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tv   Federal Reserve Chair Powell Holds News Conference  CSPAN  June 19, 2021 7:01pm-8:03pm EDT

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works director on his book, "one politicians panicked." sunday night at 8:00 p.m. eastern on c-span's q&q. you can also listen to q&a whereof you get your podcast. >> fed chair jerome powell announced interest rates would be held near zero, but increases could come as early as 2023. this runs one hour. chairman powell: good afternoon. at the federal reserve, we are strongly committed to achieving the monetary policy goals that congress has given us -- maximum employment and price stability. today, the federal open market committee kept interest rates near zero and maintained our asset purchases.
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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. widespread vaccinations, along with unprecedented fiscal policy actions, are also providing strong support to the recovery. indicators of economic activity and employment have continued to strengthen, and real gdp this year appears to be on track to post its fastest rate of increase in decades. much of this rapid growth reflects the continued bounce back in activity from depressed levels. the sectors most adversely affected by the pandemic remain weak, but have shown improvement. household spending is rising at a rapid pace, boosted by the ongoing reopening of the economy, fiscal support, and accommodative financial conditions. the housing sector is strong, and business investment is increasing at a solid pace. in some industries, nearterm
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supply constraints are restraining activity. forecasts from fomc participants for economic growth this year have been revised up since our march summary of economic projections. even so, the recovery is incomplete, and risks to the economic outlook remain. as with overall economic activity, conditions in the labor market have continued to improve, although the pace of improvement has been uneven. employment rose 419,000 per month on average in april and may, with the leisure and hospitality sector continuing to post notable gains. employment in this sector and the economy as a whole remains well below pre-pandemic levels. the unemployment rate remained elevated in may at 5.8 percent, and this figure understates the shortfall in employment, particularly as participation in the labor market has not moved up from the low rates that have prevailed for most of the past
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year. factors related to the pandemic, such as caregiving needs, ongoing fears of the virus, and unemployment insurance payments appear to be weighing on unemployment growth. these factors should wane in coming months against a backdrop of rising vaccinations, leading to more rapid gains in employment. looking ahead, fomc participants project the labor market to continue to improve, with the median projection for the unemployment rate standing at 4.5 percent at the end of this year, and declining to 3.5 percent by the end of 2023. the economic downturn has not fallen equally on all americans, and those least able to shoulder the burden have been hardest hit. in particular, despite progress, joblessness continues to fall disproportionately on lower-wage workers in the service sector
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and on african americans and hispanics. inflation has increased notably in recent months. the 12-month change in pce prices was 3.6 percent in april and will likely remain elevated in coming months before moderating. part of the increase reflects the very low readings from early into pandemic falling out of the calculation, as well as the pass-through of past increases in oil prices to consumer energy prices. beyond these effects, we are also seeing upward pressure on prices from the rebound in spending as the economy continues to reopen, particularly as supply bottlenecks have limited how quickly production in some sectors can respond in the near term. these bottleneck effects have been larger than anticipated, and fomc participants have revised up their projections for inflation notably for this year. as these transitory supply effects abate, inflation is expected to drop back toward our longer-run goal, and the median inflation projection falls from 3.4% this year, to 2.1% this year and 2.2% in 2023.
