Transcript of Chair Powell's
Press Conference May 3, 2023 CHAIR POWELL. Good afternoon. Before discussing today's
meeting, let me comment briefly on recent developments
in the banking sector. Conditions in that sector
have broadly improved since early March, and the
U.S banking system is sound and resilient. We will continue to monitor
conditions in the sector. We are committed to learning the
right lessons from this episode and will work to prevent events
like these from happening again. As a first step in that process,
last week we released Vice Chair for Supervision Barr's Review of the Federal Reserve's
Supervision and Regulation of Silicon Valley Bank. The review's findings underscore
the need to address our rules and supervisory practices
to make for a stronger and more resilient
banking system, and I am confident
that we will do so. From the perspective
of monetary policy, our focus remains squarely
on our dual mandate to promote maximum
employment and stable prices for the American people. My colleagues and I
understand the hardship that high inflation is causing,
and we remain strongly committed to bringing inflation back
down to our 2 percent goal. Price stability is
the responsibility of the Federal Reserve. Without price stability, the economy does
not work for anyone. In particular, without
price stability, we will not achieve
a sustained period of strong labor market
conditions that benefit all. Today, the FOMC raised
its policy interest rate by ¼ percentage point. Since early last year, we have
raised interest rates by a total of 5 percentage points in
order to attain a stance of monetary policy that is
sufficiently restrictive to return inflation to
2 percent over time. We are also continuing to
reduce our securities holdings. Looking ahead, we will take
a data-dependent approach in determining the extent to which additional policy
firming may be appropriate. I will have more to say about
today's monetary policy actions after briefly reviewing
economic developments. The U.S. economy slowed
significantly last year, with real GDP rising at a
below-trend pace of 0.9 percent. The pace of economic
growth in the first quarter of this year continued to
be modest, at 1.1 percent, despite a pickup in
consumer spending. Activity in the housing
sector remains weak, largely reflecting higher
mortgage, mortgage rates. Higher interest rates and
slower output growth also appear to be weighing on
business fixed investment. The labor market
remains very tight. Over the first three
months of the year, job gains averaged
345,000 jobs per month. The unemployment rate
remained very low in March, at 3.5 percent. Even so, there are some
signs that supply and demand in the labor market are coming
back into better balance. The labor force participation
rate has moved up in recent months,
particularly for individuals aged
25 to 54 years. Nominal wage growth has
sown-shown some signs of easing, and job vacancies have
declined so far this year. But overall, labor demand still
substantially exceeds the supply of available workers. Inflation remains well above our
longer-run goal of 2 percent. Over the 12 months
ending in March, total PCE prices
rose 4.2 percent; excluding the volatile
food and energy categories, core PCE prices rose
4.6 percent. Inflation has moderated somewhat
since the middle of last year. Nonetheless, inflation
pressures continue to run high, and the process of
getting inflation back down to 2 percent
has a long way to go. Despite elevated inflation, longer-term inflation
expectations appear to remain well anchored, as
reflected in a broad range of surveys of households,
businesses, and forecasters, as well as measures
from financial markets. The Fed's monetary policy
actions are guided by, by our mandate to
promote maximum employment and stable prices for
the American people. My colleagues and
I are acutely aware that high inflation imposes
significant hardship, as it erodes purchasing power,
especially for those least able to meet the higher costs
of essentials like food, housing, and transportation. We are highly attentive
to the risks that high inflation pose-poses
to both sides of our mandate, and we are strongly committed
to returning inflation to our 2 percent objective. At today's meeting, the Committee raised the target
range for the federal funds rate by ¼ percentage point,
bringing the target range to 5 to 5¼ percent. And we're continuing to
[carry out] the process of significantly reducing
our securities holdings. With today's action, we
have raised interest rates by 5 percentage points in
a little more than a year. We are seeing the effects of
our policy tightening on demand in the most interest
rate-sensitive sectors of the economy, particularly
housing and investment. It will take time, however,
for the full effects of monetary restraint
to be realized, especially on inflation. In addition, the economy is
likely to face further headwinds from tighter credit conditions. Credit conditions had
already been tightening over the past year or so in
response to our policy actions and a softer economic outlook. But the strains that
emerged in the banking sector in early March appear
to be resulting in even tighter credit
conditions for households and businesses. In turn, these tighter credit
conditions are likely to weigh on economic activity,
hiring, and inflation. The extent of these
effects remains uncertain. In light of these
uncertain headwinds, along with the monetary policy
restraint we have put in place, our future policy actions will
depend on how events unfold. In determining the extent to which additional policy
firming may be appropriate to return inflation to
2 percent over time, the Committee will take into account the cumulative
tightening of monetary policy, the lags with which monetary
policy affects economic activity and inflation, and economic
and financial developments. We, we will make that
determination meeting by meeting, based on the
