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Transcript of Chairman Powell’s
Press Conference June 13, 2018 CHAIRMAN POWELL. Good afternoon. Thanks very much for being here. I know that a number of you will
want to talk about the details of our announcement
today, and I am happy to do that in a few minutes. But because monetary
policy affects everyone, I want to start with a
plain-English summary of how the economy is doing,
what my colleagues and I at the Federal Reserve
are trying to do, and why. The main takeaway is that the
economy is doing very well. Most people who want to
find jobs are finding them, and unemployment and
inflation are low. Interest rates have been low for some years while the
economy has been recovering from the financial crisis. For the past few years, we have
been gradually raising interest rates, and along
the way we’ve tried to explain the reasoning
behind our decisions. In particular, we think that gradually returning
interest rates to a more normal level as the economy strengthens is
the best way the Fed can help sustain an environment in
which American households and businesses can thrive. Today, we’ve taken another
step in that process by raising our target range for
the federal funds rate by 1/4 of a percentage point. My colleagues and I
meet eight times a year and take a fresh look each
time at what is happening in the economy and
consider whether our policy needs adjusting. We don’t put our interest
rate decisions on hold or on autopilot, because the
economy can always evolve in unexpected ways. History has shown that moving
interest rates either too quickly or too slowly can
lead to bad economic outcomes. We think the outcomes are likely
to be better overall if we are as clear as possible about what
we are likely to do and why. To that end, we try to give
a sense of our expectations for how the economy will evolve and how our policy
stance may change. As Chairman, I hope to
foster a public conversation about what the Fed is
doing to support a strong and resilient economy. And one practical step in doing
so is to have a press conference like this after every one of
our scheduled FOMC meetings. And we’re going to do
that beginning in January. That will give us
more opportunities to explain our actions and
to answer your questions. I want to point out
that having twice as many press conferences
does not signal anything about the timing or pace of
future interest rate changes. This change is only about
improving communications. My FOMC colleagues and
I will also continue to issue our economic
projections on the existing quarterly
schedule. Now, let me go into more
detail over developments in the economy, our
economic projections, and our policy decision. Economic growth appears
to have picked up in the current quarter,
largely reflecting a bounceback in household spending. Business investment
continues to grow strongly, and the overall outlook for
growth remains favorable. Several factors support
this assessment: Fiscal policy is
boosting the economy, ongoing job gains are raising
incomes and confidence, foreign economies
continue to expand, and overall financial
conditions remain accommodative. These observations are
consistent with the projections that Committee participants
submitted for this meeting. The median projection
for the growth of real GDP is 2.8 percent this
year, 2.4 percent next year, and 2 percent in 2020. Compared with the
projections made in March, this median growth
path is little changed. In the labor market, job gains
averaged 180,000 per month over the past three months,
well above the pace needed in the longer run
to provide jobs for new entrants
into the workforce. The unemployment rate declined
over the past two months and stood at 3.8 percent
in May, its lowest level in nearly two decades. Meanwhile, the labor force
participation rate has been roughly unchanged
since late 2013. That is a positive sign,
given that the aging of our population is
putting downward pressure on the participation rate. And we expect the job
market to remain strong. As you can see in our Summary
of Economic Projections, the median of Committee
participants’ projections for the unemployment rate
stands at 3.6 percent in the fourth quarter of this
year and runs at 3.5 percent over the next two years, a percentage point below
the median estimate of its longer-run normal rate. This median path is just a bit
lower than that from March. After many years of running
below our 2 percent longer-run objective, inflation
has recently moved close to that level. Indeed, overall consumer prices,
as measured by the price index for personal consumption
expenditures, increased 2 percent over the
12 months ending in April. The core PCE index, which
excludes prices of energy and food and tends to
be a better indicator of future inflation, rose 1.8
percent over the same period. As we had expected,
inflation moved up as the unusually low
readings from last March dropped out of the calculation. The recent inflation data
have been encouraging, but after many years of
inflation below our objective, we do not want to
declare victory. We want to ensure that inflation
remains near our symmetric 2 percent longer-run goal
on a sustained basis. As we note in our
Statement of Longer-Run Goals and Monetary Policy Strategy,
the Committee would be concerned if inflation were
running persistently above or below our 2 percent
objective. Of course, many factors affect
inflation-some temporary and others more lasting-and at
any given time inflation may be above or below 2 percent. For example, the recent rise in oil prices will likely
push inflation somewhat above 2 percent in
coming months. But that transitory development
should have little, if any, consequence for inflation
over the next few years. The median of participants’
projections for inflation runs at 2.1 percent through 2020. Relative to the March
projections, the median inflation projection
is a little higher this year and next. As I mentioned, today
we took another step in gradually scaling back
monetary policy accommodation by raising the target range
for the federal funds rate by 1/4 percentage point, bringing it to 1
3/4 to 2 percent. We also made some changes