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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
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appears broadly consistent with our longer-run inflation goal of 2%. 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. the pandemic continues to pose risks to the economic outlook. progress on vaccinations has limited the spread of covid-19 and will likely continue to reduce the effects of the public health crisis on the economy. however, the pace of vaccinations has slowed and new strains of the virus remain a risk. continued progress on vaccinations will support a return to more normal economic conditions. the fed's policy actions have 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 the committee reiterated in today's policy statement, with inflation having run persistently below 2
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percent, we will aim to achieve inflation moderately above 2% for some time, so that inflation averages 2% over time and longer-term inflation expectations remain well anchored at present. we expect to maintain an accommodative stance of monetary policy until these employment and inflation outcomes are achieved. with regard to interest rates, we continue to expect that it will be appropriate to maintain the current 0 to percent target range for the federal funds rate until labor market conditions have reached levels consistent with the committee's assessment of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. as is evident in the sep, many participants forecast that these favorable economic conditions will be met somewhat sooner than previously projected. the median projection for the appropriate level of the federal funds rate now lies above the effective lower bound in of 2023. course, these projections do not represent a committee decision or plan, and no one knows with any certainty where the economy will be a couple of years from now. more important than any forecast is the fact that, whenever liftoff comes, policy
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will remain highly accommodative. reaching the conditions for liftoff will mainly signal that the recovery is strong and no longer requires holding rates near zero. in addition, we are continuing to increase our holdings of treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward our maximum-employment and price- the increase in our balance sheet since march 2020 has materially eased financial conditions and is providing substantial support to the economy. at our meeting that concluded earlier today, the committee had a discussion on the progress made toward our goals since the committee adopted its asset purchase guidance last december. while reaching the standard of “substantial further progress” is still a ways off, participants expect that
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in coming meetings, the committee will continue to assess the economy's progress toward our goals. as we have said, we will provide advance notice before announcing any decision to make changes to our purchases. on a final note, we made a technical adjustment today to the federal reserve's administered rates. the ioer and overnight rrp rates were adjusted upward by 5 basis points in order to keep the federal funds rate well within the target range and to support smooth functioning in money markets. this technical adjustment has no bearing on the appropriate path for the federal funds rate or stance of monetary policy. to conclude, we understand that our actions affect communities, families, and businesses across the country. everything we do is in service to our pup. we at the fed will do everything we can to support the economy for as long as it takes to complete the recovery. thank you. i look forward to your questions. >> rachel siegel, the washington post.
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>> thank you, michelle, and thank you, chair powell, for taking our questions. i'm wondering if you can walk us through expectations you have specifically when it comes to the labor market and i'm curious about people who may have left the labor market, who have yet to come back or who may face issues with childcare. perhaps they've retired early. any barriers that you see keeping people from the labor market as you consider full employment going into 2023? thank you. chairman powell: thank you. so, i would say if you look at the labor market and you look at the demand for workers, and the level of job creation and think ahead, i think it's clear and i am confident that we are on a path to a very strong labor market -- a labor market that shows low unemployment, high participation, rising wages for people across the spectrum. i mean i think that's shown in , our projections, it's shown in outside projections. and if you look through the
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current time frame and think one and two years out, we're going to be looking at a very, very strong labor market. in terms of exactly what that means, we'll have to see how things evolve. i think we learned during the course of the last very long expansion, the longest in our history, that labor supply during a long expansion can exceed expectations, can move above its estimated trend. and i have no reason to think think that won't happen again. at the same times, -- at the same time, we have seen -- in terms of participation, we've seen a significant number of people retire. and so we don't actually know exactly what labor force participation will be as we go forward. but i would tend to look at it and think that it can return to high levels, although it may take some time to do that. but overall, this is going to be, you know, a very strong labor market. in terms of the near term, you ask as well -- so we see a couple of things, a few things that seem likely to be
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holding back labor supply. there are very large amounts of job openings and there are a very large number of people who are unemployed. and the pace of filling those jobs somehow feels slower than it might be. so i would point to a number of things. the first of which is just that most of the act of sort of going back to one's old job -- that's kind of already happened. so this is a question of people finding a new job. and that's just a process that takes longer. there may be something of a speed limit on it. you've got to find a job where your skills match, you know, what the employer wants. it's got to be in the right area. there's just a lot that goes into the function of so that's sort of a finding a job. so that's sort of anatural thing. in addition, i would say that we look at, for example, a significant number of people still say that they're concerned about going back to work in jobs
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where there's a lot of public facing because of because of covid. so that's clearly holding back some people, and that should diminish as vaccinations move ahead. there is also the question of childcare. many are engaged in caretaking. and as schools reopen and childcare/daycare centers open in the fall, then we should see that supporting labor force participation by caretakers. finally, unemployment insurance for something like 15 million people will either end or be diminished as we move through the summer and into the fall by the end of and that may also september. encourage some to go back in and take jobs. so you would think that that would add to an increase in job creation as well. so you put all those together, i would expect that we would see strong job creation building up over the summer and going into the fall. i will also say though, the last thing i'll say is this is an
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extraordinarily unusual time. and we really don't have a template or, you know, any experience of a situation like this. and so i think we have to be humble about our ability to understand the data. it's not a time to try to reach hard conclusions about the labor market, about inflation, about the path of policy. we need to see more data. we need to be a little bit patients. and i do think though, that we'll be seeing some things coming up in coming months that will inform our thinking. >> thank you. 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
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those kinds of rates before you get nervous. thanks. chairman 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
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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 are 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 will 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.
