Jerome Powell (00:01):
… is strong overall and has made significant progress toward our goals over the past two years. Labor market conditions have cooled from their formerly overheated state and remain solid. Inflation has moved much closer to our 2% longer-run goal, though it remains somewhat elevated. In support of our goals, today, the Federal Open Market Committee decided to leave our policy interest rate unchanged and to continue to reduce our securities holdings. I'll have more to say about monetary policy after briefly reviewing economic developments.
(00:38)
Recent indicators suggest that economic activity has continued to expand at a solid pace. For 2024, as a whole, GDP looks to have risen above 2%, bolstered by resilient consumer spending. Investment in equipment and intangibles appears to have slowed in the fourth quarter, but was strong for the year overall. Following weakness in the middle of last year, activity in the housing sector seems to have stabilized. In the labor market, conditions remain solid. Payroll job gains averaged 170,000 per month over the past three months. Following earlier increases, the unemployment rate has stabilized since the middle of last year, and at 4.1% in December remains low. Nominal wage growth has eased over the past year and the jobs-to-workers gap has narrowed. Overall, a wide set of indicators suggests that conditions in the labor market are broadly in balance. The labor market is not a source of significant inflationary pressures.
(01:46)
Inflation has eased significantly over the past two years, but remains somewhat elevated relative to our 2% longer-run goal. Estimates based on the Consumer Price Index and other data indicate that total PCE prices rose 2.6% over the 12 months ending in December, and that excluding the volatile food and energy categories, core PCE prices rose 2.8%. 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. Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. We see the risks to achieving our employment and inflation goals as being roughly in balance and we are attentive to the risks on both sides of our mandate.
(02:41)
Over the course of our three previous meetings, we lowered our policy rate by a full percentage point from its peak. That recalibration of our policy stance was appropriate in light of the progress on inflation and the rebalancing in the labor market. With our policy stance significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance.
(03:07)
At today's meeting, the committee decided to maintain the target range for the federal funds rate at four and a quarter to four and a half percent. We know that reducing policy restraint too fast or too much could hinder progress on inflation. At the same time, reducing policy restraint too slowly or too little could unduly weaken economic activity and employment. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the committee will assess incoming data, the evolving outlook, and the balance of risks. We're not on any preset course.
(03:46)
As the economy evolves, we will adjust our policy stance in a manner that best promotes our maximum employment and price stability goals. If the economy remains strong and inflation does not continue to move sustainably toward 2%, we can maintain policy restraint for longer. If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can ease policy accordingly. Policy is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate.
(04:20)
As we previously announced, our five-year review of our monetary policy framework is taking place this year. At this meeting, the committee began its discussions by reviewing the context and outcomes of our previous review that concluded in 2020, as well as the experiences of other central banks in conducting reviews. A review will again include outreach and public events involving a wide range of parties including Fed Listens events around the country and a research conference in May. Throughout this process, we will be open to new ideas and critical feedback and we will take on board lessons of the last five years in determining our findings. We intend to wrap up the review by late summer. I would note that the Committee's 2% longer-run inflation goal will be retained and will not be a focus of the review.
(05:10)
The Fed has been assigned two goals for monetary policy: maximum employment, and stable prices. We remain committed to supporting maximum employment, bringing inflation sustainably to our 2% goal, and keeping longer-run inflation expectations well-anchored. Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals. Thank you. I look forward to your questions.
Steve Liesman (05:52):
Mr. Chairman, Steve Liesman from CNBC. Mr. Chairman at a event in Davos, or to Davos, anyway, the president said he'll demand that interest rates drop immediately. So I guess I have a three-part question. Has the president done this to you? Has he made that demand? Secondly, what is your response to that? And third, what effect, if any, does a president making these kind of remarks have on policy? Thank you.
Jerome Powell (06:21):
Three questions. I'm seeing it really as one question though, so I'm not going to have any response or comment whatsoever on what the president said. It's not appropriate for me to do so. The public should be confident that we will continue to do our work as we always have, focusing on using our tools to achieve our goals and really keeping our heads down and doing our work and that's how we best serve the public.
Steve Liesman (06:48):
Can you just comment on whether he's physically communicated this demand to you?
Jerome Powell (06:51):
I've had no contact.
Steve Liesman (06:52):
Thank you.
Jerome Powell (06:53):
Thanks.
Speaker 1 (06:53):
Nick.
Nick Timiraos (06:58):
Nick Timiraos, the Wall Journal Chair. Chair Powell, you and several of your colleagues said around the time of the last meeting that your policy stance was meaningfully restrictive. Given economic and financial market development since then, how has your confidence changed in an assessment that says interest rates are meaningfully restrictive?
