Fed Chair Jerome Powell Announces Interest Rate Decision as Inflation Eases Transcript

Good afternoon. My colleagues and I remain squarely focused on our dual mandate to promote maximum employment and stable prices for the American people. We understand the hardship that high inflation is causing and we remain strongly committed to bringing inflation back down to our 2% goal.

(00:21)
Price stability is the responsibility of the Federal Reserve. Without price stability, the economy doesn’t work for anyone. In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all.

(00:38)
Since early last year, the FOMC has significantly tightened the stance of monetary policy. We have raised our policy interest rate by five percentage points and we’ve continued to reduce our securities holdings at a brisk pace. We’ve covered a lot of ground and the full effects of our tightening have yet to be felt.

(00:58)
In light of how far we’ve come in tightening policy, the uncertain lags with which monetary policy affects the economy, and potential headwinds from credit tightening, today we decided to leave our policy interest rate unchanged and to continue to reduce our securities holdings.

(01:15)
Looking ahead, nearly all committee participants view it as likely that some further rate increases will be appropriate this year to bring inflation down to 2% over time. And I will have more to say about monetary policy after briefly reviewing economic developments.

(01:34)
The US economy slowed significantly last year, and recent indicators suggest that economic activity has continued to expand at a modest pace. Although growth in consumer spending has picked up this year, activity in the housing sector remains weak, largely reflecting higher mortgage rates. Higher interest rates and slower output growth also appear to be weighing on business fixed investment.

(01:59)
Committee participants generally the expect subdued growth to continue. In our summary of economic projections, the median projection has real GDP growth at 1.0% this year and 1.1% next year, well below the median estimate of the longer run normal growth rate.

(02:18)
The labor market remains very tight. Over the past three months, payroll job gains averaged a robust 283,000 jobs per month. The unemployment rate moved up but remained low in May, at 3.7%. There are some signs that supply and demand in the labor market are coming into better balance. The labor force participation rate has moved up in recent months, particularly for individuals aged 25 to 54 years. Nominal wage growth has shown signs of easing, and job vacancies have declined so far this year.

(02:55)
While the jobs to workers gap has declined, labor demand still substantially exceeds the supply of available workers. FOMC participants expect supply and demand conditions in the labor market to come into better balance over time, easing upward pressures on inflation. The median unemployment rate projection in the SEP rises to 4.1% at the end of this year and 4.5% at the end of next year.

(03:24)
Inflation remains well above our longer run 2% goal. Over the 12 months ending in April, total PCE prices rose 4.4%. Excluding the volatile food and energy categories, core PCE prices rose 4.7%. In May, the 12-month change in the consumer price index came in at 4% and the change in the core CPI was 5.3%. Inflation has moderated somewhat since the middle of last year. Nonetheless, inflation pressures continue to run high and the process of getting inflation back down to 2% has a long way to go.

(04:05)
The median projection in the SEP for total PCE inflation is 3.2% this year, 2.5% next year, and 2.1% in 2025. Core PCE inflation, which excludes volatile food and energy prices, is projected to run higher than total inflation, and the median projection has been revised in the SEP up to 3.9% this year. Despite elevated inflation, longer term inflation expectations appear to remain well-anchored as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets.

(04:45)
The Fed’s monetary policy actions are guided by our mandate to promote maximum employment and stable prices for the American people. My colleagues and I are acutely aware that high inflation imposes hardship as it erodes purchasing power, especially for those least able to meet the higher costs of essentials like food, housing, and transportation. We are highly attentive to the risks that high inflation poses to both sides of our mandate and we are strongly committed to returning inflation to our 2% objective.

(05:18)
As I noted earlier, since early last year, we have raised our policy rate by five percentage points. We have been seeing the effects of our policy tightening on demand in the most interest rate sensitive sectors of the economy, especially housing and investment. It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation. The economy is facing headwinds from tighter credit conditions for households and businesses, which are likely to weigh on economic activity, hiring and inflation. The extent of these effects remains uncertain.

(05:55)
In light of how far we’ve come in tightening policy, the uncertain lags with which monetary policy affects the economy, and potential headwinds from credit tightening, the committee decided at today’s meeting to maintain the target range for the federal funds rate at 5% to 5.25%, and to continue the process of significantly reducing our securities holdings.