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and we will 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 but i would say that we do number and exact time. expect inflation to move down. if you look at the forecast for 2021 and -- sorry, 2022 and 2020 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. >> thank you. now we'll go to ylan mui at , cnbc.
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>> hi, thank you, chair powell, for doing this. my question for you is that you mentioned that your colleagues did have a discussion about the progress that you are making toward your goals in order to consider tapering asset purchases. in that discussion, you said that you haven't made substantial progress yet, but that you expect to continue to in that discussion, did you guys make progress. in that discussion, did you guys talk about a timeline for when you expect to see that progress be made, and when you might consider starting to reduce those purchases? chairman powell: right. so i expect that we'll be able to say more about timing as we see more data. basically, there's not a lot of more light i can shed on that. but you can think of this meeting that we had as the talking about talking about meeting, if you like. and i now suggest that we retire that term, which has served its purpose well, i think. so committee participants were of the view that since we adopted that guidance in december, the economy has clearly made progress, although we are still
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a ways from our goal of substantial further progress. participants expect continued progress ahead toward that objective. and assuming that is the case, it will be appropriate to consider announcing a plan for reducing our asset purchases at a future meeting. so at coming meetings, the committee will continue to assess the economy's progress toward our goals, and we'll give advance notice before announcing any decision. the timing, of course, ylan, will depend on the pace of that progress and not on any calendar. >> thank you. now we'll go to chris rugaber, , ap. >> right. thank you. well, you mentioned -- let me ask about inflation expectations. you said they were -- i think you mentioned in your opening statement that you saw them as within targets. does that mean that some of the shorter-term measures we've seen out there, such as the new york federal reserve's three-year outlook, which jumped a bit -- should
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those sort of be dismissed? and are we only looking at longer-term inflation expectations? and would you describe those as still well-anchored at this point? and on a related note, would they fed consider publishing its index of common inflation expectations on a monthly basis? thank you. chairman powell: so we do tend to look at the longer-term inflation expectations, because that's really, we think, what matters for inflation. and you know, the shorter-term ones do tend to move around based on for example, gasoline prices. so you'll see if gasoline prices were to spike, you'll see the shorter-term inflation expectation measures, particularly the surveys, move up. and that's maybe not a good signal for future inflation if gas happens to spike and then
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go back down again. so, we -- yes, i think if you look at the broad range of longer-term inflation expectations, they've moved up. they moved down during the beginning of the pandemic, you know, sort of further exacerbating concerns that we might find ourselves where, for example, the ecb and the bank of japan been where you have expectations and inflation itself sliding down, and you have a really hard time stopping that process once it begins. so that was a concern. so it's good actually to see longer-term inflation expectations move back up to a range -- it's a range that's consistent with what our objectives are. these are not precise measures. and they contain risk premiums of various kinds. and that's why we look at a broad range of them and tend to look at the movement of that broad range of indicators, which are from, you know, surveys of
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economists, surveys of the public and also market-based. it's a wide index, as i'm sure you know. we look at that, and we see them back in the range where they were. and by the way, they've been broadly higher than that, somewhat modestly higher than that, not so many years ago, at a time when inflation was still anchored at around 2 percent, or maybe even a little bit below. so the answer is yes, i think they are anchored and they're at a good place right now. it's gratifying to see them having moved up off of their pandemic lows. and, you know, as you know, it's fundamental in our framework, our new framework, to assure that inflation -- longer-term inflation expectations are anchored at a place that is consistent with our goal. we think that is an important reason. if inflation expectations are not anchored at a place that's consistent it's not clear why with your goals it's not clear why you would expect to hit your , goal over the longer-term. so it is important. >> okay, now we'll go to james
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politi with eft. >> thanks chair powell. , your economic projections today forecast 7 percent growth in 2022, unemployment at 4 and half percent and core inflation of 3%. if those conditions are achieved by the end of the year, would that constitute substantial further progress in your mind? and kind of more broadly, when you look at the sort of median forecast for interest rates in 2023, showing not one but two interest rate increases at that time i mean, is this kind of -- , can you describe the sort of tone of the discussion in the committee? and are we really moving towards sort of a post-pandemic stance? is there greater confidence that, you know, the recovery will be, you know, a full recovery sooner than expected? chairman powell: on your first