totality of incoming data and their implications
for the outlook for economic activity
and inflation. And we are prepared to do more if greater monetary policy
restraint is warranted. We remain committed to
bringing inflation back down to our 2 percent goal and to keep longer-term
inflation expectations well anchored. Reducing inflation is
likely to require a period of below-trend growth
and some softening of labor market conditions. Restoring price stability is
essential to set the stage for achieving maximum employment and stable prices
over the longer run. To conclude: 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. MICHELLE SMITH. Thanks. Jeanna. JEANNA SMIALEK. Hi. Jeanna Smialek,
New York Times. Thanks for taking our questions. I wonder if you could tell
us whether we should read the statement today as a suggestion
that the Committee is prepared to pause interest rate
increases in June. And I also wonder
if the Fed staff has in any way revised their
forecast for a mild recession from the March minutes and,
if so, what a recession like what they're
envisioning would look and feel like when it comes to, for
example, the unemployment rate. CHAIR POWELL. So, taking your question-of
course, today our decision was to raise the federal funds
rate by 25 basis points. A, a decision on a pause
was not made today. You will have noticed that in
the-in the statement from March, we had a sentence that said
the Committee anticipates that some additional policy
firming may be appropriate. That sentence is, is not in,
in the statement anymore. We took that out, and
instead we're saying that, in determining the extent to which additional policy
firming may be appropriate to return inflation to
2 percent over time, the Committee will take into
account certain factors. So we-that's a-that's
a meaningful change that we're no longer
saying that we anticipate. And so we'll be driven by incoming data
meeting by meeting. And, you know, we'll approach that question at
the June meeting. So the-the staff's forecast
is-so let me say-start by saying that that's not my
own most likely case, which is really that, that
the economy will continue to grow at, at a
modest rate this year. And I think that's-so
different people on the Committee have
different forecasts. That's, that's my own assessment
of the most likely path. [The] staff produces its own
forecast, and it's independent of the forecasts of,
of the participants, which include the Governors and the Reserve Bank
presidents, of course. And we think this is a
healthy thing-that the, the staff is writing down
what they really think. They're not especially
influenced by what the Governors
think, and vice versa. The Governors are not
taking what the staff says and just writing that down. So it's actually good
that the, the staff and individual participants can
have different perspectives. So, broadly, the forecast
was for a mild recession, and by that I would characterize
as one in which the rise in unemployment is smaller
than is-has been typical in modern-era recessions. I wouldn't want to characterize
the staff's forecast for this meeting. We'll, we'll leave that to
the minutes-but broadly, broadly similar to that. MICHELLE SMITH. Rachel. RACHEL SIEGEL. Thank you, Chair Powell. Rachel Siegel from
the Washington Post. Thanks for taking our questions. I'm wondering if you can
talk about the account of possible effects of
a debt-limit standoff. You've said repeatedly that
the ceiling must be raised, but do you see any
economics effects of even getting close
to a default? And what type of situation
would that look like? CHAIR POWELL. So I wouldn't want to
speculate specifically, but I will say this: These
are fiscal policy matters, for starters, and they're,
they're for Congress and the Administration-for
the elected parts of the government to deal with. And they're really
consigned to them. From our standpoint, I would
just say this: It's essential that the debt ceiling be
raised in a timely way, so that the U.S.
government can pay all of its bills when they're due. A failure to do that
would be unprecedented. We'd be in uncharted territory,
and the-and the consequences to the U.S. economy would be
highly uncertain and could, could be quite a[d]verse. So I'll just leave it there. We, we don't give
advice to either side. We just would point out that
it-that it's very important that this be done. And the, the other point
I'll make about that, though, is that no one should assume that the Fed can protect the
economy from the potential, you know, short- and
long-term effects of a failure to pay our bills on time. We, we-it's, it would be
so uncertain that it's just as important that, that
this-we never get to a place where we're actually talking
about or even having a situation where the U.S. government's
not paying its bills. RACHEL SIEGEL. And just a follow-up. Was discussion around
the uncertainty of a possible standoff-did that affect today's monetary
policy decision at all? CHAIR POWELL. I wouldn't say that it did. It was-of course, it's
something that came up. We talk a lot about risks
to the-to the outlook, and that will-that come up. A number of people did raise
that as a risk to the outlook. I wouldn't say that
it was important in today's monetary
policy decision. MICHELLE SMITH. Steve. STEVE LIESMAN. Mr. Chairman, can
you-oh, thank you. Steve Liesman, CNBC. Can you tell us what the Federal
Reserve Board did in the wake of that February presentation
where you were informed that Silicon Valley Bank and other banks were
experiencing interest rate risks? And can you tell me what
supervisory actions you've done in the wake of the recent
bank failures to make sure that banks are currently
appropriately managing interest rate risk? And kind of part 3, but it's
all the same question here-do, do you still think this
separation principle that monetary policy and supervision can be
handled with different tools? Thank you. CHAIR POWELL. Sure. So the February 14
