Sep 16, 2020
Jerome Powell Fed Press Conference Speech Transcript September 16: Interest Rates Should Remain at Zero for Years
Federal Reserve chair Jerome Powell gave a September 16 announcement. He said despite the economic recovery having progressed more quickly than expected, “overall activity remains well below its level before the pandemic and the path ahead remains highly uncertain.” He also does not see interest rates rising above zero for many years, possibly until 2023 and beyond. Full updates in the transcript below.
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Jerome Powell: (00:02)
Good afternoon. At the Federal Reserve, we are strongly committed to achieving the monetary policy goals that Congress has given us, maximum employment and price stability. Since the beginning of the pandemic, we have taken forceful actions to provide some relief in stability to ensure that the recovery will be as strong as possible and to limit lasting damage to the economy. Today, my colleagues on the federal open market committee and I, made some important changes to our policy statement, including an update to our guidance for the likely path of our policy interest rate. Guided by our new statement on longer run goals and monetary policy strategy that we announced a few weeks ago, these changes clarify our strong commitment over a longer time horizon. Before describing today’s policy actions, let me briefly review recent economic developments. Economic activity has picked up from its depressed second quarter level when much of the economy was shut down to stem the spread of the virus. With the reopening of many businesses in factories and fewer people withdrawing from social interactions, household spending looks to have recovered about three quarters of its earlier decline. Nonetheless, spending on services that typically require people to gather closely, including travel and hospitality is still quite weak. The recovery in household spending also likely owes to federal stimulus payments and expanded unemployment benefits, which provided substantial and timely support to household incomes. Activity in the housing sector has returned to its level at the beginning of the year and we are starting to see signs of an improvement in business investment. The recovery has progressed more quickly than generally expected and forecasts from FOMC participants for economic growth this year have been revised up since our June summary of economic projections. Even so, overall activity remains well below its level before the pandemic and the path ahead remains highly uncertain.
Jerome Powell: (02:15)
In the labor market, roughly half of the 22 million jobs that were lost in March and April have been regained as many people return to work. The unemployment rate declined over the past four months, but remains elevated at 8.4% as of August. Although we welcome this progress, we will not lose sight of the millions of Americans who remain out of work. Looking ahead, FOMC participants project, the unemployment rate to continue to decline. The median projection is 7.6% at the end of this year, 5.5% next year and 4% by 2023. The economic downturn has not fallen equally on all Americans and those least able to shoulder the burden have been hardest hit. In particular, the high level of joblessness has been especially severe for lower wage workers in the services sector, for women and for African Americans and Hispanics.
Jerome Powell: (03:14)
The economic dislocation has upended many lives and created great uncertainty about the future. The pandemic has also left a significant imprint on inflation. For some goods, including food supply constraints have led to notably higher prices, adding to the burden for those struggling with lost income. More broadly, however, weaker demand, especially in sectors that have been most effected by the pandemic, has held down consumer prices and overall, inflation is running well below our 2% longer run objective. The median inflation projection from FOMC participants rises from 1.2% this year to 1.7% next year and reaches 2% in 2023. As the economy began its recovery, COVID-19 cases, hospitalizations and deaths also rose. The recomposition of some social distancing restrictions as well as more cautious behavior by many individuals have succeeded in slowing the spread of the virus.
Jerome Powell: (04:17)
As we have emphasized throughout the pandemic, the outlook for the economy is extraordinarily uncertain and will depend in large part on our success in keeping the virus in check. All of us have a role to play in our nation’s response to the pandemic. Following the advice of public health professionals to keep appropriate social distances and to wear masks in public, will help get the economy back to full strength. A full economic recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities. The path forward will also depend on the policy actions taken across all parts of the government to provide relief and to support the recovery for as long as needed. The Federal Reserve’s response to this crisis has been guided by our mandate to promote maximum employment and stable prices for the American people along with our responsibilities to promote the stability of the financial system. We remain committed to using our full range of tools to support the economy in this challenging time. The changes we made in today’s policy statement reflect our strategy to achieve our dual mandate goals by seeking to eliminate short falls from maximum employment and achieve inflation that averages 2% over time, as we articulated in our statement on longer run goals and monetary policy strategy. We view maximum employment as a broad based and inclusive goal, and did not see a high level of employment as posing a policy concern unless accompanied by signs of unwanted increases in inflation or the emergence of other risks that could impede the attainment of our goals.
Jerome Powell: (05:55)
And we believe that achieving inflation that averages 2% over time helps ensure that longer term inflation expectations remain well anchored at our longer run 2% objective. In turn, well anchored inflation expectations enhance our ability to meet both our employment and inflation objectives, particularly in the new normal, in which interest rates are closer to their effective lower bound, even in good times. Hence, as we say in our statement, with inflation running persistently below 2%, we will aim to achieve inflation moderately above 2% for some time so that inflation averages 2% over time and longer term inflation expectations remain well anchored at 2%. we expect to maintain an accommodative stance of monetary policy until these outcomes, including maximum employment, are achieved. With regard to interest rates, we now indicate that we expect it will be appropriate to maintain the current zero two one quarter percent target range for the federal funds rate until labor market conditions have reached levels consistent with the committee’s assessments of maximum employment and inflation has arisen to 2% and is on track to moderately exceed 2% for some time.
Jerome Powell: (07:07)
In addition, over coming months, we will continue to increase our holdings of treasury securities and agency mortgage backed securities, at least at the current pace. These asset purchases are intended to sustain smooth market functioning and to help foster accommodate financial conditions, thereby supporting the flow of credit to households and businesses. We believe the strong policy guidance we are providing today will serve the economy well, by promoting our goals through the many possible paths the recovery may take. Of course, as we note in our policy statement, we would be prepared to adjust the stance of monetary policy as appropriate, if risks emerge that could impede the attainment of our goals. The Federal Reserve has also been taking broad and forceful actions to more directly support the flow of credit in the economy for households, for businesses, large and small, and for state and local governments. Preserving the flow of credit is essential for mitigating the damage to the economy and promoting a robust recovery.