Jerome Powell (07:19):
I don't think that my assessment really has changed. I mean, a couple of things have happened. We've gotten more strong data, but we've also seen rates move up at the long end, which could represent a tightening in financial conditions. I think if we look back over the past year or so, we can see that policy is restrictive if you look at the effect of high rates on interest-sensitive spending, for example in housing, and if you look at the achievement of our goal variables. We're seeing the economy move toward 2% inflation and has moved largely to maximum employment. So we literally look at movement toward the goal variables to make that assessment. Now policy is meaningfully less restrictive than it was before we began to cut, it's a hundred basis points less restrictive. And for that reason we're going to be focusing on seeing real progress on inflation or turn into at least some weakness in the labor market before we consider making adjustments.
Nick Timiraos (08:15):
If I could follow up, does the economy here warrant meaningfully restrictive interest rates? And would you judge interest rates to still be meaningfully restrictive if you were to lower them by another quarter point.
Jerome Powell (08:26):
So I think our policy stance is very well calibrated, as I mentioned, to balance the achievement of our two goals. We want to-policy to be restrictive enough to continue to foster further progress toward our 2% inflation goal. At the same time, we don't need to see further weakening in the labor market to achieve that goal. And that's kind of what we've been getting. The labor market has really been broadly stable. The unemployment rate has been broadly stable now for six months. Conditions seem to be broadly in balance and I'd say you look at the last couple of inflation readings and you see, we don't overreact to two good readings or two bad readings, but nonetheless, the last couple of readings have suggested more positive readings. So I think policy is well positioned.
Speaker 1 (09:17):
Colby from the New York Times.
Colby Smith (09:21):
Colby Smith with the New York Times. Chair Powell, how should we interpret the removal of the line from the statement that inflation has made progress towards the 2% goal? Is that no longer the case?
Jerome Powell (09:30):
No. So if you just look at the first paragraph, we did a little bit of language cleanup there. We took out a reference to 'since earlier in the year' as it related to the labor market, and we just chose to shorten that sentence. Again, if you look at the sort of inter meeting data, it was good, and there was another inflation reading I guess just before the December meeting. So we've got two good readings in a row that are consistent with 2% inflation. Again, we're not going to over interpret two good or two bad readings. But this was not meant to send a signal, other than this, you can take away from all of this that we remain committed to achieving our 2% inflation goal sustainably.
Colby Smith (10:11):
And just to follow up, we've seen inflation expectations across a number of measures rise sharply, which has in part been linked to tariff concerns, but there's also been this encouraging data that you mentioned in terms of CPI and rent indices. So how would you characterize concerns about upside risks to inflation across the committee, especially those tied to policies related to the Trump administration?
Jerome Powell (10:34):
Well, I'd say you see expectations moving up a little bit at the short end, but not at the longer run, which is where it really matters. And those could be related to what you mentioned, some of the new policies. I think where the committee is, very much in the mode of waiting to see what policies are enacted. We don't know what will happen with tariffs, with immigration, with fiscal policy, and with regulatory policy. We're only just beginning to see, and actually are not really beginning to see much. And I think we need to let those policies be articulated before we can even begin to make a plausible assessment of what their implications for the economy will be. So we're going to be watching carefully, as we always do. This is no different than any other set of policy changes at the beginning of an administration. We'll patiently watch and understand and kind of not be in a hurry to get to a place of understanding of what our policy response should be until we see how it plays out.
Speaker 1 (11:36):
Michael McKee.
Michael McKee (11:39):
Michael McKee from Bloomberg Television and Radio. You and your colleagues normally condition future policy moves with the phrase, "If the economy develops as we anticipate." Is it fair to say that since there's a lot unknown about what this administration's fiscal policies are actually going to be, that you don't have a medium to long term economic forecast that you can have confidence in? Or if that's not true, can you lay out what you think is going to happen in the economy, how you see it developing?
Jerome Powell (12:11):
Well, at all times, forecasts are conditional at a minimum on just a set of expectations, and they're highly uncertain in both directions. We know that economic forecasting is really difficult beyond just a month or two out. So in the current situation, there's probably some elevated uncertainty because of significant policy shifts in those four areas that I mentioned: tariffs, immigration, fiscal policy, and regulatory policy. So there's probably some additional uncertainty, but that should be passing. We should go through that, and then we'll be back to the regular amount of uncertainty. So what forecasters are doing, not just us, but everybody's, doing is they've got sort of just a set of assumptions about what
Jerome Powell (13:00):
… what might happen, but they're really in the nature of a placeholder and meaning, plausible could be, but honestly you wouldn't stand behind it because you just don't know. So you're just on hold waiting to see what comes down. It's a very large economy and policies affected at the margin, but we're going to wait and see.