(06:15)
As I noted earlier, nearly nearly all committee participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year. But at this meeting, considering how far and how fast we’ve moved, we judged it prudent to hold the target range steady to allow the committee to assess additional information and its implications for monetary policy

(06:38)
In determining the extent of additional policy firming that may be appropriate to return inflation to 2% over time, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.

(06:57)
In our SEP, participants wrote down their individual assessments of an appropriate path for the federal funds rate, based on what each participant judges to be the most likely scenario going forward. If the economy evolves as projected, the median participant projects that the appropriate level of the federal funds rate will be 5.6% at the end of this year, 4.6% at the end of 2024, and 3.4% at the end of 2025. For the end of this year, the median projection is a half percentage point higher than in our March projections.

(07:35)
I hasten to add as always that these projections are not a committee decision or plan. If the economy does not evolve as projected, the path for policy will adjust as appropriate to foster our maximum employment and price stability goals. We will continue to make our decisions meeting by meeting, based on the totality of incoming data and their implications for the outlook for economic activity and inflation, as well as the balance of risks. We remain committed to bringing inflation back down to our 2% goal and to keeping longer-term inflation expectations well-anchored. Reducing inflation is likely to require a period of below trend growth and some 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.

(08:26)
To conclude, we understand that our actions affect communities, families, and businesses across the country. Everything we do at The Fed is in service to our public mission. We will do everything we can to achieve our maximum employment and price stability goals. Thank you and I look forward to your questions.

Colby.

Thank you. Colby Smith with the Financial Times. I’m curious what gives you and the committee the confidence that waiting will not be counterproductive at a time when the monthly pace of core inflation is still so elevated? Interest rate sensitive sectors like housing, while they’ve felt the drag of the past Fed actions have started to recover in some regions and financial conditions most recently were easing.

So I guess I would go back to the beginning of this tightening cycle to address that. So as we started our rate hikes early last year, we said there were three issues that would need to be addressed in sequence, and that of the speed of tightening, the level to which rates would need to go, and then the period of time over which we’d need to keep policy restrictive.

(09:38)
So at the outset, going back 15 months, the key issue was how fast to move rates up, and we moved very quickly by historical standards. Then last December, after four consecutive 75 basis point hikes, we moderated to a pace of a 50 basis point hike. And then this year to three 25 basis point hikes at sequential meetings. So it seemed to us to make obvious sense to moderate our rate hikes as we got closer to our destination.

(10:05)
So the decision to consider not hiking at every meeting and ultimately to hold rates steady at this meeting, I would just say it’s a continuation of that process. The main issue that we’re focused on now is determining the extent of additional policy firming that may be appropriate to return inflation to 2% over time. So the pace of the increases and the ultimate level of increases are separate variables. Given how far we have come, it may make sense for rates to move higher, but at a more moderate pace.

(10:36)
I want to stress one more thing and that is that the committee decision made today was only about this meeting. We didn’t make any decision about going forward, including what would happen at the next meeting, including we did not decide or really discuss anything about going to an every other meeting kind of an approach, or really any other approach. We really were focused on what to do at this meeting.

So there was no initial debate about the possibility of July, any sense of the initial support at this stage for that move?

So again, we didn’t make a decision about July. I mean, of course it came up in the meeting from time to time. But really, the focus was on what to do today. I would say about July, two things, one, a decision hasn’t been made. Two, I do expect that it will be a live meeting.

Howard.

Thanks. Howard Schneider with Reuters. I was just wondering if you could help us understand the narrative here, because it feels like there’s been a level shift in the dots. Stronger GDP, less of a hit on employment, slower progress on inflation. And I’m wondering in this, where’s the disinflation coming from?

Sure.

The labor market’s going to be stronger, it looks like. It’s not coming from there. Demand’s not coming down all that fast according to GDP, you’ve doubled your estimate of GDP. So what’s the narrative here? It seems like it’s getting more immaculate rather than more messy.

So you’re right that the data came in I would say consistent with but on the high side of expectations. And if you go back to the former SEP, the last SEP in March, you will see that growth moved up. These are not huge moves, but growth estimates moved up a bit, unemployment estimates moved down a bit, inflation estimates moved up a bit. And all three of those point in this same direction, which is that perhaps more restraint will be necessary than we had thought at the last meeting.

