Transcript of Chair Powell's
Press Conference January 29, 2020 CHAIR POWELL. Good afternoon, everyone. Thanks for being here. At today's meeting, my
colleagues and I decided to leave our policy
rate unchanged. As always, we base our decisions
on our judgment of how best to achieve the goals
Congress has given us: maximum employment
and price stability. We believe monetary
policy is well positioned to serve the American people by supporting continued economic
growth, a strong job market, and a return of inflation to
our symmetric 2 percent goal. The expansion is in its 11th
year, the longest on record. Growth in household spending
moderated toward the end of last year, but with a healthy
job market, rising incomes, and upbeat consumer confidence, the fundamentals supporting
household spending are solid. In contrast, business investment
and exports remain weak, and manufacturing output has
declined over the past year. Sluggish growth abroad and trade
developments have been weighing on activity in these sectors. However, some of
the uncertainties around trade have
diminished recently, and there are some signs that
global growth may be stabilizing after declining since mid-2018. Nonetheless, uncertainties
about the outlook remain, including those posed
by the new coronavirus. Overall, with monetary and
financial conditions supportive, we expect moderate
economic growth to continue. The unemployment rate has
been near half-century lows for well more than
a year, and the pace of job gains remains solid. Participation in the
labor force by people in their prime working
years, ages 25 to 54, is at its highest level
in more than a decade. And wages have been
rising, particularly for lower-paying jobs. People who live and work in
middle-income communities and low-income communities tell
us that many who have struggled to find work are now
finding new opportunities. Employment gains have been
broad based across all racial and ethnic groups and
all levels of education. These developments underscore
for us the importance of sustaining the expansion so that the strong job
market reaches more of those left behind. Inflation continues to
run below our symmetric 2 percent objective. Over the 12 months
through November, total PCE inflation was 1.5
percent, and core inflation, which excludes volatile food and
energy prices, was 1.6 percent. Available data suggest similar
inflation readings for December, though we expect inflation
to move closer to 2 percent over the next few months
as unusually low readings from early 2019 drop
out of the calculation. While low and stable inflation
is certainly a good thing, inflation that runs persistently
below our objective can lead longer-term inflation
expectations to drift down, pulling actual inflation
even lower. In turn, interest rates
would be lower as well-closer to their effective lower bound. As a result, we would have less
room to reduce interest rates to support the economy in a
future downturn to the detriment of American families
and businesses. We have seen this dynamic
play out in other economies around the world,
and we are determined to avoid it here in
the United States. In particular, we
believe the current stance of monetary policy
is appropriate to support sustained economic
growth, a strong labor market, and inflation returning to
our 2 percent-symmetric 2 percent objective. As long as incoming information about the economy
remains broadly consistent with this outlook,
the current stance of monetary policy likely
will remain appropriate. We will be monitoring
the effects of the policy actions
we took last year, along with other information
bearing on the outlook, as we assess the appropriate
path of the target range for the federal funds rate. Of course, if developments
emerge that cause a material
reassessment of our outlook, we would respond accordingly. Policy is not on
a preset course. I will conclude with a brief
overview of our current plans for our technical operations
to implement monetary policy. The plan the FOMC
announced back in October to purchase Treasury bills and conduct repo operations
has proceeded smoothly and has succeeded in providing
an ample supply of reserves to the banking system and effectively controlling
the federal funds rate. In light of the resulting
stability in the federal funds rate and money market
conditions more generally, we decided to make a small
technical upward adjustment to administered rates to ensure that the federal
funds rate trades well within the target range. This action reverses the
small downward adjustment made in September when money
markets were volatile. As our bill purchases continue
to build reserves toward levels that maintain ample
conditions, the role played by active repo operations
will naturally recede. Over the first half
of this year, we intend to adjust the size
and pricing of repo operations as we transition away
from their active use in supplying reserves. This process will take place
gradually, and, as indicated in today's FOMC directive
to the Desk, we expect to continue offering
repos at least through April to ensure a consistently
ample supply of reserves. Based on current projections, we
expect that the underlying level of reserves will durably
reach ample levels sometime in the second quarter
of this year. As we get close to that point,
we intend to slow the pace of purchases and
transition to a program of smaller reserve
management purchases that maintains an
ample level of reserves without the active use of repos. At that point, as in
the pre-crisis period, our balance sheet will be
expanding gradually over time, reflecting the trend growth
in the demand for currency and other Federal
Reserve liabilities. All of these technical
measures are designed to support the efficient
and effective implementation of monetary policy
and are not intended to represent a chance-a change in the stance of
monetary policy. We are committed to
completing the transition to our longer-run ample-reserves
regime smoothly and predictably. Of course, we will continue
to closely monitor conditions in money markets, and we
will adjust these plans as conditions warrant. Thank you, and I'll be happy
to take your questions. CHRISTOPHER CONDON. Thank you. Chris Condon, Bloomberg News. Mr. Chairman, I would
like you to comment in a little bit more depth about one small change I've
noted in the statement. It notes that policy
will be appropriate to bring-the Committee
believes-inflation back to the Committee's 2 percent
symmetric inflation objective. That's a slight change