Michael McKee (13:20):
If I can follow up. The idea that you feel that policy is restrictive, suggests that the Fed in general wants to continue to lower interest rates. So when you look at the data that you are dependent on, are you looking for data that tell you that you can cut or data that will tell you you should hold?
Jerome Powell (13:47):
The way it works is, we are looking at the data to guide us in what we should do, and that's what we do. Right now we feel like we're in a very good place. Policy's well positioned. The economy's in quite a good place actually, as well. What we do expect is to see further progress on inflation. As I mentioned, as we see that, or if we were to see weakening in the labor market that could foster, we could then be in a position of making further adjustments. But right now, we don't see that and we see things as in a really good place for policy and for the economy. So we feel like we don't need to be in a hurry to make any adjustments.
Speaker 2 (14:30):
Howard.
Speaker 3 (14:35):
Howard Schneider with Reuters. Thank you very much. In 2021 at a central bank conference, you said, "Throughout my career in both public and private sectors, I've seen that the best and most successful organizations are often the ones that have a strong and persistent commitment to diversity and inclusion. These organizations consistently attract the best talent by investing in and retaining a world-class workforce." First question is, do you still believe that? If so, how do you intend to put that belief into practice while remaining consistent with the recent executive order of prohibiting diversity and inclusion efforts?
Jerome Powell (15:11):
Let me say yes, answer to your first question. But to the second question, I want to say this, like others, we're reviewing the orders and the associated details as they're made available. As has been our practice over many administrations, we are working to align our policies with the executive orders as appropriate and consistent with applicable law. I want to add that I'm not going to have anything more specific for you today on this whole set of issues.
Speaker 3 (15:38):
Well, if I could just follow up quickly on that, I'm wondering how you're getting that to be consistent with the Dodd-Frank Law's stipulations about maintaining an office of minority and women's inclusion.
Jerome Powell (15:50):
So I did mention consistent with applicable law, right?
Speaker 3 (15:55):
Which is governing.
Speaker 2 (15:59):
Elizabeth.
Speaker 4 (16:01):
Thanks so much. Elizabeth Schulze with ABC News. Just to follow up on Steve's question, what reassurance can you give the American public that the Fed will continue to operate independent of politics under this administration?
Jerome Powell (16:17):
As I've said countless times over the years, this is who we are. This is what we do. We study the data, we analyze how it will affect the outlook and the balance of risks. And we use our tools to try to given our best understanding, our best thinking, to try to achieve our goals. That's what we do. That's always what we do. Don't look for us to do anything else. Lots of research shows that's the best way for a central bank to operate. That'll give us the best possible chance to achieve these goals for the benefit of the American people. That's always what we're going to do, and people should have confidence in that, as I said a few minutes ago.
Speaker 4 (16:52):
You've said that the Fed is in wait-and-see mode, based on the policies that come out of this administration. Has the Fed started to model what policies like mass deportations changes in immigration policy specifically would look like for the workforce and for inflation?
Jerome Powell (17:07):
So one of the things our staff does is they look at a range of possible outcomes, and they tend to go from really good to really bad. It's one of the best things that they do. In each TealBook, you can look at the five-year-old TealBooks and see, there are alternative simulations. So that's what they do. There'll be a baseline, and then they'll show six or seven alternative scenarios including really good ones and not so good ones. What those do is they spark the policymakers to think and understand about the uncertainties that surround this. So yes, the staff does that, and we're all well aware that the range of possibilities is always broad and not just now, but always. It's hard to be open to just how broad the possibilities are for an economy. No one saw the pandemic coming, and it changed everything. So things happen. Yes, we do do that, but it's different. It's one thing to do that to make assessments about what might happen and begin to think about what you might do in that case, but you don't act until you see much more than we see now.
Speaker 2 (18:22):
Catarina.
Speaker 7 (18:26):
Catarina Saraiva Bloomberg News. Last month you talked about a future rate cut as being pretty significantly predicated on more progress in inflation. With the characterization of the labor market in the statement today, would you say that that's even more so the case now?