Jerome Powell: (08:08)
Many of our programs rely on emergency lending powers that require the support of the Treasury Department and are available only in very unusual circumstances, such as those we find ourselves in today. These programs serve as a backstop to key credit markets and appear to have restored the flow of credit from private lenders through normal channels. We have deployed these lending powers to an unprecedented extent, enabled in large part by financial backing and support from Congress and the Treasury. When the time comes, after the crisis has passed, we will put these emergency tools back in the toolbox. As I’ve emphasized before, these are lending powers, not spending powers. The Fed cannot grant money to particular beneficiaries. We can only create programs or facilities with broad based to eligibility to make loans to solvent entities with the expectation that the loans will be repaid. Many borrowers are benefiting from these programs as is the overall economy, but for many others, getting alone that may be difficult to repay, may not be the answer.
Jerome Powell: (09:12)
In these cases, direct fiscal support may be needed. Elected officials have the power to tax and spend and to make decisions about where we, as a society, should direct our collective resources. The fiscal policy actions that have been taken thus far have made a critical difference to families, businesses, and communities across the country. Even so, the current economic downturn is the most severe in our lifetimes. It will take a while to get back to the levels of economic activity and employment that prevailed at the beginning of this year and it may take continued support from both monetary and fiscal policy to achieve that.
Jerome Powell: (09:51)
We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We are committed to using our full range of tools to support the economy and to help assure that the recovery from this difficult period will be as robust as possible. Finally, I would like to take a moment to recognize the passing of our friend and colleague, Thomas Lobbuck. His outstanding analysis and advice have been indispensable to the FOMC and have played a key role in the policy decisions that will define this era of the Federal Reserve. He will be remembered for his intellect, but also his kindness, his equanimity, and his dedication to achieving our mission on behalf of the American people. We will miss him. Thank you. I’ll now be glad to take your questions.
Speaker 1: (10:44)
Thank you. Nick Timiraos.
Nick Timiraos: (10:48)
Good afternoon, Chair Powell. Nick Timiraos, from The Wall Street Journal. You’ve been very clear about the committee’s intentions on rates, not even thinking about thinking about raising rates and today’s showing low rates, even as unemployment falls to 4% and inflation rises to 2%. My question is about asset purchases. Does the guidance today apply to the current asset purchase pace? Are there any macro economic conditions under which you would favor increasing the monthly pace of treasury and MBS purchases and under what conditions would a decrease in the monthly pace of purchases be appropriate? Thank you.
Jerome Powell: (11:30)
Thank you. We say in our post meeting statement that we’ll continue to increase our securities holdings at least at the current pace over coming months to sustain smooth market functioning and help foster accommodate a financial conditions. That latter part is an updating of our guidance to reflect what I’ve been saying in these press conferences for some time and what other central banks have acknowledged, which is that the purchases are fostering accommodated financial conditions as well. That amounts to roughly $80 billion a month of treasuries and $ 40 billion net per month for MBS. We do think that these purchases have been effective in restoring early market conditions and have supported the flow of credit to households and businesses, including by fostering more accommodated financial conditions, which of course we think is a good thing. In terms of going forward, I would just say this, there are various ways and margins that we can adjust our tools going forward, and we’ll continue to monitor developments and we’re prepared to adjust our plans as appropriate.
Nick Timiraos: (12:34)
If I could follow up, I suppose the question I have is why give guidance on one policy tool, but not give guidance on the other policy tool when the Fed has talked about those two policy tools working together?
Jerome Powell: (12:48)
We think our policy stance is appropriate today and we’re prepared to adjust it going forward as we see appropriate. And today, we believe that particularly this very strong forward guidance, very powerful forward guidance that we’ve announced today will provide strong support for the economy. Effectively, we’re saying that race will remain highly accommodative until the economy is far along in its recovery and that should be a very powerful statement in supporting economic activity. Now, we’re buying 120 billion insecurities per month across the treasury curve. That’s also adding to accommodation. We do have the flexibility to adjust that tool and the rate tool and other tools as well. But as for right now, we think that our policy setting is appropriate to support the expansion. We said from the beginning that we would first try to provide some support and stability and relief in the first phase of the crisis, the acute phase. And then, we would support the expansion when it came. Well, it’s here and it’s well along. And so, that’s why we changed our guidance today and we do have the flexibility to do more when we think it’s appropriate.
Nick Timiraos: (13:58)
Speaker 1: (14:03)
Thank you, Gina.
Speaker 2: (14:08)
[inaudible 00:14:07], New York Times. I was wondering that you beat up your language on financial stability in the long run statement that you unveiled with your Jackson Hole speech last month. I’m wondering if you can kind of walk us through how you think about financial stability concerns as a factor in guiding future rate increases. Would financial stability concerns on their own be enough to merit changes in the Fed funds rate or would they have to come in conjunction with an overheating line of inflation or some sort of dramatic drop in the unemployment rate? If you could just sort of give us an outline of your thinking there, please.
Jerome Powell: (14:44)
What we said in our statement on longer run goals and a monetary policy strategy was that the committee’s policy decisions reflect its longer run goals, its medium term outlook and its assessment of the balance of risks, including risks to the financial system that could impede the attainment of the committee’s goals. That’s what we said about financial stability. And today we said that we’d be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of our goals. But you asked specifically about financial stability. One thing I would say is that monetary policy should not be the first line of defense, is not the first line of defense on financial stability.