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question, the judgment of when we have arrived at substantial further progress is one that the committee will make . and it would not be appropriate for me to lay out particular numbers that do or do not qualify. that is, you know, the process that we're beginning now at the next meeting. we will begin, meeting by meeting, to assess that progress and talk about what we think we're seeing, and just do all of the things that you do to sort of clarify your thinking around the process of deciding whether and how to adjust the pace and composition of asset purchases. in terms of the two hikes -- so let me say a couple things. first of all, not for the first time about the dot plot. these are, of course, individual projections. they're not a committee forecast, they are not a plan. and we did not actually have a
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discussion of whether lift-off is appropriate at any particular year, because discussing lift-off now would be highly premature, wouldn't make any sense. if you look at the transcripts from five years ago you'll see , that sometimes people mentioned their rate path in their interventions. often, they don't. and the last thing to say is, the dots are not a great forecaster of future rate moves. and that's not because -- it's just because it is so highly uncertain. there is no great forecaster of future dots. so, dots to be taken with a big grain of salt. however, so let me talk about this meeting. the committee spelled out, as you know, in our fomc statements, the conditions that it expects to see before an adjustment in the target ranges made. and it is outcome-based, it is not time-based.
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and as i mentioned, it's labor market conditions consistent with maximum employment, inflation at 2 percent and on track to exceed 2%. in the projections, it gives some sense of how participants see the economy evolving in their most likely case. and honestly, the main message i would take away from the sep is that participants -- many participants are more comfortable that the economic conditions in the committee's forward guidance will be met somewhat sooner than previously anticipated. and that would be a welcome development. if such outcomes materialize, it means the economy will have made faster progress toward our so, the other thing i'll say is goals. so, the other thing i'll say is rate increases are really not at all the focus of the committee. the focus of the committee is the current state of the economy. but in terms of our tools, it's about asset purchases. that's what we're thinking about. lift-off is well into the the future. the conditions for lift-off -- we're very far from maximum employment it's a , for example. consideration for the future. so the near term thing is really -- the real near term discussion that will begin is really about
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the path and as i mentioned, we of asset purchases. and as i mentioned, we about had a discussion that today, and expect to in future meetings continue to think about our >> >> progress. thank you. we'll go to nancy marshall-genzer from marketplace. >> chair powell, continuing in that vein, when you're ready, how will you go about signaling the start of tapering when you do decide to do that? chairman powell: so our intention for this process is that it will be orderly, methodical and transparent. and i can just tell you, we see real value in communicating well in advance what our thinking is. and we will try to be clear. and as i mentioned, we'll give advance notice before announcing the decision to taper. and so all i can say is that we think it's important -- we think where the balance sheet's concerned, a lot of notice, as much transparency as we can give and as far in advance as we can to give people a chance to
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adjust their expectations. and you know, we expect to be in that business until we reach substantial further progress, and then have a decision again, i have nothing further on time. it wouldn't be appropriate to say. we're going to have to see more data. we're a ways away from substantial further progress, we think. but we're making progress. >> so, you can't say generally how far in advance you would signal? chairman powell: again, as we as we approach that goal, we'll provide, you know, as much clarity as we can. >> great, thank you. if i'm a businessman looking at a forecast, i would ask how and when that seeks to achieve an average of 2% inflation. in other words, is there a look back period? or is there a plan to suppress inflation a matter of years, because over the next three years, you are going to be above inflation. what is your look back period,
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does the committee have one? if they don't, why isn't this flexible inflation targeting without an average in a range of 2%, 2.25%? chairman powell: as part of our process, the review we did came out at the end with a new longer will and monetary policy strategy, we looked around all of the literature around different formulas for makeup and things like that and concluded, i strongly agree it not wise to wedge yourself to a particular formulation. we did adopt a discretionary. there is an element, it says we will seek inflation that runs moderately above 2% for some time, and it is meant to create
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a broad sense we want inflation to average 2% over time but under the old formula and framework what was happening was , 2% was the ceiling because the errors were below. you were always bouncing back between 1.5% and 2%, and we wanted it centered around 2%. you are right, it is not a formulaic approach. we were clear on that. with another part of your question? >> that pretty much answers it, thank you. >> we will go to michael. >> i was curious if you are concerned about the level of slowing the reverse, and you
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believe changes in the toolkit will have any impact on that? do you think that fed asset purchases are taking too many safe assets out of the market right now, currently some dislocations in the money markets? chairman powell: on the facility, we think it is doing its job. we think the facility is doing what it is supposed to, which keeps the federal funds rate well within its range. we are not concerned with it, you have unusual situation where the treasury account is shrinking, we are buying asserts, there is downward pressure on short-term rates. that facility is doing what we think it is supposed to do. your second question was again?