presentation-I didn't remember it very well. But now, of course,
I've gone back and looked at it very carefully. I did remember it. And what it was was a
general presentation. It was an informational briefing of the whole Board-the
entire Board. I think all members were there. And it was about
interest rate risk in the banks and,
and lots of data. And there was one page
on Silicon Valley Bank, which talked about, you know, the amount of losses they-or
mark-to-market losses they had in their portfolio. There was nothing in it
about-that I recall, anyway, about, about the
risk of a bank run. So it was-I think the takeaway
was, they were going away to do a-an assessment,
a vertical-sorry, horizontal assessment
of, of banks. It wasn't-it, it wasn't
presented as an urgent or alarming situation. It was presented as
a-as an informational, nondecisional kind of a thing. And I thought it was a
good presentation and, and, as I said, did remember it. In terms of what
we're doing-of course, I think banks themselves are,
are-many, many banks are now, are attending to liquidity and
taking opportunity now, really, since, since the events of, of
early March, to build liquidity. And you asked about the
separation principle. I-you know, like so many
things, it, it's very useful. But, you know, ultimately,
it has its limits. I mean, I, I think in this
particular case, we have found that the monetary policy tools and the financial stability
tools are not in conflict. They're both-they're
working well together. We've used our, our financial
stability tools to support banks through our lending facilities. And, at the same
time, we've been able to use our monetary policy tools to foster maximum employment
and price stability. STEVE LIESMAN. Mr. Chairman, I'm sorry. I don't mean to be
argumentative, but the, the staff report said, "SVB . . . has significant
interest rate risk." It said, "Interest rate
risk measurement[s] . . . failed" at SVB. And it said, "Banks with
large unrealized losses face significant safety
and soundness risks." Why was that not alarming? CHAIR POWELL. Well, I mean, I didn't
say it wasn't alarming. It was-they're pointing out
something that they're working on and that they're on the
case-that, that, you know, that-I'm not sure whether they
mentioned-I think they did, actually. They mentioned that they
had taken regulatory action matter-or supervisory
action in the form of matters requiring attention. So I think that was also
in the presentation. I think it was to say:
Yes, this is a bank, and there are many other banks that are experiencing this-these
things, and we're on the case. MICHELLE SMITH. Let's go to Victoria. VICTORIA GUIDA. Hi, Chair Powell. I wanted to ask-obviously,
with the recent bank turmoil, we've seen multiple
banks buy other banks. And I was just curious
whether you think that further consolidation in the banking sector
would increase or decrease financial stability and whether you have any
concerns about the biggest bank in the U.S. getting even larger. CHAIR POWELL. So I, you know, we certainly
don't-and I don't have an agenda to further consolidate banks. There's been-consolidation
has been a factor in the U.S. banking industry
really since interstate banking and before that even-it goes
back more than 30 years. You-when I was in the
government a while back, I think there were 14,000 banks. Now there are 4,000 and change. So that's, that's going on. I personally have long felt
that having small-, medium-, and large-size banks
is a, a great part of our banking system. You know, the community banks
serve particular customers very well; regional banks serve
very important purposes, and the various kinds
of G-SIBs do as well. So I think it's healthy to have
a, you know, an arrange-a range of different kinds of banks
doing different things. I think that's a positive thing. Is it a financial-so
I would just say, in terms of J.P. Morgan
buying First Republic, the FDIC really runs
the process of closing and selling a closed
bank completely. That, that is their role, so I really don't have a
comment on, on that process. As you know, there's
an exception to the deposit cap
for a failing bank. So it was legitimate. And I think the FDIC, I believe,
is bound by law to take the bid that is the least-cost bid. So I would assume
that's what they did. VICTORIA GUIDA. So do you have any concerns
about the fact that they're, they're getting larger
in general? CHAIR POWELL. So I, I think it's probably
good policy that we, we don't want the largest
banks doing big acquisitions. That is the policy. And-but this is-this is an
exception for a failing bank. And I, I think it's
actually a good outcome for the banking system. It also would have-would have
been a good-a good outcome for the banking system had one of the regional banks
bought, bought this company. And that could have
been the outcome. But, ultimately, we have to
follow the law in our agencies, and the law is, it goes to
the, the least-cost bid. MICHELLE SMITH. Now to Colby. COLBY SMITH. Thank you. Colby Smith with
the Financial Times. At the March meeting, you
mentioned that tightening of credit conditions from the
recent bank stress could be equal to one or more
rate increases. So, given developments
since then, how has your estimate changed? CHAIR POWELL. Yeah. I think-I think I follow
that up by saying, it's, it's quite impossible to
have a precise estimate of the words to that effect. But, in principle,
that's the idea. You know, when we-we've
been raising interest rates, and that raises the price of
credit, and that, in a sense, restricts credit in the economy, working through the
price mechanism. And, you know, when banks
raise their credit standards, that can also make
credit tighter in a kind of broadly similar way. It isn't-it isn't possible to
make a kind of clean translation between one and the other,
although firms are trying that and, you know,
we're trying it. But, ultimately, we have
to be-we have to be honest and humble about our ability
