tv Federal Reserve Chair Holds News Conference CSPAN February 2, 2023 6:12am-7:00am EST
are, we have more work to do. price stability serves as the bedrock of our economy. without that price stability, the economy does not work for anyone. in particular without price stability, we will not achieve a sustained time of labor market conditions that benefit at all. the fomc raised our policy interest rates.
ongoing increases will be appropriate. in addition, we are continuing the process of significantly reducing the size of our balance sheet. this door -- price to but will require a restrictive stance for some time. 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 low trend pace of 100%. consumer spending is expanding at a reduced pace. activity in the housing sector continues to weaken. largely reflect entire mortgage rates.
higher interest rates as low rapid growth appeared to be waiting on business investment. the labor market remains extremely tight with job vacancies and still very high end wage growth elevated. job gains have been robust with employment rising by an average of 247,000 jobs over the last three months. although the pace of job gains has slowed they have shown some size -- signs of easing. labor demand exceeds the supply of available workers. inflation remains well above our goal of 2%. total pce prices rose 5.0%. excluding the volatile food and
energy categories, core prices rose 4.4%. inflation data received over the past three months show welcome reduction in the monthly pace of increases. while recent development are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path. 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. but that is not grounds for complacency. although inflation has moderated recently, it remains too high. the longer the current bout of high inflation continues, the greater chance of expectation that higher inflation will become entrenched. the fed monetary policy actions are guided by our mandate to promote maximum employment and stable prices for the american
people. my colleagues and i are acutely aware that high inflation imposes 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 inflation poses to both sides of our mandate and we are strongly committed to returning inflation to our 2% objective. at today's meeting, the committee raised the target range for the federal funds rate by 25 basis points, bringing the target range higher. we are continuing the process of significantly reducing the size of our balance sheet. with today's action, we have raised interest rates by 4.5 percentage points over the past year. we continue to anticipate that ongoing increases will be appropriate in order to obtain a stance of monetary policy that is sufficiently restrictive to
return inflation to 2% over time. we are seeing the effects of our policy actions on demand and the most sensitive sections of the economy. it will take time for the full effects of monetary restraint to be realized. especially on inflation. in light of the cumulative tightening of monetary policy and to legs with which monetary policy affects economic activity and inflation, the committee decided to raise interest rates by only five basis points today, continuing to step down from last year because rapid pace of increases. shifting to a slower pace will better allow the committee to assess the economy progress toward our goals as we determine the extent of future increases that will be required to obtain a sufficiently restricted stance. we will continue to make our decisions meeting by meeting, taking into account the totality of incoming data and the applications for the outlook for economic activity and inflation. we have been taken forceful
steps to moderate demand so that it comes into better alignment with supply. our overarching focus is using our overarching focus is using her tools to bring inflation back down to our 2% goal and to keep longer-term inflation expectations well anchored. reducing inflation is likely to require a time 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. the historical record cautions strongly against prematurity -- prematurely listening policy. we will stay the course until the job is done. 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. i think you and i look forward to your questions.
