-the TGA,
you know, we have not tried to pull the TGA into this yet;
we’ve taken it as exogenous. I don’t know that at some point
we won’t have those discussions, but, you know, Treasury-we
want Treasury to be able to have the cash that it needs. And then we should-we
are essentially taking that as exogenous
to our-to our work. And, you know, there may come
a time when we-when we talk about that, but we
haven’t done much of that. Standing repo facility-so
your question on that is, what are we thinking about it? What are we-I mean, I-so I
think we’re-we are more focused, frankly, on the T-the bill
purchases, the year-end, and also the review
of supervisory and regulatory issues
that we’re digging into, and-because we think, you know, there’s-these are structural
things-right?-where you could, without sacrificing
safety and soundness, just allow the-allow the
liquidity that is already there to flow more freely, perhaps by
making fairly straightforward, noncontroversial changes. And we think there
is some of that, though-and so we’re
working hard and fast. But those are things, you know,
the-if they take rule changes, it’ll take, you know, a notice of public rulemaking-it’ll
take three months and things like that. Those things take time. These things that we’re working
on now, though-like, you know, going through year-end with
the overnight facilities and the bill purchases and the
term repo-those are-those are things we have to do
right now and are doing. CHRISTOPHER RUGABER. Hi, Chris Rugaber
at Associated Press. I wanted to ask, the only change
in the statement was a drop in the reference to uncertainties
around the economy. You seem very confident
that-or it implies there’s a lot of confidence that those
uncertainties have gone away. What caused you to make that
change for the statement? What were you looking at that
seemed to be so much lower? CHAIR POWELL. Well, we did, actually-if
you look at the statement, you’ll notice that we-we did
call out global developments and muted inflation pressures
later in the statement. And why did we do that? You know, those are the things that we’ve been monitoring
all year. We’ve put now in place policies
that we think are appropriate to address those things, so
we’re not revisiting that. But those are-those
are just key things, and they haven’t gone away, so
we thought it was appropriate to mention them there-still
subject to the idea that, for us to change our
stance, we would want to see a material
reassessment of the outlook. CHRISTOPHER RUGABER. Well, just to follow real quick, on the material-material
reassessment aspect, are you worried that that
has set too high a bar for potential cuts next year? We were talking about
rate hikes, but no-no Fed policymaker seems
to foresee any cuts next year. Some economists do. Does a material reassessment
mean you need to see data actually worsen? Does it reduce your ability
to act preemptively the way, arguably, you did this year? CHAIR POWELL. So, I mean, one thing
that we’re mindful of is that we’ve cut rates
three times since July. That’s 75 basis points’
worth of cuts. And we do believe that monetary
policy operates with long and variable lags, and that it
will take some time before the full effects of those actions
are seen in the economy. So that’ll take some time. So that’s one reason to
hold back and-and wait. And we thought-I think
we took strong measures. In fact, if you look
at-more broadly at the Treasury yield curve, it has moved more
than 75 basis points. So you’ve-you’ve had
quite a significant move in the direction of
higher accommodation. In terms of what’s-you know,
what is material at the end of the day, well, I would just
say, whether or not a change in the outlook merits a policy
response will be a collective judgment of the FOMC. There isn’t any single factor that will determine
our decisions. We’ll-we’ll look at
a full range of data and other information bearing
on the economic outlook. SCOTT HORSLEY. Thank you Mr. Chairman,
Scott Horsley for NPR. You started out by
talking about Paul Volcker, who obviously cast
a-a long shadow. I wonder if, in hindsight,
that shadow was-was too long, and if-in the decades since
his tenure and, in particular, last year, if the Fed was too
quick to raise interest rates to attack an inflation bogeyman
that didn’t materialize. CHAIR POWELL. So I-this wouldn’t be
a-my response will not be about Paul Volcker,
but-so, well, you started with Paul Volcker. So, if you look back at
2018-I’ll just take you back to the beginning of 2018. We had an economy growing at
3 percent, we had inflation at 2 percent, and
we had a trillion and a half dollars’ worth
of stimulus arriving, and the federal funds
rate was 1.4 percent. So it wasn’t that-so we
moved-we moved policy up during the course
of the year. We never got policy
even at the level of what we thought the
neutral rate was at the time. So there was no sense
of it being restrictive. We took steps to make it less
