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- 01 Feb '23 at 2:18 pm #52671TradersComKeymaster
Powell Press Conference
>> Good afternoon and welcome. My colleagues and I understand the hardship that high inflation is causing, and we are strongly committed to bringing inflation back down to our 2% goal. Over the past year we have taken forceful actions to tighten the stance of monetary policy.
We covered a lot of ground, and the full effects of our rapid tightening so far are yet to be felt. Even so, we have more work to do. Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy. Without price stability the economy does not work for anyone. In particular, without price stability, we will not achieve a sustained period of labor market conditions that benefit all.
Today the FO in, C raised our policy interest rate by 25 basis points. We continue to anticipate that ongoing increases will be appropriate in order to obtain a stance of monetary policy sufficiently restrictive to return inflation to 2% over time.
In addition, we are continuing the process of significantly reducing the size of our Balance Sheet. Restoring price stability will likely require maintaining a restrictive stance for some time. I will have more to say about today’s monitory action policies after briefly reviewing the economic developments.
The US economy slowed significantly last year with real GDP rising at a below-pace of 1%. Recent indicators point to a modest growth of spending and production this quarter. Consumer spending seems to be expanding as a subdued space reflecting tighter financial conditions in the last year.
Activity in the housing sector continues to weaken, largely reflecting higher mortgage rates. Higher interest rate as enslower output rates appear to also be weighing on business fixed investment.
Despite the slowdown in growth the labor market remains extremely tight with the unemployment rate at a 50–year low, job agency very high and wage growth elevated. Job gains have been robust with employment rising by 247,000 jobs per month over the last three months.
Although the pace of job gains has slowed over the past year and nominal wage growth has shown some signs of easing, the labor market continues to be out of balance. Labor demands substantially exceeds the supply of available workers and the labor force participation rate has changed little from a year ago.
Inflation remains well above our longer-run goal of 2%. Over the 12 months ending in December, total PCE prices rose 5.0%, excluding the volatile food and energy category, core PCE prices rose 4.4%.
The inflation data received over the past three months show a welcome reduction in the monthly pace of increases. While recent developments are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path.
Despite elevated inflation, the longer-term inflation expectations appear to be well anchored, as reflected in a broad range of surveys on households, businesses and forecaster, as well as measures in financial markets.
Although that is not ground rules for displayscy. It still remains too high and the longer it continues, the greater the chance expectations that higher inflation will become entrenched.
The fed’s monetary po’alcies are guided by the mandate to promote employment and stable prices for the American people. My colleagues are acutely aware high inflation imposes significant hardship with purchasing power, especially those least able to meet the higher costs of essentials like food, housing and transportation.
We are highly attentive to the risks inflation imposes to both side of the mandate and strongly committed to returning inflation to the 2% objective.
And at today’s meeting the committee raised the target range for the Federal funds rate by 25% basis points bringing it to 4.75%. With today’s action we raised interest rates by 3.5 percentage points over the past year. We continue — 4.5 percentage points in the past year and increases in the Federal funds rate will be appropriate in order to obtain a stance of monetary policy sufficiently restrictive to return inflation to 2% over time.
We are seeing the effects of our policy actions On Demand in the most intrasensitive sectors of the economy, particularly housing. It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation.
In light of the cumulative tightening of monetary policy and the lags with which monetary policy reflects economic activity and inflation, the Committee decided to raise interest rates by 25 basis points today, continuing the step down from last year’s rapid pace of increases.
Shifting to a slower pace will better allow the Committee to assess the economy’s progress toward our goals, as we determine the extent of future increases that we require to obtain a sufficiently restrictive stance.
We will continue to make our decisions meeting-by-meeting, taking into account the totality of incoming data and the outlook for economic activity and inflation.
We have been taking forceful steps to moderate demand so it come into better alignment with supply.
Our overarching focus is using our tools to bring inflation back down to the 2% goal and keep longer-term inflation expectations well anchored.
Reducing inflation is likely to require a period of below-trend growth and softening of labor market conditions. Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run.
The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done.
To conclude, we understand that our actions effect communities, families and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals. Thank you, and I look forward to your questions.