from the last time, when you were expecting it to bring inflation outcomes
back near the objective. And I would put this also in the
context of a comment you made at the last press conference
where you drew attention to the fact that a number of policymakers had projected
inflation overshoots two or three years out under
appropriate monetary policy. Should we take all of this
together to mean simply that the Committee
is more confident that a 2 percent outcome for
inflation is already baked in the cake, or that
this is a signal that the Committee has
a stronger resolution to bring inflation at least
to the 2 percent objective and put-bring into play an
informal makeup strategy for inflation? CHAIR POWELL. Yes. So, in making that change,
our goal was, really-that was, changing "near" to
"returning to"-was to avoid possible
misinterpretation. So you may remember, in the
December minutes we noted that a few Committee members
suggested that the language that stated that monetary policy
would support inflation near 2 percent could be
misinterpreted as suggesting that policymakers
were comfortable with inflation running
below that level. So we thought about that
in the intermeeting period and concluded that it would
be appropriate to adjust that language to
send a clearer signal that we're not comfortable with inflation rising
persistently-running persistently below our 2
percent symmetric objective. So, yes, there is
something in that. It's just that we wanted to
underscore our commitment to 2 percent not being a ceiling to inflation running
around-symmetrically around 2 percent, and
that we're not satisfied with inflation running below 2
percent, particularly at a time such as now where we're a
long way into an expansion and a long way into a period
of very low unemployment when, in theory, inflation
should be moving up. NICK TIMIRAOS. Thank you. Nick Timiraos of the
Wall Street Journal. I want to ask about
the balance sheet. How many reserves are "ample"? How many reserves does the
Fed now think it will need to conduct policy in
its current framework? And can you walk
me through how you and your colleagues are
arriving at that answer? CHAIR POWELL. Sure. So, thanks
for that question. Why don't I say a few
things about repos, since I know that'll
be of interest. So, just to bring you back, after last September's brief
turmoil, we took prompt and decisive action, and
a result-as a result, money markets have been
operating smoothly since then. Just to review, those two
adjustments were Treasury bill purchases of at least-of
$60 billion-sorry-at least into the second quarter,
and term and overnight repo at least through April. And I will get to your
specific question. The purpose of the
adjustments has been to assure that our policy is
transmitted smoothly to the federal funds rate, which requires well-functioning
money markets. It doesn't mean we're trying to eliminate all volatility
in the repo markets. We know that some volatility
is normal and expected in well-functioning markets. And, as I mentioned, these
adjustments have been successful in supplying an ample
quantity of reserves. Money markets operated
smoothly, including right through year-end, and the
fed funds rate has remained in our target range. So we know-we will know when these adjustments
have run their course when reserves are durably
at a level that enables us to control the federal funds
rate using our administered rates, the interest on
reserves and reverse repo, without the need for frequent
use of open market operations. Based on current projections, we expect that the bill
purchases will durably bring the underlying level of reserves
to the ample level sometime in the second quarter
of this year. And when we see that
we've reached that level, we'll begin to gradually reduce
our asset purchases to the level of the underlying trend growth
of demand for our liabilities. As our bill purchases bring the
underlying level of reserves up to an ample level
on a sustained basis, the necessary quantity
of overnight and term repo will
gradually decline. We've already begun the gradual
reduction in the quantity of repo, and we'll continue to reduce those offering amounts
gradually as conditions permit. At some point, we'll also
raise the minimum bid rate. Even after we reach an ample
level of reserves, it's possible that repo operations might
play a role as a backstop and support effective control
of the federal funds rate. And we'll continue to discuss
that issue and review it under our implementation
framework. Coming to your question, in terms of the actually
desired reserve level, we know that reserves will
continue to move up and down over the course of the calendar
year in a wide range depending on volatility in
nonreserve liabilities, particularly the Treasury
General Account, or TGA. In particular, reserve
levels will need to be at a level high enough
to remain ample even when the TGA peaks during
the April tax season. Effectively, what that means
is that we need reserves at all times to be no
lower than they were in early September-and, I
would say, around $1½ trillion, subject to learning more. Reserves are going to move in
a broad range, as I mentioned, and we want to be clear, that will be the
bottom end of the range. We want $1½ trillion
or thereabouts to be the bottom
end of the range. So, most of the time,
reserves will be moving in a range substantially
higher than that but not going below
$1½ trillion. So it's not an-it's
not something that we're aiming
at all the time. We know that reserves
will fluctuate and be substantially higher
than that most of the time. We also want interest on excess
reserves and the fed funds rate to be well within the
FOMC's target range. And we think that'll
be the case now that we made our
technical adjustment. Last points-we're committed to making this adjustment
process a smooth one. We'll provide more details as
we go, and we expect to learn as we go, as we always have. And we're prepared to adjust the
details of the plan as necessary to foster efficient and effective monetary
policy implementation. STEVE LIESMAN. Steve Liesman, CNBC. Mr. Chairman, thank
you for the question. Following up on Nick's question,
I know you said it's not QE, but it's $390 billion over
five months, which is a lot to expand the balance sheet. I guess I'd ask one more time on Nick's question-is there a
number that you have in mind? Secondly, a lot of people in
the market are sort of concerned that it looks like QE, and
they're trading that way. Are you concerned that the
market is embracing this like a QE program,