accommodative, and that seemed to be the right thing. It still seems to me to be
the right thing in hindsight. The idea that we were
trying to, you know, slow the economy down-we
were really just trying to get near neutral. And even with the last
rate increase a year ago, we were still meaningfully
below the median estimate on the Committee of what
the neutral rate was. So policy was always
accommodative during the course of that year. I think what’s happened
is, the-obviously, the facts on the
ground have changed. You saw the global economic
slowdown begin in the middle of last year, gather force,
and then continue to go on this year, so you’ve
seen a continual weakening. Just look at the IMF’s forecasts
of growth from, you know, the spring of 2018 and
compare them to now. You’ve had quite a
significant-that does affect us. I think, also, the trade
situation was just beginning in the middle of ’18, and I
think it had-has had-you know, I think there’ll be a very,
very wide range of estimates of the effect, but I think
it’s had a meaningful effect on output just through the
uncertainty channel and, to a lesser extent,
through-through, you know, the tariff effects. And, again, that’s not
to make a judgment. It’s not up to us to make
a judgment about that. So, that’s what-that
would be my story. DONNA BORAK. Chair Powell, Donna
Borak with CNN. To follow up on Edward’s
trade question, could you talk about what you would imagine
the economic effect would be if negotiations with
China were to fall apart and how the Fed might be able to support the economy
in that event? CHAIR POWELL. You know, I wouldn’t want to
speculate on-on a hypothetical. I would say-we’ll
just have to see. We’re-we look at
a range of factors and we’ve-as I’ve said
before, we try to look through the volatility in trade
news and trade negotiations. We try not to react. We can’t react. Monetary policy is not
the right tool to react in the very short term to
volatility and, you know, things that can change back
and forth and back and forth as this has happened,
as is probably typical of a-of a large complex
negotiation. So, in terms of-you know,
I-again, I don’t want to get into hypothetical outcomes,
though, if that’s all right. DONNA BORAK. I’m just wondering, you met
with the President last month. Did you have any advice for
him when it came to this, and did you express
some concerns about the potential
volatility and the impact of the economy on-given
all this? CHAIR POWELL. You know, I-I’m going
to stick with my and my predecessors’
longtime practice of not discussing
private meetings with elected officials-or
other officials, really. But thank you. VIRGINIE MONTET. Thank you. Virginie Montet with
Agence France-Presse. Yesterday, Democratic leaders in the House have launched
an impeachment process against the President. Have you mentioned
these developments within the Committee, as-today as potentially presenting
some risks for their confidence
in the economy? CHAIR POWELL. No. We have not. We don’t consider
things like that. MICHAEL DERBY. Mike Derby with Dow
Jones Newswires. Does the Fed’s dot plot still
serve a useful communications purpose, or do you feel that
it might be time to retire it or change it in some fashion? CHAIR POWELL. With-I think properly
understood, it can be useful, but that’s been a challenge. You know, I think “properly
understood” to me means looking at what it is and
not at what it isn’t. And what it is is, it’s an
expression of the thinking about individual
Committee members about appropriate
monetary policy and the path of the economy. Remember that we
write all that down, and we send it in,
and it gets compiled. But we don’t discuss
it at the meeting, and we don’t negotiate a plan. There is no-there’s
no agreement. There’s no plan. And I think, particularly
at inflection points, it’s hard to convey the reality, which is that policy is
always going to depend on the economic outlook and
changes in the economic outlook. And when the economic
outlook is changing, the dots are-they’re
just not a consideration. We’re going to do what we
think is the right thing for the economy. And if the fact-dots that
we did six months ago or three months ago
don’t agree with that, that’s not even in
the conversation. So its more-but it can it be
useful if-and I think-but, as I said, it’s been a
challenge, and so I-I do-I do like to say, if you focus
too much on the dots, you can-you can miss
the broader picture. GREG ROBB. Greg Robb from MarketWatch. Chairman Powell, many people
seem worried that the framework that you guys are
working on is going to be-the results are going
to be less rather than more. And I-people keep coming back and saying why-asking
why you took off, like, a 4 percent inflation rate off
the table even when it started. I mean, as you said,
going around the country for all the Listen events, I don’t think I heard
anybody worry about a 4 percent
inflation rate or think that a higher inflation rate
was going to be a problem. So where does that
