On Wednesday, June 16, 2021 FOMC Chairman Jerome Powell gave his scheduled June 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 June 16, 2021, with the accompanying “FOMC Statement” and “Summary of Economic Projections” dated June 16, 2021.
Excerpts from Chairman Powell’s opening comments:
Today, the Federal Open Market Committee kept interest rates near zero and maintained our asset purchases. These measures, along with our strong guidance on interest rates and on our balance sheet, will ensure that monetary policy will continue to deliver powerful support to the economy until the recovery is complete.
The process of reopening the economy is unprecedented, as was the shutdown at the onset of the pandemic. As the reopening continues, shifts in demand can be large and rapid, and bottlenecks, hiring difficulties, and other constraints could continue to limit how quickly supply can adjust, raising the possibility that inflation could turn out to be higher and more persistent than we expect. Our new framework for monetary policy emphasizes the importance of having well-anchored inflation expectations, both to foster price stability and to enhance our ability to promote our broad-based and inclusive maximum employment goal. Indicators of longer-term inflation expectations have generally reversed the declines seen earlier in the pandemic and have moved into a range that appears broadly consistent with our longer-run inflation goal of 2 percent. If we saw signs that the path of inflation or longer-term inflation expectations were moving materially and persistently beyond levels consistent with our goal, we would be prepared to adjust the stance of monetary policy.
Excerpts of Jerome Powell’s responses as indicated to various questions:
PAUL KIERNAN. Hi, Chairman Powell. Thanks for the question. Your specific median forecasts on inflation seems to assume a pretty tame outlook for the rest of the year. As you know, the three-month annualized rate for the past three months was I think 8.4 percent in the CPI. And I’m just wondering sort of how much longer we can sustain those kinds of rates before you get nervous. Thanks.
CHAIR POWELL. So, inflation has come in above expectations over the last few months. But if you look behind the headline numbers, you’ll see that the incoming data are consistent with the view that the prices that are driving that higher inflation are from categories that are being directly affected by the recovery from the pandemic and the reopening of the economy. So, for example, the experience with lumber prices is illustrative of this. The thought is that prices like that have moved up really quickly because of the shortages and bottlenecks and the like. They should stop going up and at some point, in some cases should actually go down. And we did see that in the case of lumber. Another example where we haven’t seen that yet is prices for used cars, which accounted for more than a third of the total increase in core inflation. Used car prices are going up because of sort of a perfect storm of very strong demand and limited supply. It’s going up and at just an amazing annual rate. But we do think that it makes sense that that would stop, and that in fact it would reverse over time. So we think we’ll be seeing some of that. When will we be seeing it? We’re not sure. That narrative still seems quite likely to prove correct, although, you know, as I pointed out at the last press conference, the timing of that is pretty uncertain, and so are the effects in the near term. But over time, it seems likely that these very specific things that are driving up inflation will be temporary. And moving on, we’ll be looking. We’ll be looking at the monthly pricing data. I’ll also say that the labor market is going to be important, both for the maximum employment goal, but also for inflation. And we’ll be looking at that. And as I mentioned, we expect and I expect that we’ll see increases in supply over coming months as the factors that we believe have been suppressing supply abate, wane, move down. So, I can’t give you an exact number and exact time. But I would say that we do expect inflation to move down. If you look at the forecast for 2021 and — sorry, 2022 and 2023, among my colleagues on the on the Federal Open Market Committee, you will see that people do expect inflation to move down meaningfully toward our goal. And I think the full range of inflation projections for 2023 falls between 2 and 2.3 percent, which is consistent with our goals.
CRAIG TORRES. Craig Torres at Bloomberg. If I were a businessman looking at the forecast today, I would ask how and when the Fed seeks to achieve an average of 2 percent inflation? In other words, does the FOMC have a look back period? Or does it plan to suppress inflation in outer years because over the next three years you’re going to be above inflation? So what is your look back period? Does the Committee have one? And if not, why not? And if they don’t, why isn’t this just flexible inflation targeting without an average in a range of 2 to 2 and a quarter percent? Thanks.
CHAIR POWELL. You know, so as part of our year-and-a-half-long process, the review that we did and came out with at the end of that with the new statement on longer-run goals and monetary policy strategy, we look carefully at the idea. We’ve all read all the literature around different formulas for makeup and things like that. And, we concluded — and, you know, I strongly agree — that it’s not wise to wed yourself to a particular formulation of that. So, we did adopt a discretionary — there’s an element of discretion. You know, it says that we will seek inflation that runs moderately above 2 percent for some time. And it’s meant to create a broad sense that we want inflation to average 2 percent over time. And that under the old formula, under the old framework, what was happening was 2 percent was the ceiling because all of the errors were below. You were always getting back to 2 percent. So you were bouncing back and forth between one and a half and two, and we wanted them to be centered around two. So that’s the approach that we’re taking. And you’re right, it’s not a formulaic approach. We were clear on that when we announced the framework. Was there another part of your question, Craig?
CRAIG TORRES. Ah, that pretty much answers it, Chair Powell. Thank you.
The Special Note summarizes my overall thoughts about our economic situation
SPX at 4222.02 as this post is written