>> Chris Rugaber of the Associated Press. Thank you for doing this. Financial conditions loosened since the fall with bond yields falling, also bringing down mortgage rates and the Stock Market posted a solid gain in January. Does that make your job of combating inflation harder, and can you see lifting rates higher than you otherwise would to offset the increase in — or to offset the easing of financial conditions? PowerPoint so it is important that overall financial conditions continue to refelt the policy and strength we are putting in place to bring inflation down to 2%. Of course, financial conditions have tightened significantly over the Patz year. I would say that our focus is not on short-term moves but on sustained changes to broader financial conditions and it is our judgment that we are not yet as a sufficiently restrictive policy stance, which is why we say that we expect ongoing hikes will be appropriate.
Of course, many things effect financial condition, not jus our policy. We will take into account overall financial conditions along with many other factors as we set policy.
>> Hi, Chair Powell. Thank you for taking our questions. Rachel Siegel from the Washington Post. Over the last quarter we saw a deacceleration in prices, wages and a fall in consumer spending, all while the unemployment rate has been able to stay at a historic low. Does this at all change your view of how much the employment rate would need to go up, if at all for inflation to come down to the levels you are looking for?
>> CHAIR JEROME POWELL: I would say it is a good thing the disinflation we have seen so far has not come as the expense of a weaker labor market, but I would also say the inflationary process you see under way is really at an early stage. What you see is really in the good sector, you see inflation now coming down because supply chains have been fixed, demand is shifting back to services and shortages have been abandoned, so you see that in the other — in the housing services sector, we expect inflation to continue moving up.
For a while, but then to come down assuming that new leases continue to be lower. So, in those two sectors you have a good story. The issue is that we have a large sector called non-housing services, core non-housing services where you don’t see inflation yet.
But I would say, so far what we see is progress, but without weakening in labor market conditions.
>> Has your expectation for where the unemployment rate might go changed since December?
>> CHAIR JEROME POWELL: No, we are going to write down new forecasts at the March meeting and see at that time. I will say it is gratifying to see the disinflationary process now getting under way, and we continue to get strong labor market data, so, we will update those forecasts in March.
>> Hi, Chair Powell, Neil Irwin with Axios. You and your colleagues emphasized the job openings could come down and let some of the air out of the market without job losses. We saw job openings actually rising and coinciding with the slowdown in wage inflation. Do you believe openings are an important indicator to be studyings to understand are the labor market is and where the wage inflation might be heading?
>> CHAIR JEROME POWELL: You are right about the data, of course.
We have seen average hourly earnings, and now the employment cost index abating a little bit, still off of their highs of six months ago and more, but still at levels that are fairly elevated. The job openings number in jolts has been quite volatile recently.
I did see that it moved back up this morning. I do think it is probably an important indicator, the ratio, I guess, is back up to 1.9 job openings to unemployed people, people looking for work.
So, it is an indicator, but, nonetheless, you are right, we do see wages moving down. If you look across the rest of the labor market, you still see very high payroll job creation. And, you know, quotes are still at an elevated level, so by many indicators the job market is still very strong.
>> Thank you. Colby Smith with the financial times. Given the economic data since the December meeting, is the trajectory for the fed funds rate in the most rebate SEP still the best guide post for the policy forward or does ongoing now mean more than two rate rises now? PowerPoint you are right. At the December meeting we all wrote down our best estimates of what we thought the ultimate level would be. Obviously that was back in December and the median was between 5 and 5.25%. At the March meeting we will update those assessments. We did not update them today. We did, however, continue to say that we believe ongoing rate heights will be appropriate to obtain a sufficiently restricted stance of policy to bring inflation back down to 2%.
We think we covered a lot of ground and financial conditions have certainly tightened. I would say we still think there is work to do there.
We will be looking at the incoming data between the March meeting and May meeting. I don’t feel a lot of separatey about where that will be. It could be higher than where we are running down right now. If we come to the need to move rates up beyond what we said in December, we would certainly do that.
At the same time the data comes in the other direction, we will make data-dependent decisions that coming meeting.