to our policy statement, reflecting that policy
normalization is proceeding broadly as we have expected. None of these changes signals
a change in our policy views. For example, we removed
the language stating that “the federal funds rate is
likely to remain, for some time, below levels that are expected
to prevail in the longer run.” Since we introduced that
language a few years ago, the economy has strengthened, and the Committee has raised the
federal funds rate from near 0 to 1 3/4 to 2 percent. As we continue to
note in our statement, we expect to make further
gradual increases in that rate. As a result, if the
economy evolves broadly as we anticipate, the
federal funds rate will, over the next year or so,
move well within the range of estimates of the
normal long-run level. Therefore, we thought that
now is an appropriate time to remove this forward guidance
from our policy statement. We continue to believe
that a gradual approach for increasing the federal
funds rate will best promote a sustained expansion
of economic activity, strong labor market conditions, and inflation near our
symmetric 2 percent goal. We are aware that raising rates
too slowly might raise the risk that monetary policy would
need to tighten abruptly down the road in response to
an unexpectedly sharp increase in inflation or financial
excesses, jeopardizing the
economic expansion. Conversely, if we raise
interest rates too rapidly, the economy could weaken,
and inflation could continue to run persistently
below our objective. The Committee’s gradual
approach is reflected in participants’ projections
for the appropriate path for the federal funds rate. The median projection for
the federal funds rate is 2.4 percent at the end of this year,
3.1 percent at the end of 2019, and 3.4 percent at
the end of 2020. By 2020, the median federal
funds rate is modestly above its estimated
longer-run level. These projections are very
similar to those made in March. Although the median federal
funds rate edged up this year and next, most participants did
not revise their projections. I’ll conclude by mentioning
two additional matters. First, our program for
reducing our balance sheet, which began in October,
is proceeding smoothly. Barring a material and
unexpected weakening in the outlook, this program
will proceed on schedule, and our balance sheet
will continue to shrink. As we have said,
changing the target range for the federal funds
rate is our primary means of adjusting the stance
of monetary policy. And, finally, as discussed in
the minutes of our May meeting, we’re making a small technical
adjustment in one of our tools for implementing
monetary policy. To keep the federal funds
rate in the target range, we rely on the rate of interest on excess reserves,
or the IOER rate. Up until now, we have set
the IOER rate at the top of the target range for
the federal funds rate. In recent months, the
federal funds rate has moved up toward the IOER rate as short-term interest rates
have risen more generally. So to move the federal funds
rate closer to the middle of the target range, we are now
setting the IOER rate 5 basis points below the upper
end of the target range. This minor technical
adjustment has no bearing on the appropriate path
for the federal funds rate or financial conditions
more generally. Thanks for listening, and I’ll
be happy to take your questions. JIM TANKERSLEY. Hi, Mr. Chairman. Jim Tankersley, New York Times. I have a question
about inflation and a question about growth. On inflation, I’m curious if
there’s anything that’s happened since March that has changed
your assessment of the risk of inflation increases
beyond what you forecast in the year to come. And, on growth, you mentioned
fiscal policy is adding to growth, and I’m
curious if you could break that down a little
bit further for us and say-what effects do you
think the recent tax cuts are having on growth? CHAIRMAN POWELL. Sure. So since-I wouldn’t
say anything has happened since March to really change the
way I’m thinking about inflation or the way the Committee’s
thinking about inflation. We’ve seen inflation
move very gradually up toward our 2 percent
objective. And part of that has been just
idiosyncratic things dropping out from last March, which
were holding inflation-measured inflation-down. Part of it is just that
continued tightening in the labor market and the
economy more broadly is pushing inflation up. So we continue to think, and the
Committee continues to think, that we are just about at
our 2 percent goal but, as I mentioned, not ready to
declare victory until we sustain that over time, which
we haven’t done yet. You also asked about fiscal
policy, and there’s a range of views on the Committee
and, I think more broadly, a range of views among
economists generally. But I can say that the
Committee members-Committee participants-generally believe
that the fiscal changes-and that includes both the tax
cuts, individual and corporate, and the spending changes-will
provide meaningful support to demand, significant support
to demand over the course of the next three years. And the question-the
other question is, what about the supply side? So it is-it makes sense that if
you lower corporate tax rates and allow faster
expensing of investment, you will encourage
greater investment. That should drive productivity. That should increase
potential output. So that really ought
to happen as well. I think the amounts and
the timing of that coming in are also quite uncertain. There’s also the possibility that there would be
more labor supply from lower individual tax rates,
again, in amounts and in timing that might be more uncertain. So that’s how the Committee
generally is thinking about-about fiscal policy. NICK TIMIRAOS. Thanks. Nick Timiraos,
the Wall Street Journal. So the Fed is about four
interest rate increases, using the projections
released today, away from what might be
considered a neutral fed funds rate. And I wanted to ask how
you’re thinking about what to do once you get to neutral. Under what conditions would
you decide, once you get there, that it’s okay to
stop raising rates? And under what conditions
would you want to keep going? CHAIRMAN POWELL. So for many, many years, we’ve
