On Wednesday, March 17, 2021 FOMC Chairman Jerome Powell gave his scheduled March 2021 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 March 17, 2021, with the accompanying “FOMC Statement” and “Summary of Economic Projections” dated March 17, 2021.
Excerpts from Chairman Powell’s opening comments:
The economic fallout has been real and widespread, but with the benefit of perspective, we can say that some of the very worst economic outcomes have been avoided by swift and forceful action—from Congress, from across the government, and in cities and towns across the country. More people held on to their jobs, more businesses kept their doors open, and more incomes were saved as a result of these swift and forceful policy actions. And while we welcome these positive developments, no one should be complacent. At the Fed, we will continue to provide the economy the support that it needs for as long as it takes.
Following the moderation in the pace of the recovery that began toward the end of last year, indicators of economic activity and employment have turned up recently, although the sectors of the economy most adversely affected by the resurgence of the virus and by greater social distancing remain weak. Household spending on goods has risen notably so far this year. In contrast, household spending on services remains low, especially in services that typically require people to gather closely, including travel and hospitality. The housing sector has more than fully recovered from the downturn, while business investment and manufacturing production have also picked up. The overall recovery in economic activity since last spring is due importantly to unprecedented fiscal and monetary policy actions, which have provided essential support to households, businesses, and communities. The recovery has progressed more quickly than generally expected, and forecasts from FOMC participants for economic growth this year have been revised up notably since our December Summary of Economic Projections. In commenting on the stronger outlook, participants noted progress on vaccinations as well as recent fiscal policy.
The Fed’s response to this crisis has been guided by our mandate to promote maximum employment and stable prices for the American people, along with our responsibilities to promote the stability of the financial system. As we say in our Statement on Longer-Run Goals and Monetary Policy Strategy, we view maximum employment as a “broad-based and inclusive goal.” Our ability to achieve maximum employment in the years ahead depends importantly on having longer-term inflation expectations well anchored at 2 percent.
Excerpts of Jerome Powell’s responses as indicated to various questions:
VICTORIA GUIDA. Sure. Okay. Well, then I’ll ask about unemployment. You know, there’s the unemployment rate is — you all have projections for the U-6 rate, but you’ve also been, you know, really emphasizing the fact that that’s not the only thing that you are looking at. You’re also looking at labor force participation and things like that. So are you all looking at ways of maybe adding to how you’re projecting the unemployment rate to the summary of economic projections?
CHAIR POWELL. Well, let me say, as we say in our statement on longer-run goals and monetary policy strategy, we look to a range of indicators on labor market. We never only looked at the unemployment rate, which is the only indicator of labor market outcomes that’s in the SEP. We look at a very broad range. You hear us talk all the time about participation, about employment to population, which is the combination of the two, about different measures of unemployment. So it’s wages, it’s the job flows, it’s, you know, all of those things go into an assessment — disparities of various groups, all that goes into an assessment of maximum employment. Trying to incorporate all of that into the summary of economic projections would not be practical. You know, obviously, the thing that we do include is just the unemployment rate. And that’s a very insufficient statistic. So it doesn’t include a lot of other things that we do look at. And I wouldn’t want to say that we’re looking to include the other dozen things that we look at into the SEP. But from time to time, we do look at adding different things. But I would just say the SEP, it’s a summary. It’s one device, it’s not going to include all of the things that we look at. I think you know the things that we look at — we talk about them all the time. So we’re not actually looking actively at significantly broadening those indicators in the SEP right now.
MATTHEW BOESLER. If I could just briefly follow up. How do you see sort of the disconnect in terms of an economy that is expected to be widely reopened this year, but full employment taking longer to achieve? Is it the case that factors related to the virus will still be with us over the coming years? Is that how to interpret the forecasts?