to make a precise assessment. So it does complicate the
task of achieving, you know, a sufficiently restrictive
stance. But I think, conceptually,
though, we think that, you know, interest rates-in
principle, we won't have to raise the rates quite as high as we would have had
this not happened. The extent of that
is so hard to predict because we don't know
how persistent these, these effects will be. We don't know how
large they'll be and how long they'll
take to be transmitted. But that's, that's what we'll be
watching carefully to find out. COLBY SMITH. Just to quickly follow up-what
does it suggest about the scope for the Committee to pause
rate increases perhaps as early as next month, even if the
data remains strong then, if, if it's having some kind
of substitute effect? CHAIR POWELL. It's that-this is just
something that we have to factor in as we-as we want
to find ourselves. So I guess I would say it
this way: The assessment of, of the extent to which
additional policy firming may be appropriate is going to be an
ongoing one, meeting by meeting, and we're going to be
looking at the factors that I mentioned
that-they're listed in, in the statement,
the obvious factors. That's, that's the way we're
going to be thinking about it. And that's really all we can do. As I say, it does complicate-we,
we have, you know, a broad understanding
of monetary policy. Credit tightening is
a different thing. There's a lot of
literature on that. But translating it into,
into rate hikes is uncertain, let's say-it adds even
further uncertainty. Nonetheless, we'll be able
to see what's happening with credit conditions-what's
happening with lending. We get-there's a
lot of data on that. And, you know, we'll,
we'll factor that into our decisionmaking. MICHELLE SMITH. Howard. HOWARD SCHNEIDER. Howard Schneider with Reuters. Thank you. So, noting that the statement
dropped the reference to "sufficiently"
restricted-"restrictive," I was wondering, given
your baseline outlook, whether you feel this current
rate of 5 to 5¼ percent is, in fact, sufficiently
restrictive. CHAIR POWELL. That's going to be an
ongoing assessment. We're going to need
data to accumulate on that-not an assessment
that we've made, as-that, that would mean we think
we've reached that point. And I just think it's,
it's not possible to say that with confidence now. But, nonetheless, you, you
will know that the Summary of Economic Projections from the
March meeting showed that in-at that point in time, that the
median participant thought that this was-this was
the appropriate level of the-of the ultimate
high level of rates. We don't know that. We'll revisit that
at the June meeting. And that's-you know,
we're just going to have to-before we
really declare that, I think we're going to have to
see data accumulating and, and, you know, make that-as
I mentioned, it's an ongoing assessment. HOWARD SCHNEIDER. I have a follow-up on credit. Could you give us a sense of
what the SLOOS survey indicated? It was already, I think, 40, 45 percent of banks
were tightening credit as of the, the last survey. What did this one show,
and how did that weigh into your deliberations? CHAIR POWELL. So we're going to release the
results of this SLOOS on May 8, in line with our
usual time frame. And I would just say that the
SLOOS is broadly consistent, when you see it, with how we
and others have been thinking about the situation and what
we're seeing from other sources. You will have seen the
Beige Book and listened to the various earnings
calls that indicate that midsize banks have-some of them had been tightening
their lending standards. Banking data will show that
lending has continued to grow, but the pace has
been slowing really since the second
half of last year. MICHELLE SMITH. Let's go to Nick. NICK TIMIRAOS. Nick Timiraos, Wall
Street Journal. Chair Powell, the argument
around the end of last year and the beginning of this
year to slow down the pace of increases was to
give yourself time to study the effects
of those moves. After the bank failures in
March, as you've discussed, the Fed staff projected a
recession starting later this year. So my question is
why it was necessary to raise interest rates today. Or, put, put differently: If
the whole point of slowing down the pace was to see
the effects of your moves, and now you've, for
the last two meetings, been seeing the effects
of those moves, why did the Committee feel it
was necessary to keep moving? CHAIR POWELL. Well, we-the reason
is that we-again, with our monetary policy
we're try-trying to reach and then-and then stay at
a, for an extended period, a level of policy-a policy
stance that's sufficiently restrictive to bring inflation
down to 2 percent over time. And, you know, that's
what we're trying to do with our-with our tool. I think slowing down
was the right move. I, I think it's enabled
us to see more data, and it will continue to do so. So I, I-you know, we really-you
know, we have to balance. We always have to balance the
risk of not doing enough and, and not getting inflation
under control against the risk of maybe slowing down
economic activity too much. And we thought that
this rate hike, along with the meaningful change
in, in our policy statement, was the right way
to balance that. NICK TIMIRAOS. And just to follow up, you
know, what you said in response to Howard's question-you'll need
data to accumulate to determine if this is a sufficiently
restrictive stance. Does that data need
to accumulate, or could it accumulate
over a longer period than a six-week intermeeting
cycle? CHAIR POWELL. Yeah. I mean, as I
mentioned, I would just say that this assessment
will be an ongoing one. You-you know, you can't-with,
with economic data, you, you can't-you've, you've seen-take
inflation for a minute. Look, look back. We've seen inflation come
down-move back up two or three times since
March of 2021. We've seen inflation have
a few months of coming down and then come right back up. So I think you're going to