been far from maximum employment and stable prices,
and so the need for accommodative policy
has been-has been clear. As the economy has strengthened and as we’ve gradually
raised interest rates, the question comes into view of, how much longer will you
need to be accommodative? And how will you know? How will you know where-at what
point policy will be neutral? Neutral meaning that interest
rates are neither pushing the economy up nor trying
to restrain it. So we know that we’re getting
closer to that neutral level. We don’t have an exact
sense of how that will be. So the Committee is
discussing, very actively, the questions that you raise. And, really, it boils
down to a question of, what is appropriate policy? And, you know, I-you
asked, how will we know? So I think we’ll be
very carefully looking at incoming data on inflation,
on financial readings, and on the labor market. We have to acknowledge that there are always
wide uncertainty bands around the level
of, for example, the natural rate
of unemployment. But also, what is the
neutral rate of interest? What is that rate of interest
that pushes neither up nor down? So I think we-we’ll be guided
by incoming data on the economy and try to keep our minds
open as we move forward. HOWARD SCHNEIDER. Howard Schneider with Reuters. 2.1 percent above target for two
and a half years starts to feel like some of the
alternate frameworks that have been discussed here,
be it price-level targeting or trying to set expectations
higher so that you hit your 2. In deciding how symmetric
is too symmetric, what sort of parameters are
you using on that front? CHAIRMAN POWELL. You know, the-our target
for-our medium-term objective for inflation is 2
percent PCE inflation. We feel that that target
has served the economy well, and I’m strongly
committed to it. The Committee is
strongly committed to it. The sort of barriers to
making a material change to that would be-would be
very high because, again, we think it’s fundamental,
and we think it’s worked. You asked about price-level
targeting and that sort of thing. You know, there are some ideas
that sort of take cognizance of the fact that
rates are lower, we’re near the zero lower bound, and that could put
downward pressure on inflation expectations
if we’re going to be down at the zero lower
bound and, therefore, sort of undermine
the credibility of the 2 percent
inflation objective. So the idea is to
have kind of a makeup. If you-if you’re below
target for a while, you have a-you have a time
of being above target. And the idea is to
enhance the credibility of that 2 percent-that
2 percent target. This is an idea that’s been
written about for many years. It’s not something that
the Committee has looked at seriously. I imagine we will be
having discussions about it, but-not something that we have
on the calendar right now. SAM FLEMING. Well, thanks very much. Sam Fleming from
the Financial Times. Over the weekend, we saw
some significant tensions within the G-7. In Canada, there is the
potential, obviously, for further action against China
right now and retaliatory action from major U.S. trading
partners. How big a risk do you
currently see this as being to the United States economy? And what kind of feedback
are you getting in terms of corporate investment
intentions? Is there something
that’s beginning to feature more prominently
in your own discussions with major U.S. companies? Thanks. CHAIRMAN POWELL. I ought to start by
saying that, you know, Congress has assigned us very
important jobs and-you know, maximum employment, stable
prices, we have a role in financial stability that
we share with other agencies. Congress has very specifically
given authority over trade to the executive branch,
so I wouldn’t comment on any particular
specific trade actions. I will say that we, of course, have-we have broad contacts
in-among business leaders around the country. And the Reserve Bank presidents,
in particular, have that. And so they report in
the Beige Book and then in person at the FOMC meeting. And they do come back and they
say that concerns about changes in trade policy are arising,
I think it’s fair to say, and also that you’re
beginning to hear reports of companies holding off on making investments
and hiring people. So right now we don’t see
that in the numbers at all. The economy is very strong. The labor market is strong. Growth is strong. We really don’t see
it in the numbers. It’s just not there. But-so I would put it
down as more of a risk. STEVE LIESMAN. Steve Liesman, CNBC. Mr. Chairman, you said
there’s a difference of opinion among economists, but looking at the longer-run
GDP growth rates for the members of the Committee, there’s not
a whole lot of difference. It’s 1.8 to 2, or 1.7 to 2.1,
depending upon how you count it. Is that showing us that
not a single member of the Committee-including
yourself, Mr. Chairman-agrees with economists over
at the White House that they can achieve long-run
sustained growth rates above or at 3 percent or higher? Do you believe in that? CHAIRMAN POWELL. You know, first of all, that’s
a-that’s a reasonable range, I think, of-it’s not that
we’re all on the same number, but there are a range of
views about potential growth. And there’s so much
uncertainty around this. You know, we don’t-the thing
about fiscal policy is, you don’t have thousands
of incidents to, you know, to-you don’t have
big data, in a way. You have very small data. You’ve got only a few instances
here, so you have a lot of uncertainty around
what the effects will be. They could be large. We hope they’re large. But I think our approach is
going to be to watch and see and hope that, in fact, we do
get significant effects to, you know, to potential
growth out of the tax bill, and we’re just going
to have to see. STEVE LIESMAN. How would you forecast
it though? CHAIRMAN POWELL. I think we’re looking at a
reasonable range of estimates and we’re putting
every-different participants are putting different
estimates in and we’re going to be waiting and seeing. DONNA BORAK. Donna Borak with CNN. You said earlier that it’s
still a little too early to declare victory on inflation. I wanted to circle back on
a question that was asked at the initial press conference