concern come from? Is it members of Congress
that have-have said this? CHAIR POWELL. No. So let me say, we’re-we’ve
been working on this all year. And we’re just at the stage where we’ve had a really
interesting discussion about the various tools that
we have at the October meeting. At this meeting, we talked about the way monetary policy
affects different groups in the economy. So we had a-we talked about
the Fed Listens events and some very interesting
research. So we’re just getting
to the stage where we’re looking
at conclusions. You know, what do we
take away from all this? And those things-many of those
things would wind up as changes, if you will, modifications
to the “Statement of Longer-Run Goals and
Monetary Policy Strategy.” I think that process will
take until the middle of the year where-but we want to approach it very
thoroughly and very carefully. And that is-in effect, that
is our framework document. And I wouldn’t prejudge. No one-I believe we will be
able to-to reach a successful conclusion and make
meaningful improvements. I do. In terms of “4 percent”-so
that’s-I think it’s premature for people to be saying that
this isn’t going anywhere. You know-and if you
define going anywhere as a 4 percent inflation
target-let me talk about the 4 percent
inflation target. So I’ll go back to the point that just saying words
is not itself credible. So I think if you said, “We’re
raising the inflation target to 4,” what would be
the effect of that? I mean, where’s the
credibility in that, really? You haven’t been
able to get it to 2. So I think we-I think you need to lower your sights
a little bit. I also think, is 4 percent-you’d
have to ask the question, is that really, you
know, price stability? Is that really price stability? Is that within our
legal mandate? I mean, I think it’s
a fair question. So, you know, I think-I’d
like for this review to come out with very-a set of
positive results-you know, meaningful improvements. It doesn’t mean it has to solve
every problem going forward. We want to-we want to have
this be a successful exercise where we meaningfully improve
our monetary policy framework. These things don’t tend
to move in-you know, in a lurchy way,
they tend to evolve. But I think-and if we do
this, then in a few years, again and again and
things like that, then we can-at least we’re
moving in a good direction. And I think we will be. I’m confident we will be. DON LEE. Don Lee
with the L.A. Times. Chair Powell, you’ve had a
busy year, and I’m wondering, as you look back, what things
you might have done differently. And are there any lessons that
you would take into next year? CHAIR POWELL. Well, you know, I have to say,
my total focus is on right now and getting policy
right and thinking about next year-you know, thinking about what’s the
economy going to be doing. I like where we are on
policy, as I mentioned. I think our policy stance is
appropriate and likely to remain so as long as the outlook
is broadly like this. You know-I mean, it’s
too long of a question. You know, I don’t know
how to get after that. There’s-there’s a
lot of learning that comes into-from
the economy every year and in the way we do our jobs. And, you know, we’re
always going to be trying to learn lessons. DON LEE. I mean, are there
any particular surprises, whether it’s the
economy or how markets or financial- CHAIR POWELL. Well, I-so, yes. I didn’t-obviously,
you know, didn’t see and I don’t think anybody
saw coming the-the challenges that we faced this year. I think they were a surprise. I think that, toward
the end of 2018, there was still a sense
the economy was growing at around 3 percent. And I didn’t expect
the-to face the challenges, but I think we did face them,
and I think we-I’m pleased that we moved to support the
economy in the way that we did. I think our moves will
prove appropriate. And, again, I think
both the economy and monetary policy right now,
I think, are in a good place. NANCY MARSHALL-GENZER. I’m Nancy Marshall-Genzer
from Marketplace. Chair Powell, why aren’t we
seeing stronger wage gains? Wages are growing
more slowly now than they were toward the
beginning of the year. Why is that? CHAIR POWELL. Well, wage gains
have moved up a bit. If you look back
three, four years, you’ll see wages are
growing around 2 percent. Now you see them moving up, you
know, more at 3, 3½ percent. So why aren’t they growing
higher, at a faster rate? And it’s a couple of things. I think there are a
range of explanations. For instance, one would be that
productivity has just been low. So wages should go up to cover
inflation and productivity. Productivity has been low,
and that-that is very likely to be holding back wages. I also think there are other
possible potential explanations, such as, you know,
globalization can be-the idea that you can make, manufacture, or even provide services
anywhere in the world to anywhere in the world. I think that hangs over the
wage-setting process-and everywhere, pretty much. You don’t see-there isn’t