want to see that-you know, that a few months of data
will, will persuade you that you've-that you've got
this right, kind of thing. And, you know, we,
we have the luxury: We've raised 500 basis points. I think that policy is tight. I think real rates are
probably-that you can calculate them many different ways. But one way is to look
at the nominal rate and then subtract a, a
reasonable estimate of, of, let's say, one-year inflation,
which might be 3 percent. So you've got 2 percent
real rates. That's meaningfully above what
most people would-many people, anyway, would, would assess
as, you know, the neutral rate. So policy is tight. And you see that in
interest-interest-sensitive activities. And you also begin
to see it more and more in, in other
activities. And if you-if you put the-you
put the credit tightening on top of that and the QT that's,
that's ongoing, I think, I think you feel
like, you know, we're, we may not be far off-we're
possibly even at-that level. MICHELLE SMITH. Edward. EDWARD LAWRENCE. Thank you very much,
Chair Powell. Edward Lawrence with
Fox Business. So if the Federal Reserve gets
down to the 3 percent inflation, as the projections show, at the
end of this year or close to it, would it be okay for you
for a prolonged period of 3 percent inflation and
hoping for some outside event to move down to 2
percent target? CHAIR POWELL. Look-I think we're always going to have 2 percent
as our, our target. We're always going to be
focusing on getting there. EDWARD LAWRENCE. You would be okay with
a prolonged 3 percent? CHAIR POWELL. You know, it's-let me just say, that's not what we're
looking for. We're looking for
inflation going down to 2 percent over time. I mean, we-that's, that's not a
question that's in front of us, and it would depend on
so many other things. But, ultimately, we're not
looking to get to 3 percent and then drop our tools. We have a, a goal of
getting to 2 percent. We think it's going
to take some time. We don't think it'll
be a smooth process. And, you know, I think we're
going to-we're going to need to stay at this for a while. EDWARD LAWRENCE. How does the other side of the mandate-the jobs
side-once you get to 3 percent, going from 3 to 2, how
does the other side of the mandate balance? CHAIR POWELL. I think they, they-you
know, they, they will both matter
equally at that point. Right now, you have a
labor market that's still extraordinarily tight. You still got 1.6 job openings, even with the lower
job openings number, for every unemployed person. We do see some evidence
of softening in labor market conditions. But, overall, you're near a
50 year low in unemployment. Wages-you all will have
seen that the wage number from late last week, and
it's-whenever it was. And, you know, it's, it's a
couple of percentage points above what would be-what
would be consistent with 2 percent inflation
over time. So we do see some softening; we
see new labor supply coming in. These are very positive
developments. But the labor market
is very, very strong, whereas inflation is, you
know, running high-well above our-well above our goal. And right now, we
need to be focusing on bringing inflation down. Fortunately, we've been
able to do that so far without unemployment going up. MICHELLE SMITH. Matt. MATTHEW BOESLER. Hi, Chair Powell. Matthew Boesler with
Bloomberg News. So, many analysts noted at the
time of the March FOMC meeting that at least half of Fed
officials' projections did imply or seemed to imply
that a recession was in their baseline
forecast as well, given the strong first-quarter
GDP tracking estimates. And so I'm just wondering if
you could kind of elaborate on, you know, why you're optimistic
that a recession can be avoided, given that that's the Fed
staff's forecast-possibly also the broader Committee's
forecast as well-and, and also, of course, most private-sector
forecasters'. CHAIR POWELL. Yeah. I don't think-you
know, I know what's printed in the Summary of Economic
Projections and all that. I don't think you can
deduce exactly what you said about what participants think, because you don't know
what they were thinking for first-quarter
GDP at that point. They could have been thinking
about a fairly low number. Anyway, in any case, I'll just
say, I, I continue to think that it's possible that this
time is really different. And the reason is, there's
just so much excess demand, really, in the labor market. It's, it's interesting, as,
you know, we've raised rates by 5 percentage points
in 14 months, and the unemployment
rate is 3½ percent, pretty much where
it was-even lower than where it was
when we started. So job openings are
still very, very high. We see-by surveys and much,
much [other] evidence-that, that conditions are
cooling gradually. But it's-it really is different. You know, it wasn't supposed
to be possible for job openings to decline by as much of
the-as they've declined without unemployment going up. Well, that's what we've seen. So we-there are no
promises in this. But it just seems that,
to me, that it's possible that we can continue to have
a cooling in the labor market without having the big increases
in unemployment that have gone with many, you know,
prior episodes. Now, that would be
against history. I, I fully appreciate that. That would be against
the, the pattern. But I do think that it-that
this, that the situation in the labor market, with
so much excess demand, yet, you know, wages are
actually-wages have been moving down. Wage increases have
been moving down, and that's a good sign-down
to a more sustainable level. So I think that-I think
it's still possible. I-you know, I think, you
know, the, the case of, of avoiding a recession is, in
my view, more likely than that of having, having a recession. But it's not-it's
not that the case of having a recession is-I
don't rule that out, either. It's, it's possible that we
will have what I hope would be a mild recession. MATTHEW BOESLER. The Committee also