and that the rise in the stock market
is linked to it, and you may then
experience something of a "taper tantrum" the way
Chairman Bernanke did when he tried to roll it off? CHAIR POWELL. So I'll just-I'll repeat that-we
think that the-we think we need to continue purchases until
the-until reserves are at a level at which they will
not go below $1½ trillion, roughly, during the course
of the calendar year. And we know that the TGA
will move up and down there. So they'll be much higher
than that some of the time, but that's kind of the number,
and we think we'll reach that sometime in
the second quarter. That's our estimate. But we will-we'll know
it when we get there. We'll know it because
we'll be able to be-to control the
federal funds rate without use of-without
active use, ongoing use of open
market operations. You know, our intention of these-for these adjustments
is just to raise the level of reserves and to allow us
to conduct monetary policy in an efficient and
effective manner. And that's-that is
our sole intention. I pointed out on other
occasions, more than once, the differences-the
really specific differences between this and the large-scale
asset purchase programs. We've been over that. In terms of what affects
markets, you know, I think many things
affect markets. It's very hard to say
with any precision at any time what is
affecting markets. What I can tell you is that
you know what our intention is. It is to return reserves
to an ample level. We expect that to happen
during the second quarter. And our plan as we do that
is, as those purchases get to that level, we believe we
can gradually reduce them, and we believe we can also
gradually reduce repo as-as we reach an ample level, as we're
satisfying demand now more from underlying reserves from bill purchases
rather than from repo. And, again, the last thing
I'll say is, we're prepared to adjust the details
of this plan as we've shown ourselves willing
to do depending on conditions. JEANNA SMIALEK. Hi, Chair Powell. Jeanna Smialek from
the New York Times. I was hoping that you
could talk a little bit about the labor market. We've recently seen wages
moderating a little bit by some measures, maybe
even declining a little bit by others. As you mentioned, at the lower
end of the sort of talent pool, it seems like we are
seeing those wages climb up a little bit, but it
doesn't seem to be consistent across the entire
sort of average. I was wondering if
you'd talk a little bit about whether you guys
are noticing any cracks, or whether you're
worried about that, or how you're thinking about it. CHAIR POWELL. The labor market continues
to-to perform well. The labor market
continues to be strong. We see strong job creation. We see low unemployment. Very importantly, we see labor
force participation continuing to move up, really,
against expectations. If you go back a few years,
you will not find a lot of forecasts suggesting
that we could have been at 63.2 percent overall
labor force participation or the levels of
employment to population that we're seeing now, let
alone the unemployment level. So I think we've learned
quite a lot of good things about the labor market,
good things suggesting that there's been
more room to run. The performance of
wages, I think, has to be seen in that context. We saw-if you go back four
or five years, the four or five major wage statistics
that we track were running at around 2 percent,
and now they're running at around 3 percent,
which is theoretically about where they might
be at full employment. It would consist of inflation
plus-plus productivity growth. The-it's a bit surprising
that, with sustained levels of historically low
unemployment, we haven't seen wages moving
up above that level as we have in other long expansions and other periods
of low unemployment. So you asked, what can
be explaining that? You know, one thing can
be that the natural rate of unemployment is still
lower than we think, that the labor market is not as
tight as it would appear just from the 3½ percent number. And the other can be, I
think, that-as I mentioned, the sort of supply-side shock
or surprise that we're receiving from higher labor
force participation. People are coming in
to the labor market and providing more labor supply, and that is-that's
a great thing. That's a very healthy thing. We're a country that has low
labor force participation compared to essentially all
of our advanced-economy peers, and it's a very good,
positive thing. Nonetheless, it represents
more labor supply, and it may be holding
down wages. MICHAEL MCKEE. Michael McKee from Bloomberg
Radio and Television. In terms of the framework
review and a little bit on Chris's question earlier,
there is a general feeling now in the markets and
among analysts that you're basically
setting us up for some form of inflation-target averaging where you let the inflation rate
run above the 2 percent target for some time to
make up for the time that it has spent below that. Is that a fair or
reasonable assessment of where you think
you're going to end up? What would you, Chairman Powell,
think of that idea personally? And, as long as I'm asking,
do you have any more details on when we can expect the
results of the review? CHAIR POWELL. Thanks. I'll just say that
we undertook the review because we felt, and I
felt, that it was time to incorporate the realities
of what we could call the "new normal" into
our policy framework. And some aspects of that new
normal would include ongoing powerful global disinflationary
trends, which have led to lower-than-target inflation
many places in the world; secondly, a flat Phillips curve,
by which I mean low levels of sensitivity of inflation to resource utilization-for
example, low unemployment; and, thirdly, a much lower neutral
real interest rate here and around the world. So those are challenging
conditions for monetary policy to deliver on our statutory
goals of maximum employment and stable prices,
although I would say that, under our existing framework,
we've been able to succeed or get close to succeeding it
for most of the time lately to achieve those goals,
although we do struggle, as other central banks do,
with the inflation goal. So this is about reviewing
our strategy, tools, and communications to
assure that they're the best that we can do to
achieve those goals in this environment
on a sustained basis. And we continued our
discussions at this meeting. I'm very, very pleased
at the process so far. It's included the 14 Fed Listens
events around the country, at which we've engaged with a