Jerome Powell: (15:29)
We look to more appropriate tools in the first instance, as a first line of defense, and those would be regulation, supervision, high capital, high liquidity, stress testing, all of those macroprudential tools, all of those things are really the first line of defense on financial stability. But we always leave open the idea that we will not ignore those kinds of risks and other kinds of risks more broadly, that could impede the attainment of our goals in setting monetary policy. That’s really…
Jerome Powell: (16:03)
In setting monetary policy. So that’s really how we think about it. But principally that other tools are the front line, as I mentioned.
Speaker 3: (16:13)
But just to follow up, if other tools aren’t forthcoming, would financial stability concerns in and of themselves be enough to warrant a rate hike?
Jerome Powell: (16:22)
So again, what we said in the longer run in in our consensus statement is that policy decisions reflect the balance of risks, including risks to the financial system that could impede the attainment of the committee’s goal. So the test would be does a majority of the committee feel that monetary policy is triggering that, and that would be the test. And it’s not something that we’ve done. We do monitor financial stability concerns, of course, intensely and regularly. We try to use our other tools on them, but we do keep them in mind as we think about monetary policy.
Speaker 4: (17:03)
Thank you. Steve [inaudible 00:01:05].
Mr. Chairman, I wonder if you could help me understand how the projections of the committee line up with the goals of the committee. You’ve now altered the statement to aim for inflation above 2%. But when I look at the SEP, I don’t see the committee [inaudible 00:17:27] a single year in the next four years that you are ever above 2%. In fact, for each year you are below it until 2023 was the first time that you actually hit 2%. So are you confident? Is this just the committee is not confident that not only can it not hit its 2% goal, but now it can’t hit its goal of being above 2%?
Jerome Powell: (17:49)
Not at all. You also don’t see people by and large lifting off or raising interest rates above zero. I guess there are four exceptions out of a committee of 17 during the forecast period. So we don’t reach 2%, but we get very close to it in the forecast. We reach 2%, I guess the meeting is 2% at the end of 2023. So you know what the guidance says. It says that we expect that the current setting of our rates, we expect that it will be appropriate until such time as we reach 2% inflation, that we feel that labor market conditions are consistent with our assessment of maximum employment and that we’re on track to achieve moderate inflation, moderately above. So that’s the test. I don’t think there’s any conflict between those two because the way they’re set up, their projections don’t show the out years.
Jerome Powell: (18:40)
You ask about confidence. And I would say that this very strong, very powerful guidance shows both our confidence and our determination. It shows our confidence that we can reach this goal and our determination to do so.
I’m sorry. If I could just follow up without being simplistic about this, but why wouldn’t, if the committee was confident that it could reach its new goal of aiming for inflation about 2%, why wouldn’t one of those years at least show inflation being above 2% on the mediated forecast?
Jerome Powell: (19:11)
Because we think looking at everything we know about inflation dynamics in the United States and around the world over recent decades, we expect it will take some time. We expect that the economy will recover quickly now, but that that pace will slow as people go back to work and we’ll still have an area of the economy, a big area of the economy that struggles. There’ll be slack in the economy. The economy will be below maximum employment, below full demand. And that will tend to wear, to put downward pressure on inflation. So we think that once we get up closer to maximum employment, we think that inflation will come back generally. And I mean, that’s sort of what happened during the last long expansion. It’s a slow process, but there is a process there. Inflation does move up over time. We do expect that will continue today. And we expect that our guidance is powerful and will help that outcome. We think that effectively saying that policy will remain highly accommodative until the economy is very far along in its recovery should provide strong support for the economy and get us there sooner rather than later.
Speaker 4: (20:21)
Thank you. Rachel Segal.
Rachel Segal: (20:24)
Hi, Chair Powell. Thanks very much for taking my question. I wanted to ask if you anticipate a slowing in the pace of the recovery if there is not another stimulus package and specifically if there are particular holes still remaining in the economy that you think could be helped by more aid from Congress? Thanks very much.
Jerome Powell: (20:42)
Sure. So first, if you look at the summary of economic projections that my colleagues and I filed for this meeting, what you’ll see is an expectation that the recovery will continue, that it will continue at a reasonable pace through 2021, 22 and 23. We do expect that that pace will slow just because you would expect that the pace would be fastest right at the beginning of the recovery. Because you had such a sharp decline, you would expect that the third quarter should be the fastest gains and that after that the pace should slow down to a more normal pace. So we do expect that.
Jerome Powell: (21:24)
In terms of fiscal policy, you ask about fiscal policy. So I guess I would start by saying that the initial response from fiscal authorities was rapid, it was forceful and pretty effective. And we’re seeing the results of that today in the income and household spending data, in the labor market data, in the construction data, in the data for business equipment spending, and the fact that businesses are staying in business and the pace of defaults and things like that has really slowed. So there’s been a really positive effect.
Jerome Powell: (21:59)
That said, my sense is that more fiscal support is likely to be needed. Of course the details are that are for Congress, not for the Fed. But I would just say there are still roughly 11 million people still out of work due to the pandemic. And a good part of those people were working in industries that are likely to struggle. Those people may need additional support as they try to find their way through what will be a difficult time for them. We’ve also got struggling small businesses, especially those in the business of facing directly to the public. And we have state and local governments dealing with a drop in revenue at the same time spending has gone up, much of it related to the pandemic and economic effects. So again, I would say the fiscal support has been essential in the good progress we see now. And finally, I’ll I’ll note that just about all, the overwhelming majority of private forecasters who project an ongoing recovery, are assuming there will be a substantial additional fiscal support.
Speaker 3: (23:03)
Thank you. Mike Derby.
Mike Derby: (23:08)
Taking a question. Should we expect any further evolutions in forward guidance, say maybe an adoption of something akin to the Evans rule that we had a few years ago? Or is there something else that the fed might be considering in the future?
