On Wednesday, May 1, 2019 FOMC Chairman Jerome Powell gave his scheduled May 2019 FOMC Press Conference. (link of video and related materials)
Below are Jerome Powell’s comments I found most notable – although I don’t necessarily agree with them – in the order they appear in the transcript. These comments are excerpted from the “Transcript of Chairman Powell’s Press Conference“ (preliminary)(pdf) of May 1, 2019, with the accompanying “FOMC Statement.”
From Chairman Powell’s opening comments:
CHAIR POWELL: Good afternoon, and welcome. At the Federal Open Market Committee (FOMC) meeting that concluded today, we reviewed economic and financial developments in the United States and around the world and decided to leave our policy interest rate unchanged.
My colleagues and I have one overarching goal: to use our monetary policy tools to sustain the economic expansion, with a strong job market and stable prices, for the benefit of the American people. Incoming data since our last meeting in March have been broadly in line with our expectations. Economic growth and job creation have both been a bit stronger than we anticipated, while inflation has been somewhat weaker. Overall, the economy continues on a healthy path, and the Committee believes that the current stance of policy is appropriate.
The Committee also believes that solid underlying fundamentals are supporting the economy, including accommodative financial conditions, high employment and job growth, rising wages, and strong consumer and business sentiment. Job gains rebounded in March after a weak reading in February and averaged 180,000 per month in the first quarter, well above the pace needed to absorb new entrants to the labor force. Although first-quarter gross domestic product (GDP) rose more than most forecasters had expected, growth in private consumption and business fixed investment slowed. Recent data suggest that these two components will bounce back, supporting our expectation of healthy GDP growth over the rest of the year.
Jerome Powell’s responses as indicated to the various questions:
STEVE LIESMAN. Thank you, Mr. Chair, Steve Liesman, CNBC. As the statement noted, core inflation now running below 2 percent. It’s been falling for three straight months and while you’ve been close, it’s only been at 2 percent or above one month since 2012. Mr. Chair, I guess I wonder is it time to address low inflation through policy and can you give us some sense of your metric for when it would be time? At what level would it require a policy response from the Committee?
CHAIR POWELL. So, first, we are strongly committed to our 2 percent inflation objective and to achieving it on a sustained and symmetric basis. As I mentioned, we think our policy stance is appropriate at the moment and we don’t see a strong case for moving in either direction. I would point out that inflation actually ran, including core inflation, actually ran pretty close to 2 percent for much of 2018. As you point out, both headline and core though did come in on the soft side in the first quarter and that was not expected as it relates to core. So we say in our statement of longer run goals and monetary policy strategy that the Committee would be concerned if inflation were running persistently above or below 2 percent. So persistent carries the sense of something that’s not transient, something that will sustain over a period of time. And in this case, as we look at these readings in the first quarter for core, we do see good reasons to think that some or all of the unexpected decrease may wind up being transient. And I’d point to things like portfolio management, service prices, apparel prices, and other things. In addition, the trimmed mean measures of inflation did not go down as much, indeed Dallas trimmed mean is at 2 percent. But to go back to your question, if we did see a persistent — inflation running persistently below, then that is something the Committee would be concerned about and something that we would take into account in setting policy.
MICHAEL MCKEE. Michael McKee with Bloomberg. I’m curious about the financial conditions that you see out there. The minutes of the March meeting tell us a few officials worried about financial stability risks. Was there a broader discussion at this meeting? Any consensus on whether such risks are growing as the markets hit new highs and we do see some instability in short-end trading. Is it possible that rates are too low at this point?
CHAIR POWELL. We actually have a financial stability briefing and opportunity for comment every other meeting. So we had our quarterly briefing today — yesterday, as a matter of fact — and had that discussion as well. And I think there haven’t been a lot of changes since the last meeting but I’ll just go through the way we think about it. First, we’ve developed and published our framework for assessing financial stability vulnerabilities, put it out for comment, and welcomed any feedback we get from the public. And that enables us to focus our assessments regularly on the same things so that we can be held accountable and be transparent. So there are four aspects of it that I’ll go through quickly but I’d say that the headline really is that while there are some concerns around nonfinancial corporate debt, really the finding is that overall financial stability vulnerabilities are moderate on balance and, in addition, I would say that the financial system is quite resilient to shocks of various kinds with high capital and liquidity. But the four things we look at are, first, asset prices. And as for asset prices, some asset prices are somewhat elevated but I would say not extremely so. Leverage in the financial sector, I mentioned households are actually in good shape from a leverage standpoint. Default rates are low. Borrowing is relatively low. Nonfinancial corporates is an area that we’ve spotlighted and focused on for attention and there are concerns about that, not so much from a financial stability standpoint but from the standpoint that having a highly levered corporate sector could be an amplifier for a downturn. And then the last two things are really about the leverage in the financial system and funding risk and those are both very, very low by historic standards in the United States. So on balance, in my view, vulnerabilities are moderate.
MICHAEL MCKEE. If I could follow up on that, I’m just curious as to whether the level of asset prices is a reason why you might not be interested in cutting rates.
CHAIR POWELL. So we do say that risks to the financial system — we say in our longer-run statement of goals and monetary policy strategy that risks to the financial system that could prevent us from achieving our goals are something that we do take into consideration. I would say though that really the tools for addressing those concerns are better — capital liquidity, good supervision, good stress testing, and things like that. Those are better first-order tools to deal with these kinds of issues than monetary policy.
The Special Note summarizes my overall thoughts about our economic situation
SPX at 2914.81 as this post is written