(12:33)
So although the level, frankly, of 5.6 is pretty consistent if you think about it, where the federal funds rate was trading before the bank incidents of early March. But we’ve kind of gone back to that. So your question is, where’s the disinflation going to come from? And I don’t think the story has really changed. The committee has consistently said and believed that the process of getting inflation down is going to be a gradual one. It’s

… going to take some time. And I think you go back to the three-part framework for core PCE inflation, which is we think of as good an indicator as you can have for where inflation’s going forward. You start with goods. With goods, we need to see continued healing in supply conditions, supply side conditions. They’ve definitely improved a substantial amount, but if you talk to people in business, they will say it’s not back to where it was. So, that’s one thing. And that should enable goods prices to continue, goods inflation to continue to come down over time.

(13:30)
In terms of housing services inflation, that’s another big piece. And you are seeing there that new rents, new leases are coming in at low levels and it’s really a matter of time as that goes through the pipeline. In fact, I think any forecast that people are making right now about inflation coming down this year will contain a big dose of, this year or next year, will contain a good amount of disinflation from that source. And that’s again, probably going to come slower than we would affect.

(14:02)
That leaves the big sector, which is a little more than half, pardon me, of the core PCE inflation, that’s non housing services. And we see only the earliest signs of disinflation there. It’s a sector. It’s a very broad and diverse sector. I would say in a number of the parts of that sector, the largest cost would be wage costs. It’s the service sector. So, it’s heavily labor-intensive. And I think many analysts would say that the key to getting inflation down there is to have a continuing loosening in labor market conditions, which we have seen. We have actually seen, I can go through a number of indicators suggesting there has been some loosening in labor market conditions. We need to see that continue.

(14:42)
I would almost say that the conditions that we need to see in place to get inflation down are coming into place and that would be growth meaningfully below trend, it would be a labor market that’s loosening, it would be goods pipelines getting healthier and healthier and that kind of thing. But the things are in place that we need to see, but the process of that actually working on inflation is going to take some time.

Nick.

Nick Timiraos of The Wall Street Journal. Chair Powell, what’s the value in pausing and signaling future hikes versus just hiking now? Not to be flippant, but I don’t lose weight just by buying a gym membership, I have to actually go to the gym. 16 of your colleagues put down a higher year-end ’23 rate today. A majority of you think you’re going to have to go up by 50 basis points this year. So, why not just rip off the bandaid and raise rates today?

So, first, I would say that the question of speed is a separate question from that of level. And I think if you look at the SEP, that is our estimate, our individual, it’s really accumulation of our individual estimates of how far to go. I mentioned how we got to those numbers.

(16:01)
In terms of speed, what I said at the beginning, which is speed was very important last year. As we get closer and closer to the destination – and according to the SEP, we’re not so far away from the destination in most people’s accounting – it’s reasonable, it’s common sense to go a little slower, just as it was reasonable to go from 75 basis points to 50 to 25 at every meeting. And so the committee thought overall that it was appropriate to moderate the pace, if only slightly. And there are benefits to that.

(16:33)
So, that gives us more information to make decisions. We may try to make better decisions. I think it allows the economy a little more time to adapt as we make our decisions going forward. And we’ll get to see, we don’t know the full extent of the consequences of the banking turmoil that we’ve seen. It would be early to see those, but we don’t know what the extent is. We’ll have some more time to see that unfold. It’s just the idea that we’re trying to get this right and this is, if you think of the two things as separate variables, then I think that the skip, I shouldn’t call it a skip, the decision makes sense.

I know you said July is live. With only the June employment and the CPI report for June due to be released before the July meeting, you get the ECI after, you get the Senior Loan Officer Survey after, you get some bank earnings at the end of next month, what incremental information will the committee be using to inform their judgment on whether this is in fact a skip or a longer pause?

Well, I think you’re adding that to the data that we’ve seen since the last meeting too, since we chose to maintain rates at this meeting, is it’ll really be a three-month period of data that we can look at. I think that’s a full quarter and I think you can draw more conclusions from that than you can from any six week period. We’ll look at those things.

(17:56)
We’ll also look at the evolving risk picture. We’ll look at what’s happening in the financial sector. We’ll look at all the data, the evolving outlook and we’ll make a decision.

Jeanna.