about what-what does the Fed say in regards to the inflation
target as symmetric? Like has the Committee given
any further thought in terms of how comfortable it would be
rising above-whether it goes higher than 2.1, if it reaches
2.2, 2.3, and for how long? And now that you’re planning to hold these regular press
conferences, starting next year, how do you explain-how
do you plan to explain that to the American people that
inflation is not overrunning? CHAIRMAN POWELL. You know, what we’ve
said in our Statement of Longer-Run Principles and
Monetary Policy Strategy is that the Committee would be
concerned if inflation were to run persistently above or
below 2 percent, persistently above or below 2 percent. And that’s what we
mean by symmetric. We’re looking at it equally on
either side and it’s a matter of persistent overruns. We know that inflation is
going to bounce around. For example, as I mentioned, later this summer
there’s a good chance that headline inflation
will move up above 2 percent because of oil prices. Things buffet inflation
back and forth, but-so we acknowledge that,
we understand that-and if inflation were to
persistently run above or below 2 percent, then we
would be using our tools to try to move inflation back in
the direction of the target. We do understand, though,
that we don’t have the ability to precisely hit that
target, so we expect that inflation will
be above or below. And we just hope that that
is-happens on a symmetric basis. MARTIN CRUTSINGER. Marty Crutsinger,
Associated Press. At this meeting, you
hiked your-the funds rate, you changed the dot plot to
move from 3 to 4 for this year, and you took out a sentence
that you’d been using for years about how long rates
might stay low. But you say that none
of this signals a change in policy views. But shouldn’t we see from
this combination of things that the Fed is moving
to tighter policy? CHAIRMAN POWELL. I think what you should see is that the economy is
continuing to make progress. The economy has strengthened
so much since I joined the Fed, you know, in 2012 and even
over the last couple of years. The economy is in a
very different place. We- unemployment was 10 percent
at the height of the crisis. It’s 3.8 percent now
and moving lower. So really what you-the decision
you see today is another sign that the U.S. economy
is in great shape. Growth is strong, labor markets
are strong, inflation is close to target, and that’s
what you’re seeing. For many years, as I mentioned-many years-we
had interest rates held low to support economic activity. And it’s been clear that
as we’ve gotten closer to our statutory goals, we
should normalize policy, and that’s really what we’ve
been consistently doing for some years now. HEATHER LONG. Hi, Chair Powell. Heather Long from
the Washington Post. Can you give us an update on what the FOMC
thinks about wages? Are we finally going to see that
wage growth pickup this year? I know you’re forecasting a
little bit more inflation, but is that going to translate
through to wage growth? CHAIRMAN POWELL. You know, wages have
been gradually moving up. Earlier in the recovery, they were-there are many
different wage measures, of course, but-so just-but
just to generalize, wages were running
roughly around 2 percent and they’ve moved gradually
up into between 2 to 3 percent as the labor market has
become stronger and stronger. I think it’s fair
to say that some of us-and I certainly would have
expected wages to react more to the very significant
reduction in unemployment that we’ve had, as I mentioned,
from 10 percent to 3.8 percent. Part of that can be
explained by low productivity, which is something we’ve talked about at the Committee
and elsewhere. But, nonetheless, I
think we had anticipated, and many people have
anticipated, that wages-that in a world where we’re
hearing lots and lots about labor shortages-everywhere
we go now, we hear about labor
shortages-but where is the wage reaction? So it’s a bit of a puzzle. I wouldn’t say it’s a mystery,
but it’s a bit of a puzzle. And, frankly, I do think
there’s a lot to like about low unemployment. And one of the things is-you
will see-pretty much people who want to get jobs-not
everybody-but people who want to get jobs, many of them
will be able to get jobs. You will see wages go up. You’ll see people
at the, sort of, the margins of the labor
force having an opportunity to get back in work. They benefit from that. Society benefits from that. So there are a lot of
things to really like, including higher
wages, as you asked. Our role, though, is
also to, you know, to make sure that-that maximum
employment happens in a context of price stability and
financial stability, which is why we’re
gradually raising rates. DON LEE. Just a follow-up
on-Don Lee from the L.A. Times. On both inflation
and unemployment, the new projections-for
unemployment lower than before and inflation
higher. And how much is the Fed willing
to accept that’s an overshoot for both of those
before it affects policy? CHAIRMAN POWELL. You mentioned that unemployment
moved down and inflation moved up by truly small amounts. If you look at the Summary
of Economic Projections, things are moving by just
a tick or even a semitick between now and March. And you asked, you know-I mean, I think we take a
longer-run view that we’re shooting
for-we’re aiming for-2 percent inflation-inflation
around 2 percent. We know that it’ll
be above or below. We’re not going to-we
didn’t overreact, I think, to inflation being
under 2 percent. We won’t overreact to
it being over 2 percent. And I think we’ll
always be using our tools to move inflation in the
direction of the target, if it-if it leaves-if
it moves away from the target persistently,
as I mentioned. In terms of unemployment, you
know, you have to acknowledge that we are-no one really knows
with certainty what the level of the natural rate
of unemployment is, the rate that is sustainable
over a long period of time. And we know that probably
that rate has declined as the U.S. population
has become more educated, as it has become older. Older and more educated people
have lower unemployment rates. We don’t know this
with precision. So we have to be