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reporter: the change in the rate-control toolkit? do you think that will reduce the month of money coming into reverse repose and have any impact on money market conditions beyond the fed funds rate settings? chairman powell: it could have some impact. i think we will have to see empirically. it is designed to keep federal funds rate within the range and i do think it could have some effect on broader money market conditions below, as it relates to the very low rates and the downward pressures. reporter: do think it will lower uptake on the reverse repo facility, or is that not a focus? chairman powell: it is not. you would think that it would, but we will have to see. it is possible that that would not the case. that is going to be an empirical question. reporter: thank you. >> we will go to jean at "the new york times." reporter: i was wondering if you
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could follow-up a little bit on your response to rachel at the beginning, and talk about how we should understand all the data all the data that has been roiled by the pandemic, and we are not sure where relocation is going to settle in. i am wondering how you are thinking about those wage data. chairman powell: as you know, there isn't one indicator we can look to and there isn't one number we can therefore point to. we look at range of indicators and it is a very broad range. you could count to a high number but certainly it will include things like employment participation and wages, and many different flavors of that. how do we think about it? a couple things. we are all going to be informed by what we saw in the last
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cycle, which was labor supply outperforming expectations over a long period of time. that hadn't happened and many cycles, -- long period of time. that hadn't happened in many cycles. we had a slew of retirements that may weigh on participation. that effect, though, should wear off in a few years as you move through that window, because people would have retired anyway and you will be back to where you would have been. lesson number one is just be careful about assessing maximum employment and during the last cycle, there were waves of concern that we were reaching a low employment as early as 2012 when i arrived at the fed.
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and eight years later, we were still creating jobs. it was quite remarkable. we are all going to be informed by that. at the same time, we understand that this is a different economy. the demographics, people are getting older, and that should have a secular effect of reducing participation over time. so we have to be sensible about what can be done, but i think we are going to lean into being optimistic. you asked about wages. we are saying wage increases. that is a natural thing to be seeing in a strong economy. what would be troubling would be very wide, across the economy, wages at unsustainable levels without high inflation, in other words, wages in excess of road -- productivity and inflation by a meaningful amount, broadly
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across the economy, forcing companies to keep raising pricing -- keep raising prices and get into a weight-price formula. that is an old formula for having high inflation. we don't see that now. she high wages. we see that mostly for people entering into new jobs, many low-skilled jobs, but you have got a thing in the labor market now where supply and demand are not matched up well. and we think with a flexible economy there will be a level where supply and demand meet, and that will happen in coming months. if you look at the forecast, we are going to be in a very strong labor market pretty quickly. there is still a big group of unemployed people and we are
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not going to forget about them. we are going to do everything we can to get people back into work and give them a chance to work, but there is every reason to think we'll be in a labor market with very attractive numbers -- low unemployment, higher participation in rising wages across the spectrum. that is how we are looking at the labor market. >> thank you. >> hi, i wanted to ask about the status of your thinking around the supplementary leverage ratio right now. is the fed still thinking about ways to permanently adjust this to account for the high growth in deposits? and do you ultimately believe a permanent fix is needed? and any information on the timing around that would be helpful. chairman powell: what i can say is we're working on it. i don't have anything to share with you in terms of the particulars or the timing right now, unfortunately. but we've always, our position has been for a long time and it is now, that we'd like the leverage ratio to be a backstop
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to risk-based capital requirements. when leverage requirements are binding, it does skew incentives for firms to substitute lower-risk assets for high-risk ones. it's a straightforward thing. and because of the substantial increase in reserves, treasuries and other safe assets in the banking system, the slr is rapidly ceasing to be the intended backstop for big firms that we want it to be. so we do think it's appropriate to consider ways to adapt it to this new highreserves environment, and we're looking hard at the issue. we would also, just to be really clear, we will take whatever actions are necessary to assure that any changes we do make or recommend do not erode the overall strength of bank capital requirements. sorry, i can't give you any more. that's just something we're working on. >> thank you. now we'll go to anneken tappe at cnn business.