>> As a follow-up, how are you viewing the balance of risk between the two options of the likelihood of maybe falling short of that or going beyond that level?
>> CHAIR JEROME POWELL: I guess I would say it this way.
I continue to think that it is very difficult to manage the risk of doing too little, and finding out in six or 12 months that we actually were close but didn’t get the job done, inflation springs back and we have to go back in and now you really do worry about expectations getting unanchored and that kind of thing. This is a very difficult risk to manage.
Whereas, we have no incentive or desire to over-tighten, but if we feel we have gone too far, we could certainly — inflation is coming down faster than we expect, we have tools that would work on that.
So, do I think in this situation where we still have the highest inflation in 40 years, you know, the job is not fully done. As I started to mention earlier, we have a sector that represents 56% of the core inflation index where we don’t see disinflation yet. We don’t see it, it is not happening yet.
Inflation in core services, X-housing is still running at 4% on a 6 and 12-month basis, so there is nothing happening there. In the other two sectors representing less than 50%, I think you now have a story that is credible, coming together, although you don’t yet see disinflation in housing services, but it is in the pipeline, right? So, for the third sector we don’t see anything.
So, I think it would be very premature to declare victory or think we really got this. We need to see — our goal, of course, is to bring inflation down. How do we get that done? There are many factors driving inflation in that sector. They should be coming into play to have the disinflationary process begin in that sector, but so far we don’t see that. Until we do, we see ourselves as having a lot of work left to do.
>> Thanks as usual. I want to connect a couple of dots here. The statement made a number of changes that seem to be saying things are getting better, inflation is eased, has eased, that is new. You have taken out references to the war in Ukraine causing price increases, you have taken out references to the pandemic, you eliminated all the reasons you said prices were being driven higher, yet that is not mapping to any change in how you describe policy. We still have ongoing increases to come.
I am wondering, why is that the case? And does it have more to do with the uncertainty around the outlook or a reason to give a very overlabored market a reason to get ahead of itself and overreact?
>> CHAIR JEROME POWELL: I guess I would say it this way. With we say for the first time the disinflationary process has started. We can see it. We see it really in goods prices so far. Goods prices is a big sector. This is what we thought would happen in the very beginning. Now here it is happening, the supply change shortages and demand revolving back to services. That is a good thing, but it is around a quarter of the core price index, so the second quarter the housing services.
That is driven by very different things. As I mentioned with housing services, we expect, and other forecasters expect — measured inflation will continue moving up for several months, but then will come down, assuming new leases continue to be soft. And we do assume that. So, we think that is sort of in the pipeline.
We actually see disinflation in the goods sector and in the pipeline for two sectors that amount to a little less than half.
This is good. We note when we say inflation is coming down that this is good.
We expect to see that disinflation process will be seen, we hope soon, in the core goods ex-housing, sorry, the core services ex-housing sector I talked about. We don’t see it yet. It is seven or eight different kinds of services, not all of them the same, and we have a sense of what is going on in each of the different subsections, probably the biggest part of it, probably 06% of that is, you know, research would show is sensitive to slack in the economy. So, the labor market will probably be important. Some of the other one, the labor market is not going to be important. Many other factors. In any case, we don’t see disinflation in that sector yet. I think we need to see that. The majority of the core PCE index, the best protector of headline PCE, which is our mandate.
It is not that we are neither optimistic or pessimistic. We are just telling you we don’t see inflation moving down yet in that large sector. I think we will, fairly soon, but we don’t see it yet.
Until we do, we have to be honest with ourselves, seeing ourselves as having perhaps more persistent inflation in that sector, which will take longer to get down. We have to complete the job. That is what we are here for.
>> Chair Powell, you observed several years ago you learned we can have low unemployment rate without targeted inflation, we learned lately that inflation can come down from its uncomfortably high level despite a historically low unemployment rate. Given that and how much you did over the last year, why do you think further rate increases are needed? Why not stop here and see what transpires in the coming months before raising rates again?
>> CHAIR JEROME POWELL: So, we raised rates 4.5% points and we are talking about a couple more rate hikes to get to the level we think is appropriately restrictive. Why do we think that is appropriately necessary? Because inflation is running hot. We are taking into account long and variable lags. We are thinking about that.