noted in March that wage growth was
still well above levels that would be consistent
with 2 percent inflation. Do you see that as well? And could you kind
of explain, you know, how you come to that judgment? CHAIR POWELL. Sure. So we look at a range
of wage, wage measures. And then that's in nominal. And then-so you assume
wages should be equal to productivity increases
plus inflation. And so you can-you
can look at, you know, the employment compensation
index, average hourly earnings, the Atlanta wage tracker,
compensation per hour-basically, those four and many others. And you can-you can look at, at
what the-what they would have to run at over a long period of
time for that to be consistent with 2 percent inflation. They can deviate. You know, corporate
margins can go up and down. And there is a feature
of long expansions where they do go down-where
labor gets a bigger share toward later, later in a
recession-sorry, later in an expansion. So, yeah. The, the-you know, and
we calculate those, and you have to take the precision with a
degree of-a degree of salt. But I would say that what they
will show is that, you know, if, if the-if wages are running at
5 percent, 3 percent is closer to where they need to be. Wage increases and closer
to 3 percent, roughly, is what it would take to get-to
be consistent with inflation over a longer period of time. I-by the way, I don't
want to-I do not think that wages are the
principal driver of inflation. You're asking me a
very specific question. I think there are many things. I think wages and prices
tend to move together. And it's very hard to
say what's causing what. But, you know, I've never
said that, you know, that-that wages are really
the principal driver, because I don't think
that's really right. CHRIS RUGABER. Great. Chris Rugaber
at Associated Press. Well, you mentioned
profit margins. Those have expanded-did
expand sharply during this inflationary period. And while there are some
signs that they are starting to decline, many economists
note they haven't fallen as much as might be expected,
given that we're seeing at least some pullback
among consumer spending. So, speaking of causes
of inflation, do you see expanded
profit margins as a driver of higher prices? And if so, would you expect
them to narrow soon and, and contribute to reduced
inflation in the coming months? CHAIR POWELL. So higher profits and higher
margins are what happens when you have an imbalance
between supply and demand: too much demand,
not enough supply. And we've been in a situation in
many parts of the economy where, where supply has been fixed
or, or not flexible enough. And so, you know, the
way the market clears is through higher prices. So to get, I, I think-as goods
pipelines have, have gotten, you know, back to normal so that
we don't have the long waits and the shortages and that kind of thing-I think you will
see inflation come down. And you'll see-you'll see
corporate margins coming down as a result of
return of full competition, where there's enough
supply to meet demand. And then it's-then it's, then you're really back
to full competition. That's-that would be the
dynamic I would expect. MICHELLE SMITH. Michael. MICHAEL MCKEE. Michael McKee for Bloomberg
Radio and Television. Can you tell us something about what your policy
reaction function is-your policy framework is going forward? When you look at the
economy at the next meeting, are you looking at
incoming data, which is, by definition, backward looking? Are you going to be forecasting
what you think is going to happen? Are you ruling out the rate cuts
that the market has priced in? CHAIR POWELL. I didn't catch the last part. Rolling? MICHAEL MCKEE. Markets have priced in rate
cuts by the end of the year. Do you rule that out? CHAIR POWELL. Oh, yes. Sorry, sorry, sorry. Okay, I got it. So, what are we looking at? I mean, we look at a combination
of data and, and forecasts. Of course, the whole
idea is to-is to create a good forecast based
on what you see in the data. So we're always,
always looking at both. You know, and it will-of course,
it'll be the obvious things. It'll be readings on inflation. It'll be readings on
wages, on economic growth, on the labor market, and
all of those many things. I think a particular focus for
us going-now, over the past six, seven weeks now and going
forward is going to be, what's happening with
credit tightening? Are small and medium-sized banks
tightening credit standards, and, and is that having an
effect on, on loans, on lending? And, you know, so we can
begin to assess how that fits in with monetary policy. That'll, that'll be
an important thing. I just-you know, we'll
be looking at everything. It's-again, I would just
point out, we've raised rates by 5 percentage points. We are shrinking
the balance sheet. And now we have credit
conditions tightening-not just in the normal way, but
perhaps a little bit more, due to what's happened. And we have to factor
all of that in and, and make our assessment
of-you know, of whether our policy stance
is sufficiently restrictive. And we have to do that in
a world where policy works with long and variable lags. So this is challenging. But, you know, we, we will
make our best assessment, and that's what we think. MICHAEL MCKEE. What about the idea
of rate cuts? CHAIR POWELL. Yeah. So we on the
Committee have a-have a view that inflation is going to
come down-not so quickly, but it'll take some time. And in that world, if that
forecast is broadly right, it would not be appropriate
and-to cut rates, and we won't cut rates. If you have a different
forecast and, you know, markets-or have been, from time
to time, pricing in, you know, quite rapid reductions
in inflation, you know, we'd, we'd factor that in. But that's not our forecast. And, of course, the history of the last two years
has been very much that inflation moves down. Particularly now, if you look at
nonhousing services, it really, really hasn't moved much. And it's quite stable. And, you know, so we think