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anneken: hi there. thanks for taking my question. chairman powell, the price jumps we've seen in some raw materials, lumber, for example, you mentioned that earlier, seem to be easing. and it looks like we're at the beginning of suppliers catching up with demand. but i wonder if you're worried at all, if we're going to end up with excess supply immediately after those shortages wear off. and if we just continue this mismatch, as we're recovering and getting out of the pandemic economy, and i wonder how that would affect the fed's outlook at all. chairman powell: well, that is really not the problem we're having right now. and actually, people who work in commodity industries are very focused on that, because they know that, you know, they don't want to build capacity and then find out that it's not necessary. really, the problem now is that demand is very, very strong. incomes are high, people have money in their bank accounts. demand for goods is extremely high, and it hasn't come down. we're seeing the service sector it reopening.
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and so you're seeing prices are moving back up off their lows there. but in terms of overcorrecting, i mean, i think there is a possibility on the other side of this, that inflation could actually be quite low going forward. but that's not really where our focus is right now. our focus right now is we need to, our expectation is that these high inflation readings that we're seeing now will start to abate. and that's what we think. and it'll be like the lumber experience, and like we expect the used car experience to be. with things like airplane tickets and hotels, which are the other two factors in the most recent cpi report that went up a lot, we expect that those prices will get back up to where they were, but there's no reason to think that they're going to keep going up a lot. because if they are, people will build new hotels. there's no reason for supply and demand to be out of whack in the
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hotel business over any period of time. so we think that'll happen. i think in terms of the timing and the effects on inflation in the near term, there's a lot of uncertainty. the overall story is one that we think is right, and we think the incoming data support it. and, you know, so do many, many forecasters. and if you look at the forecasts on the fomc, you will see that as well. but we don't in any way dismiss the chance that it can work out that this goes on longer than expected. and the risk would be that over time, it does begin to affect inflation expectations. and if we see inflation expectations or inflation moving up in a way that is really materially above what we would see as consistent with our goals, and persistently so, we wouldn't hesitate to use our tools to address that. price stability is half of our mandate. and we would certainly do that.
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we do not expect that, though. that is not our base case. and in that we're joined by many other forecasters, but there's a lot to be humble about among forecasters. forecasters have a lot to be humble about. it's a highly uncertain business. and we're very much attuned to the risks and watching the data carefully. in the meantime, i would say, you know, we should, as i mentioned earlier, there's so much uncertainty around this. it's just a unique situation that we need to see how things evolve in coming months and see how that story holds up, and act accordingly. >> thank you. we'll go to howard schneider at reuters. >> thanks, chair powell, for taking this. i don't want to miss the moment here. and i noticed that in the statement you dropped the language saying that the pandemic is weighing on the economy.
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so is this the effective end, in your view, of the pandemic as a constraint on economic activity, even though it's still cited as a risk? chairman powell: you know, it's a continuum, right? what you've seen with the pandemic is sharply declining cases, hospitalizations and deaths. and that's great. and that should continue. but you know, you also saw in the united kingdom, which has, i i think, at least as high if not higher vaccination rates, they've had an outbreak of the delta variety. and it's causing them to have to react to that. so you're not out of the woods at this point. and it would be premature to, in my thinking, it would be premature to declare victory. vaccination still has a ways to go to get to levels, it would be good to see it get to a substantially higher level. and you know, that can only help. so look, but you're right, the statement language is evolving. i would expect it to continue to evolve. there's a lot of judgment in that.
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but you can expect us to drag our feet a little bit on that, because that's what you do with statement language. it's great to see the progress. but again, i would not declare victory yet. i would say it is so great to see the reopening of the economy, though, and to see people out living their lives again. who doesn't want to see that? and it appears to be safe, and i just would encourage people to continue to get vaccinated. >> if i could follow up on that, if you view this statement in total and the dots and the substance as well, do you think this is more a market exercise around the improvement in health or around the inflation risks you see developing out there? chairman powell: i think it's both?