Jerome Powell: (23:24)
Well, so we think that the forward guidance we adopted today is appropriate, and as I mentioned, powerful. Effectively, what it says is that we will keep policy where it is now, keep the rate policy where it is now until labor market conditions reach levels that are consistent with the committee’s assessments of maximum employment until inflation reaches 2%, and until it’s on track to go above 2% moderately for some time. So that’s very strong forward guidance. And we think that that will be durable guidance that will provide significant support to the economy in coming years. So that’s really our thinking on forward guidance on rates.
Speaker 3: (24:20)
Thank you. Howard Schneider.
Howard Schneider: (24:24)
Thanks. Thanks Chair Powell, for doing this. Sort of follow up on Mike’s question there. Since you described this guidance as durable, you’ve set up a three part test here for rate hikes, levels consistent with assessments of maximum employment, inflation has risen to 2% and you’re on track to moderately exceed 2% for some time. Each of these have modifiers and I wonder if you’d explain them a little bit more. How do we pin down assessments of maximum employment? When you say that inflation has risen to 2%, does that mean 2% for a day, a month, six months? And when you say on track that’s to moderately exceed, how should we define moderately and how should we define for some time?
Jerome Powell: (25:10)
So as you know, maximum employment is not something that could be reduced to a number of the way inflation can. It’s a broad range of factors. It really always has been, and a really substantial number of factors that we’ve indicated we would look at. So it’s broader labor conditions consistent with our committee’s assessment of maximum employment. So that would certainly mean low unemployment. It would mean high labor force participation. It would mean wages. It would be a whole range of things. And we’re not looking at a rule. We’re looking at a judgmental assessment, which I think we’ll be very transparent about as we go forward.
Jerome Powell: (25:50)
In terms of inflation, this is a committee that is both confident and committed to and determined to reach our goals. And the idea that we would look for the quickest way out, it’s just not who we are. There’s no message of that here. We would not be looking for one month of 2% inflation. We said to achieve 2% inflation. Okay. So just understand that we’re strongly committed to achieving our goals and the overshoot. So that should tell you about that.
Jerome Powell: (26:28)
Okay. So what does moderate means? It means not large. It means not very high above 2%. It means moderate. I think that’s a fairly well understood word. In terms of for a time, what it means is not permanently and not for a sustained period. We’re resisting the urge to try to create some sort of a rule or a formula here. And I think that the public will understand pretty well what we want. It’s actually pretty straight forward. We want to achieve inflation that averages 2% over time. And if we do that, inflation expectations will be right at 2% and that’ll help us achieve 2% inflation over time and avoid the situation where the central bank loses its ability to support the economy.
Speaker 3: (27:15)
Thank you. James Politi.
James Politi: (27:18)
Thanks for taking the question. James Politi with the Financial Times. Do you consider today’s enhanced forward guidance to [inaudible 00:27:30] actual accommodation to the economy from a monitoring perspective and sort of deliver further support for the economy? Or is it just a tweak to your existing policy stance? And in terms of fiscal support, do you assume in your own projections, not just the private forecasters, that additional fiscal support will be forthcoming? Or do you expect a weaker growth or a larger contraction rather this year, if no fiscal support is forthcoming?
Jerome Powell: (28:08)
So in terms of the effects, I think what we’ve done is more or less aligned with the consensus statement today. So it’s in line with what might’ve been expected. As I mentioned, I think over time, it will provide very powerful support for this economy as we move forward. In a sense it’s consistent with expectations. So I’m not looking for a big reaction right now, but I think over time, again, guidance that we expect to retain the current stance until the economy has moved very far toward our goals is a strong and powerful thing. And I think that will be supportive of the economy over time.
Jerome Powell: (28:56)
In terms of additional fiscal support, I guess your question is what would happen if … Yeah. So people have different assessments and different participants in the FOMC made different assessments on their own. I think broadly though, there is an expectation among private forecasters and among FOMC participants that there will be some further fiscal action. And there does seem to be an appetite on the part of all the relevant players to doing something. The question is how much and when. And so I would just say that if … And it’s very hard to say.
Jerome Powell: (29:31)
So far, the economy has proven resilient to the lapsing of the CARES Act enhanced unemployment benefits. But there’s certainly a risk though that those who are unemployed have saved, appear to have saved some of those benefits, and they’ll now spend them, and that as the months pass, if there’s no follow up on that, if there isn’t additional support and there isn’t a job for some of those people are from industries where it’s going to be very hard to find new work, then that will start to show up in economic activity. It will also show up in things like evictions and foreclosures and things that will scar and damage the economy. So that’s a downside risk. So I think the real question is when and how much and what will be the contents. No one has any certainty around that. But broadly speaking, if we don’t get that, then there would certainly be downside risks, certainly through the channel I mentioned.
Speaker 3: (30:37)
Thank you. Anneken, CNN.
Anneken : (30:40)
Thanks for taking my question. Chairman Powell, Given the recent update to the policy framework and repeated calls for this and the Fed [inaudible 00:30:48] event, it’s the Fed open to other measures of the economy such as income inequality and affordability of housing?