learning as we go. We’ve got to be looking at data and informed by what’s
coming in. And as I mentioned, I think
at the last press conference, estimates by the-by members
of the Committee have moved down by a full percentage
point since maybe 2012 as we’ve learned-as
unemployment has dropped and inflation hasn’t
really reacted. So I can’t give you a precise
number, but I just-you know, we will be very much
informed by incoming data. And this uncertainty is
why-the fact that we live in that uncertainty is why we’ve
been gradually raising rates. We’re not waiting for
inflation to show up. We’re going ahead and moving
gradually and trying to navigate between two risks, really. One would be moving too
quickly-inflation never gets back to target if we do that. And the other is
moving too slowly, and then we have-we
have too much inflation or financial instability,
and we have to raise quickly. And that can also
have bad outcomes. CHRISTOPHER CONDON. Chris Condon, Bloomberg News. Mr. Chairman, I have
a couple questions about the interest the Fed
pays on excess reserves. And you mentioned, of course,
that-that the IOER was raised by the Committee 20 basis
points, and that’s a result, as you said, of the upward drift of the effective fed funds
rate in that target range. Do you think that that’s
going to resolve that issue or might there be further
action required by the Committee in the future to continue
lowering IOER relative to the midpoint of the range? And, further, was there
discussion among the Committee today about what’s causing that? Is it purely technical, perhaps
related to bill issuance, or is it telling you something
about the level of scarcity and truly excess bank reserves? Thank you. CHAIRMAN POWELL. Thanks. So I would say
that-remember the important thing is that we want
the federal funds rate to trade in the target range. That’s the whole,
the whole idea. IOER is the principal
tool by which we assure that that will happen. And we’ve said in our,
you know, basic documents that we will adjust the use
of our tools, as appropriate. We don’t expect to have
to do this often or again, but we’re not sure about that. If we have to do it
again, we’ll do it again. Again, don’t expect
it to happen. You asked why. And yes, you know, we-of
course, we’re looking carefully at that and, you know, the
truth is we don’t-we don’t know with any precision. Really, no one does. It’s-you can’t run
experiments, you know, with one effect and
not the other. You know, I think there’s a
lot of probability on the idea of just high bill supply
leads to higher repo costs, higher money market
rates generally, and the arbitrage pulls up
federal funds rate towards IOER. We don’t know that that’s the
only effect and, you know, we’re just going to have to
be watching and learning. And, frankly, we don’t
have to know today. What we really need is to have
the federal funds rate trade in the range, and that’s
what this minor technical adjustment accomplishes. EDWARD LAWRENCE. Edward Lawrence from
Fox Business. So with the numbers
that we’re looking at, you talked about more
people getting jobs, the wages are increasing. Are we seeing a-with the fiscal
policy-a fundamental shift in the economy, where we have
lower natural unemployment, also possibly a lower rate of natural unemployment
and lower inflation? CHAIRMAN POWELL. Your question-your first
question, really, is, do we think the natural rate
of unemployment is lower? So I think we do believe it
has moved down significantly over a long period of time. We don’t think that the natural
rate of unemployment-you know, it’s not one of those variables
that moves around a lot. It tends to be driven by
slow-moving variables, like the education level, the
population, like the functioning of the labor market,
and things like that. So, you know, it may-it
may have moved down too, on a cyclical basis, lower. As the economy gets
hotter and hotter, there’s some possibility
of that. But, you know, the thing
is, if you look back, there have been a lot of
studies done and, you know, real-time estimates
of the natural rate of unemployment have
uncertainty bands, which are-which are quite wide,
so we have to remember that and very much be guided by
the-by the incoming data. You asked about inflation. You know, inflation
we look about-we look at the 2 percent inflation
objective as something that central banks, the
Fed, really control. And we have to be strongly
committed to achieving that using our tools to do that. I think in-in recent years
the dominant force has been, you know, disinflationary-have
been pushing down on inflation. And so we’ve been
pushing back up. Of course, all those years when we were growing
up, it was the opposite. Inflation was too high and central banks were
constantly pushing down. It’s really important that inflation not
fall below 2 percent, that inflation expectations
remain well anchored at 2 percent-very
important-because the implications of inflation below
2 percent are that you’re closer to the zero lower bound, meaning
the Fed has less room to cut, meaning that we’ll spend more
time there and we won’t be able to do the job that we’re
assigned to do for our citizens. JEANNA SMIALEK. Jeanna Smialek with
Bloomberg Television. You guys moved the median
unemployment forecast for 2020 down to 3.5 percent but left the
longer-run at 4.5 percent today. But you’re only forecasting
a moderate overshoot on the fed funds rate beyond
your longer-run value. How are you going to get
unemployment from 3.5 percent up to that 4.5 percent rate? CHAIRMAN POWELL. I would just-would-I
would just emphasize, emphasize that-a couple things. First, we’re learning
about the real location of the natural rate of
unemployment as we go. So it’s moved down by more than a full percentage
point since 2012. So it’s not so simple as
thinking, oh boy, we’ve just got to go ahead and get
that rate up. If you-if you look at the
forecast, two years from now, end of 2020, you’re still seeing
inflation very close to target. So there’s no sense that
inflation will-no sense in our models, or
in our projections, or forecasts-that
inflation will take off or move unexpectedly
quickly from these levels, even if unemployment
does remain low. So that’s-that’s what-so