the kind of traction in the wage market that-even
in a tight labor market. Another thing is, though, that
the labor market may not be as tight as we had
thought it was. And, you know, I think
there-there are many, many possible explanations. I will say, though, if
you look, for example, at nonsupervisory employees
in the labor report, there are-their wages are
going up at 3.7 percent. And so, you do see-and wages
are going up the most for people at the lower end of the-that’s
been true for the last couple of years-lower end
of the wage spectrum. So you do see wages moving up. It’s just-they’re not moving
up at-at very high rates. And, again, at the end of the
day, that probably has most to do with productivity. NANCY MARSHALL-GENZER. Can I ask a quick follow-up? Just as far as the market not
being as tight as you thought, are you saying there are still
more people on the sidelines who could join the labor force? CHAIR POWELL. Well, yes. And I would also say that
we-if you ask people, and we did ask people, what
do you think the natural rate of unemployment is? People were writing down
numbers in the fives, and then they were writing
down numbers in the fours. And now, unemployment has
been in the threes for a year and a half, and we still
see wage inflation, as you mentioned. The level of wage inflation has
actually moved down, although, there may be compositional
effects in that number that may-that may
be, to some extent, about younger workers coming in at lower wages
that-than retiring workers. But you wouldn’t-that
shouldn’t have much of an effect, actually. So why is that? It may just be that there’s
more slack in the economy. And I think we are seeing that. We’re seeing-really, it showed
up through higher participation. For many years, we’ve thought that there’s a trend
decline in participation. Notwithstanding that,
against that trend, we’ve seen prime-age
participation moving up pretty steadily over the
last two or three years. And it’s a very positive
thing, but it does sort of provide more labor supply, meaning a less tight
labor market. HANNAH LANG. Hi. Hannah Lang with
American Banker. Thanks for being here today. I just wanted to ask about the
Community Reinvestment Act, since the FDIC and OCC may
potentially join together with a-for a proposal
without the Fed. Are you concerned that
this might cause confusion, and how would the mechanics work if this proposal is
finalized without the Fed? CHAIR POWELL. So, you know, we think the
CRA-we know the CRA is a very important law, and
we’re strongly committed to the mission of ensuring
that banks provide credit to their-throughout
their communities, particularly addressing
the needs of low- and moderate-income
households and neighborhoods. We also think it’s
time for modernization. We’ve thought that for some
time, and we worked very hard to try to get aligned with the
OCC, really, on-on a proposal. And my hope is that
we can still do that. You know, I don’t know whether
that’ll be possible or not. It will have to-well,
we’ll just have to see, but-and if we-if we can’t, I don’t-I’m not sure what
the path forward would be. We would certainly not want to
create confusion or, you know, sort of tension between
the regimes if they do turn out to be slightly
different regimes. So that’s something we-I
hope we don’t have to face, but we will if we have to. BRIAN CHEUNG. Hi there. Brian Cheung
with Yahoo Finance. So, before the July meeting, you
said something kind of colorful. You said, “To call something
‘hot,’ you would need to see some heat,”
referring to the labor market. So to expand a bit, I
guess, on Nancy’s question, it seems like the wage Phillips
curve has been pretty well explored already, but
what would you need to see to call the labor market
“hot” in that case? Would it be a contract-or,
rather, some sort of change in either the headline
number of gains or in the unemployment rate? CHAIR POWELL. Really, wages. I mean, we-there’s so many
other measures that suggest that the labor market is-I like to say the labor
market is strong. I don’t really want to
say that it’s tight. Someone asked me a question about a hot labor
market-that was in the Humphrey-Hawkins
hearings. So I’ll say that the
labor market is strong. I don’t know that it’s tight, because you’re not seeing
wage increases, you know. Ultimately, if it’s tight, those
should be-should be reflected in higher wage increases, so
it does come down to that. You know, we look at
countless measures of labor market-you
know, labor utilization, and there’s so many-it’s
too many to count. But the one that has-that
is kind of suggesting that you’re-it’s a healthy
number that, you know, the sort of 3.1 percent average
hourly earnings number is a decent number-3.7
percent for production and nonsupervisory
workers is more healthy. Ultimately, though, we’d
like to see-to call it “hot,” you’d want to see heat. You’d want to see, you
know, higher wages. Thanks.

Robin Kshlerin

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