Jerome Powell: (30:59)
So we monitor everything we think is important in the US economy. And in a broad sense, all of it goes into thinking about monetary policy. You mentioned inequality. So disparities in income and in financial wellbeing by various demographic and racial categories is something we monitor carefully. Inequality, which it’s a multifaceted thing, but I would point to the relative stagnation of incomes for people at the lower end of the income spectrum and also lower mobility. So those are things that hold back our economy. They are. The thing is we don’t really have the tools to address those. We have interest rates and bank supervision and financial stability policy and things like that, but we can’t get at those things through our tools. When we lower the federal funds rate, that supports the economy across a broad range of people and activities. But we don’t have the ability to target particular groups. Not withstanding that, we do talk about it because these are-
Jerome Powell: (32:03)
Groups. Not withstanding that, we do talk about it because these are important features of our economy. And I think those distributional issues are issues that are really for our elected officials. And I would say, I take them seriously as holding back our economy. The productive capacity of the economy is limited when not everyone has the opportunity, has the educational background and the healthcare and all the things that you need to be an active participant in our workforce. So I think if we want to have the highest potential output and the best outfit for our economy, we need that prosperity to be very broadly spread in the longer run. And again, I would just say the Fed, we can talk about those things a lot. And when we think about maximum employment in particular, we do look at individual groups. So the high unemployment in a particular racial group, like African Americans, we would look at that as we think about whether we’re really at maximum employment. We would look at that along with a lot of other data. So the answer is we do look at all those things and do what we can with our tools, but ultimately these are issues for elected representatives.
Thank you. Edward Barnes.
Edward Barnes: (33:19)
Yeah. Thank you. Chairman Powell for the question. I just wanted some clarity here. At what point do you think it’s prudent to shift the bond purchases from a market’s stability, as you had said from the shorter term maturities to more longer term, more stimulus related.
Jerome Powell: (33:36)
So, we think that our asset purchases are doing both of those things today, we think clearly there’s been great progress in terms of market function. If you remember early in the spring, when the acute phase of the pandemic hit, the market function was very low and it’s improved rapidly. And in many respects is in a good place now. We also though think that these asset purchases, which total 120 billion a month, which is much larger than for example, the last asset purchase program during the global financial crisis and the recovery there from. We think that’s also providing accommodated financial conditions and supporting growth. And we think that’s fine. We’re also aware there are ways we can adjust that to do various things make it smaller, make it larger, and also target different sectors of the curve. And we’re going to continue to monitor developments and we’re prepared to adjust our plans as appropriate.
Thank you. Victoria.
Victoria Greta: (34:52)
Hi. Thanks for taking my question. I wanted to ask you about a couple of things. First of all, if we don’t get a vaccine until well into next year, what does that mean for the economy? And then somewhat related, I was wondering if you could provide any more detail about the stress scenarios that you all are going to release for the big banks and whether that is going to be another full blown stress test, whether we’re going to publicly see those results and what it might mean for bank payouts.
Jerome Powell: (35:22)
Great. So on the first one, what’s happening is basically we’re learning to live with right now, we’re learning to live with COVID, which still spreads. And we’re learning to engage in economic activity. All of this recovery that we’ve seen is in a context where people are still at risk of catching it and yet we’re able to resume lots and lots of economic activities. And that involves, as I mentioned, I think the more social distancing we can preserve as we go back into the workforce, wearing masks, keeping our distance, that kind of thing, the better we’ll be able to get economic activity back up close to where it was. I do think though, there are areas of the economy that are just going to really struggle until we have a vaccine that’s in wide usage and is as widely trusted. And those are the ones where people were getting really close together.
Jerome Powell: (36:23)
I also think testing to the extent you have cheap and rapid testing, you can do a lot with that in the workforce. You can build confidence in the workforce if you have regular, very regular testing, it doesn’t cost very much and you get the results really quickly. If you do that, you’ll be able to open a lot of workforces, particularly in cities where the overall case numbers are quite low and that will help a lot. So I think we’re going to be finding lots and lots of ways to get out towards, as far as we can. There’s always going to be that for some time, there’s going to be certain activities that will be hard to re to resume. So I think that’s the only way I can say it.
Jerome Powell: (37:05)
And I think trying to, we all, when we make a forecast, we make assessments about that, but it’s really hard to say. There is no template here. There’s no experience with this. So frankly, for the last 60 days or so, the economy’s recovered faster than expect, and that may continue or not. We just don’t know. And I think we should do those things that we control to make sure that we can recover as quickly as possible. And the main thing again, is wearing a mask and keeping your distance while you’re in the workforce. That’s something we can all do that will limit the spread and let people go back to work, avoid major outbreaks and things like that. In terms of the stress test, so I really don’t have any … we’re getting ready quite soon to be making announcements and saying things publicly. There’s not much I can say with you, nothing really that I can say on that today. I don’t have anything for you.
Thank you. Chris [inaudible 00:38:07].
Chris P.: (38:09)
Thank you, Michelle. Good afternoon, Chairman Powell. You have emphasized many times, including today that the Fed can only lend and not spend. And sometimes the latter is what’s really needed, but to the extent that a $600 billion lending program for small and midsize companies could help, what exactly is wrong with the design or function of the Main Street Lending Program, which has purchased just, I think $1.4 billion in loan so far. Eric Rosengren, the Boston Fed, said recently that Congress should clarify how much risk it wants the program to take. But Congress has already appropriated substantial funds for the 13(3) programs and these are funds that are explicitly designed to absorb losses. Meanwhile, my colleagues who cover the banking sector say they’re being told by commercial banks, that the Treasury Department is advising them to target zero losses, zero losses in Main Street program loans. So if I may, why is it Federal Reserve, the Congress and the Treasury apparently cannot agree on a loss tolerance that should be applied to the Main Street Lending Program in a way that would allow badly needed credit to reach these companies. Thank you.
Jerome Powell: (39:38)
A couple of things about Main Street, it reaches the whole nation. It’s got more than half of the banking industry assets signed up among the banks that are part of it. And it’s making loans. The number is more like it’s close to $2 billion now. So the numbers are going up, banks are joining, borrowers are coming and it’s significant. It’s relatively small now, but it can scale up in response to economic conditions, should that be appropriate. If you look out in the lending world, surveys generally find that firms are not citing credit constraints as a top problem. And that is a lot of PPP, bank credit lines and syndicated loans. There’s a lot of credit being led out there.