full range of people and groups across American society. That was a very, very
positive experience, and I think we learned a lot. We've now had a series of-a
number of FOMC meetings at which we've reviewed
what we've learned and also dug deeply
into strategy, tools, and communications. I expect that we will
conclude the review and announce our conclusions
around the middle of the year. Right now, we are just at
the point of coming together to put all that together. So I think I'm not the person who should be telling you my
personal preferences right now. I'm trying to-and we were trying
to come together as a group around a set of answers. I feel very positive
about-that we're going to come up with some good results, and
I'm just going to have to wait until we get to that
point to announce them. DONNA BORAK. Donna Borak with CNN. Going back to your
outlook for global growth, we've seen some significant
headwinds, as you mentioned earlier, with the easing-with the
partial U.S.-China trade deal, but now that there's some new
concern following the outbreak of the coronavirus-that it
might shake global growth. We're already seeing
reports from Ford and Toyota that they're planning to shut down their assembly
plants for an extra week. Apple is rerouting
their supply chains. Starbucks is shutting down
close to thousands of stores. Are you worried at all about
what the impact would be on the U.S. economy,
and do you see that as a significant
risk-excuse me-to the outlook at this point? CHAIR POWELL. So let me talk about the
coronavirus specifically, and then I'll turn more to
global growth more generally. First, it's a-it's a
very serious issue, and I want to start by
acknowledging the significant and considerable human suffering that the virus is
already causing. There is likely to be some
disruption to activity in China and possibly globally based on
the spread of the virus to date and the travel restrictions
and business closures that have already been imposed. Of course, the situation is
really in its early stages, and it's very uncertain
about how far it will spread and what the macroeconomic
effects will be in China and its immediate
trading partners and neighbors and
around the world. So, in light of that
uncertainty, I'm not going to speculate about
it at this point. I will just tell
you that, of course, we are very carefully
monitoring the situation. And, you know, as you suggested,
our framework ultimately is, what are the potential
ramifications for the U.S. economy and for the
achievement of our dual mandate? More broadly, though, if I can
talk about the global economy for a second-and if you look
at the backdrop, you know, if you go back to 2017, that was
the year of synchronized growth that lasted into the middle of
2018, and then you saw slowing in growth, which lasted right
through the end of last year. The fourth-quarter growth
globally was quite weak last year, and a number of
factors played into that. It wasn't any one factor. There was trade policy
uncertainty, absolutely, but also there was the decision
by the Chinese authorities to try to rein in leverage
and financial excesses. There was a turn-downturn in the global high-tech
manufacturing cycle in global auto production. There were some idiosyncratic
strains in some countries like Argentina, Turkey. And then, later, in
Hong Kong and Chile, you had social unrest. So, all of those things
were playing into that cycle of weakening growth
over the course of 2019 and the last half of '18. I would say, now there are
grounds for what I would call "cautious optimism"
about the outlook now for the global economy. Many analysts are predicting
a pickup in growth this year, although still to relatively
modest growth rates. And I would-people are pointing
to, and we would point to, supportive financial conditions,
the easing of trade tensions, the lower odds of a hard Brexit. The high-tech manufacturing
industry does appear to be rebounding well in
Asia, including in China. The latest
indicators-manufacturing PMIs, for example-suggest that manufacturing
may have bottomed out, that they're still below
50 in many jurisdictions, but they have moved
up off of their lows. I would-I would just say,
none of this is assured. As I mentioned, we saw the
fourth quarter of last year came in quite weak-weaker
than expected. We are not at all assured
of a global rebound, but there are signs and
reasons to expect it. And then comes the coronavirus,
which, again, it's too early to say what the effects will be. Of course, we're,
as I mentioned, monitoring it carefully. There will clearly
be implications, at least in the near term,
for Chinese output and, I would guess, for some of
their close-in neighbors, and we'll just have to see
what the effect is globally. BRENDAN GREELEY. Brendan Greeley with
the Financial Times. As recently as 2018, interest on
excess reserves was at the top of the band, sort of dragging
the fed funds rate up. Over the course of the
adjustments since last year, it's moved steadily down, closer
to the bottom of the band. So, if you're moving it back up,
how high do you want to get it? Are we looking to get interest
on excess reserves at the top of the band again as
the fed funds rate moves to the middle of the band? And should we see movements
in IOER as an indicator that we're approaching "ample"? CHAIR POWELL. So our stated goal
is to keep IOER and the federal funds rate
well within the range. That's it. Well within the range. And that, clearly, you know-5
basis points from the bottom or from the top isn't that. So that's why we moved back up. You're right. Last year we were-we
saw some tightness as reserves were draining
out of the system. We saw the-gradually moving up. And, in hindsight, we
know what was happening. With ample reserves, we
see-we see that it's possible to bring the interest
on reserves rate up to 10 basis points. So now we're-now we are well
within the range, I would say. BRENDAN GREELEY. We are. So you don't think
that, as the fed funds goes back up towards the center
of the range, that IOER is going
to end up at the top? CHAIR POWELL. Don't know that. We want it to be well
within the range. I think we'll continue
to adjust it to the extent it's appropriate. Ultimately, what we're trying to do is deliver a federal
funds rate that's well within the range. IOER is just a tool to do that. If we-if we need to make
changes to keep it well within the range, we'll do that. It just means-I mean, the thing
that matters for the economy is that we keep the federal funds
rate-which is the rate that, of course, transmits into