Thanks for taking our questions. Jeanna Smialek, New York Times. You obviously in your forecast marked up the path for growth, marked down the path for unemployment, marked up the path for inflation pretty notably. I wonder, since March, what has changed to make you think that the economy’s a lot more resilient and inflation’s going to be a lot more stubborn? And given that, why do you feel confident that this is as high as you’re going to have to revise the federal funds rate? Or do you think it’s possible we could have even a higher than 5.6% terminal by the end of this cycle?

On the first part, I just think we’re following the data and also the outlook. The labor market I think has surprised many, if not all, analysts over the last couple of years with its extraordinary resilience really. And it is just remarkable. And that’s really, if you think about it, that’s what’s driving it. It’s job creation, it’s wages moving up, it’s supporting spending, which in turn is supporting hiring and it’s really the engine it seems that is driving the economy. So, it’s really the data.

(19:19)
In terms of, we always write down at these meetings what we think the appropriate terminal rate will be at the end of this year. That’s how we do it. It’s based on our own individual assessments of what the most likely path of the economy is. It can actually, in reality, wind up being lower or higher and there’s really no way to know. But it’s what people think as of today, and as the data come in, it can move around during the intermediate period, it could wind up back in the same place, but it really will be data driven. I can’t tell you that I ever have a lot of confidence that we can see where the federal funds rate will be that far in advance.

Steve.

Mr. Chairman, thanks for taking my question. You had said back at the end of May that you thought risks were getting closer to being into balance. Is that still the case or has your mind changed about the balance of risks out there? And also, could you give us an idea of what would be a sufficiently restrictive funds rate? Obviously, the current rate, according to the committee, is not sufficiently restrictive. Is it five, six? Is it six? Where is it sufficiently restrictive? Thank you.

I would say again, that I think that over time the balance of risks as we’ve moved from interest rates at effectively zero now to five percentage points with an SEP calling for additional hikes, I think we’ve moved much closer to our destination, which is that sufficiently restrictive rate. And I think that means almost by definition that the risks of overdoing it and underdoing it are getting closer to being in balance.

(21:04)
I still think, and my colleagues agree, that the risks to inflation are to the upside still. So, we don’t think we’re there with inflation yet because we’re just looking at the data. And if you look at the full range of inflation data, particularly the core data, you just aren’t seeing a lot of progress over the last year. Headline, of course inflation has come down materially, but as you know, we look at core as a better indicator of where inflation overall is going. Sufficiently, so I think what we’d like to see is credible evidence that inflation is topping out and then beginning to come down. That’s what we want to see. Of course that’s what we want to see. And I think it’s also, we understand that there are lags, but remember that it’s more than a year since financial conditions began tightening. I think the reason we’re comfortable pausing is that we are still, much of the tightening took place over last summer and later into the year, and I think it’s reasonable to think that some of that may come into effect. So we’re, I think stretching out into a more moderate pace is appropriate to allow you to make that judgment of sufficiency with more data over time.

Rachel.

Hi Chair Powell, Rachel Siegel from The Washington Post. Thanks for taking our questions. I wanted to ask further on the lag effects. When you’re considering when you would hike again throughout the course of the year, are there things that you would expect to kick in as those lag effects come into effect that would inform your decisions? Have you learned things over the past year that give you some sense of timeline for when to expect those lags to come into effect?

Yeah, so it’s a challenging thing in economics. It’s sort of standard thinking that monetary policy affects economic activity with long and variable lags. Of course, these days, financial conditions begin to tighten well in advance of actual rate hikes. So, if you look back when we were lifting off, we started talking about lifting off, by the time we had lifted off the two year, which is a pretty good estimate of where policy is going, had gone from 20 basis points to 200 basis points.

(23:15)
So, in that sense, tightening happens much sooner than it used to in a world where news was in newspapers and not on the wire. So, that’s different. But it’s still the case that what you see is interest-sensitive spending is affected very, very quickly, so housing and durable goods and things like that, but broader demand and spending and asset values and things like that, they just take longer. And you can pretty much find research to support whatever answer you would like on that.

