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 January 31, 2024, with the accompanying “FOMC Statement.”
Excerpts from Chair Powell’s opening comments:
Over the past two years, we have raised our policy rate by 5-1/4 percentage points, and we have decreased our securities holdings by more than $1.3 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.
We believe that our policy rate is likely at its peak for this tightening cycle and that, if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year. But the economy has surprised forecasters in many ways since the pandemic, and ongoing progress toward our 2 percent inflation objective is not assured. The economic outlook is uncertain, and we remain highly attentive to inflation risks. We are prepared to maintain the current target range for the federal funds rate for longer, if appropriate.
Excerpts of Jerome Powell’s responses as indicated to various questions:
NICK TIMIRAOS. Nick Timiraos, The Wall Street Journal. Chair Powell, it seems to me you raised rates rapidly over the last two years for two reasons. One was the risk of a wage price spiral. Two, there were risks of inflation expectations becoming unanchored. This morning’s ECI report for the fourth quarter shows private sector payroll growth running at a sub-4-percent pace. Inflation expectations are very close to where they were before the inflation emergency of the last three years. And given that you appear to have substantially cut off these two tail risks, and that you’ve judged here today current policy as well into restrictive territory, what good reason is there to keep policy rates above 5 percent? Are you really going to learn more waiting six weeks versus three months from now that you have avoided those two risks?
CHAIR POWELL. So, as you know, almost every participant on the committee does believe that it will be appropriate to reduce rates, and partly for the reasons that you say. We feel like inflation is coming down. Growth has been strong. The labor market is strong. What we’re trying to do is identify a place where we’re really confident about inflation getting back down to 2 percent so that we can then begin the process of dialing back the restrictive level. So, overall, I think people do believe, and as you know, the median participant wrote down three rate cuts this year. But I think to get to that place where we feel comfortable starting the process, we need some confirmation that inflation is, in fact, coming down sustainably to 2 percent.
NICK TIMIRAOS. If I could ask differently, if you hold rates high as inflation moderates, as it has been, target rates will exceed the prescriptions of the Taylor Rule experience. What would be the reasoning for holding rates higher than the levels recommended by those rules in the current instance?
CHAIR POWELL. Well, look, I think, as you know, we consult the range of Taylor rules and non-Taylor kind of rules. We consult them regularly. They’re in our Teal Book, and they’re in all the materials that we look at. But, you know, I don’t think we’ve ever been at a place where we were setting policy by them. And depending on the rule, it will tell you different things. There are many different formulations. Another way to think about it is, implicitly, in theory, of course, real rates go up if holding all else equal as inflation comes down. But that doesn’t mean we can mechanically adjust policy as real rates — sorry, as inflation comes down. It doesn’t mean that at all. Because, for one thing, we look at more than just the fed funds rate. We look at, broadly, financial conditions. But in addition, we don’t know with great confidence where the neutral rate of interest is at any given time. But that also doesn’t mean that we wait around to see, you know, the economy turn down, because that would be too late. So we’re really in a risk management mode of managing the risk, as I mentioned in my opening remarks, managing the risk that we move too soon and move too late. And I think to move, which is where almost everyone on the Committee is in favor of moving rates down this year. But the timing of that is going to be linked to our gaining confidence that inflation is on a sustainable path down to 2 percent.
RACHEL SIEGEL. I guess just as a quick follow-up, do you feel comfortable at this point saying the economy has reached a soft landing, or is that part of looking for more confidence?
CHAIR POWELL. No, I wouldn’t say we’ve achieved that. And I think we have a ways to go. Inflation is still, you know, core inflation is still well above target on a 12-month basis. Twelve months is our target, certainly. I’m encouraged, and we’re encouraged by the progress. But, you know, we’re not declaring victory at all at this point. We think we have a ways to go.
EDWARD LAWRENCE. Edward Lawrence from Fox Business. Thank you, Mr. Chairman, for taking this. So as I’ve heard from some district Fed presidents, is it in your view a little premature to think that rate cuts are right around the corner? And then when we do see that first rate cut, should we interpret that as the beginning of a rate cut cycle or is it a one-off?
CHAIR POWELL. So I’ll point you to that language on your first question. We included that language in the statement to signal clearly that with strong growth, strong labor market, inflation coming down, the Committee intends to move carefully as we consider when to begin to dial back the restrictive stance that we have in place. So if you take that to the current context, we’re going to be data-dependent. We’re going to be looking at this meeting by meeting. Based on the meeting today, I would tell you that I don’t think it’s likely that the Committee will reach a level of confidence by the time of the March meeting to identify March as the time to do that. But that’s to be seen. So I wouldn’t call — you know, when you ask me about in the near term, I’m hearing that as March. I would say that’s probably not the most likely case or what we would call the base case. And your second question is –
EDWARD LAWRENCE. Is this the start of a — when we see a cut, is it the start of a cutting cycle or could it just be a one off?
CHAIR POWELL. You know, that’s going to depend on the data. The whole thing is, this is going to depend on the data. We’re going to be looking at the economic data as it affects the outlook and the balance of risks. And we’re going to make our decisions based on that. And it could wind up, you know, we’ll have another SEP at the March meeting and people will write down what they think. But in the end, it’s really going to depend on how the economy evolves. We talked about, there are risks that would cause us to go slower. For example, stronger inflation, more persistent inflation. There are risks that if they happen, that would cause us to go faster or sooner. And that would be a weakening in the labor market or for that matter, very, very persuasive lower inflation. Those are the kinds of things. So we’re just going to be reacting to the data. That’s really the only way we can do this.
The Special Note summarizes my overall thoughts about our economic situation
SPX at 4888.96 as this post is written