other money market rates, which ultimately
transmit into all kinds of financial conditions-that's
what we care about. So, ultimately, we
will-we will use that tool to keep it well within
the range. HOWARD SCHNEIDER. Thank you. Howard Schneider with Reuters. Just to sort of close
the loop on one thing, where do discussions stand
on a standing repo facility? Because what you've said
so far sort of implies that there won't be one or
that it will be a limited one. So if you could just, you know, let us know where that
discussion stands. And also- UNIDENTIFIED SPEAKER. Can you turn mic over? Turn the mic over. HOWARD SCHNEIDER. Sorry about that. Sorry about that. Did you get the question? Did you hear the question okay? CHAIR POWELL. I did. I don't think-I'm not
sure your colleagues did. [Laughter] HOWARD SCHNEIDER. Where do the discussions
stand on standing repo? [Aside] That was great. And the other thing
is, on the, you know, on the standing repo facility and on the purchases-Treasury
bill purchases, as you enter this new regime
later in the second quarter or later in the year, will that
be preannounced by amounts? Will there be preset amounts
like you're doing now, or will that just be something
that people will have to sort of intuit and figure
out as you go along? CHAIR POWELL. So I'll go in reverse order. When we-when we make decisions
about the steps we're going to be taking in that adjustment
process that I described at some length, we'll be
making them as early as we can and as transparently as
we can-and specifically. But we're not at that stage. It's January, and we're several
months away from-from that. In terms of the standing repo
facility, as I mentioned in, I guess, in my answer
to an earlier question, there may well be a role
for repo in this system even after we're at an
ample-reserves level. Now, we haven't decided
what that role is, we have not decided-we
haven't at all made a decision on a standing repo facility. We haven't. We've had a couple of
discussions about it, as you know, back in, I
guess, June and October. And there's a range of views. We're going to return,
I would say, fairly soon to this question. And I think it was wise to wait, because we're still getting a
better sense of what that-what that world looks like. And, you know, it's really
going to be a question of, how useful will it be? What will be the
costs and benefits? And my thinking is, we will
return to that fairly soon, and I wouldn't assume a
decision one way or the other. Really, we haven't made one,
because we haven't had to. And I think you-when you delay, you get more information
by waiting. It's good to wait. We don't have any urgency
in making that decision, because we're still
trying to find that sort of stable equilibrium
where we're in an ample-reserves regime. HEATHER LONG. Heather Long from
the Washington Post. I'm wondering, do you think that there is a financial
stability risk from climate change? You've spoken several times that you think severe weather
events are happening more often and that the Fed is monitoring
what that could physically do to a bank or a financial
institution, but that's sort of
one institution. Do you think there's
a systemwide risk that may-that could
develop from climate change? CHAIR POWELL. So that's an interesting
question-the question being, is there a systemwide
financial stability risk? I'd say, over-over the longer
term, it's certainly possible, and I would say that
sort of feeds into the way we're thinking about climate change
as an institution. So, as I've mentioned, climate
change is an important issue, a very important issue, but
it's essentially assigned to many other agencies
in the federal government and state governments
for leadership on that. And, importantly,
society's overall response to climate change
needs to be decided by elected officials
and not by the Fed. All of that said, if
you look at our mandate, we've got a monetary
policy mandate and, more immediately perhaps,
a supervisory mandate where we're supervising
financial markets, utilities, and financial institutions,
banks. And we haven't-we share
overall responsibility for financial stability
with a number of agencies. And that latter part-I think the
public has every right to expect and will expect that
we will assure that the financial system
is resilient and robust against the risks
from climate change. Now, I think that's
got to be right. We are in the very early stages,
as are other central banks, in understanding
just what that means. And there's quite a lot of
work going on around the world at other central banks
and at the Fed, too, to think that through. But I do think it's-in that
sense, it has to be part of our role, and-but
not the overall response of society to climate change. That's not us. HEATHER LONG. And if I could follow up, can you clarify why the Fed
hasn't signed on to the Network for Greening the
Financial System like 40 other central
banks have? CHAIR POWELL. So we've attended all of their
meetings and taken part in them, and we've been looking at
joining in one form or another and talking to them about that. We probably will do
that at some point. So that's-that's an
ongoing question. But we're very much
attending those meetings and taking part in them. EDWARD LAWRENCE. Thank you, Mr. Chairman. Edward Lawrence from
Fox Business Network. So there was a signing
of a ratified USMCA at the White House today. Mid-February, the phase-one
China deal gets-goes into effect. Have you seen business
investment pick up at all? If not, what will it take to get
that business investment going as this uncertainty
is-is being cleared up? CHAIR POWELL. Yes. So I guess I'd start
by saying that the fact that we've reached a phase-one
deal with China and the fact that we've moved ahead closer to getting USM[C]A agreed-those
are potentially positive things for the economy without
question. Without question. And financial markets-the
reaction of financial markets is very
consistent with that perception. A sustained reduction
in uncertainty over time should improve
business sentiment, investment, which would provide
some additional support for the economy. It's important, though, to bear
in mind a couple of things. First, trade policy
uncertainty remains elevated. Businesses continue to
identify it as an ongoing risk. We still have two or even
three active trade discussions that are going on in the
public square right now. So it hasn't gone away, and
we've just come through a round of talking to our vast
network of comments-sorry, contacts in the business world. And I think, clearly,