Really, the story we are telling about inflation to ourselves and the way we understand it, basically the three things I have just gone through a couple times. Again, we don’t see it effecting the services sector, ex-housing, yet. Our assessment is that we are not very far from that level. We don’t know that, though. We don’t know that. We are living in a world of significant uncertainty. I would look across the rate, the spectrum of rates and see that real rates are now operative.
We are — by an appropriate set of measures or positive across the yield curve. I think policy is restrictive. We are trying to make a fine judgment about how much is restrictive enough. That is all. That is why we are slowing down to 25 basis points. We will be occasionally watching the committee, inflation and the process of the disinflationary process.
>> Did you or your colleagues discuss the conditions for a pause at this meeting this week?
>> CHAIR JEROME POWELL: You know, you will see — the minutes will come out in three weeks and give you a lot of detail. We spent a lot of time talking about the path ahead. And, the state of the economy. I would not want to start to describe all the details there, but the sense of the discussion was really talking quite a bit about the path forward.
>> Hi, Chair Powell. I wanted to ask about the debt ceiling given that we have now hit up against it. If the US goes past the X date, will the Fed do whatever the directory re-elects as making payments or do its own analysis of any legal constraints.
>> CHAIR JEROME POWELL: So, your question is would we — say your question again?
>> Would the Fed do what Treasury directs as it relates to making payments, or would it do its own analysis of any legal constraints.
>> CHAIR JEROME POWELL: So, you are asking me about prioritization in effect, right?
>> CHAIR JEROME POWELL: I feel like I have to say this. There is only one way forward here, and that is for the Congress to raise the debt ceiling to the United States government can pay all of its obligations when do. Any deviations from that path would be highly risky and no one should assume the fed can protect the economy from acting in a finally manner. In terms of our relationship with the Treasury, we are their fiscal agent and I will leave it at that.
>> Are you doing any planning on what would happen in the event that night happen?
>> CHAIR JEROME POWELL: I will leave it at that. Really, it is Congress’ job to raise the debt ceiling and I gather there are discussions happening, but they don’t involve us. We are not involved in those discussions. We are the fiscal agent.
>> “New York Times.” Thank you for taking our question. Was there discussion today of the possibility of pausing rate increases and then restarting them? Lori Logan from the Federal Reserve bank of Dallas suggests that could be a possibility in a recent speech and I wonder if that view is broadly shared on the Committee?
>> CHAIR JEROME POWELL: So, the Committee, obviously, did not see this as a time to pause. We judged the appropriate thing to do at this meeting was to raise the Federal funds rate by 25 basis points and we continue to anticipate that ongoing increases in the target range will be appropriate in order to obtain that stance of sufficiently restrictive monetary policy down to 2%, so that is the judgment we made.
We will write down new forecasts in March, and we will certainly be looking at the income and data as everyone else will.
>> I should have been clear. Would it be possible to take a meeting off for example, and then resume? You know, could you, rather than doing that every meeting, go a little more slowly, take some gaps in between moves?
>> CHAIR JEROME POWELL: I mean, I think — this is not something that the Committee is thinking about or exploring in any kind of detail. In principle, though, we used to go every other meeting, if you remember, 25 pays points, and that was considered a fast pace. So, I think a lot of options are available.
You saw what the bank of Canada did. I know they left that they are willing to raise rates after pausing, but this is not something that the Federal market committee is on the point of deciding right now.
>> Mr. Chairman, SEP has the inflation rate at 3.3% and the amended PCE is 2.1% without going to the 1.5% rate which you have penciled in this year and achieved it without the 1% increase in unemployment rate you penciled in for this year. I wonder if you considered the idea of whether or not your understanding of the inflation dynamic may be wrong, and it is possible to achieve these things without raising rates that high, and, also, without the surge in unemployment.
Specifically, I wonder if you might comment on the speech given by Vice Chair Brainard who said to accept inputs may be responsible other in part than important increases for housing and other services mace not be wages, the idea it may not require unemployment rising to get this sector of inflation under control. Thanks?
