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 November 1, 2023, with the accompanying “FOMC Statement.”
Excerpts from Chair Powell’s opening comments:
Since early last year, the FOMC has significantly tightened the stance of monetary policy. We have raised our policy interest rate by 5-1/4 percentage points and have continued to reduce our securities holdings at a brisk pace. The stance of policy is restrictive, meaning that tight policy is putting downward pressure on economic activity and inflation, and the full effects of our tightening have yet to be felt. Today, we decided to leave our policy interest rate unchanged and to continue to reduce our securities holdings. Given how far we have come, along with the uncertainties and risks we face, the Committee is proceeding carefully. We will make decisions about the extent of additional policy firming and how long policy will remain restrictive based on the totality of the incoming data, the evolving outlook, and the balance of risks. I will have more to say about monetary policy after briefly reviewing economic developments.
Inflation remains well above our longer-run goal of 2 percent. Total PCE prices rose 3.4 percent over the 12 months ending in September. Excluding the volatile food and energy categories, core PCE prices rose 3.7 percent. Inflation has moderated since the middle of last year, and readings over the summer were quite favorable. But a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal. The process of getting inflation sustainably 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.
Excerpts of Jerome Powell’s responses as indicated to various questions:
HOWARD SCHNEIDER. Howard Schneider with Reuters. Thank you, Chair Powell, for doing this. To what you referenced, the rise in long-term bond yields, to what degree is that the planned action by the Fed at this meeting?
CHAIR POWELL. Thanks for your question. So, I’ll talk about bond yields, but I want to take a second and just sort of set the broader context in which we’re looking at that. So, if you look at the situation, let’s look at the economy first. inflation has been coming down, but it’s still running well above our 2 percent target. The labor market has been rebalancing but it’s still very tight by many measures. GDP growth has been strong, although many forecasters are forecasting and they have been forecasting that it will slow. As for the Committee, we are committed to achieving a stance of monetary policy that’s sufficiently restrictive to bring inflation down to 2 percent over time. And we’re not confident yet that we have achieved such a stance. So that is the broader context into which this strong economy and all the things I said, that’s the context in which we’re looking at this question of rates. So, obviously we’re monitoring, we’re attentive to the increase in longer-term yields and which have contributed to a tightening of broader financial conditions since the summer. As I mentioned, persistent changes in broader financial conditions can have implications for the path of monetary policy. In this case, the tighter financial conditions we’re seeing from higher long-term rates but also from other sources like the stronger dollar and lower equity prices could matter for future rate decisions, as long as two conditions are satisfied. The first is that the tighter conditions would need to be persistent and that is something that remains to be seen. But that’s critical, things are fluctuating back and forth, that’s not what we’re looking for. With financial conditions, we’re looking for persistent changes that are material. The second thing is that the longer-term rates that have moved up, they can’t simply be a reflection of expected policy moves from us that we would then, that if we didn’t follow through on them, then the rates would come back down. So, and I would say on that, it does not appear that an expectation of higher near-term policy rates is causing the increase in longer-term rates. So, in the meantime though, perhaps the most important thing is that these higher Treasury yields are showing through a higher borrowing cost for households and businesses and those higher costs are going to weigh on economic activity to the extent this tightening persists and the mind’s eye goes to the 8 percent, near 8 percent mortgage rate, which could have pretty significant effect on housing. So, that’s how I would answer your question.
HOWARD SCHNEIDER. Just as a quick follow on to be clear on this; in your opening statement just now, you seemed to imply that you are not yet confident that financial conditions are restrictive enough to finish the fight. Is that true?
CHAIR POWELL. Yes, that’s exactly right. To say it a different way, we haven’t made any decisions about future meetings. We have not made a determination and we’re not, I will say that we’re not confident at this time that we’ve reached such a stance. We’re not confident that we haven’t, we’re not confident that we have. And that’s, that is the way we’re going to be going into these future meetings is to be just determining the extent of any additional further policy tightening that may be appropriate to return inflation to 2 percent over time.
RACHEL SIEGEL. Hi Chair Powell. Rachel Siegel from the Washington Post. Thanks for taking our questions. You’ve spoken before about the pain that would likely be coming for the economy in order to get inflation down. But since the economy has not responded to rate hikes in ways that would normally be expected, have you changed your views on that at all on how necessary or inevitable that kind of pain would be, say for the labor market or overall growth?
CHAIR POWELL. Well I think everyone has been very gratified to see that we’ve been able to achieve pretty significant progress on inflation without seeing the kind of increase in unemployment that has been very typical of rate hiking cycles like this one. So that’s a historically unusual and very welcome result. And the same is true of growth, we’ve been saying that we need to see below potential growth and growth has been strong but yet we’re still seeing this. I think I still believe and my colleagues for the most part I think still believe, that is likely to be true. It is still likely to be true, not a certainty but likely that we will need to see some slower growth and some softening in the labor market, in labor market conditions to get to fully restore price stability. So, but it’s only a good thing that we haven’t seen it and I think we know why. Since we lifted off, we have understood that there are really two processes at work here, one of which is the unwinding of the distortions to both supply and demand from the Pandemic and the response to the Pandemic. And the other is restrictive monetary policy which is moderating demand and giving the supply side time to recover, time and space to recover. So you see those two forces now working together to bring down inflation. But it’s that first one can bring down inflation without the need for higher unemployment or slower growth, it’s just, it’s supply side improvements like shortages and bottlenecks and that kind of thing going away. It’s getting a significant increase in the size of the labor market now, both from labor force participation and from immigration. That’s a big supply side gain that is really helping the economy and it’s part of why GDP is so high is because we’re getting that supply. So, we welcome that. But I think those things will run their course and we’re probably still going to be left, we think, and I think, we’ll still be left with some ground to cover to get back to full price stability and that’s where monetary policy and what we do with demand is still going to be important.
RACHEL SIEGEL. Against that backdrop, if you’ve gotten any clarity on lags. If you have an economy that’s been so resilient to high rate increases, does that suggest to you that there isn’t necessarily this huge wave of tightening that’s still coming through the pipeline and that it may have already come into effect?
CHAIR POWELL. You know, I continue to think it’s very hard to say. So it’s been one year at this meeting, one year ago this was the fourth of our 75 basis points hikes, so that’s a full year since then. I think we are seeing the effects of all the hiking we did last year and this year we’re seeing it. It’s very hard to know exactly what that might be. But you can, for example, an example where you wouldn’t have felt this yet is debt that had been termed out. But it’s going to come due and have to get rolled over next year or the year after. So, and there are little things like that where the effects have just taken time to get into the economy. So I don’t, I think we have to make monetary policy under great uncertainty about how long the lags are. I think trying to make a clear, get a clear answer and say, I’m just going to assume this, is really not a good way to do it. And this is one of the reasons why we have slowed the process down this year was to give monetary policy time to get into the economy and it takes time, we know that, and you can’t rush it. So, doing, slowing down is giving us I think a better sense of how much more we need to do. If we need to do more.
The Special Note summarizes my overall thoughts about our economic situation
SPX at 4297.33 as this post is written