these are seen as positive developments going
forward, but there's a bit of a wait-and-see attitude-is
this going to be sustained? The agreements have to
be implemented, too, and that'll take
quite some time. So, I would say, we need
to be a little bit patient about the effect on the economy. There's also the global economy. You could-you could well see
manufacturing-as I mentioned, manufacturing PMIs
have started to tick up consistently among
both advanced economies and emerging market economies. We do not see a decisive
recovery, but it's possible that this mix of
positive developments and also accommodative
financial conditions could spur further growth. MICHAEL DERBY. Hi, Mike Derby with Dow Jones. Do you have any greater sense
of what-what was going wrong with the repo market
starting in September? There seemed to be, you know-whether it was a
one-off event, you know, too tight around tax
payments and debt settlement, or whether there's a
more enduring issue going on with the market,
more structural forces that are basically
gumming up the repo sector. CHAIR POWELL. Yes. As for those forces,
so, as we indicated, we would undertake a, you know,
serious review of that question and look at both our regulations
and also supervisory practices. And we'd be prepared
to adjust those in ways that might encourage
liquidity to flow more easily in the system as long as it didn't undermine
safety and soundness. And so we've undertaken that, and we've done a ton
of work, actually. We don't have anything
to announce here today, but I feel good about
the-what we've learned there. I think-you mentioned
other factors. We will be announcing
our findings. I'm not going to give you a
time, but we're-we're well along in that assessment at this time. I think we also found out,
though, that the level of reserves that we need in the
system to conduct our operations without frequent resort to open
market operations was higher than we had thought
and was higher than others had thought, too. We learned that we can't let
reserves-we shouldn't let reserves go below
$1½ trillion-roughly, the level of early
September-at any point. And that means that reserves
will move through in a range over the course of the year that
will be substantially higher than $1½ [trillion], but
they won't ever go below. So $1½ [trillion] is
not a target level. It is the bottom of a range in which reserves will
be expected to move. CHRISTOPHER RUGABER. Hi, Mr. Chairman. I just wanted to ask about how
your balance sheet operations and repo-temporary repos-how
they affect the system and who they're helping. Clearly, they're mostly
designed, as you said, to get-keep the fed funds rate
in the range you're looking for. But, certainly, the repo
market is also used heavily by hedge funds and other
Wall Street institutions. And so, how would you
explain to, sort of, Main Street why you're doing
all this for that market? And how would you
address criticism that it is helping
mostly Wall Street, along with everything else? Thank you. CHAIR POWELL. Well, let me just stress
that we have a very specific and important reason for caring about money market operations
generally, and that just is that we are-our monetary policy
decisions are transmitted through the financial
markets-through the money markets into other
financial markets and into broader
financial conditions. So we care that money markets
are operating smoothly. And they stopped
operating smoothly, briefly, back in September. And so we acted. This is a one-time thing that
we're doing to adjust the level of reserves so that the
money markets will be able to operate smoothly
on an ongoing basis. Repo markets are
important, because that's where Treasury securities-the
purchase of Treasury securities, which is the way-you
know, the federal-part of the way the federal
government is funding its operations. It's the way those are financed. So these are largely
Treasury securities that have been purchased by dealers to-for
distribution to-and buyers, to a substantial extent. That's what's going on in
the Treasury repo market. So it's just the
financing for-for that. Now, again, we don't-that
activity is a-is a market activity. We're not looking to eliminate
volatility or protect anybody from volatility at all. What we care about
is that volatility in the repo market can affect
the transmission of-of our policy decisions to
federal funds rate, and that really is
important for the public. NANCY MARSHALL-GENZER. Nancy Marshall-Genzer
with Marketplace. Chair Powell, is the Fed going
to vote tomorrow on changes to the Volcker rule
restrictions on banks investing in venture capital funds? What can you tell us about
what the Fed is considering? And why make those changes? CHAIR POWELL. Sure. So we will be
looking tomorrow and voting on a-a new part of-part of
the existing Volcker rule, and that is the covered
fund provisions of the rule. And we'll be making a
bunch of proposed revisions that we believe are
faithful to both the letter and the spirit of the law. We're going to put
those proposals out for public discussion, and
we're going to listen carefully, as we always do, to public
comments on those proposals. Again, we believe that they
will be-and you'll see them tomorrow-will be
public-you know, will be publicly-we have a Board
meeting tomorrow to do that. NANCY MARSHALL-GENZER. Now, is this just the
venture capital funds, or are also you changing
the rules for hedge funds and private equity funds? CHAIR POWELL. It's covered funds. It's-so it's that covered-so
it's not the proprietary trading part of Volcker. It's the covered funds part. NANCY MARSHALL-GENZER. And is there a chance that
banks could take this and run and maybe even get involved in
mortgage-backed securities again and risky investments? CHAIR POWELL. You know, we'll-we think that what we're doing is-is
very consistent with safety and soundness and absolutely
consistent with the letter and spirit of the Volcker rule. We'll be-we'll be getting
comments from people, and we'll be looking into that
question, among many others. GREG ROBB. Thank you. Thank you, Chairman Powell. I'd like to turn your attention
back to China and the health of its financial
sector in particular. And I guess I'm basing
my question on reading the transcripts
from 2014 that came out earlier this month. Just-in March of that
year, there was concern about the Chinese economy,
and one of your colleagues on the FOMC at that
time asked the staff about how the Chinese economy
would hurt-hit the U.S. economy. And the staffer said that there