Jerome Powell: (40:29)
But you’re right, we are looking at some things. Some lenders are concerned about the underwriting expectations. So banks are going to, their approach is likely to be that they’re going to underwrite this loan roughly the same as they underwrite any loan. They’re keeping part of it. And what we want to do is make sure that they know that they should take the payment deferrals and other things in place. And also that it’s really a facility for companies or borrowers that don’t have access to regular way borrowing now, otherwise, why would we need Main Street?
Jerome Powell: (41:14)
So that’s what we’re working on. And we’ll be making some changes in that respect. I saw what President Rosengren said. I can’t really comment directly on that. I just would say that this is 13(3). If you look at the law under section 13(3), it’s very clear that we are to make loans only to solvent borrowers. And the CARES Act is quite specific in keeping all of the terms of section 13(3) in effect, including the requirement that we gather good evidence that the borrower is solvent. This law was amended in Dodd-Frank. And the idea was to make it challenging and put hurdles in place before we made loans. At the time the thinking was to banks. So now we’re using that same law for smaller business borrowers. And it’s not a perfect fit. And I would also just say for many borrowers, they’re in a situation where their business is still relatively shut down and they won’t be able to service a loan and so they may need more fiscal support. Having said that we’re continuing to work to improve Main Street, to make it more broadly available, make it available pretty much to any company that needs it. And that can service a loan.
Chris P.: (42:41)
Can you just very briefly addressed the reports that the Treasury is advising banks to target zero losses. Is that appropriate?
Jerome Powell: (42:50)
I can’t say. I don’t know about that. I haven’t heard those reports. Again, if you think about it, we’re going to have to go through the banking system to do this. We were not going to have a hundred thousand or a million loan officers working for the Fed and the Treasury so we were going to go through the banking system and the banks like to make good loans. That’s what they do. They’re trained to make good loans. So you should expect that they, and we expect that they will do some underwriting. We also want them to take some risk, obviously, because that was the point of it. And the question is, how do you dial that in. It’s not an easy thing to do. And we’re getting some loans made, and we’re hopeful that we’ll clarify this and that credit will continue to flow.
Thank you. Chris Rugaber.
Chris Rugaber: (43:40)
Hi. Thanks for taking my question. Chairman Powell, you’ve talked a couple of times about parts of the economy that may not recover as fast as we’ve seen so far. Presumably you’re referring to airlines, hotels, and other sections, parts of the economy that rely on close contact. How are you thinking about that in terms of its overall impact? Is that sector large enough to say, keep unemployment far above your maximum goals? Are you expecting that to come back with a vaccine or are a lot of those folks going to have to find new jobs in new industries, and should we expect the Fed will keep rates at zero until all of that, the allocation is done. Thank you.
Jerome Powell: (44:26)
Yeah, of course we can’t be really sure we know the answers to those questions, but I would say that the likely path is that the expansion will continue and it’s, as I said, it’s well along and it’ll move most easily through the parts of the economy. It’ll still take some time, but the parts of the economy that weren’t exactly directly affected it, didn’t involve getting people in large groups together to feed them, to fly them around, to put them in hotels, to entertainment, things like that. Those are going to be the places that are very challenging. So there will also be the places that are affected that way. And that’s going to be challenging for some time. It just is. And we don’t really know how long that will be. It’s millions of people.
Jerome Powell: (45:14)
As I mentioned, we had 11 million, something like 11 million people in the payroll survey have gone back to work out of 22 million, who lost their jobs in March and April. So that’s half of them. So 11 million, particularly, if the pace of returning to work slows down, it’s going to leave a large group of people. And it’ll be very meaningful from a macroeconomic standpoint. And our commitment is not to forget those people. As I mentioned, we want, the sense of our forward guidance is that policy will remain, as we’ve said, highly accommodative until the expansion is well along, really, very close to our goals. And even after if we do lift off, we will keep policy accommodative until we actually have a moderate overshoot of inflation for some time. So those are powerful commitments that we think will support the full recovery, including those people, as long as it takes.
Thank you. Mike McKee.
Michael McKee: (46:21)
Mr. Chairman, Michael McKee from Bloomberg Radio and Television. Based on what you were just saying about keeping policy accommodative for a very long time into the recovery, lower for longer, as far out as three years in your latest projections. Is that basically it for the Fed? In other words, since interest rates are your main tool, the things you can do would push down on interest rates, but is it really, is it the case now that the only additional stimulus can come to the economy is from the fiscal side?
Jerome Powell: (46:56)
Well, no, I wouldn’t. I certainly would not say that we’re out of ammo, not at all. So, first of all, we do have lots of tools. We’ve got the lending tools, we’ve got the balance sheet and we’ve got further forward guidance. So there’s still plenty more that we can do. We do think that our rate policy stance is an appropriate one to support the economy. We think it’s powerful. And as I mentioned, this is the kind of guidance that will provide support for the economy over time. The idea of being that policy will remain highly accommodative until the recovery is well along, really very close to our goals, and it will remain accommodative even after we lift off. So I think that’s a really strong place for rate policy to be. But again, we have the other margins that we can still use. So, no, certainly we’re not out of ammo.
Michael McKee: (47:56)
If I could follow up in terms of the balance sheet, are you concerned that your actions are more likely to produce.
Michael McKee: (48:03)
… turn that your actions are more likely to produce asset price inflation than goods and services inflation. In other words, are you risking a bubble on Wall Street?
