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 December 13, 2023, with the accompanying “FOMC Statement” and “Summary of Economic Projections” (pdf) dated December 13, 2023.
Excerpts from Chairman Powell’s opening comments:
The Fed’s 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 high inflation poses to both sides of our mandate, and we are strongly committed to returning inflation to our 2 percent objective.
As I noted earlier, since early last year, we have raised our policy rate by 5-1/4 percentage points, and we have decreased our securities holdings by more than $1 trillion. Our restrictive stance of monetary policy is putting downward pressure on economic activity and inflation. The Committee decided at today’s meeting to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent and to continue the process of significantly reducing our securities holdings.
While we believe that our policy rate is likely at or near its peak for this tightening cycle, the economy has surprised forecasters in many ways since the pandemic, and ongoing progress toward our 2 percent inflation objective is not assured. We are prepared to tighten policy further if appropriate. We are committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation sustainably down to 2 percent over time, and to keeping policy restrictive until we are confident that inflation is on a path to that objective.
Excerpts of Jerome Powell’s responses as indicated to various questions:
RACHEL SIEGEL. Hi Chair Powell. Rachel Siegel from the Washington Post. Thanks for taking our questions. At this point, can you confidently say that the economy has avoided a recession and isn’t heading for one now, and if the answer is no, I’m curious about what you’d still be looking for.
CHAIR POWELL. I think you can say that there’s little basis for thinking that the economy is a recession now. I would say that. I think there’s always a probability that there will be a recession in the next year, and it’s a meaningful probability no matter what the economy is doing. So it’s always a real possibility. The question is, is it — so it’s a possibility here. I have always felt, since the beginning, that there was a possibility, because of the unusual situation, that the economy could cool off in a way that enabled inflation to come down without the kind of large job losses that have often been associated with high inflation and tightening cycles. So far, that’s what we’re seeing. That’s what many forecasters on and off the committee are seeing. This result is not guaranteed. It is far to early to declare victory, and there are certainly risks. It’s certainly possible that the economy will behave in an unexpected way. It has done that repeatedly through the post — in the post-pandemic period. Nonetheless, where we are is we see the things that I mentioned.
RACHEL SIEGEL. I’m curious if you’re looking back on the past year, you talked about navigating by the stars under cloudy skies. Can you talk about some of the ways in which the economy surprised you most this year where you thought it would behave in one way and had to pivot to respond? Thanks.
CHAIR POWELL. So I think forecasters generally, if you go back a year, were very broadly forecasting a recession for this year, for 2023, and not only did that not happen, that includes fed forecasters and really essentially all forecasters, a very high proportion of forecasters predicted very weak growth or a recession. Not only did that not happen, we actually had a very strong year, and that was a combination of strong demand but also real gains on the supply side. So this was the year when labor force participation picked up, where immigration picked up, where the distortions to supply and demand from the pandemic, you know, the shortages and the bottlenecks, really began to unwind. So we had significant supply side gains with strong demand, and we got what looks like a two and half percent plus or a little more than that growth year at a time when potential growth this year might even have been higher than that, just because of the healing on the supply side. So that was a surprise to just about everybody. I think the inflation forecast is roughly what people wrote down a year ago but in a very different setting, and I would say the labor market because of the stronger growth has also been significantly better. If you look back at the SEP from a year ago, there was a significant increase in unemployment. It didn’t really happen. We’re still at 3.7 percent. So we’ve seen, you know, strong growth, still a tight labor market, but one that’s coming back into balance with the — with support from the supply side, a greater supply of labor. It’s a — you know, that’s what we see, and I think that combination was not anticipated broadly.
NEIL IRWIN. Hi Chair Powell. Neil Irwin with Axios. How do you interpret the state of the labor market right now, and in particular, you’ve referred even today to evidence that it’s coming into better balance. What would you need to see to conclude that it has reached that balance?
CHAIR POWELL. So on the better balance side, there’s just a lot of things. You see job growth still strong but moving back down to more sustainable levels given population growth and labor force participation. The things that are not quite — but let me go on with that list. You know, claims are low. If you look at surveys of businesses, they’re sort of the era of this frantic labor shortage are behind us, and they’re seeing a shortage of labor as being significantly alleviated. If you look at shortages of workers, whereas they thought job availability was the highest that it’d ever been or close to it. That’s now down to more normal levels by so many measures. Participation, unemployment. So many measures, the unemployment — job openings, quits, all of those things. So wages are still running a bit above what would be consistent with 2 percent inflation over a long period of time. They’ve been gradually cooling off, but if wages are running around 4 percent, that’s still a bit above, I would say. And I guess there are just a couple of other — the unemployment rate is very, very low. And these are — but I would just say overall the development of the labor market has been very positive. It’s been a good time for workers to find jobs and get solid wage increases.
CLAIRE JONES. Claire Jones, Financial Times. You know, I’d say the mood among economists at the moment seems to be one of cautious optimism, which is somewhat corroborated by your forecast by the sense that we’re all going to have a soft landing. When we hear from the general public, there’s a lot of discord about economic conditions. What do you think explains this disconnect, and does it matter for policy makers?
CHAIR POWELL. It may be. A common theme is that while inflation is coming down, and that’s very good news, the price level is not coming down. Prices of some goods and services are coming down, but overall, in the aggregate, the price level is not going to — so people are still living with high prices, and that’s not — that is something that people don’t like. And, you know, what will happen with that is wages are now, real wages are now positive, so that wages are now moving up more than inflation as inflation comes down, and so, that might help improve the mood of people. But we do see those, we see those public opinion surveys. The thing that we can do is to do our jobs, which is to use our tools to foster price stability, which has such great benefits over such long periods of time and which is the thing that really enables us to work for and achieve an extended period of high employment, which is so beneficial for, you know, families and companies around the country.