was a-what they were worried about was that not only was the
Chinese economy slowing down, but there was the
financial sector. And the quote was:
"There's a tremendous amount of dodgy loans in China." Now, I was wondering if
you could give us an update on these problems in the
Chinese financial sector. And how do you think it
might impact the economy, particularly now
that they've been hit by this unexpected shock? CHAIR POWELL. Well, China has had a
problem for some years, including from that period-2014
up until, I guess, '17 or '18, and I thought-which was
essentially just a lot of debt for an emerging market. For an economy at the-at
the stage of evolution of the Chinese economy,
they had very high levels of debt-not sovereign debt
the way we think of it, but more business debt-debt
of state-owned enterprises and also just private
businesses. And a couple of years ago the
authorities decided to try to get that under
control-to stop the growth and to control it. And that-as I mentioned, that's one of the reasons
why Chinese growth slowed, and it's one of the reasons
why global growth slowed, because we felt that. And they've actually stuck to that even during
this difficult period when they were experiencing,
you know, strains from trade negotiations
and that kind of thing. The authorities have stuck
to that and have, again, continued to try to do that, so-to try to control
the growth of debt. And that's important
that they do that. We don't think that-that
there's any imminent risk there, although you-as you point out, the coronavirus thing
is a significant thing, which will-will have some
effects on the Chinese economy, at least in the short term. The Chinese economy
is very important in the global economy now. And, you know, we-when
China's economy slows down, we do feel that-not as
much as countries, though, that are near China or that
trade more actively with China, like some of the Western
European countries. We still have-you know, 85 percent of our
economy is domestic. And we have a much smaller
external sector, trade sector, than other economies just because of our physical
location. BRIAN CHEUNG. Hi. Brian Cheung
here, Yahoo Finance. So the combination
of T bill purchases and repo operations have
been described colloquially as "liquidity." I'm just wondering if
you semantically agree with that description-then,
secondly, what the impact of that has been on risk assets. I don't know if that's something
that, you know, the Board or Reserve Banks are formally
looking into or just looking at what the effect
of it has been. How are you kind of thinking
about that going forward? Thanks. CHAIR POWELL. Well, so, two questions. I mean, in terms of liquidity, I think what we're doing is
what I said: We're trying to raise the level of
reserves back up to a level so that banks can meet
their reserve requirements, and that there's enough
reserves in the system that we don't see reserve
scarcity, and we don't have to use repo operations to
provide additional reserves. So I think, as I mentioned, we
believe we can get to that state at the current pace sometime
in the second quarter. In terms of effects on risk
assets, as I said earlier, it's very hard to say what is
affecting financial markets with any precision or
confidence at a given time. It's not our intention to change
the stance of monetary policy. These were designed to provide
more reserves and, really, to do that in order to
enable better transmission of our-of our rate
decisions into the economy under our chosen framework. That's really the purpose
of what we're doing. JEAN YUNG. Hi. Jean Yung with MNI. I wanted to ask about the
framework review again. Would a shift of
focus to inflation over an average period-would
that call for a different policy stance
if you made that shift? And whether or not we know
the answer to that question, would the Fed consider changing
the stance of monetary policy for that reason even
if there was no change to the economic outlook? CHAIR POWELL. Well, as you know,
we're comfortable with our current policy stance. We think it's appropriate. We think it'll remain
appropriate as long as data coming in are broadly
in keeping with our outlook. Over time-over time,
though-let me take a step back. Over time, an average
inflation-targeting framework would be different than our
current framework, in the sense that it wouldn't be a-there
would be some aspect of trying to make inflation average 2
percent over time, which means, if it runs below 2 percent
for a time, it has to run above to bring the average up. So that is a different
framework. Our current framework is one where we say-or we'd be equally
concerned with deviations of inflation from
target on either side. But that isn't-that
doesn't suggest an intention specifically to have those
deviations be symmetric. In other words, that
would-consistent with that would be having all
the deviations be on one side, which is what we've
had, actually. So I think it is a
change in framework, and over time it would lead to
a different approach to policy. Again, I'm not trying
to-I don't want to comment on the current stance of policy, which we do think
is appropriate. DON LEE. Don Lee
with the L.A. Times. I wanted to ask you
about the stock market. By historical comparisons,
as you know, valuations are considerably
high. And I just wonder how much
discussion and concern you and your colleagues
have about that and what risks you
see for the economy. CHAIR POWELL. So we-we look at
a very broad range of financial conditions
where-there isn't any one financial condition
that we-that we look at. And when we look at financial
conditions, what matters for the real economy is
substantial changes in-or, material changes in financial
conditions that are sustained over a period of time. If I can, maybe I'll-maybe
I'll answer that in the context of our overall financial
stability framework. That's one way to look at it. So we look at-when we look
at financial stability, we look at-really, we've
got four pillars to that, the first of which is leverage
in the financial system that is at a comfortable level. Our banks, particularly
our large banks, have high levels of capital. The second is leverage in
the nonfinancial sector, and that divides into
households and businesses. Households' debt to
GDP is-has been coming down since the financial crisis. It's not moving up. It's at low-low levels compared to what it was before
the crisis. So not every household-but, in
the aggregate, household debt is in a good place,
a very good place. Business debt has
been moving up. We've been calling