it’s important to know that the-the unemployment
rate forecasts go with the inflation forecasts
and go with the rate forecasts. And so each person who’s
submitting them is submitting accommodate-you know,
appropriate monetary policy that fits with that
person’s assessment. And their assessments
generally are to support maximum employment and stable prices
around 2 percent. So if we thought that inflation
were going to take off, obviously, we’d be
showing higher rates, but that’s not what
we think will happen. JEANNA SMIALEK. If I could just follow
up really quickly. Then why, I guess, would the
longer-run unemployment rate not be a little bit lower and
closer to that 2020 number? CHAIRMAN POWELL. Yeah, it may be. It may be. We may find that out. You know, the best
estimate that we have, over the longer run, is that. Although, you know, there’s
a range of views, you know. Some people are in the
low 4s, and, again, I said the uncertainty
bands are, you know, not quite a full percentage
point on either side, but 3/4 of a percent, that kind
of thing, so it’s very possible. We have to be, you know-we can’t
do-we can’t be too attached to these unobservable variables. You know, we-I think
we have to be practical about the way we think
about these things and we do that by being grounded
in the data and what we see happening
in the real economy. VICTORIA GUIDA. I have a couple of
regulatory questions. First of all, on the
countercyclical capital buffer, I was wondering, what are the
chances that the Fed is going to need to use that in
the next year or two? And then my second question
is, there’s been a lot of talk lately in Congress
about the ability for banks to serve marijuana businesses,
and I was wondering if you think that banks should be able to
serve those businesses in states where marijuana is legal. CHAIRMAN POWELL. So the countercyclical capital
buffer gives us the ability to raise capital requirements
on the largest institutions when financial stability
vulnerabilities are meaningfully above normal. That’s the language
that we’ve used. And that’s certainly
a possibility. I wouldn’t say that-I
wouldn’t look at today’s financial
stability landscape and say that risks are meaningfully
above normal. I would say that they’re
roughly at normal. You have-you know,
households are well-you know, are in good shape. They’re-they’ve paid
down their debt, incomes are rising,
people have jobs. So households are
not really a concern. And banks are highly
capitalized, so that’s not really a concern. We see-there’s some
concern with asset prices in a couple of pockets. But overall, if you-if you
bake it all in, I think we see, generally, financial
vulnerabilities as moderate. Could that change, you asked,
over a couple of years? Yeah, it could. You also asked about
marijuana businesses. So this is a very difficult area because we have state law-many
state laws permit the use of marijuana and federal
law still doesn’t. So it puts, you know,
federally chartered banks in a very difficult situation. I think it would be great
if that could be clarified. We don’t have-you know, it
puts the supervisor in a very, very difficult position. And, of course, this isn’t
our-our mandate has nothing to do with marijuana, so we
don’t really-we just would love to see it clarified, I think. JOHN HELTMAN. Hi, John Heltman
with American Banker. So since you-since even before
you were Chairman of the Fed, when you were chair of
the supervisory committee, you laid out a sort of regulatory revision
agenda that’s actually been pretty consistent. So there was the guidance
on boards of governors, there was the-some changes
to the stress tests, and-not changes to the stress
test, but rather clarification on the modeling-and
now, more recently, the changes to the enhanced
supplemental leverage ratio. The Fed has also proposed some
changes to the Volcker rule and, as I mentioned a minute ago,
changes to the stress test with the stress capital buffer. Are these kind of the-are
there any new frontiers of regulatory changes
that you are envisioning or are you just-are you kind
of done for the time being? Or what else can we
expect from the Fed? CHAIRMAN POWELL. It’s actually a pretty
full docket right now. You mentioned a number
of the things, but I would-I would point
out-we’re having, I guess, a public Board meeting tomorrow on the single counterparty
credit limit provision. We’ve also got quite
a lot of work to promulgate rules
to-after S. 2155 that Senator Crapo’s bill
passed-we’ve got a lot of work to do under that. We’ve got to think about
how we would reach below that $250 billion threshold to
assess and supervise, regulate, you know, financial stability
risks below that level. So what am I missing? There’s-there-oh, oh, net
stable funding ratio is out there to be done. So there’s a lot of
work to do, I think. You know, and if I can just
take this opportunity to say, you know, the financial system
all but failed 10 years ago. We went to work for 10 years to
strengthen it-stronger capital, stronger liquidity, stress
testing, resolution planning. We want to keep all that stuff. We want to make it, you
know, even more effective and certainly more efficient. We want to tailor those
regulations for institutions. We want the strongest
provisions to apply to the most systemically
important institutions. And so we’re committed
to preserving and enhancing that structure. But we-we’re finding a lot
that we can do in the way of tailoring regulations
for the smaller, less systemically important
institutions, and that’s a lot of what we’re working
on right now. GREG ROBB. Thank you. You said at the beginning
of your press conference that you plan to be
more plainspoken. And so, okay, I wanted to know
what you would say to workers who are worried that, you
know, these paths of rate hikes that you’ve laid out will kind of undercut the wage growth
they are just starting to see. Thank you. CHAIRMAN POWELL. You know, I would say that
the economy is in great shape. If you look at household
surveys, confidence is high. Look at businesses,
confidence is high. If you ask-if you survey
workers about the job market, they’ll say that it’s a really
good environment to find jobs. If you survey businesses, they’ll say that