MICHAEL MCKEE. Michael McKee from Bloomberg Television and Radio. Mr. Chairman, you were, by your own admission, behind the curve in starting to raise rates to fight inflation, and you said earlier, again, the full effects of our tightening cycle have not yet been felt. How will you decide when to cut rates, and how will you ensure you’re not behind the curve there?
CHAIR POWELL. So we’re aware of the risk that we would hang on too long. We know that that’s a risk, and we’re very focused on not making that mistake. And we do regard the two, you know, we’ve come back into a better balance between the risk of overdoing it and the risk of underdoing it. Not only that, we were able to focus hard on the price stability mandate, and we’re getting back to the point where — which is what you do when you’re very far from one of them, one of the two mandates, you’re getting now back to the point where both mandates are important, and they’re more in balance too. So I think we’ll be very much keeping that in mind as we make policy going forward. And the things we’ll be looking at, I’ve already described. You know, we’re obviously looking hard at what’s happening with demand, and what we see, we see the same thing other people see, which is a strong economy, which really put up quite a performance in 2023. We see good evidence and good reason to believe that growth will come in lower next year. And you see what the forecasts are. I think the median participant wrote down 1.4 percent growth, but you know, we’ll have to see. It’s very hard to predict. We’ll also be looking to see progress on inflation, and you know, the labor market remaining strong, but ideally without seeing the kind of large increase in unemployment that happens sometimes.
MICHAEL MCKEE. To follow up, when you begin the cutting cycle, will it be essentially run the same way you do it now with raising rates, where you basically do trial and error, cut and see what happens, or will you tie it to some particular measure of progress?
CHAIR POWELL. We haven’t typically tried to articulate, with one exception, really specific target levels, which was if you — some of you will remember the thresholds that we used in, I guess, 2013. The answer is, these are things that we haven’t, you know, really worked out yet. We’re sort of just at the beginning of that discussion.
EDWARD LAWRENCE. Thank you, Mr. Chairman. Edward Lawrence of Fox Business. So if the Fed cuts rates as the dot plot is showing, about 75 basis points, does that signal that there’s a belief of weakness next year in the economy?
CHAIR POWELL. It wouldn’t, if that were — first of all, let me just say, that isn’t a plan. That’s just cumulating what people wrote down. So that’s not something, you know this, but allow me to say it again. We don’t debate or discuss what right, you know, whose SEP is right. We just say what they are, and we tabulate them and publish them. So, and it’s, you know, it’s important for people to know that. But it wouldn’t need to be a sign of — it could just be a sign that the economy is normalizing and doesn’t need the tight policy. It depends on — the economy can evolve in many different ways, right. But it could be more what I just described.
EDWARD LAWRENCE. And you focused core inflation, we’ve heard in other meetings. How sticky is core inflation right now?
CHAIR POWELL. Well, that’s what we’re finding out, and we’ve, you know, we’ve seen real progress in core inflation. It has been sticky, and famously, the service sector is thought to be stickier, but we’ve actually seen reasonable progress in nonhousing services, which was the area where you would expect to see less progress. We are seeing some progress there though. In fact, all three of the categories of core are now contributing goods, housing services, nonhousing services. They’re all contributing at different levels, you know, meeting by meeting — or rather, report by report. So, yeah.
MEGAN CASSELLA. Hi Chair Powell. Thanks for taking our questions. Megan Cassella with Barron’s. I want to ask about the balance sheet given the Fed’s focus now on proceeding carefully and considering rate cuts, and can you talk us through what the latest thinking is and has there been any consideration of altering the pace of a quantitative tightening at all?
CHAIR POWELL. We’re not talking about altering the pace of QT right now, just to get that out of the way. So balance sheet seems to be working pretty much as expected. What we’ve been seeing is, you know, that we’re allowing runoff each month. That’s adding up. I think we’re down, we’re close to 1.2 trillion now. That’s showing up. The reverse repo facility has been coming down quickly, and reserves have been either moving up, or as a result, or holding steady. At a certain point, you know, there won’t be any more to come out of, or there’ll be a level where the reverse repo facility levels out. And at that point, reserves will start to come down. You know, we still have — you know that we intend to reduce our securities holders until we judge that the quantity of reserve balances has reached a level somewhat above that consistent the ample reserves, and we also intend to slow and then stop the decline and size of the balance sheet when reserve balances are somewhat above the level judged to be consistent with ample reserves. We’re not at that levels, you know, with reserves close to 3.5 trillion. We’re not — we don’t think we’re at those reserves. There isn’t a lot of evidence of that. We’re watching it carefully, and you know, so far it’s working pretty much as expected we think.
MEGAN CASSELLA. [inaudible] adjusting that thinking at all by the time you’re considering or moving forward with rate cuts? Is that time to rethink, or are you still going to follow that thinking?
CHAIR POWELL. So I think they’re on independent tracks. You’re asking, though, the question, I guess you’re implying the question of can you continue with QT at such time, QT, which is a tightening action, at such time as policy is still tight. And the answer is it depends on the reason. You know, if you’re cutting rates because you’re going back to normal, that’s one thing. If you’re cutting them because the economy is really weak. So you can imagine, you’d have to know what the reason is to know whether it would be appropriate to do those two things at the same time. Thank you. Thanks very much
The Special Note summarizes my overall thoughts about our economic situation
SPX at 4734.51 as this post is written