(23:46)
So, there’s not any certainty or agreement in the profession on how long it takes. So, then that makes it challenging of course. So, we’re looking at the calendar, we’re looking at what’s happening in the economy, we’re having to make these judgments. Again, it’s one of the main reasons why it makes sense to go at a slightly more moderate pace now as we seek that ultimate endpoint. I can’t point to a specific data point. I think we’ll see it when we see inflation really flattening out reliably and then starting to soften, I think we’ll know that it’s working. And ideally, by taking a little more time, we won’t go well past the level where we need to go.

I was curious if you could give us an update on what you’re seeing on credit tightening since the bank incidents from March and how you’re teasing that out apart from these lag effects.

So, it’s too early still to try to assess the full extent of what that might mean. And that’s something we’re going to be watching of course. And if we were to see what we would view as significant tightening beyond what would normally be expected because of this channel, then we would factor that into account in making rate decisions. So, that’s how we think about it.

Let’s go to Chris.

Thanks. Chris Rugaber at Associated Press. You mentioned that many of the trends are in place that you want to see, core services, ex-housing has come in pretty low in the past couple of months. And as you noted, a significant portion of core inflation is now housing prices. And then we’ve had some quirks in used car prices.

(25:28)
So, given that these trends are in place, I guess I’m sort of asking the flip side of Nick’s question: Why signal additional rate hikes? Aren’t things headed in the direction you need? Why not simply give it even more time? It’s surprising to see so much hawkishness in the dots given what we’re seeing recently.

Yeah, so remember, we’re two and a half years into this, or two and a quarter years into this, and forecasters, including Fed forecasters have

Consistently thought that inflation was about to turn down and typically forecasted that it would and been wrong. So I think if you look at core PCE inflation, overall, look at it over the last six months, you’re just not seeing a lot of progress. It’s running and it’s running at a level over 4.5%, far above our target and not really moving down. We want to see it moving down decisively, that’s all. Of course we are going to get inflation down to 2% over time. We want to do that with the minimum damage we can to the economy of course, but we have to get inflation down at 2% and we will, and we just don’t see that yet. So, hence you see today’s policy decision, both to write down further rate hikes by the end of this year, but also to moderate somewhat the pace with which we’re moving.

Just a quick follow up.

Sorry, go ahead.

Quick follow up. The last press conference, you mentioned you didn’t see wages driving inflation and there was some research from the San Francisco Fed suggesting wages aren’t necessarily key driver, but you’ve talked about the labor market today and the need for softening. Can you give us a little more specifically of how you see the tight labor market driving inflation at this point? Thank you.

Right, so I’m not going to comment on any particular paper, but I would say that I think the overall picture is that at the beginning, in early 2021, inflation was really becoming from very strong demand largely for goods. People were still at home, they had money in the bank and they wanted to spend and they spent a lot on goods and of course at the same time, and because of that high demand to some extent, supply chains got all snarled up. So prices went way up, inflation went way up. That was the origin, and it wasn’t really particularly about the labor market or wages, but as you move through ’21 into ’22, and now in ’23, I think many, many analysts believe that it will be an important part of getting inflation down, especially in the non-housing services sector, getting wage inflation back to a level that is sustainable, that is consistent with 2% inflation. We actually have seen wages broadly move down, but just at a quite gradual pace. And that’s a little bit of the finding of the Bernanke paper with Blanchard of a few weeks ago, which is very consistent with what I would think.

Let’s go to Michael McKee.

Michael McKee from Bloomberg Radio and Television. You said in the past that you don’t like to surprise markets. It’s been the Fed’s view, markets should have an idea of what you’re going to do before you go in. You also said a number of times that it would take a while to bring inflation down. You reiterated that again today and that we would get to a point where inflation could be sticky. So I’m wondering, as we go into the next meetings, how Wall Street or others should look at your reaction function. What will you be reacting to; time or data? In other words, if nothing much changes, if we’re looking at the same labor market, the same inflation levels in July or in September or November, will you move? Because you’ve said you feel you need to. Is it time that’s going to require additional movement or would it be reversal in inflation?

So, I don’t want to deal with hypotheticals about different ways data might move. So, of course, we don’t go out of our way to surprise markets or the public. At the same time, our main focus has to be on getting the policy right and that’s what we’re doing here and that’s what we’ll do for the upcoming meetings. I will say the July meeting will be live and we’ll just have to see. I think you’ll see the data, you’ll hear Fed people talking about it and markets will have to make a judgment.