Jerome Powell (18:49):
I'd say it's the same. We want to see further progress on inflation. The story's there. We're just going to have to see the data. At the end of the day, it comes down to 12-month inflation because that takes out the seasonality issues that may exist. We're just going to need to see that. We think we see the pathway for that to happen. A key example is that you now do see owner's equivalent rent and housing services the way it's calculated for PCE. You see that coming down pretty steadily now, and that's the place where most of the remaining gap is. In addition, a big part of the overrun, as you will know, was from non-market services, which don't tend to send much signal. So you can look through all that and think, "Okay, then we seem to be set up for further progress." But being seen to set up for it is one thing, having it is another. So we are going to want to see further progress on inflation. Remember, we're under 2%, but our goal is 2%, and we do mean to get back sustainably to 2%.
Speaker 7 (19:54):
In terms of the labor market, is that broadly… You said a broad set of indicators show that it's in pretty solid place. Was there broad agreement on that? There's been a few underlying indicators that are showing perhaps some weakness, a low hiring rate, workers reporting that it's increasingly difficult to find a job. Is that of concern to the committee?
Jerome Powell (20:20):
So you're right. We look at, of course, a very broad range. So it starts with unemployment. Sorry, yeah, with the unemployment rate, employment participation, wages, job quits. Are people quitting? That kind of thing. The ratio of vacancies to unemployed. We look at all those things and you put your finger though on… It's a low-hiring environment. So if you have a job, it's all good. But if you have to find a job, the job finding rate, the hiring rates have come down. And that's more typical of a… Yeah. Let's say that the unemployment… that the labor market is at a sustainable level. It's not overheated anymore. We don't think we need it to cool off anymore. We do watch it extremely carefully. It's one of our two goal variables. But yeah, I'd say we watch those things quite carefully. But nonetheless, overall, look at the aggregate data in the labor market. The labor market does seem to be pretty stable and broadly in balance when you've got an unemployment rate that has been pretty stable now for a full half a year.
Speaker 2 (21:26):
Edward.
Speaker 6 (21:29):
Thank you. Thank you, Mr. Chairman. Edward Lawrence with FOX Business. On employment, now you said there's a broad range of possibilities, but last September, you said, "We understand that there's been a quite of influx across the borders and that has actually been one of the things that's allowed unemployment rate to rise." Now that the flow of the border has slowed and we're seeing deportations, how do you expect the unemployment rate to react?
Jerome Powell (21:52):
What's happening is that the flows across the border have decreased very significantly and there's every reason to expect that to continue, but job creation has come down a bit too. So if those two things come down together, that can be a reason for the unemployment rate to stabilize. In other words, as population growth slows, the break-even rate that you need in new jobs to make jobs for workers declines as well. So that seems to be something about what's happening. You do see a very flat unemployment rate at a time when you've seen significant declines.
Speaker 6 (22:34):
I want to ask you about Fed employment. I know that tax money is not used here, but Elon Musk alleges that the Fed is absurdly overstaffed. We've seen the executive branch push to reduce the federal workforce. I just want to get your reaction.
Jerome Powell (22:48):
We run a very careful budget process. We're fully aware. We owe that to the public, and we believe we do that. I've got no further comment than that.
Speaker 2 (22:59):
Chris Rugaber.
Speaker 5 (23:03):
Chris Rugaber and Associated Press. President Trump has said he will lower inflation by reducing gas and energy costs. Do you see such costs as a particular driver of inflation and would lowering them have a dramatic effect?
Jerome Powell (23:17):
Chris, I'm not going to react or discuss anything that any elected politician might say. So I'll give you a mulligan.
Speaker 5 (23:23):
Okay. Thank you. Well, nearly two weeks ago, the Fed said it was withdrawing from the Network for Greening the Financial System, even as we have significant wildfires in Los Angeles doing billions of dollars in damage. Of course, the NGFS, as you know, is a group to talk about how the financial system could address climate change. Many commentators did seethe timing as political. Why did you leave that organization? Can you explain that decision?
Jerome Powell (23:48):
Sure, I'd be glad to. So we considered this really at length, and we did decide to withdraw from the NGFS. Really, the reason is that the work that the NGFS does has broadened very significantly. Think about nature-related risks and biodiversity and things like that. In addition, the work of the NGFS is insignificant part intended to, and this is a quote, mobilize mainstream finance to support the transition toward a sustainable economy. So we joined to get the benefit of understanding what other central banks were doing. And seeing research and things like that, I think this is just way beyond any plausible mandate that you could attribute to the Fed.