-- thank you and i look forward to your questions. >> thank you for doing this. as you know, financial conditions have listened since the fall with bond yields falling which has also brought down mortgage rates and the stock market posted a cell again in january. does that make your job of combating inflation harder? could you see lifting rates higher than you otherwise would to offset the increase -- the easing of financial conditions i mean. >> it is important that overall financial conditions continue to reflect the policy restraint where putting in place in order to bring inflation down to 2%. fans conditions have tightened significantly over the past year. i would say our focus is not on short-term moves by sustained changes to broader financial conditions and it is our judgment that we are not yet at assisted -- a restrictive policy stance. that is why we say we expect ongoing hikes will be
appropriate. many things affect financial conditions. not just our policy. we will take into account overall financial conditions along with many other factors. >> thank you for taking her question. over the last quarter, we have seen a deceleration in prices, in wages and a fall in consumer spending all while the unemployment rate has been able to stay at historic lows. does this at all change your view of how much the unemployment rate would need to see inflation come down to the levels you are looking for? >> i would say it is a good thing that the disinflation we have seen so far has not come at the expense of weaker labor market. i would also say that this inflationary process you now see underway is really at an early stage. what you see is in the good
sector. you see inflation coming down because supply chains have been fixed, demand is shipping back to services and shortages have been abated. you see that in the housing services sector, we expect inflation to continue moving up for a while but then to come down, assuming new leases continue to be lower. in those two sectors you have a good story, the issue is we have a large sector called corn on housing services where we don't see disinflation yet. i would say that so far, what we see is progress but without any weakening in labor market conditions. >> have your expectations for where the unemployment rate changed since december? >> we are going to write down a new forecast at the march meeting and we will see at that time. i will say it is gratifying to
see the dish inflationary process now getting underway and we continue to get strong labor market data. we will update those forecasts in march. >> you and some of your colleagues have said that job openings could come down and that would let some of the air out of the labor market without major job losses. job openings were actually rising. that coincided with a slowdown in wage inflation. do you believe openings are an important indicator to understand where the labor market is and where inflation might be heading? >> you are right about the data. we have seen average hourly earnings and now the inflowing cost index abated a little bit. off of their six month highs. still at levels that are fairly elevated.
the job openings number has been volatile recently. i did see that he moved back up this morning. i think it is probably an important indicator, the ratio is back up to 1.9. job openings to unemployed people, people are looking for work. it is an indicator but nonetheless, you are right, we do see wages moving down. you still see very high payroll job creation and so by many indicators, the job market is still very strong. >> thank you. given the economic data since the december meeting, is the trajectory for the fed funds rate still the best guidepost for the policy path forward?
does ongoing now mean more than two rate rises? >> you are right, at the december meeting, we all go down our best estimates of what we thought the ultimate level would be. that was back in december. the median for that was between five and 5.25%. at the march meeting, we will update those assessments. we did not update them today. we did continue to say we believe ongoing rate hikes would be appropriate to obtain a sufficiently restrictive stance to bring inflation back down to 2%. we think we covered a lot of ground. financial revisions have certainly tightened. i would say we still think there was work to do there. we had not made a decision on exactly where that will be. i think we will be looking carefully at the incoming data between now and the march meeting and the may meeting. i don't feel a lot of certainty about where that will be. it could be higher than we are
writing down right now if we come to the view that we need to write down to move rates up beyond what we said in december, we can certainly do that. at the same time, the data could come in the other direction and we will make interdependent decisions at coming meetings of course. >> how are you viewing the balanced risk between those two options of the likelihood of baby falling short of that or going beyond that level? >> i would say it this way. i continue to think that it is very difficult to manage the risk of doing too little and finding out in six or 12 months that we actually were closed but did not get the job done. inflation springs back when we have to go back in. now you really do worry about expectations. this is a very difficult risk to manage. we have no incentive and no desire to over tighten but if we