CHAIR POWELL. I think there’s some of that. Sure, there’ll be some of that. There will still be some social distancing. People may be, for example, going into spaces, you know, that involve close contact with others. Some people will do that right away. Others will hold back. And so I think there’ll be some of that. In addition, though, remember, there are 10 million people — in the range of 10 million people who need to get back to work. And it’s going to take some time for that to happen. You know, it can happen maybe more quickly than it has in the past, because it involves the reopening of a sector of the economy, as opposed to stimulating aggregate demand and waiting for that to produce job demand for workers. This could be a different sort of a process. And it could be quicker. We don’t know that. But it’s just a lot of people who need to get back to work. And it’s not going to happen overnight. It’s going to take some time. No matter how well the economy performs, unemployment will take quite a time to go down and so will participation. So that’s all I can say. I think the faster the better, we’d love to see it come sooner rather than later. We’d welcome nothing more than that. But realistically, given the numbers, it’s going to take some time.
STEVE LIESMAN. Mr. Chairman, thank you. I wonder if you could — kind of a threeparter here, but all related. Would you comment on the current level of the 10-year yield and some other long rates out there whether or not you think they would have a negative effect on the economy? And if not, is there a level that would give you concern? And finally, the third part, other central bankers have expressed concern about what’s happened to yields in their countries and even some have taken action, but not you. Could you give us your general idea or orientation towards the idea of coming into the market and affecting a particular tenor of the bond market? Do you like that idea? Do you not like it? Is it at the top of your toolbox? Or is it something that you think is at the bottom of the toolbox?
CHAIR POWELL. Sure. So we monitor a broad range of financial conditions. And we’re always attentive to market developments, of course. We’re still a long way from our goals. And it’s important that financial conditions do remain accommodative to support the achievement of those goals. And if you look at various indexes of financial conditions, what you’ll see is that they generally do show financial conditions overall to be highly accommodative. And that is appropriate. So that’s how we look at it. I would add, as I’ve said, I would be concerned by disorderly conditions in markets or by a persistent tightening of financial conditions that threaten the achievement of our goals. We think the stance of our monetary policy remains appropriate. Our guidance on the federal funds rate and on asset purchases is providing strong support for the economy. And we’re committed to maintaining that patiently accommodative stance until the job is well and truly done.
MICHAEL DERBY. Thank you for taking my question. I just wanted to get an updated view on your sense of your view on financial stability risks, and whether or not you see any pockets of excess out in financial markets that concern you, either specifically to that that area of the market or as in terms of like the threat that it could propose to the overall economy.
CHAIR POWELL. So as you know, financial stability for us is a framework. It’s not one thing. It’s not a particular market, or a particular asset or anything like that. It’s a framework that we have — we report on it semiannually. The Board gets a report on it quarterly, and we monitor every day, and it has four pillars and those are four key vulnerabilities: asset valuations, debt owed by businesses and households, funding risk, and leverage among financial institutions. Those four things and I’ll just quickly touch on them. So if you look at asset valuations, you can say that by some measures, some asset valuations are elevated compared to history. I think that’s clear. In terms of households and businesses, households entered the crisis in very good shape by historical standards. Leverage in the household sector had been just kind of gradually moving down and down and down since the financial crisis. Now there was some negative effects on that. People lost their jobs and that sort of thing. But they’ve also gotten a lot of support now. So the damage hasn’t been as bad as we thought. Businesses, by the same token, had a high debt load coming in. And many saw their revenues decline. But they’ve done so much financing, and there’s a lot of cash on their balance sheet. So nothing in those two sectors really jumps out as really troubling. Short term, I mentioned funding risk as the last one. So we saw again, in this crisis, breakdowns in parts of the short-term funding markets — came under a tremendous amount of stress. And they’ve been quiet since the spring. And you know, we shut down our facilities and all that. But we don’t feel like we can let the moment pass without just saying again that some aspects of the short-term funding markets and more broadly, non-bank financial intermediation, didn’t hold up so well under great stress, under tremendous stress. And we need to go back and look at that. So a very high priority for us as regulators and supervisors is going to be to go back — and this will involve all the other regulatory agencies. It does involve all of them as well, and see if we can strengthen those things. So that’s sort of a broader detailed look.
The Special Note summarizes my overall thoughts about our economic situation
SPX at 3962.95 as this post is written