we'll have to-demand will have to weaken a little bit, and
labor market conditions, conditions may have to
soften a bit more to begin to see progress there. And, again, in that world, it wouldn't be-it wouldn't be
appropriate for us to cut rates. MICHELLE SMITH. Courtenay. COURTENAY BROWN. Courtenay Brown from Axios. I'm curious how you
view the role of the overnight reverse
repo facility in the context of the current banking stress. Do you think it's
contributing to the stress by making it more attractive for
money market funds to compete with banks for deposits? And did the Committee
discuss any changes to the structure
of the facility? Or do you see that being put
on the table in the future? Thanks. CHAIR POWELL. Sure. So we looked at that very
carefully, as you would imagine. And, you know, the-it's, it's really not contributing,
we don't think, now. It hasn't actually been growing. You know, it moved up-moved down and then moved back
up to where it was. What happened in the-when, when there were the big deposit
flows, which, by the way, have really stabilized
now-what happened was, institutional investors took
their uninsured deposits and put them in government money
market funds, which bought paper from the Federal Home Loan
Banks and things like that. Over the course of, of
maybe the last year, retail investors had
been gradual-as they do in every tightening cycle, they've been gradually
moving their deposits into higher-yielding places such
as CDs and, and other things, including money market funds. So that's a gradual process
that is quite natural and happens during a,
a tightening cycle. What was unusual, really, was the institutional investors
moving their uninsured deposits and spreading them around
and things like that. But it doesn't seem to have
had any-any effect overall on the overnight repo facility. That is really there to,
to help us keep rates where they're supposed to
be, and it's, it's serving that purpose very well. MICHELLE SMITH. Sarah. SARAH EWALL-WICE. Sarah Ewall-Wice, CBS News. I want to go back to the
debt ceiling for a moment. I know you talked about that
in terms of fiscal policy, but can you just speak
towards what the impact of a default would mean for
Americans across the country, the markets, and borrowing? CHAIR POWELL. Yeah. I would just say, it's -I, I don't really think we should
be-we shouldn't even be talking about a world in which the
U.S. doesn't pay its bills. It just-it just shouldn't
be a thing. And, and again, I
would just say, we don't-no one should assume that the Fed can do-can
really protect the economy and the financial system and
our reputation globally from, from the damage that such,
such an event might inflict. MICHELLE SMITH. Scott. SCOTT HORSLEY. Thanks, Mr. Chairman. Scott Horsley for NPR. In his report last week, Vice
Chair Barr identified a couple of the factors that
he thought contributed to the regulatory-or
the supervisory lapses at Silicon Valley Bank: a policy
change in 2019 to exempt all but the biggest banks
from strict scrutiny and also what he called a sort of cultural shift towards
less aggressive oversight. You were here in 2019. Do you share that view, and
what would it take to get the, the stronger oversight
that you and he said in your release would
be necessary? CHAIR POWELL. So I, I didn't-I didn't take
part in creating the report or doing the work, but I
do-I have read it, of course. And I find it persuasive. I mean, I would say it this way:
A, a very large-a large bank, not a very large bank-a large
bank failed quite suddenly and unexpectedly in a way that
threatened to spread contagion into the financial system. I think the only thing that,
that I'm really focused on is to understand what went
wrong, what happened, and, and identify what we need
to do to address that. Some of that is-may, it may just
have been technology evolving. You know, we have to
keep up with all that. But some of it may be our
policies, and-supervisory and regulatory, whatever. What our job is now is, identify
those things and implement them. And that's kind of
the only thing I care about is-and I think-I
feel like I am accountable for doing everything I can to
make sure that that happens. MICHELLE SMITH. Let's go to Evan. EVAN RYSER. Thank you. Evan Ryser with MNI Market News. Chair Powell, are we
in the early stage or nearing the end stage of the banking turmoil
among regional banks? And, secondly, do you still
have a bias to tighten rates? Is that what the
statement is saying? CHAIR POWELL. So I guess I would-I guess
I would say it this way. There were three large banks,
really, from the very beginning that were at the heart of the
stress that we-that we saw in early March, the
severe period of stress. Those have now all
been resolved, and all the depositors
have been protected. I think that the resolution and
sale of, of First Republic kind of draws a line under that
period of-is an important step toward drawing a line under that
period of, of severe stress. Okay. I also think we are very
focused on what's happening with credit availability,
particularly, you know, with what you saw in the-in the
Beige Book, and you will see in the SLOOS, is, is small
and medium-medium-sized, small and medium-sized banks
who are feeling that they need to tighten credit
standards-build liquidity. What's going to be the
macroeconomic effect of that? More broadly, we,
we will continue to very carefully monitor what's
going on in the banking system, and we'll factor that
assessment into our decisions in an important way,
going forward. MICHELLE SMITH. Okay. Greg. GREG ROBB. Thank you, Fed Chairman. Greg Robb from MarketWatch. I just wondered if you've
done any reflection on, on your own actions during this
crisis and leading up to it over the last-since
you've been Fed Chairman, I think I've heard you
say a couple of times that you deferred to the
Vice Chair for Supervision. Do you think that was the