Jerome Powell: (48:13)
So, of course, we monitor financial conditions very carefully. These are not new questions; these were questions that were very much in the air a decade ago and more, when the Fed first started doing QE. And I would say, if you look at the long experience of the 10-year, 8-month expansion, the longest in our recorded history, it included an awful lot of quantitative easing and low rates for seven years. And I would say it was notable for the lack of the emergence of some sort of a financial bubble, a housing bubble or some kind of a bubble, the popping of which could threaten the expansion. That didn’t happen. And frankly, it hasn’t really happened around the world since then. That doesn’t mean that it won’t happen, and so, of course, it’s something that we monitor carefully.
Jerome Powell: (49:02)
After the financial crisis, we started a new whole division of the Fed to focus on financial stability. We look at it from every perspective. The FOMC gets briefed on a quarterly basis. At the board here, we talk about it more or less on an ongoing basis. So, it is something we monitor, but I don’t know that the connection between asset purchases and financial stability is a particularly tight one, but again we won’t be just assuming that; we’ll be checking carefully as we go. And by the way, the kinds of tools that we would use to address those sorts of things are not really monetary policy; it would be more tools that strengthen the financial system.
Thank you. Don Lee.
Don Lee: (49:52)
Chair Powell, I’d like to ask you about the labor market. As you know, in August, there were about 30 million persons claiming unemployment benefits. Yes, the BLS jobs report for August showed about 13.5 million unemployed, only about 6 million more than before the pandemic. I wonder how you reconcile that, and what you think the actual labor market conditions are.
Jerome Powell: (50:22)
So, I mean, I think the overall picture… Take a step back from this. The overall picture is clear. And that is that the labor market has been recovering, but that it’s a long way, a long way from maximum employment. I think that’s the bottom line on it.
Jerome Powell: (50:37)
So, within that though, take claims in particular. The number of claims, the quantity of claims and frankly, the fact that PUA claims are new, the pandemic unemployment assistance claims, that’s a new system that had to be set up. The actual accounting of the claims is volatile. And it’s very difficult to take much signal about the particular level because people were setting those systems up and when they got them set up, they counted them all at once and things like that. I think though, what you’ve seen is that the level, certainly the level of initial claims, has declined very sharply from the very high levels of March and April, and is now at a lower level. Continues either to be flat or gradually decline. It’s worth noting. And that’s good.
Jerome Powell: (51:27)
It’s worth noting that that level is maybe five times the level of what claims were. Claims were around 200,000. Now, they’re 900,000, in that range, weekly for initial claims. So, that just tells you the labor market has improved, but it’s a long, long way from maximum employment. And it will be some time getting back there. I think that’s the best way to think about it.
Jerome Powell: (51:52)
In many parts of the economy, there’s just a lot of disruption. And it’s really hard to say precisely where we are. I’ll give you another example with… We say unemployment’s 8.4%, but if you count those who are misidentified as employed when they’re actually unemployed, and you add back some part of the participation numbers… So, you had a job and you were in the labor force in February and you lost it because of the pandemic, some of you are now being reported as out of the labor force, but I would more look at those people as unemployed. If you add those back, the level of unemployment’s probably 3% higher. On the other hand, by that metric, the unemployment rate would have been in the 20s in April. So, the improvement has been quite substantial under any measurement, but the level is still quite high.
Don Lee: (52:45)
Well, if I could follow up. Is it the Fed saying to get back to 3.5% or even lower?
Jerome Powell: (52:51)
Yes, absolutely. I can’t be precise about a particular number, but let me just say, there was a lot to like about 3.5%… It’s not a magic number. No one would say that number is the touchstone or that is maximum employment. I would just say, you ask about 3.5%. A 3.5% unemployment rate showed gains being shared very widely across the income spectrum. In fact, going more to people at the bottom end of the spectrum. It showed labor force participation coming up, as up above many estimates of its trend, as people who’d been out of the labor force were being pulled into a tight job market. There’s a lot to like about a tight job market, particularly in a world where we didn’t see inflation. So, yes, we’d love to get back to that.
Jerome Powell: (53:39)
I mean, I would say we would like to get back… rather than to a particular number, we’d like to get back to a strong labor market where wages are moving up, where people can find work, where labor force participation is holding up nicely. That’s what we really would love to get back to. And, of course, we need inflation to perform in line with our framework, but the good news is we think we can have quite low unemployment without raising troubling inflation.
Thank you. Nancy Marshall-Genzer.
Nancy Marshall-Genzer: (54:14)
Hi. Nancy Marshall-Genzer with Marketplace. Chair Powell, I want to follow up on the wealth gap issue. I know you were saying that you have limited tools, but are there things that you can do, possibly in the area of research and maybe expand your research on racial economic gaps?
Jerome Powell: (54:37)
We are gifted with a substantial group of researchers who really cover the waterfront. And we do a significant amount of research on racial disparities across multiple variables, including wealth, as you ask about. So, we do that.
Jerome Powell: (54:55)
And remember, we have our Division of Consumer and Community Affairs, which is present in communities around the country. And the reserve banks all have very active community affairs groups. They’re present in communities around the country. So, it wasn’t just the Fed Listens events; it’s more just, over a long period of time, we are in contact with people in those communities to understand their experience of the economy. We serve all Americans, and we know that, and we’re going to use our tools to reflect that fact. So, the answer is, yes, we do quite a bit of research. And I suppose we could do more, but we really do a lot. And we contribute to those fields and those assessments of the state of the economy. And we do that, not just because it’s interesting and important, but because it’s important for the economy and important for our mandate.
Jerome Powell: (55:48)
We are assigned maximum employment. Now, what does that mean? As I mentioned earlier, it doesn’t mean a particular headline unemployment number; what it means is maximum employment. So, we look at that in many, many different variables. And we ask ourselves whether those variables or those labor market conditions are consistent with our assessments of, “What would constitute maximum employment?” And that would include all of the things that we’re talking about.