(24:34)
So we have a quite narrow role, as I've-as said many times. I think that the activities of the NGFS are not a good fit for the Fed, given our current mandate and authority. I just think it was time to acknowledge that this process, thinking about it, dates back a of years. I made the decision to bring this to the board some months ago. The process just took time to get here, and this is when we got in and voted on it. I'm aware of how it can look, but it was really not driven by politics. It was driven by the disconnect between the work of the NGFS and our mandate. Other central banks have different mandates and belong to the NGFS. We have no criticism of them, but it's not right for the Fed.
Speaker 2 (25:22):
Andrew.
Speaker 8 (25:26):
Thanks. Andrew Ackerman with The Washington Post. I'm wondering if you could talk more about what further progress would look like for consumers.
Jerome Powell (25:35):
Well, inflation down to 2% sustainably is what we're trying to achieve. We're somewhat above that, as you know, and we want to see serial readings that suggest that we're making further progress on inflation. That's what we want to see. Consumers will pick that up, of course, in the things that they buy at the grocery
Jerome Powell (26:00):
Restore at the store.
Speaker 9 (26:01):
The other thing I wanted to ask was just how far away you think you are from neutral?
Jerome Powell (26:08):
Yeah. You can't know with any precision of course. As I like to say, that you know the neutral rate by its works. So I think at 4.3%, we're above pretty much everyone on the Committee's estimates of the longer-run neutral. I think our eyes are telling us that our policy is having the effects on the economy. That's really the question we ask. You can consult models, empirical models, theoretical models. You really have to just look out the window and see how your policy rate is affecting the economy. And I think we see that it's having meaningful effects in bringing inflation under control. It has helped bring the labor market into balance as well. So, that's what we think. I would say we're meaningfully above it. I have no illusion that anyone knows precisely how much that is, but not knowing that and having cut a hundred basis points means that it's appropriate that we not be in a hurry to make further adjustments.
Speaker 10 (27:13):
Victoria.
Speaker 11 (27:17):
Victoria Guida with Politico. So as a general matter when it comes to executive orders and OMB memos, do those always apply to the Fed? Sometimes, never, or do you just often voluntarily comply? What is the legality there?
Jerome Powell (27:33):
So it's been our practice, as I mentioned, to work to align our policies to those that are mentioned in the executive orders and I'm just going to leave it at that. As I mentioned, I'm not going to go any deeper than that or get any deeper into this set of issues today.
Speaker 10 (27:51):
Claire.
Speaker 12 (27:56):
I'm Claire Jones from the Financial Times. Two questions, if I may, on tariffs. Well, first of all, we've seen global trade wars before, notably in 2019, last time around, but then we were in a very different place on both inflation and growth. If we see tariffs of the same sort of magnitude that we got then, which I know is a big if, what do you think might be different this time around? And secondly, Tiff Macklem said there was no doubt that the threat of tariffs was a big driver of the cut by the Bank of Canada today. What sort of information would the Fed need to see on tariffs before it was willing to take such a preemptive move? Thank you.
Jerome Powell (28:43):
Sorry.
Speaker 12 (28:44):
What sort of information would you need to see on tariffs? Would you need to see a strategy, actual implementation, actual movement of inflation expectations, before you're actually willing to change the path of monetary policy on the basis of it?
Jerome Powell (28:59):
Yeah. So first of all, things are a little different now. We've just come through a high inflation period, and you can argue that both ways. You can say that companies have figured out that they do like to raise prices, but we also hear a lot from companies these days that consumers have really had it with price increases. And so, I don't know how that shakes out. Nonetheless, you're coming through a situation where we're not quite back to 2% and that's just different. In addition, the kind of footprint of trade has changed a lot as trade is now spread around… You know, it's not as concentrated in China as it was. There's a lot more manufacturing. It moved to Mexico and other places. So there were differences, and I just think the range of possibilities is very, very wide. We just don't know. I don't want to start speculating, as tempting as it is, because we really don't know.
(29:52)
And we didn't know, by the way, in two thousand-and I guess 18. We didn't really know. And again, the range of possibilities, very, very wide. We don't know what's going to be tariffed. We don't know for how long or how much, what countries. We don't know about retaliation. We don't know how it's going to transmit through the economy to consumers. That really does remain to be seen. There are lots of places where that price increase from the tariff can show up between the manufacturer and the consumer. Just so many variables. So we're just going to have to wait and see, and the best we can do is what we've done, which is study up on this and look at the historical experience, read the literature, and think about the factors that might matter, and then we'll just have to see how it goes.
Speaker 10 (30:49):
Courtney.
Speaker 13 (30:53):
Thank you. Courtney Brown from Axios. Two unrelated questions. The first is whether or not there was any discussion about QT and the timeline for ending QT at this meeting. And then the second question is just I wonder if the AI-prompted sell-off in the stock market this week signaled anything to you about the state of financial conditions?