workers are scarce. So I think overall, we have-we
have a really solid economy on our hands here. And so what we’re
doing is, we are trying to conduct monetary policy
in a way that will sustain that expansion, keep the
labor markets strong, and keep inflation
above-right at-sorry, not above, but right at 2 percent. That’s really what we’re
trying to do and, you know, I would say I like
the results so far. We’re-we’ve been
very, very careful not to tighten too quickly. I think we’ve been patient. I think that patience
has borne fruit and I think it continues to. We had a lot of encouragement
to go much faster and I’m really glad we didn’t. But, at this time,
the-continuing on that gradual pace
seems-continues to seem like the right thing. If we get a sense that the
economy is reacting badly, then we’ll certainly
react to that. DAVID HARRISON. Hi, David Harrison with
Dow Jones Newswires. Where do you see the neutral
interest rate is right now? Do you think it’s-do you see
it sort of inching up because of the recent fiscal
stimulus measures? And how will you know
when we’re getting close to that neutral point? So if-you know, if inflation
stays around 2, it doesn’t go above 2 for a while,
do you see a need to actually exceed
that neutral point? CHAIRMAN POWELL. So I would just point you
to the range of estimates at the Committee, which I
think is 2 1/4 to 3 1/2, and the median is
2.9, right in there. So that’s the range of estimates of the nominal neutral
rate of interest. And we do understand that
there’s high uncertainty around the level, but that’s
kind of-so you can think of 2.9 as being-which is sort of a
full percentage point away from where fed funds is going
to trade after today’s decision. You asked, is the-is
the neutral rate moving up because of fiscal policy? Yes. I mean, there’s-there
should be an effect if you have increased deficits that should put upward
pressure on, you know, a few tenths, let’s say. Again, though, they were
estimating these things. It’s one of these
unobserved variables so it’s very hard to-we
shouldn’t try to speak about it with a-with a lot of
precision or confidence. But, yes, that should put
upward pressure on it. How will we know? Well, I think you have
to look at inflation. You’ve got to look at-you’ve got
to look at all of the indicators in the economy and look at
inflation, look at unemployment, look at what’s happening
in the job market. And inflation is
really important. It’s worth noting that the last
two business cycles didn’t end with high inflation-they ended with financial instability-so
that’s something we need to also keep our eye on. VIRGINIE MONTET. Virginie Montet with
Agence France-Presse. Have you talked during
the meeting about when the Fed is going
to remove or change the word “accommodative” that
describe the monetary policy for almost 10 years? And could this change in the vocabulary make
the market nervous? And have you thought
already at some options so to know how you’re going
to call it down the road? CHAIRMAN POWELL. Yes, that is-that is
something that we discuss. We look at all the language. As you know, we made a-we
made a significant number of changes at this meeting. So language gets in
the statement and then, you know, the economy changes. That’s what happens. We really-our approach
to policy hasn’t changed. And, you know, as I mentioned
earlier, for a long time, the economy has needed
accommodative monetary policy. As the economy has recovered, we’ve been gradually raising
rates and we will-we will be at a place relatively soon
when, again, assuming we stay on this path, when interest
rates will be in the zone of what FOMC participants
think is roughly neutral. And, at that point, it would no
longer be accurate for us to say that the Committee thinks
that policy is accommodative. We know that’s coming. We kind of don’t think it’s here
yet, but it’s certainly coming. And I think that the
market will understand that. I mean, the real message is that you’re getting close
to the neutral rate. It’s a characterization
about where policy is. It’s not a statement, really,
that should upset the markets. But, you know, we’ll obviously
discuss it carefully in meetings and communicate about it. So. NAOATSU AOYAMA. Thank you very much. Naoatsu Aoyama from the Asahi
Shimbun, Japan’s newspaper. Would you expand on
the-on your views on the downside risks-downside
risks, especially in regard
to trade issues? Many people are-in
the key allies of the United States-are
concerned that the United States may
destabilize the underpinnings of the international liberal
order the United States has created and built up in
the postwar environment. So-and that will, of course, have a very negative
economic implications for the global economy as
well as the U.S. economy. So would you-have you-can
I have your views on that? CHAIRMAN POWELL. Sure. So, you know, as
I mentioned earlier, I’m really committed to
staying in our lane on things. We have very important jobs
assigned to us by Congress and that’s maximum employment, stable prices, financial
stability. Trade is explicitly assigned
to the executive branch by Congress and not to us. So we don’t really-we
don’t really seek to play a role in trade policy. We’re not at that table. Those are-those powers and
decisions are given to others and so we want to
stick to what we do. And, you know, I-as
I mentioned earlier, we do hear from our business
contacts, which are extensive in the United States, and we do
report on that in the minutes, and I’ve just mentioned
what those are. There is -there is concern that trade changes
could be disruptive. And I also-as I also mentioned, we don’t see it in
the numbers yet. We really don’t. We see a very strong economy
across a bunch of fronts. It hasn’t reached everyone,
let’s be clear on that. But most people who
want a job can find one. We’re well aware that there
are pockets out there of people who have not felt the
recession yet, but, broadly speaking,
it’s a good economy. STEVEN BECKNER. Steve Beckner, Mr. Chairman, freelance journalist
reporting for NPR. About financial conditions,
which worries you more-warnings that rising short-term rates are
bringing the yield curve closer to inversion, or the fact that long rates have risen