Well, do you think inflation is likely to continue coming down, based on the lags and based on your threat of additional movement? Or are we going to be in a period where we’re not going to know what’s happening?

I think if you just look at… I’ll just point you to the forecast. Core PCE inflation is running at about 4.5, a little higher than 4.5%, and the median FOMC participant thinks it’ll go down to 3.9 on a 12-month basis. This is by the end of this year. So that’s expecting pretty substantial progress. That’s a pretty significant decline for half a year. So that’s the forecast. We do try to be transparent in our reaction function. We’re committed to getting inflation down and that’s the number one thing, so that’s how I think about it.

Let’s go to Victoria.

Victoria Guida, with Politico. Could you talk about the balance sheet and how you’re thinking about it? What are you looking for to judge whether we’re approaching reserve scarcity and is treasury issuance going to affect that? Also, are you considering lowering the RRP rate in order to take some pressure off banks?

So let me say first of all on the treasury part of it, if I can talk about that and then go back to the balance sheet. So on that, of course we’ve been very focused on that for a couple of months, as everyone has. Treasury has laid out its borrowing plans publicly, I think we all saw it. I saw the secretary’s comments yesterday to the effect that treasury has consulted widely with market participants about how to avoid market disruption and that they’re going to watch carefully for that. So that’s from the Treasury, which actually sets the borrowings.

(31:53)
At the Fed, we’ll be monitoring market conditions carefully, as the Treasury refills the TGA. The adjustment process is very likely to involve both a reduction in the RRP facility and also in reserves. It’s really hard to say at the beginning of this which will be greater. We are starting at a very high level of reserves and still elevated RRP take up for that matter, so we don’t think reserves are likely to become scarce in the near term or even over the course of the year. So that’s the Treasury part of the answer. We will of course continue to monitor conditions in money markets and we’re prepared to make adjustments to make sure that monetary policy transmission works. Was there another part of your question?

Yeah, are you considering lowering the RRP rate to help take some pressure off banks?

So, we have a number of… I would say the RRP doesn’t look like it’s pulling money out of the banking system. It’s actually been shrinking here lately. So that’s not something we’ve thought about a lot over time. It doesn’t really look like that’s something we would do. I think it’s a tool that we have, if we want to use it we can. There are other tools we can use to address money market issues, but I wouldn’t say that that’s something that’s likely that we would do in the near term.

Jonnelle.

Jonnelle Marte with Bloomberg. Have you seen sufficient cooling in the housing market to bring inflation down? For example, how does the recent rebound affect your forecast and how does it factor into monetary policy?

So certainly housing, very interest sensitive and it’s the first place really, or one of the first places, that’s either helped by low rates or that is held back by higher rates, and we certainly saw that over the course of the last year. We now see housing putting in a bottom and maybe even moving up a little bit. We’re watching that situation carefully. I do think we will see rents and house prices filtering into housing services inflation, and I don’t see them coming up quickly. I do see them wandering around at a relatively low level now. And that’s appropriate.

Do you think you’ll have to target that with further rate increases?

Well, I think we look at everything. We don’t just look at housing. So, the way it works is individual participants sit in their offices all over the country and they write down their forecast and including their most likely forecast, including their rate forecast, and then they send it in on Friday afternoon and we accumulate it and then we publish it for you. So that’s how they do that. Well, I don’t know that housing is itself going to be driving the rates picture, but it’s part of it.

Lets go to Edward.

Thank you for taking the question, Mr. Chairman. Edward Lawrence with Fox Business. So I want to go back to comments you made in the past, about unsustainable fiscal path. The CBO projects the federal deficit to be 2.8 trillion in 10 years. The CBO also says that federal debt will be 52 trillion by 2033. At what point do you talk more firmly with lawmakers about fiscal responsibility? Because I’m assuming monetary policy cannot handle alone the inflation or keep that inflation in check with a higher level of spending.

I don’t do that. That’s really not my job. We hope and expect that other policy makers will respect our independence on monetary policy and we don’t see ourselves as the judges of appropriate fiscal policy. I will say, and many of my predecessors have said, that we are on an unsustainable fiscal path and that needs to be addressed over time, but I think trying to get into that with lawmakers would be inappropriate, given our independence and our need to stick to our knitting.