that out for more than a year-substantially
more than a year, and it's something
we're focused on. And we've taken appropriate
measures and are monitoring carefully. But we think it's not something that would threaten
financial stability, but more be an amplifier. The other one is
asset purchases, getting to your-sorry,
asset prices, getting to your question. We do see asset valuations as being somewhat elevated-I
do-somewhat elevated. If you look at risk
spreads, they're narrow. If you look at P/Es,
they're high. I think the way to think about-a
good way-one way to think about equity prices, though, is, what's the premium
you're getting paid to own equities rather
than risk-free debt? And that's also at
fairly low levels, but not extremely low levels. So valuations are high,
but not at extremes. The final factor
is funding risk. Are big financial
institutions and other players in the financial system
funded with stable funding, or is there a lot of run risk? And the answer is, very stable
funding, for the most part. So if you look at, overall-what
you see, in my view, is, vulnerabilities to the financial-to financial
stability are moderate overall. KATY O'DONNELL. Hi. Katy O'Donnell, Politico. I wanted to know, do you support
Governor Brainard's vision for the Community
Reinvestment Act reform? And is this something that
we could see the Fed formally propose at some point? CHAIR POWELL. So let me say that I
think this is a good time to do-to update CRA, really,
in a way that is a win-win both for the intended
beneficiaries-low- and moderate-income
communities-and also for banks that would like to have more
certainty about-about what does and doesn't qualify
and that sort of thing. The law can both
be more effective and more efficient
is-it comes down to. And we think this is a good way. It's also just a
good time to take on board the way the delivery
of banking services has changed through technology and
demographic change as well. We worked very hard to try
to get on the same page with the other two agencies. We think that an interagency
final rule together would be the best outcome. We're sorry we haven't been able
to get there, and we still hold out some hope that
we will be able to. We spent a lot of time
on research and analysis and looking at meaningful
reform. You saw Governor Brainard's
recent speech presenting some of the thinking and
the analysis. And we haven't made any
decisions about what we're going to do, about whether
we'll propose-I mean, our focus has been
entirely on trying to get to agreement with
the OCC, really. So we haven't made any decisions about what we're going
to do going forward. In terms of, you know-Governor
Brainard led our oversight committee over these activities
for many years, and I asked her to take the lead on
CRA modernization, which is a high priority for us. I was comfortable with her
speech, and I'm comfortable with the work we've done and
with the Fed's position on this. As I said, we haven't chosen
to bring a proposal forward. We haven't decided what to
do, whether-going forward. And we're not going to
comment on the other proposal. It's just not appropriate to do. It's not about us. It's not about our views. It's about the views of
the interested parties. HANNAH LANG. Hannah Lang with
American Banker. Thank you for being here today. I wanted to ask about Vice
Chair Quarles's recent speech on bank supervision in which
he laid out some suggestions for making changes to
the supervisory regime. I wanted to ask, do you
agree with his approach? And are there any
plans to codify some of these suggestions
later in the year? CHAIR POWELL. So I do agree that-the
principles that he articulated of firm and fair supervision and effective transparency
in communications. I also think it's a good thing that we would have
brighter lines to define our LISCC
supervisory portfolio, which we haven't
really had to date. Remember that when a firm moves
from one portfolio to another, that doesn't mean that
its level of scrutiny or supervision will change. So-and I also thought
that, you know, the-he's raising some very
interesting questions about, if you-in the first part of
the speech, where he's talking about regulation and
supervision and, you know, how to-how to balance the desire
for transparency and due process in everything the
government does with the needs of confidential supervision. It's a very challenging
question. It's one that could
use further thought. And as far as the specific,
you know, proposals, there's-you know, they're
interesting, you know, and need further development
and will need lots of comment and that sort of thing. MARK HAMRICK. Thank you. Here we go. Sorry, I had it [the
microphone] upside down. That's not too good. Mr. Chairman, Mark
Hamrick with Bankrate. Thank you. I wanted to ask you a
question about the-one of the unintended consequences over the years-long low
interest rate environment, and that is that savers
haven't gotten as much return as would have otherwise
been the case. What would you say to those
individuals who've seen the Fed again cutting rates,
eroding their ability to get a higher return
on their savings? And how much would you take
their plight into consideration? How much can you
sympathize with them? CHAIR POWELL. Sure. So we-we are
assigned a job by Congress, and that is to use our tools to pursue maximum
employment and stable prices. And that's what-that's
our focus. Now, monetary policy
is a blunt instrument, but it's a powerful one. So I think if you
look-look at the time since the financial crisis. That was-in the week [wake]
of fairly modest growth, it was a powerful recovery
in the labor market. And part of that just is the
effect of lower interest rates. So, if-so many, many people
benefit from low interest rates. In fact, you don't
hear-when you talk to the low- and moderate-income communities,
one thing you don't hear is, "You ought to raise rates." That's not what you hear. You hear quite the
opposite, which is, you know, "Please do whatever you can
to keep this expansion going." I absolutely sympathize
with people. If you're living on just
the interest in a bank or on fixed-income generally,
then that's a challenging thing. On the other hand,
if you own a home, home values-the housing
market has recovered, other financial assets have
recovered, so-but, yes, for some people who are limited to those sources plus
whatever other help they get, it can be challenging. I mean, we have to
do what's best for the-for the overall
society and the economy. That's-those are our
orders from Congress. Thanks very much.