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you know, i think clearly, since march what's happened is people have grown more confident in these very strong outcomes, that they'll be achieved. very strong outcomes in the economy will be achieved. there's more grounds for comfort. we've seen growth coming higher than we expected. we've seen very strong labor demand. we've also seen, we have seen inflation above target, though, and i think even though, you know, in our forecaster's case, they do see inflation coming back down over 2022 and 2023 into areas that are very consistent with our mandate. nonetheless, the risk is something that can factor into people's thinking about appropriate monetary policy. the thing is, you know, these are 18 different forecasts, and i can't stand here and say exactly what was in all 18 people's mind. but, that is something that i think can factor into things as well, factor into our forecast as well. thank you. >> thank you. we'll go to victoria guida with politico. >> hi, chair powell. i want to ask a little bit more about inflation to make sure i understand how you're thinking about this. so in the projections, inflation
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is expected to be high this year, and then come back down next year, and then maybe start to rise a little bit again, enough for a liftoff in 2023. you know, i know, that's obviously, you know, take that with a grain of salt. but that would suggest that you all could theoretically see inflation sustainably staying above 2%. and so, i guess my question is, what would be causing that inflation? what would be, because it seems like you all now see a situation in which inflation would be rising in a way that isn't caused by transitory factors in the next couple of years. would that be the result of a tight labor market? would that be because this whole situation has raised people's inflation expectations? how are you thinking about that? chairman powell: so what we're seeing in the near term, again, base case is that what we're seeing in the near term is principally associated with the reopening of the economy, and not with a tight labor market, or tight resource constraints, really. but you're right, when you get
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to the forecast, all of that, you know, the supply and demand sides of the economy adapt. have a very highly adapted, you know, flexible economy, more so than most. and by 2023, those increases are really about, you know, rising resource utilization, or to put it a different way, you know, low unemployment, or high employment is a way to think about it. so that's what that's about. that's about the kind of broad inflationary pressure that results from, you know, a really strong expansion, tightening up resource utilization across the whole economy and lifting up inflation. and that's why you would see it then, because by then, you know, in the forecast, and it's just a forecast, they're just individual forecasts. in people's forecasts, that's what's happening. >> so the change in the
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projections reflect the fact that you all are more optimistic about the economic outlook, and not necessarily that you think that this will change the way people think about inflation? chairman powell: yeah, i think there may be an element of the latter as well, because inflation expectations have continued to move up. you know, it's all in people's individual thinking. and it's hard to say. it's not something the committee debates in terms of, you know, what the outlook is for 2023. so i'm a little bit speculating, which i shouldn't do. but it wouldn't surprise me if there's an element for some people in, you know, seeing the inflation performance that we've had. and thinking that i have more confidence that we could see inflation above 2% that it may , not be as hard to do that as we thought, and that inflation expectations may move up to a level, they were really at a level that was kind of a little below 2%. they might move up as a consequence of this, or as a consequence of the new framework. you know, we did see inflation expectations moving up in the wake of the announcement of the framework.
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but you know, we don't really know that. so, ultimately, i think it's consistent with both those things. >> thank you. now we'll go to greg robb at marketwatch. >> hi, thank you for taking my question. chair powell, i'm looking at the forecast and one thing i just don't think has been talked about all that much is how much the fed thinks that the economy is going to slow next year. i mean, are we looking at a scenario of a slowing economy next year with higher inflation? and what do you think about that? chairman powell: we're looking at an economy that will not have the degree of fiscal support. the fiscal support in the forecast is much less than it was this year. but you've still got a very strong growth, well above the longer-run potential output of the economy. you've got growth meaningfully above that, and inflation is lower next year in all of our
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forecasts, i think the range of core pce forecast for next year is 1.7% to 2.5% in 2022, and 2% to 2.23% in 2023. so you're right, you're seeing, i can't remember the number, but it might be in the 3s, 3.5% growth for next year. that's a really good year, coming on the back of a 7% growth year. that's a really good year. that's a year with a lot of momentum. you know, that'll cause significant job creation and it will, i mean, we would take 3.5%. we didn't have a 3.5% growth year. we didn't have a 3% growth year between the global financial crisis and the end of the expansion. so that would be a good year. >> doesn't it seem like there's