Is there any conversation then about the Federal Reserve financing some of that debt, that we’re seeing coming down the pike?

No. Under no circumstances.

Courtney.

Thanks for taking our questions, Chair Powell. So, looking at the SEP, it looks like GDP for this year was raised significantly or forecasts for GDP this year. The unemployment rate, meanwhile, was pulled downward. And so should we take that as a sign that the committee is more confident about the prospects of a soft landing, at least as it relates to what you were expecting in March?

I would just say it this way, that I continue to think, and this really hasn’t changed, that there is a path to getting inflation back down to 2% without having to see the sharp downturn and large losses of employment that we’ve seen in so many past instances. It’s possible. In a way a strong labor market, that gradually cools, could aid that along. It could aid that along. But I guess I want to come back to the main thing, which is though simply this, as you can see from SEP, the committee is completely unified in the need to get inflation down to 2% and will do whatever it takes to get it down to 2% over time. That is our plan and we understand that allowing inflation to get entrenched in the US economy is the thing that we cannot allow to happen for the benefit of today’s workers and families and businesses, but also for the future. Getting price stability back and restored will benefit generations of people, as long as it’s sustained and it really is the bedrock of the economy and you should understand that that is our top priority.

Just a quick follow up on that, I’m just a little confused, because you said the committee will do whatever it takes to get inflation down over time, but when I look at the SEP, inflation is still projected to be elevated next year, but the Fed funds rate is lower than where it is now. Can you help me understand that?

Sure. So if you look two and three years out with the forecast, first of all, I wouldn’t put too much weight on forecasts even one year out, because they’re so highly uncertain, but what they’re showing is that as inflation comes down in the forecast, if you don’t lower interest rates, then real rates are actually going up. So just to maintain a real rate, the nominal rate at that point, two years out let’s say, should come down just to maintain real rates. And actually since

We’re having real rates that are going to have to be meaningfully positive and significantly so for us to get inflation down. That certainly means that it will be appropriate to cut rates at such time as inflation is coming down really significantly. And again, we’re talking about a couple years out. I think as anyone can see, not a single person on the committee wrote down a rate cut this year, nor do I think it is at all likely to be appropriate if you think about it.

(39:31)
Inflation has not really moved down. It has not so far reacted much to our existing rate hikes. So we’re going to have to keep at it.

Julie.

[inaudible 00:39:42], Julie Chabanas, AFP.

The mic is cut.

Oh, sorry. Thank you. Hi, Chair Powell, Julie Chabanas, AFP News Agency. The major report showed a rebound in May in BlackRock’s unemployment. Is it consistent with the Fed’s maximum employment mandate? Are you worried about that, about this rebound?

So we are, of course, worried about. There are long-standing differences in racial and ethnic groups across our labor market. That’s a factor that we can’t really address with our tools. But we do consider that when we’re thinking about what constitutes maximum employment. It is for us a broad and inclusive goal. And so we do watch that.

(40:34)
But remember, all unemployment, including Black unemployment, has been bouncing around right near historic lows, historic modern lows here. So we’re still talking about, I mean, as strong a labor market as we’ve seen in a half century here in the United States. So overall unemployment of 3.7% is 3/10 higher than it was measured to be at the last, a month ago, but still, it’s extraordinarily low. And so it’s a very, very tight labor market.

Megan.

Thank you. I want to follow up, first a little bit just on the rent question on housing. We heard Governor Waller talk how … I’ll back up. We haven’t quite seen the slowdown in rents show up in CPI yet, and we did hear Governor Waller talk about how an uptick in housing might mean that there’s not going to be as much relief coming or a shorter bit of relief than we thought. Can you talk about how you’re thinking about that and how that played into today’s outcome?

As a factual matter, that’s correct. We do need to see rents bottom out here or at least stay quite low in terms of their increases because we want inflation to come down and rental is a very large part of the CPI, about a third, so about half of that for the PCE. It’s important. So it’s something that we’re watching very carefully. It’s part of the overall picture. I wouldn’t say it’s the decisive part, but take a step back. What you see is, look at core inflation over the past six months, a year. You’re just not seeing a lot of progress, not the kind of progress we want to see. And it’s hard to avoid that. And people on the Committee, the median went up significantly, so that the median participant now thinks that core PCE inflation on a 12-month basis will be 3.9% this year.