Jerome Powell (31:21):
Let's talk about runoff. So the most recent data do suggest that reserves are still abundant. Reserves remain roughly as high as they were when runoff began, and the federal funds rate has been very steady within the target range. We track a bunch of metrics, and they do tend to point to reserves being abundant. We do intend to reduce the size of our balance sheet to a level that's consistent with implementing monetary policy efficiently and effectively in our ample reserves regime. We're closely monitoring a range of indicators to assess conditions, and that should provide signals whether reserves are approaching a level that could be judged as "somewhat above ample." I don't have anything to say to you about particular dates. It's just that's the process, and what we see is that rates do appear to be abundant. As always, we stand ready to take appropriate action to support that smooth transition of monetary policy, including to adjust the details of our approach for reducing the size of the balance sheet in light of economic and financial developments. On AI, it's a big event in the stock market and in particular parts of the stock market. What really matters for us is macro developments, and that means substantial changes in financial conditions that are persistent for a period of time. So, I wouldn't put that label on these events, although of course we're all watching it with interest.
Speaker 10 (32:47):
Simon.
Speaker 14 (32:50):
Simon Urbinovich with the Economist. Thank you. You mentioned your remarks that activity in the housing sector seems to have stabilized. At the same time since your first rate cut in September, long-term mortgage rates have gone up by a full percentage point back above 7%. I'm wondering, looking forward, are you confident that activity will remain stable given how elevated mortgage rates are? How does it fit into your broader thinking about the economy?
Jerome Powell (33:16):
So as you know, as we've reduced our policy rate a hundred basis points, longer rates have gone up not because of expectations, not principally because of expectations about our policy or about inflation. It's more a term premium story. So, and it's long rates that matter for housing. So, I think these higher rates are going to… They'll probably hold back housing activity to some extent if they're persistent. We'll have to see how long they persist. So, we control an overnight rate. Generally. It propagates through the whole family of asset prices including interest rates. But in this particular case, it's all happened at a time when, for reasons unrelated to our policy, longer rates have moved up.
Speaker 10 (34:07):
Jennifer.
Speaker 15 (34:13):
Thank you, Chair Powell. Jennifer Schoenberger with Yahoo Finance. You said you want to see further progress on inflation. Given that households appear to be unhappy with the elevated level of prices, do you believe the committee should wait until inflation has fallen back to target to cut rates again?
Jerome Powell (34:29):
No, I wouldn't say that. We've never said we need to be all the way at target to reduce rates. At any time, what we're doing is we're looking at the economy and asking whether our policy stance is the right one to achieve maximum employment and price stability. So I think if… We would want to see further progress, but we think our… As I mentioned, we think that our policy stance is restrictive, meaningfully restrictive, not highly restrictive, but meaningfully restrictive. And so, I would think we need to see further progress. I wouldn't say all the way back down to 2% on a sustainable basis, although we'd love to see that of course, and we will.
Speaker 15 (35:07):
And separate question for you on tariffs. Curious whether the threat of tariffs and not knowing whether they could stick or not creates uncertainty for business here in the United States and could cause them to pull back, ultimately weighing on growth? Does the threat of tariffs cause you to ponder your growth forecast?
Jerome Powell (35:29):
I want to avoid commenting even indirectly on the conduct of tariffs. It's not our job, and it's not our job to comment on the moves that people make. So, I wouldn't want to criticize anything that's happening or really comment on it one way or another, praise it for that matter. It's just not our job. I do think that we found in 2018, there was a lot of work done on trade policy uncertainty. Trade policy uncertainty, if it's large and persistent, can start to matter for businesses making investment decisions and things like that. That's not something I'm observing today. It's very early days for this, but I think that did matter in 2018, '19, and it's one of many things we'll be watching.
Speaker 10 (36:15):
Matt Egan.
Speaker 16 (36:18):
Thank you, chair Powell. Matt Egan from CNN. Following up on Courtney's question from earlier about the stock market, how concerned are you, if at all, about potential asset bubble brewing in financial markets? How do relatively high market valuations factor into considerations about potentially lowering interest rates further? Is that something that's in the back of your mind?
Jerome Powell (36:40):
So we look from a financial stability perspective at asset prices generally, along with things like leverage in the household sector, leverage in the banking system, funding risk for banks and things like that. But it's just one of the four things asset prices are. And yeah. I'd say they're elevated by many metrics right now. A good part of that, of course, is this thing around tech and AI, but we look at that. But also, we look at how resilient the households and businesses and the financial sector are to those things.