very slowly and, in fact, are nearly 20 basis points
below their recent high? How do you account for the fact that long rates have
been so slow to rise? And what does it say about
the inflation outlook as well? CHAIRMAN POWELL. So let me-let me briefly
mention the yield curve. I mean, I-the yield
curve is something that people are talking
about a lot, including FOMC participants. And I-you have a range of views. It’s something we’re going to
continue to be talking about. It’s-but it’s only
one of many things, of course, that we talk about. I think that that
discussion is really about what is appropriate
policy, and how do we think about policy as we
approach the neutral rate. How do we understand
what the neutral rate is? How do we know where it is? And what are the consequences
of being above or below it? That’s really what-when people
are talking about the slope of the yield curve, that’s really what
they’re talking about. We know why-we know why the
yield curve is flattening. It’s because we’re raising
the federal funds rate. It makes all the
sense in the world that the short end
would come up. I think you asked-the
harder question is, what’s happening
with long rates? And there are many things
that move long rates around. Of course, there’s an
embedded expectation of the path of short rates. There’s the term premium,
which has been very low by historical standards. And so arguments are made that
a flatter yield curve has less of a signal embedded in it. In addition, I think what
you saw most recently that you referred to, Steve,
was just risk-on, risk-off. In a risk-off environment, people want to own
U.S. Treasuries, and you see-you know,
Treasury prices go up, rates go down quite a lot. So-but I think ultimately,
you know, what we’re-what we really care about is what’s the
appropriate stance of policy. And there’s a-there may be a
signal in that long-term rate about what is the neutral rate, and I think that’s why
people are paying attention to the yield curve. NANCY MARSHALL-GENZER. Nancy Marshall-Genzer
with Marketplace. Companies are buying back
their shares at a record rate. Corporate debt is up. Consumer debt is rising. Are we in a credit bubble? Is that something that
you’re worried about? CHAIRMAN POWELL. So if you look at households, you do not see excess
credit growth, you don’t see high levels
of credit going out. So not so much households. And that really was where
the problems were before the financial crisis, was particularly in-among
household borrowing, particularly around mortgages. With-if you take
banks, then, of course, their leverage is
significantly lower. Or, to say it differently, their
capital is significantly higher. If you ask about nonfinancial
corporates, that’s really where leverage is at levels that
are high relative to history. But defaults are low, interest
rates are low, you know, so it’s something-that’s
something we’re watching very carefully. But, again, I don’t think we see
it as-I think there are a range of views on that,
but we are watching nonfinancial corporates. Households are in good shape,
though, and that is-that is so important because
that’s where-you know, that’s where we got
into trouble before. And that’s-it’s often
around property, and particularly housing, where
you see real problems emerge. We don’t really see that now, so
we take some solace from that. MYLES UDLAND. Myles Udland with Yahoo Finance. Chair Powell, you referenced a
minute ago this idea of cushion, or the fact that the
Fed doesn’t have as much of when rates are low
and inflation is low. And I’m wondering if you or
the Committee has thought about your move to
raise interest rates as partly responding
to the economy, but partly giving
yourselves room to navigate in the inevitable
future recession, whenever that was to come. And do you think that that has
played any part in, you know, your outlook for policy or
recent policy decisions? Or is it, you know,
just a purely based on what the economy is doing? CHAIRMAN POWELL. So it doesn’t play any
part in my thinking and I’ll tell you why. If you raise rates too quickly, you’re just increasing the
likelihood of a recession, and that’s exactly what
you don’t want to do. So the best thing you can do, I think-I think the
incentives actually run in the other direction. If you’re-if you’re
worried about going back to the lower bound, then
risk management would suggest that you go a little
slower in raising rates and tolerate-that’s likely to
be a more sustainable strategy to get further away from
the zero lower bound. I think we’re far
enough away now, though, that the risks are
kind of balanced. And so I think it’s more
just-we’re just looking at the economy, and
what does it need, and how do we-how do we
sustain the expansion, keep the labor market strong, and try to keep inflation
near 2 percent? MARK HAMRICK. Mark Hamrick with Bankrate. You talked earlier
about wage growth and your basic message
to workers. How confident are you that
when we do see stock buybacks and the like, the workers
will get whatever your view of that share is as well and
the wage hikes in the near term and in the foreseeable future? Thank you. CHAIRMAN POWELL. You know, we don’t-we don’t
have the tools to control that. If companies choose to-companies
in our system are free to do what they can-what
they need to do once they’ve-once
they’ve made profits and have cash to distribute. They can distribute it
to their shareholders, they can buy-either through
dividends or through buybacks. They can pay their workers. You know, the part-and,
you know, we don’t play a role
in those decisions. The part that we focus
on is maximum employment. That’s our mandate. So we view maximum employment
as the maximum sustainable level of employment, meaning
it’s not so much that it will cause the
economy to overheat. And so I think we’ve
been committed to that. I think we take that
obligation very seriously. And, you know, over time, when-when labor markets are
strong and companies are hiring, we should see higher wages. But, again, we don’t
really have the tools that will address the
distribution of profits and that kind of thing.

Robin Kshlerin

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