right way to go about this? And, yeah, comments on that. Thank you. CHAIR POWELL. Sure. So let me say, first
of all, I've been Chair of the Board for five-plus
years now, and I fully recognize that we made mistakes. I think we've learned
some new things as well, and we need to do better. And, as I mentioned, I thought
the report was unflinching and appropriately so. I welcome it. And I agree with and will
support those recommendations. And I do feel that I'm
personally accountable to do what I can
to foster measures that will address the problems. So, on, on the Vice Chair
for Supervision, you know, the place to start is,
is the statutory role, which is quite unusual. The Vice Chair, it says, shall deploy policy
recommendations-"develop policy recommendations for the
Board regarding supervision and regulation of
depository institution . . . companies . . . , and shall oversee
the supervision and regulation of such firms." So this is Congress
establishing a four-year term for someone else
on the Board-not, not the Chair-as Vice Chair
for Supervision who really gets to set the agenda for
supervision and regulation for the Board of Governors. Congress wanted that person to be-to have political
accountability for developing that agenda. So the way it works-the way
it has worked in practice for me is, I've had a
good working relationship. I give my, my counsel,
my input privately, and that's-I offer that. And I have good conversations, and I try to contribute
constructively. I respect the authority
that Congress has deferred on that person, including
working with, with Vice Chair Barr
and, and his predecessor. And I think that's the
way it's supposed to work, and that's appropriate. I, I believe that's
what the law requires. And, you know-but, but it isn't-I wouldn't say it's
a matter of complete deference. It's more, I have a-I have a
role in, in presenting my views and discussing-having an
intelligent discussion about what's going on and why. And, you know, that's,
that's my input. But, ultimately, that person
does get to set the agenda and gets to take things to the
Board of Governors and really, in supervision, has sole
authority over supervision. GREG ROBB. Just wondered if you
have any regrets? Or was there anything
that, you know-decisions that maybe you regret now
in light of what's happened? CHAIR POWELL. I've had a few, sure. I mean, you know, who
doesn't look back and think that you could have
done things differently? But, honestly, you don't-you
don't get to do that. Again, my focus is on
what-control the controllable. As one of my great
mentors used to always say, "Control the controllable." What we control now is,
make a fair assessment, learn the right lessons, figure out what the fixes
are, and implement them. And, and I think that, that
Vice Chair Barr's report is an excellent first step in that,
but we've got to follow through. MEGAN CASSELLA. Hi, there. Megan Cassella with Barron's. Did the possibility of pausing
at this meeting come up at all, and how seriously
was that considered? I'm curious if you
can give us any color as to whether there were
any initial concerns about raising rates again or
what those discussions entailed. CHAIR POWELL. So support for the 25 basis
point rate increase was very strong across the board. I would say there are a number
of people-and, you know, you'll see this in the minutes. I don't want to try to do
the head count in real time. But people did talk about
pausing, but not so much at this meeting, you know, that
we're-I mean, there's a sense that we're, we're-that,
you know, we're much closer to the end of this than to
the beginning, that-you know, as I mentioned, if
you-if you add up all the tightening
that's going on through various
channels, it's-we, we feel like we-you know, we're getting close or,
or maybe even there. But that, again, that's going
to be an ongoing assessment. And, and we're going to be
looking at those factors that we listed and-to
determine whether there's, there's more to do. MEGAN CASSELLA. I'm curious, too, how
to interpret that and, and the changes to
the statement. Is the bar higher now to raise
rates at the next meeting, or would a strong jobs report
or inflation print be enough to push the Fed to
tighten again? CHAIR POWELL. I don't want to-I couldn't-I
couldn't really say. I just think we're-I
think we-look, I think we've moved a
long way fairly quickly. And I think we can afford
to look at the data and, and make a careful assessment. MICHELLE SMITH. And we'll go to Nancy
for the last question. NANCY MARSHALL-GENZER. Hi, Chair Powell. Nancy Marshall-Genzer
with Marketplace. You mentioned a few times about
the lessons you've learned from the banking crisis-that you
would learn the right lessons. What are those lessons? CHAIR POWELL. Well, I just would start with
something that's changed, really, which is this-the run
on Silicon Valley Bank was out of keeping with the speed
of runs through history. And that now needs to be
reflected in some-in some way in regulation and
in supervision. It-we know-now that
we know it's possible, I think we didn't-no one
thought that was possible. No one-I'm not aware
of anybody thinking that this could happen
so-quite so quickly. So I think that, you know,
that will play through. I, I, you know-it will
be up to Vice Chair Barr to really take the lead in designing the
ways to address that. But I think-I think
that's one thing. I, I guess I would
just say that. Then, you know-that
we're going to-obviously, we're going to revisit [this]. It's pretty clear we need-to
me, anyways-clear that we need to strengthen both
supervision and regulations for banks of this size. And I'm, I'm thinking that we're on the-on track to
do that as well. NANCY MARSHALL-GENZER. Can you be any more specific
on stress testing or looking at banks that have
specific concentrations in certain parts of the economy? CHAIR POWELL. Yeah. That's-see, that's, that's what Vice Chair
Barr's role really is, and he'll take the lead on that. Thank you.