>> CHAIR JEROME POWELL: A couple things. First, on the forecast, if — you are right. If you take very short-term, three month, say, measures of PCE, core PCE inflation, they are quite low right now, but that is because they are driven by significantly negative readings from goods inflation. Most forecasts would think that the significantly negative readings would be transitory. And that goods inflation will move up fairly soon, back up to its longer run trend of something around zero, something like that.
So, a lot of forecasts would call for core PCE to go back up to 4% by the middle of the year, for example. That is really where the sustainable level is, more like 4%, so that would suggest there is work left to do.
Let’s say inflation does come down much faster than we expect, which is possible, as I mentioned. Obviously our policy is dated, and we would take that into account.
In terms of the non — sorry, the core non-housing services, as I mentioned earlier, it is a very diverse sector, six or seven sectors. So, sectors that represent 55% or 60% of that sub-sectors of that sector are, we think, sensitive to slack in the economy, sensitive to the labor market, in a way. But some of the other sectors are not.
For example, financial services is a big sector. That is really not driven by labor, labor markets, wages. So, that is why I said, there are a number of things that will effect — take restaurant, right? Clearly labor is important for restaurants, but so are food prices. Transportation services is going to be driven by fuel prices, for example.
So, there are lots of things in that mix that would drive-inflation. But my own view, you will not have a sustainable return to 2% inflation in that sector without a better balance in the labor market. And, I don’t know what that will require in terms of increased unemployment. To your question. I do think there are a number of dimensions through which the labor market can soften. So far we have got, as I mentioned, in goods, inflation moving down without the softening in the labor market. I think most forecasters would say that unemployment will probably rise a bit from here, but I still think and continue to think there is a path to getting inflation back down to 2% without a really significant economic decline, or significant increase in unemployment.
And that is because the setting we are in the quite different. The inflation that we originally got was very much a collision between very strong demand, and hard supply constraints, not something you really have seen in prior business cycles. So, now we see goods inflation coming down for the reasons we thought, and we understand why housing inflation will come down. I think a story will emerge on the non-housing services sector soon enough.
I think there is ongoing disinflation, and we don’t yet see weakening in the labor market, so we will have to see.
>> Can we get there under 5%?
>> Certainly possible. It is absolutely possible. It is a question — no one really knows. This is not like the other business cycles in so many ways. It may will be that as — that it will take more slowing than we expect, and I expect, to get inflation down 2%. But I don’t — that is not my base case. My base case is that the economy can return to 2% inflation without a really significant downturn or really big increase in unemployment. I think that is a possible outcome. I think many, many forecasters would say it is not the most likely outcome, but I would say there is a chance of it.
>> Michael McGee from Bloomburg TV and radio. I would like to pick up on what you were saying about a substantial downturn, with a full weight of the tightening not in place yet and the progress against inflation, there is still a lot of talk about very, very slow growth going forward in 2023. The recession indicators are all suggesting that we are going to erecession is here, so I am wondering if you have changed your view, or have a more nuanced view of what you think the danger to economic growth is going forward, and whether you are very close to, perhaps, tipping it into the wrong place, which calls for more restraint on your part?
>> CHAIR JEROME POWELL: So, I do think most forecasts, and my own assessment would be that growth will continue, positive growth will continue, but at a subdued pace, as it did last year. GDP growth was 1% last year, and also final sales growth, which we think is a better indicator of about 1%. I think most forecasts, earn certainly my assessment would be that growth will continue at a fairly subdued level this year.
There are other factor, though, that need to be considered. You will have seen that the global picture is improving a bit, and that will matter for us, potentially. The labor market remains very, very strong. That is job creation, that is wages.
As inflation does come down, sentiment will improve. Also, State and Local governments are really flush these days with money and many of them are considering tax cuts, or even accepting checks, so I think that will also support — also, spending a lot. There is a lot of spending coming in the construction pipeline both private and public. That will support economic activity, so, I think there is a good chance that those factors will help support positive growth this year. And that is my base case, is that there will be positive growth this year.
>> Thank you. Rich Miller from Bloomburg. First of all, how are you doing?