(42:33)
So once again, every year for the past three years it’s gone up over the course of the year and it’s doing that again. We see that, and we see that inflation forecasts are coming in low again. And we see that that tells us that we need to do more. And so that’s why you see the SEP where it is.

Could you also talk briefly about your outlook for wages, and given the recent slowdown in core services, excluding housing, how far you think wages might need to fall in order to get inflation back in line?

Wages will continue to increase. What we’re talking about is having wage increases still at a very strong level but at a level that’s consistent with 2% inflation over time. So I think we’ve seen some progress. All of the major measures of wages have moved down from extremely elevated … not extremely, highly elevated levels a year or so ago and they’re moving back down but quite gradually.

(43:29)
We want to see that process continue gradually. Of course, it’s great to see wage increases, particularly for people at the lower end of the income spectrum. But we want that as part of the process of getting inflation back down to 2% which benefits everyone. I mean, inflation hurts those same people more than anyone else. People on a fixed income are hurt the worst and fastest by high inflation.

Greg.

Thank you so much, Chair Powell. Greg Robb from MarketWatch. I just wondered if the Committee has talked at all about the labor market. There’s strikes now in Hollywood, and now the United Auto Workers are talking about a possible strike. Workers have power now and are going to be seeking higher wages. Does that come up in your discussions? Thanks.

So the topic of wages and the labor market and dynamics in the labor market is about as central a topic to our discussions as anything. I mean, it’s very … Labor economics and the labor market are utterly central. It’s half of our mandate, so we spend a lot of time talking about that.

(44:45)
I think, there are structural issues that are really not for the Fed. So we don’t spend a lot of time, although we take notice of what’s going on. But we’re not involved in discussions or debates over strikes and things like that. But we look and we see what’s going on. And we’re making judgments about what it will take to get inflation down to 2% in the aggregate. And as I said, don’t think that was about … Most folks would say now it wasn’t really about wages at the beginning. And it’s becoming more about that as we get into really, service sector inflation, which is the part of the economy where we have seen the least progress.

Let’s go to Mark for the last question.

Thank you, Mr. Chairman. Mark Hamrick with Bankrate. I’m wondering what your thoughts are now about systemic risk now that we’re about three months past the failure of Silicon Valley Bank, and also specifically, what are the risks associated with commercial real estate as well as non-bank financials and could you further elevate those risks with higher-still rates, possibly for longer?

I’m trying to think where to start. I’ll start with commercial real estate. Of course, we’re watching that situation very carefully. There’s a substantial amount of commercial real estate in the banking system. A large part of it is in smaller banks. It’s well-distributed. To the extent it’s well-distributed, then the system could take losses. We do expect that there’ll be losses, but there will be banks that have concentrations and those banks will experience larger losses. So we’re well aware of that. We’re monitoring that carefully. It feels like something that will be around for some time as opposed to something that will suddenly hit and work its way into systemic risk.

(46:42)
In terms of non-bank financials, financial sector, there’s been a ton of work. And clearly in the pandemic it really was the non-bank financial sector where issues really arose. And there’s a lot of work going on with the administration in particular leading that to try to address issues in the treasury market and all kinds of areas in the non-bank financial market. But our jurisdiction at the Fed is over banks, bank holding companies and some banks, so that’s really our main focus.

(47:18)
In terms of the events of March, as I mentioned earlier, we’ll be carefully monitoring that situation. Our job generally involves worrying about a lot of things that may go wrong. And that would include the banks. It might be hard for me to identify something that we don’t worry about rather than we do worry about. So we’re watching those things very carefully.

(47:41)
As we see things unfold, as we see what’s happening with credit conditions and also all the individual banks that are out there, we’ll be able to take, to the extent that’s appropriate, if there are macroeconomic implications we can take that into account in our rate-setting. I guess that’s what I would say.

Can I follow up on the last part? Do you risk further exacerbating those issues if you get up to another 50 basis points?

I guess I meant to address that by saying as we watch, we’ll see what’s happening. And if we’re seeing the kind of tightening of conditions that you could be referring to, then we can factor that, because really we use our rate tool. It really has macroeconomic purposes. So we’ll take that into account. Of course, we have responsibility for financial stability as well, and that also is a factor that we’re always going to be considering. Thank you very much.