(37:15)
So, we look at that mainly from a financial stability perspective, and we think that there's a lot of resilience out there. Banks have high capital, and households are actually overall, not all households, but in the aggregate, households are in pretty good shape financially these days. So, that's how we think about that. Also, we look at overall financial conditions and you can't just take equity prices. You've got to look at rates too, and that represents a tightening in conditions with higher rates. So overall, financial conditions are probably still somewhat accommodative, but it's a mixed bag.
Speaker 10 (37:53):
Richard.
Speaker 17 (37:56):
Hi Chair Powell. I'm Richard Escobedo with CBS News. One question for you. This month's statement notes that unemployment is stabilized at a low rate and that the labor market is solid. You walked through some of what's driving this, but I wonder what risks you see that might challenge your assessment?
Jerome Powell (38:13):
Well, the things we watch, we discussed earlier, one is that there's a low hiring rate. And so that if there were to be a spike in layoffs, if companies were to start to reduce headcount, you would see unemployment go up pretty quickly because the hiring rate is quite low. That's one thing we look at. I think also it's worth pointing out that, for lower-income households, they're under significant pressure. And in the aggregate, the numbers are good, but we know that people at the lower end of the income spectrum are struggling with costs, and really it's high inflation for the basics of life. It's not so much the inflation now. It's the price level because inflation has raised prices. Inflation is now much closer to target. But people are really feeling
Jerome Powell (39:00):
… that, but overall, this is a good labor market. You're at 4.1% unemployment. That's just a really good level and you've been solidly there now for six, seven months, and job creation is pretty close to a level that will hold the unemployment rate there, given that there'll be much lower population growth.
Speaker 18 (39:25):
One more question. Some of the uncertainty around immigration policy, in your assessment, is that making it harder for businesses and the fed to plan going forward?
Jerome Powell (39:37):
We hear anecdotal reports, but I don't see … there's nothing in the data yet on that. But you hear that kind of thing about construction, for example, and businesses that are dependent on immigrant labor are saying that it's suddenly gotten harder to get people. But again, you don't see that in the aggregate data yet. But yes, you hear it anecdotally.
Speaker 19 (40:03):
Nick.
Nicholas Jasinski (40:05):
Thank you, Chair Powell. Nicholas Jasinski from Barron's. The uncertainty is certainly a theme today and I'm wondering are there any periods from your career or as it relates to markets, the economy, what's going on here in Washington and beyond, or from lessons from history, that may provide some guidance for a central banker operating in uncertain times like today?
Jerome Powell (40:30):
I guess I'd say this: uncertainty is with us all the time. It is human nature apparently to underestimate the … how fat the tails are, in a way, the possibility. We think of things in a normal distribution and in the economy it's not a normal distribution. The tails are very fat, meaning things can happen way out of your expectations. It's never not that way. I wouldn't … If you think about it, think about the first few months of the pandemic, that was uncertainty. Are we going to be able to reopen the economy? If so, when? How much of it? How long will it take? That was uncertainty.
(41:07)
What we have now is a good labor market. We have the economy growing at 2 to 2.5%. Inflation's come down to now the, you know, the headline inflation number was 2.6, and that's what the public experience is. We look at core because it's a better indicator of future inflation. So yes, the price level went up a lot for inflation and people are feeling that and they're not wrong, but … So the kind of uncertainty we have is just a usual level of uncertainty about the economy, but then policies, which are not for us to criticize or praise, really. Those are policies which people have been elected to implement. They're implementing them with the view to making a better economy. And so I wouldn't call this out as one of those times. I wouldn't compare it to the global financial crisis or anything like that, given that we have actually a very good economy right now.
Speaker 19 (42:03):
Evan.
Evan Ryser (42:07):
Evan Ryser with Market News International. Chair Powell, is a march cut still on the table? And then, additionally, are you looking to see better than expected data on inflation to cut or are you looking for inflation data that roughly aligns with current forecasts?
Jerome Powell (42:21):
So, as I mentioned, the economy's strong, the labor market's solid, downside risks to the labor market appear to have abated, and we think disinflation continues on a slow and sometimes bumpy path. That tells me and the other members of the committee, the broad sense of the committee actually is that we don't need to be in a hurry to adjust our policy stance. Your second question was?
Evan Ryser (42:46):
Whether or not you need to see better than expected inflation data or just inflation data that roughly aligns with your current forecasts.