>> CHAIR JEROME POWELL: Fine.
>> Good. Second off I think earlier on in the Press Conference you said you need to see substantially more evidence of inflation coming down. Can you give us some idea of what you think? You mentioned three months, you have see three months in a row? Governor Waller said maybe six months. Is it just inflation coming down or the labor market coming into better balance to see substantially more evidence of progress.
>> CHAIR JEROME POWELL: I don’t think there will be a light switch flipped or anything like that. It is a accumulation of evidence. By the time of the March meeting we will have two more employment supports, two more CPI reports and we will be looking a the those carefully as all of us will, and we will be asking what are they Delling us? Soon after that we will — telling us? Soon after that we will have another ECI wage report, which we like because it adjusts for competition and is very complete.
The one we got yesterday was constructive. It shows wages coming down, but still at a high level; still at a level well above where they were before the pandemic. So, I don’t want to put a number on it in terms of months, but as the accumulated evidence comes in, it will be reflected in our assessment of the outlook, and that will be reflected in our policy over time.
I will say, though, we — it is our job to restore price stability and achieve 2% inflation for the benefit of the American public. Market participants have a very different job. It is a fine job. It is a great job. In fact, I did that job for years. But, — in one form or another — but we have to deliver that. So, we are strongly resolved that we will complete this task, because we think it has benefits that will, you know, support economic activity, and benefit the public for many, many years.
>> Thank you, Fed Chairman for taking the questions. We had solid job growth and increase in consumer spending but so far it seemed relatively mild for the economy to go from a 9.5% CPI inflation to 1.5. Is it hard to go from 6.5 to 2?
>> CHAIR JEROME POWELL: I don’t know, honestly. We, of course, expected goods inflation to start coming down by the end of 2021. And it didn’t. It didn’t come down all through ’22. Now it is going up pretty fast. So, I would say this is not a standard business cycle where you can look at the last ten time there is was a global pandemic and we shut the economy down and Congress did what it did and we did what we did. It is unique.
So, I think separatey is not appropriate here. Inflation — it is just harder to forecast inflation. It may come down faster, it may take longer to come down. Our job is to deliver inflation back to target, and we will do that, but I think we will be cautious about declaring victory and, you know, sending signals that we think that the game is won. We have a long way to go. It is the early stages of disinflation. It is most welcome to be able to say that, that we are now in disinflation, but that is great, but we see that it has to spread through the economy and it will take time. That is all.
>> How long do you see it remains at this level?
>> CHAIR JEROME POWELL: You know, there are many different forecast, but generally it is a forecast of slower growth, some softening in labor market conditions and inflation moving down steadily, but not quickly. And in that case, if the economy performs broadly in line with those expectations, it will not be appropriate to cut rates this year, to loosen policy this year. Of course, other people have forecasts with inflation coming down much faster. That is a different thing. If that happen, inflation comes down much faster, then we will be seeing that and it will be incorporated into our thinking about policy.
>> Thank you Chair Powell. I am with the economist. If you look at Fed-funded futures pricing, the implication is that you will raise rates one more time and then pause. Are you concerned about that divergence, or do you think that if everything breaks, that is a plausible outcome?
>> CHAIR JEROME POWELL: I am not particularly concerned about the convergence because it is expected inflation will move down much more quickly. That is the bigger part of that.
Again, as I mentioned, our forecast, there are different participants that have different forecasts, but generally the forecasts are for continued subdued growth, some softening in the labor market, but not a recession. And we have inflation moving down, you know, into the somewhere in the mid-3s or maybe lower than that this year. We will update that in March. That is what we thought in December.
Markets are past that. They sew inflation coming down in some cases much quicker than that, so we will have to see. We have a different view, a different forecast really. Given that, I don’t see the rates coming down, as I mentioned, if we do see inflation coming down much more quickly, that will play into our policy-setting, of course.
>> One you of the statements is the Committee is no longer listing public health you will be considering in assessing conditioning. What should we make of that? Does the Federal Reserve no longer see the pandemic as weighing on the economy?