feel it we have gone too far, inflation is coming down faster than we expect, we have tools that we can work on with that. in the situation where we have the highest inflation in 40 years, the job is not fully done. we have a sector that represents 56% of the core inflation index where we did not see disinflation yet. we don't see it, it is not happening at, inflation in core services is still running at 4% on a six and 12 month basis. there is nothing happening there. and the other two sectors representing less than 50%, you actually have a story that is credible. it is coming together although you don't actually see disinflation yet in housing services. it is in the pipeline. for the third sector, we don't see anything. i think it would be premature. very premature to declare victory or to think that we
really have this. we need to see -- our goal is to bring inflation down. how do we get that done? there are many factors driving inflation in that sector. they should be coming into play to have the dish inflationary process begin in that sector but so far we don't see that. until we do, we see ourselves as having a lot of work left to do. >> thank you as usual. just to connect a couple of dots here, the statement made a number of changes. you have taken out references to the war in ukraine causing price increases, you have taken more out, you have eliminated all the reasons you said prices were being driven higher. that is not mapping to any change in how you describe policy. we still have ongoing increases. i am wondering why is that the case? does it have more to do with in
certainty around the outlook or you not wanting to give a very overeager market a reason to get ahead of itself and overreact? >> i would say it this way. we can now say for the first time that the dish inflationary process has started. we see it in good prices so far. good prices is a big sector. this is what we thought would happen since the very beginning and now here it is actually happening. it is supply chains and shortages and demand revolving back toward services. this is a good thing. but that is around a quarter of the core price index. the second sector is housing services. that is driven by very different things. as i mentioned with housing services, we expect that measured inflation will continue moving up for several months but will then come down, assuming that new leases continue to be
soft. we do assume that. we think that a sort of in the pipeline. we actually see disinflation in the good sector and we see it in the pipeline for two sectors that amount to as little as i have. we note that we see inflation coming down. we expect to see that this ablation process we will be seeing soon in the core goods x housing sector that i talked about. we don't see it yet. it is seven or eight different kinds of services, not all of them are the same and we have a sense of what is going on in each of those different subsections, probably the biggest part of it, probably 60% of that is research that would be shown as slack in the economy. some of the other labor markets will not be important, many other factors will drive them,
at any case, we don't see this inflation in the sector yet. we need to see that it is the majority of the core pc index which we think is the best thing for predicting headline pca which is our mandate. it is not that we are optimistic or pessimistic, we are just telling you we don't see inflation moving down yet in that large sector. we think we will fairly soon but we don't see it yet. until we do, i think we see ourselves -- we have to be honest with ourselves and we see ourselves as having more persistent inflation and that sector. that will take longer to get down. we are just going to have to complete the job. that is what we are here for. >> chair powell, you observed several years ago that we can have a low unemployment rate without targeted inflation. we have learned that inflation
can come down from its uncomfortable he high-level. given how much you did over last year, why do you think further rate increases are needed? why not stop here and see what transpires in the coming months before raising rates again? >> we raise rates 4.5 percentage points and we are talking about a couple more rate hikes to get to that level we think is appropriately restrictive and why do we think that is probably necessary? because we think inflation is still running very hot. we are taking into account long and variable lags. we are thinking about that. the story we are telling about inflation is to ourselves and the way we understand it is the three things that we have just gone through a couple times. we don't see it affecting the services sector yet. i think your assessment is that we are not very far from that level -- we don't know that yet. i think we are living in a world
of significant uncertainty. i would look across the spectrum of rates and see that bill rates are now positive across the yield curve. but policy is restrictive. we are trying to make a final judgment about how much is restrictive enough. that is why we are slowing down to 25 basis points. we will be carefully watching the economy and watching inflation and the progress of the dish inflationary process. >> did you or your colleagues discuss any additions for applause? >> you will see the minutes will come out in three weeks. we spent a lot of time talking about the path ahead and the state of the economy. i wouldn't want to start to describe all the details there. the sense of the discussion was talking white a bit about the path forward.