Jerome Powell (42:55):
It's one of those things, we'll know it when we see it, but more the expectation is that we will make continued progress and that's what we want. We will know it when we see it. It's going to have to be something that isn't just idiosyncratic. You're going to want to see continued progress with housing services inflation. You're going to want to see inflation behaving in a way that builds confidence that we are really making progress. That's what it's going to be. And, I mean, is that better than our expectations? We expect to see that. It's just a question of when.
Speaker 19 (43:30):
Scott.
Scott Horsley (43:34):
Hi Chair Powell, Scott Horsley for NPR. In your five-year review, you said the 2% inflation target won't be on the table. Can you talk a little bit about why? Is that because you think that's the right target or is it because you don't want to move the goalpost mid-game, or what's behind that?
Jerome Powell (43:53):
I think that goal has served us well over a long period of time. It's also the sort of global standard. I think that if Central Bank wanted to look at changing that, you wouldn't do it at a time when you're not meeting it anyway. I would not look at changing it anyway, but I certainly wouldn't look at it at a time when you're not meeting it. I mean there's just no interest at all in changing it. If I'm being at all unclear, we're not going to change the inflation goal anytime soon.
Scott Horsley (44:24):
And five years ago, if I can paraphrase what you all decided, it was you're going to not raise interest rates preemptively to head off inflation until you see the whites of the eyes of inflation because the solid labor market was so beneficial. Have the last few years changed your thinking about that?
Jerome Powell (44:44):
So what we really said was that we wouldn't look at a strong labor market and raise rates unless we saw some evidence of inflation. So the thought was that we'd seen low levels of inflation, sorry, of unemployment, with no sign of inflation. So why would you preemptively want to put people out of work in the absence of any kind of … any evidence that suggested that this was not a sustainable level. It was a way of acknowledging how much humility we have about the starred variables, especially u-star, the natural rate of unemployment.
(45:23)
So that was an insight. We'll discuss that again. That'll be one of the many things that we discussed, but I don't think that insight is wrong. We didn't, you know, what we said was that at times when inflation persistently undershot 2%, we would likely allow inflation to run moderately above 2% for some time. That's what we said. That was turned out not to be relevant to what actually happened. There was nothing moderate about the overshoot. It was an exogenous event. It was the pandemic and it happened and our framework permitted us to act quite vigorously and we did once we decided that that's what we should do.
(46:05)
The framework had really nothing to do with the decision to … We looked at the inflation as transitory and right up to the point where the data turned against that. And when the data turned against that in late '21, we changed our view and we raised rates a lot. And here we are at 4.1% unemployment and inflation way down. But the framework was more irrelevant than anything else. That part of it was irrelevant. The rest of the framework worked just fine as we used it as it supported what we did to bring inflation down.
Speaker 19 (46:41):
Go to Mark for the last question.
Mark Hamrick (46:45):
Hello Chairman Powell, Mark Hamrick with Bankrate. As you know, in the annual report from the Financial Stability Oversight Council, among the risks outlined is crypto currency. Could you talk about those risks now? And regarding individuals and households perhaps distinct from the concern about the financial system, do you worry that speculation in this unregulated asset class could hurt their financial well-being, or do you think it has a place in a household's portfolio?
Jerome Powell (47:15):
So our role with Bitcoin really is to look at, with crypto, really is to look at the banks and we think banks are perfectly able to serve crypto customers as long as they understand and can manage the risks and safe and soundness. Many of our … a good number of our banks that we regulate and supervise do that.
(47:41)
The threshold has been a little higher for banks engaging in crypto activities and that's because they're so new and we don't want to make the mistake. If you're making a choice to conduct that activity inside a bank, which is inside the federal safety net with deposit insurance, then you want to be pretty sure that it is a safe and sound activity.
(48:01)
So we're not against innovation and we certainly don't want to take actions that would cause banks to terminate customers who are perfectly legal just because of excess risk aversion may be related to regulation and supervision.
Mark Hamrick (48:24):
And with respect to households and their inclusion in asset finance?
Jerome Powell (48:26):
You know, that's kind of a … it's not really our bailiwick. You want people to be knowledgeable about the financial engagements that they have and that's why we have the securities laws that we have. It's why if you read a mutual fund prospectus or a individual stock prospectus, you want households to have the chance to understand the risk that they're taking.
(48:48)
And I do think it would be helpful if there were a greater regulatory apparatus around crypto. And I think that's something Congress was working on quite a lot. We've actually spent a lot of time with members of Congress working together with them on various things and I think that would be a very constructive thing for Congress to do.
(49:10)
Thank you.
Speaker 19 (49:10):
Thanks.