Thank you. Greg Robb?
Greg Robb: (56:25)
Hi. Greg Robb from MarketWatch. Thanks for this. I want to go back to the new forward guidance that you have. And you said that it’s powerful, but you already have two dissenting voters on it. And I was wondering if there’s other people who argued against it. And what do you say to the two who dissented? It looks like President Kashkari wanted a simpler forward guidance and President Kaplan thought that the current guide you have was fine for now. So, how did you argue back on those arguments? Thank you.
Jerome Powell: (57:04)
I don’t want to comment particularly on the two dissenters, but they dissented from, of course, different perspectives. And that should be clear. They’re sort of on two sides of the discussion. But I would say this, I am blessed with having a committee of highly thoughtful people who bring diverse life experiences and diverse careers and, of course, diverse views to our work. And I wouldn’t have it any other way. I wouldn’t. So, I would just say, in our discussions the last couple of days, the whole committee, everybody on the committee is very supportive of the statement on Longer-Run Goals and Monetary Policy Strategy and what’s in there. Very, very broad support. Unanimous support for that. Everyone sees the changes in the underlying economy and sees, in their own way, the need to address those, including the changes we made to the employment mandate and to inflation, so that we’re now flexible average inflation targeting.
Jerome Powell: (58:07)
Of course, there would be… We’re the first major central bank to adopt this framework. There’s no cookbook. And this is the first guidance under our new framework. So, of course, there would be a wide range of views. And you would expect that. And it’s actually a healthy thing. So, I welcome that discussion.
Jerome Powell: (58:27)
I would also say this, this is all about credibility. And we understand perfectly that we have to earn credibility. This framework has to… we have to support it with our actions. And I think today is a very good first step in doing that. It is strong, powerful guidance. It ties in very nicely with the statement of a Longer-Run Goals and Monetary Policy Strategy.
Jerome Powell: (58:50)
We had quite a robust discussion. There are different ideas on how to do this, but that’s just the way it is when you have a diverse group of highly thoughtful and effective people. And so, I’m pleased with where it came out.
Thank you. Hannah Lang?
Hannah Lang: (59:14)
Hi, Chair Powell. Thanks so much for [inaudible 00:59:16] question. I wanted to ask about commercial real estate. I know you had mentioned before how you weren’t sure if there was a way the Fed could support CRE borrowers, but I was just wondering if you’ve had any other continued discussions on that and if there’s any potential way that the Fed could step in in that area.
Jerome Powell: (59:38)
Thank you for that question. We’ve actually spent quite a bit of time on this, as Secretary Mnuchin I think mentioned the other day. And I’ll say just a couple of things. First, our facilities are essentially always, they have to be under the law, broad-based and not so much targeting any single sector.
Jerome Powell: (59:59)
Also, it’s important to remember that CRE, commercial real estate, benefits from several of our existing facilities. So, the TALF takes commercial mortgage-backed securities and SBA commercial real estate deals. And the New York Fed purchases agency CMBSs directly. In addition, I would say Main Street helps businesses pay their rent. So, we’re helping real estate in a number of other ways, commercial real estate. Also, CMBS issuance has resumed. Spreads have tightened on CMBS.
Jerome Powell: (01:00:37)
There are a couple of issues. One is just that commercial properties with CMBS loans often have covenants, uniformly, I think have covenants, that forbid them to take on more debt. So, you have a situation. And you have a situation where, without a legal change or some kind of an innovation that defies discovery so far, you have a hard time providing mass relief with regard to real estate that’s in commercial mortgage-backed securities.
Jerome Powell: (01:01:04)
So, we’re still working on it. We’re still looking. I would say it may be that further support for commercial real estate will require further action from Congress.
For the last question, we’ll go to Brian Cheung.
Brian Cheung: (01:01:19)
Hi, Chairman Powell. So, it seems like a lot of the new inflation framework is about shaping inflation expectations, but the average American that might be watching this might be confused as to why the Fed is overshooting inflation. So, what’s your explanation to Main Street, to average people, what the Fed is trying to do here and what the outcome would be for those on Main Street. Thanks.
Jerome Powell: (01:01:43)
That’s a very, very important question. And I actually spoke about that in my Jackson Hole remarks a couple weeks ago. It’s not intuitive to people. It is intuitive that high inflation is a bad thing; it’s less intuitive that inflation can be too low.
Jerome Powell: (01:01:55)
And the way I would explain it is, is that inflation that’s too low will mean that interest rates are lower. There’s an expectation of future inflation that’s built into every interest rate, right? And to the extent inflation gets lower and lower and lower, interest rates get lower and lower, and then the Fed will have less room to cut rates to support the economy. And this isn’t some idle academic theory; this is what’s happening all over the world. If you look at many, many large jurisdictions around the world, you are seeing that phenomenon.
Jerome Powell: (01:02:28)
So, we want inflation to be… We want it to be 2%, and we want it to average 2%. So, if inflation average is 2%, the public will expect that, and that’ll be what’s built into interest rates. And that’s all we want. So, we’re not looking to have high inflation; we just want inflation to average 2%.
Jerome Powell: (01:02:46)
And that means that in a downturn, these days, what happens is inflation, as has happened now, it moves down well below 2%. And that means that we’ve said we would like to see and we will conduct policy so that inflation moves, for some time, moderately above 2%. So, these won’t be large overshoots and they won’t be permanent, but to help anchor inflation expectations at 2%.
Jerome Powell: (01:03:14)
So, yes, it’s a challenging concept for a lot of people, but nonetheless, the economic importance of it is large. And those are the people we’re serving. And we serve them best if we can actually achieve average 2% inflation, we believe. And that’s why we changed our framework.
Thank you very much.
Jerome Powell: (01:03:38)
Thanks very much.