>> i wanted to ask about the debt ceiling given that we have now hit up against it. i was wondering if the fed will do whatever the treasury direct as it relates to making payments or will it do its own analysis of any legal constraints? >> your question is -- >> will the fed do what treasury direct says as it relates to making payments or will it do its own analysis of any legal constraints? >> you are really asking about prioritization. i feel like i have to say there is only one way forward here. that is for congress to raise the debt ceiling so the united states government can pay all its obligations when due. any deviations from that path would be highly risky. no one should assume the fed can protect the economy from the consequences of failing to act
in a timely manner. in terms of our relationship with the treasury, we are the fiscal agent and i will just leave it at that. close are you actively doing any planning? >> this is a matter that is to be resolved between -- it is congress's job to raise the debt ceiling and i gather there are discussions happening but they don't involve us. we are not involved in those discussions. we are the fiscal agent. quick thank you for taking her question. i was wondering if there was any discussion about the possibility of pausing rate increases and then restarting them? laurie logan seemed to suggest that would be a possibility at a recent speech. i wonder if that news was broadly shared on the committee. >> the committee obviously did not see this as a time to pause. we judge that the appropriate
thing is to raise the federal funds rate by 25 basis points and we said we continue to anticipate that ongoing increases in the target range will be appropriate in order to obtain that stance of restriction or monetary policy. that is the judgment we made. we are going to write down new forecasts in march and we will certainly be looking at the income data. >> would it be possible to take a meeting off for example? could you rather than just doing that at every meeting go a little bit more slowly and take some gaps in between? >> this is not something the committee is thinking about or exploring in any kind of detail. we used to go every other meeting. that was considered a fast pace. i think a lot of options are available.
you saw with the bank of canada did. they left that they are willing to raise rates after pausing. this is not something the federal market committee is on the point of deciding right now. >> mr. chairman, the sep has pce inflation rate in 2023 of 3.1%. meanwhile, the three month annualized is two point 1% and you achieve this without going to your 5.1% funds rate which is what you have for this year. he also achieved it without the one percentage point increase which you penciled in for this year. i am wondering if you consider the idea of whether or not your understanding of the inflation dynamic may be wrong and it is possible to achieve these things without raising rates that high and also, without the surge in
unemployment and specifically, i wondered if you might comment on the speech given by the vice chair that said inputs other than wages may be responsible for important price increases -- it may not be wages, the idea that it may not require employment rising to get this sector of inflation under control. thank you. >> a couple of things. on the forecast, you are right, if you take very short-term three-month same measures of core pce inflation, they are white low right now. that is because it is driven by significantly negative readings from high inflation. most forecasters would think the significant a negative readings would be transitory. and that goes inflation would move up fairly soon, back up to its longer running trend of something around zero, something
like that. a lot of forecast would call for the core pce to go up to 4% by the middle of the year. that is where the sustainable level is. it is merely 4%. that would suggest there is work left to do. let's say inflation does come down much faster than we expect which is possible. as i mentioned, obviously our policy is data dependent, we would take that into account. in terms of the corn on housing services, as we mentioned earlier, it is a very diverse sector, six or seven sectors. sectors that represent 65% of that subsector we think are sensitive to slacken the economy, sensitive to the labor market in the way. some of the other sectors are not. the financial sector is not really driven by labor markets,
wages. that is why i said there were a number of things that will affect it. take restaurants. clearly labor is important for restaurants but so are food prices. transportation services will be driven by fuel prices for example. there are lots of things in that mix that will drive inflation. overall, my own view would be you are not going to have a sustainable return to inflation without a better balance in the labor market. i don't know what that will require in terms of increased unemployment, your question. i do think there are a number of dimensions of the market can soften. in goods, we have inflation moving down without softening the labor market. i think most forecasters would say unemployment will probably rise a bit from here. i continue to think there is a path to getting inflation back
down to 2% without a really significant economic decline or significant increase in unemployment. that is because the setting we are in is quiet different. the inflation we originally got was very much a collision between very strong demand and supply constraints, not something you have really seen in prior business cycles. now we see good inflation coming down for the reasons we thought and we understand why housing inflation would come down. we think a story will emerge on the non-housing services sector soon enough. i think there is ongoing disinflation that we don't yet see weakening in the labor market. we will have to see. all possible. it is a question no one really knows. it is because this is not like the other business cycles and so
many ways. it may well be that it will take more slowing than we expect, i expect to get inflation down to present but that is not my base case. my base case is that the economy can return to 2% inflation without a really significant downturn or really big increase in unemployment. i think that is a possible outcome. many forecasters would say it is not the most likely outcome but i would say there is a chance of it. >> i would like to pick up on what you were just saying about a substantial downturn with the full weight of your typing not in place and with the progress against inflation, there are still a lot of talk about very slow growth going forward in
2023 as the recession indicators are also adjusting we are going to see a recession this year. i am wondering if you changed your view or if you have a new -- more nuanced view of what you think the danger to economic growth is going forward and whether you are very close to perhaps to pick it into the wrong place which calls for more restraint on your part. >> i do think you -- my own assessment would be that growth will continue, positive growth will continue but at a subdued lace as it did last year. we had gdp growth of 1% last year and also, final sales growth which we think is a better indicator of about 1%. we think most forecasts would be that growth would continue at a fairly subdued level this year. there are other factors that need to be considered. you will have seen the global
picture is improving a bit and that will matter for us potentially. the labor market remains very strong. that is job creation and wages, as inflation does come down, sentiment will improve, state and local governments are really flush these days with money and many of them are considering tax cuts or even sending checks. i think that will support -- there is a lot of spending coming into the construction pipeline, both private and public. that will support economic activity. there is a good chance those factors will help support positive growth this year. that is my base case, that there will be positive growth this year.