>> CHAIR JEROME POWELL: That is the general sense of it. I personally understand well that COVID is still out there, but that it is no longer playing an important role in our economy. We kept that statement in there for quite a while, and I think we knew we would take it out at some point. There is never a perfect time, but we thought that — you know, people are handling it better, and the economy and society are handling it better. It doesn’t really need to be in the Fed’s post-meeting statement as an ongoing economic risk, as opposed to a health issue.
>> Hi, Chair Powell, Nancy marshal, again, sir, with marketplace. I wanted to go back to another thing that Fed Vice Chair Brainard said recently.
She said she doesn’t see signs of a wage price spiral. I am wondering if you agree with that?
>> CHAIR JEROME POWELL: I do. You don’t see that yet, but the whole point is, once you see it, you have a serious problem. That means that effectively in people’s decision-making, inflation has become a real salient issue. And, once that happens, that is what we can’t allow to happen.
You know, so that is why we worry the longer we are at this and the longer people talk about inflation all day long, everyday, the more risk of something like that. But, no, there is not much — it is more of a risk, it always has been more a risk than anything else. By the way, I think it is becoming less salient. We picked that up in conversations and I have seen data, too, people are glad inflation is coming down. People really don’t like inflation.
As we see it coming down, that could also add a boost to economic activity. Look at sentiment surveys now. They are very low, with 3.5% unemployment and high wage increases nominally, sort of a sense, why can it be? It has to be inflation, right?
So, I think once we see inflation coming down in coming months, you also, I think, will see a boost to sentiment, I hope.
>> So you are looking most closely to consumer expectations?
>> CHAIR JEROME POWELL: That is at the very heart, consumers and businesses. Essentially we believe that expectations of future inflation are a very important part of the process of creating inflation. That is sort of a bedrock belief. In one way or another, it has to be. We think it is important. And, in this case, I would say the risk eight months ago or so, longer-term inflation expectations had moved up. We moved up quite vigorously. Expectations seem to be well anchored now. Including the longer end, not just the shorter end.
That is very reassuring I think. The market and public have decided inflation is going to come back down to 2%. It is matter of following through. It is helpful to the process of getting inflation down, that people generally believe it will be coming down, that will be part of the process of getting it down, and it is a very positive thing.
>> Thank you, Chair Powell. In the minutes of the December meeting, there was a couple senses that struck people at important when the Committee said participants talked about this unwarranted easing of financial conditions was a risk, and it would make your life harder to bring inflation down. I haven’t seen you talk about that very much today, or in the statement.
So, I was wondering, has that concern eased among members, or is that something you are still concerned about?
>> CHAIR JEROME POWELL: I will put it this way, it is something we monitor carefully. The financial conditions haven’t changed much from the December meeting until now. It is important that the markets do reflect the tightening that we are putting in place as we have discussed a couple times here. There is a difference in perspective by some market measures on how fast inflation will come down. We will have to the see. I mean, I am not going to try to persuade people I have a different forecast, but our forecast is that it will take some time and patience, and we will need to keep rates higher for longer, but we will see.
>> Thank you, Chair Powell. Brendan Peterson with punch bowl news. I wanted to ask if the fed takes into account, at all, the debt ceiling when it comes to quantitative tightening could bring us closer, faster to the drop-dead debt ceiling, deadline. Could it play in effect as we get closer to the drop-dead deadline this summer?
>> CHAIR JEROME POWELL: Look, it is very hard to think about all the different possible ramifications. I think the answer is basically I don’t think there is likely to be any important interaction between the two, because I believe Congress will wind up acting, as it will, and must in the end to raise the debt ceiling in a way that doesn’t risk the progress we are making against inflation and the economy and the financial sector. I believe that will happen. I believe it will happen. We understand all that. We will just be monitoring it. Thank you very much.22 Mar '23 at 12:04 pm #52661Helmholtz WatsonParticipant
The Federal Reserve raised rates by 25 bp to a target range of 4.75-5.00% in unanimous vote at their February meeting as expected. Market Fed futures
[See the full post at: Federal Reserve Raises Rates 25bps as Expected, Project One More 25bps Hike]
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