>> rich miller from bloomberg. how are you doing? >> fine, thank you. >> i think it is early on in the conference, you said you need to see substantially more evidence of inflation coming down. can you give us some idea of what you are thinking? you mentioned three months in a row, governor waters suggested he might want to see six months. do you have to see the labor market coming back into better balance to have substantially more evidence? >> i don't think there will be light switch flipped like that, i think it is just an emulation of evidence. of course, we will be looking by the time of the march meeting, we will have two more cpi reports and we will be looking at those carefully as all of us will. we will be asking ourselves what they are telling us. soon after that, we will have another wage report which is a report we like it because it is
very complete. the one we got yesterday was constructive. it shows wages coming down. still at a high level. still at a level way above -- well above where they were before -- before the pandemic. i did not want to put a number on it in terms of months. as the accumulated evidence comes in, it will be reflected in our assessment of the outlook and that will be reflected in our policy over time. i will say it is our job to restore price stability and achieve 2% inflation for the benefit of the american public. orchid participants have a very different job. it is a fine job, a great job. i did the job for years. in one form or another but we have to deliver that. so we are strongly resolved that we will complete this task
because we think it has benefits that will support economic activity and benefit the public for many years. >> thank you, fed chairman for taking the question. you talk about how we had solid job growth, is like falling in the increase in consumer spending. it seems so far to be relatively mild for the economy to go from 9.1% to 6.5 percent. is the hard part yet to come? >> i don't think we now. we expected good inflation to start coming down by the end of 2021. it did not come down all through 22. now it is coming down pretty fast. i would say this is not a standard business cycle where you can look at the last 10
times there was a global pandemic and we shut the economy down and congress did what it did and so it is unique. certainty is just not appropriate here. inflation, it is just harder to forecast inflation. it may take longer to come down. our job is to deliver inflation back to target and i think we will be cautious about declaring victory and sending signals that we think the game is one because we have a long way to go. it is the early stages of disinflation. it is most welcome to be able to say that we are now in disinflation but -- that is great but we see it has to spread through the economy and that will take some time. my forecast and my colleagues, there are many different forecasts but generally it is a
forecast of slower growth, some softening in labor market conditions and inflation moving down steadily but not quickly. in that case, if the economy performs broadly in line with those expectations, it will not be appropriate to cut rates this year, to loosen policy this year. of course, other people have forecast with inflation coming down much faster. that is a different thing. it will be incorporated into our thinking about policy. >> thank you, chair powell. may i ask a further question about the language around ongoing increases, that implies these to further rate rises. if you look at the future of pricing, the application is that you will raise rates one more time and then pause. are you concerned about the diversions? do you think that everything breaks right? is that a plausible outcome?
>> i am not particularly concerned. it is largely due to the market expectation that inflation will move down more quickly. i think that is the bigger part of that. as i just mentioned, our forecast, different participant's have different forecasts but generally they will have continue to subdued growth, some softening in the labor market but not a recession. we have inflation moving down into somewhere in the mid-threes or may be lower than that this year. we will update that in march. markets are past that. they show inflation coming down much quicker than that. we will just have to see. we have a different view. it is a different forecast. given our outlook, i just don't see us cutting rates this year if our outlook turns true. if we do see inflation coming
down much more quickly, that will play into our policy, of course. >> one of the changes is nobody who currently listing public health in these data points. what should we make of that? the federal reserve no longer seeing the pandemic as wing on the economy? >> that is the general sense of it. i personally understand it well that is all still out there. it is no longer playing an important role in our economy. we kept that statement in their frequent a while. we knew we would take it out at some point. there is never a perfect time. we think people are handling it better and the economy and society are handling it better. it does not need to be in the
postmeeting statement as an ongoing economic risk. >> wanted to go back to something else. she said she does not see signs of a wage price spiral. i am wondering if you agree with that. >> i do. i don't see that yet. the whole point is once you see it, you have a serious problem. that means that effectively, inflation has become a really salient issue. once that happens, that is what we can't allow to happen. that is why we worry the longer we are at this and the longer people are talking about inflation all day long, every day, the more risk of something
like that happening. but there is not -- it is more of a risk. it always has been more of a risk than anything else. i think it is becoming less salient. we take that up in conversation. i have seen some data -- people are glad inflation is coming down. people really don't like inflation. as we see it coming down, that could boost economic activity. you look at sentiment surveys and they are very low. three point 5% unemployment, high wage increases. i think once inflation is seen to be coming down in the coming months, even you will also see a boost to sentiment i hope. grace you are looking at consumer expectations. but that is at the very heart. consumers and businesses. essentially we believe expectations of future inflation are a very important part of the
process of creating inflation. that is a bedrock belief. in one way or another, it has to be. in this case, i would say the risk eight months ago or so, longer-term inflation expectations had moved out. we move quick vigorously last year. expectations seemed to be well anchored. including at the short event. nudges are the longer end. i think that is very reassuring. i think the markets have decided and the public has decided inflation is going to come back down to 2%. it is just a matter of us following through. that is immeasurably helpful to the process of getting inflation down. the fact that people do generally believe it will come down, that will be part of the process of adding a down and it is a very positive thing. >> thank you chair powell. in the minutes of the december meeting, there was a couple
sentences that struck people as important. the committee said you were talking about the unwarranted using a financial conditions and it would make your life harder to bring inflation down. i have not heard you talk much about that. has that concern eased among members? is that something you are still concerned about? >> i would put it this way, it is something we monitor carefully. they did not change much from the december meeting until now. they mostly went sideways or up and down. they came out roughly the same place. it is important that the markets do reflect the tightening we are putting in place as we have discussed a couple of times here, there was a perspective based on market measures on how fast inflation would come down. we are just going to have to see. i am not going to try to persuade people. i have a different forecast with the forecast is that it will take some time and patience and it will need to keep rates
higher for longer. we will see. request brendan peterson with punch bowl news. i wanted to ask if the fed takes into account at all the debt ceiling when it comes to quantitative tightening given the fact that faster quantitative tightening could bring us closer, faster to that deadline. could it play in effect as we get closer to that dropdead deadline this summer? >> it is very hard to think about all the different possible ramifications. i think the answer is i don't think there is likely to be any important interactions between the two. i believe congress will wind up acting as it will and must in the end to raise the debt ceiling in a way that does not risk the progress we are making against inflation and the economy and the financial
sector. i believe that will happen. i believe it will. we will monitor money market conditions carefully. as the process moves on, for example, the treasury general account will shrink down and then it will grow back up and we understand there will be lots of flows between their and the reserves. we understand all that and we are watching it carefully. we will just be monitoring. thank you very much.
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