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a risk of, you know, like stagflation. if you're going to go from 7% and down, that means the economy's really, you know, dropping in some way. we haven't seen that, right? chairman powell: well, the economy's not decelerating. the economy is still growing, and growing at a very healthy rate. our estimate, i mean, different people have different estimates. but broadly speaking, economists think the economy has the potential to grow at around 2% per year. if you're growing above that, then the unemployment rate should be declining, people should be being pulled into the labor force, wages should be going up, lots of things should be happening, businesses should be investing. so you know, i guess to answer your question a different way, is there a risk that inflation will be higher than we think? yes. as i said earlier, you know, we don't have any certainty about the timing or the extent of these effects from reopening. and therefore, we don't think that, we think it's unlikely that they would materially affect the underlying inflation dynamics that the economy has had for a quarter of a
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century. the underlying forces around the globe that have created those dynamics are intact, and those are aging population, low productivity, globalization, all of those things that we think have, you know, really held down inflation. all that's out there still. you know, when we get through this, we may well be facing those same forces. nonetheless, is there a risk that inflation will remain higher than we than we thought? yes. and if we see inflation moving above our goals in a time, sorry, to an extent, to a level or persistently enough, you know, we would be prepared to use our tools to address that. >> thank you. going to brian cheung with yahoo. >> chair powell, brian cheung, yahoo finance. on that point, you talked about maybe some of the more structural changes in that last answer with regards to productivity. i noted that the median projection for r star, the longer term interest rate, is
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still the same at 2.5%. but there's been some literature out there that maybe the covid crisis could have actually changed some of the underlying fundamentals of the economy and maybe changed productivity, in addition to combined with demographic changes that have already been in effect to suggest that that longer-term neutral rate or r star might be higher. what would the implications of that be for monetary policy? do you think that maybe the fed could have the possibility of underestimating the long-run neutral rate? and what might be the impact of that? chairman powell: a higher neutral rate would mean that interest rates would run higher by that amount. and that would be a good thing from the standpoint of the economy, because it would give the fed more room to cut rates. the problem with interest rates being close to the lower bound, of course, is that it really cuts into our ability to react to a downturn, for example, a pandemic. and if you look, for example, at the european central bank, their policy rate was well below zero when the pandemic
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hit. so we don't want to be in a place where we can't react. a higher neutral rate would be, from that narrow standpoint, would be a good thing for us. it would give us more room, and therefore then, that would tend to result in better outcomes for the economy over time. you know, you can't estimate it with great precision. i think we would be alert to, i mean, studying r star is a whole industry unto itself. and i think we would be alert to factors that might raise r star, the neutral rate of interest. and, you know, we try to keep up with that. and i think we're all thinking about that and the possibility of that. you know, there are a lot of stories right now that essentially could lead to higher productivity growth and higher r star. we don't know which of those stories will come true. but i mean, i'll give you an example. it's just there are a lot of startups, a lot of early stage companies.
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and is that going to have that effect? we don't know. but we'll be watching those things carefully. >> great, thank you. for the last question, we'll go to michael mckee at bloomberg tv. >> mr. chairman, of course, you'll be shocked to learn that you have some critics on wall street. and i would like to paraphrase a couple of their criticisms and get your reaction to them. one is that the new policy framework is that you react to actual data and do not react to forecasts, yet the actual inflation data is coming in hot and you're relying on the forecast that it will cool down in order to make policy. i wanted to get your view on how you square that. another is that you have a long runway, you've said, for tapering with announcements. but if the data keep coming in faster than expected, are you trapped by fear of a taper tantrum from advancing the time period in which you announced a taper?
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and finally, you've said the fed knows how to combat inflation, but raising rates also slows the economy. and there's a concern that you might be sacrificing the economy if you wait too long and have to raise rates too quickly. chairman powell: so that's a few questions there. so let me say first, i think people misinterpret the framework. i think there's nothing wrong with the framework. and there's nothing in the framework that would in any way, you know, interfere with our ability to pursue our goals. that's for starters. all of our discussions and all of our thinking and planning are taking place in the context of our new framework. we're certainly committed to it, we think it's well suited to our goals, including in this unique time. and i think if you look at the forecasts that we've written down, you know, our committee is solidly behind them.
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the forecasts are all consistent with that. you know, your specific question, i guess, was, will we be behind the curve? and, you know, that's not the situation we're facing at all. the situation that we addressed in our statement on longer-run goals and monetary policy strategy was a situation in which employment was at very high levels, but inflation was low. and what we said was, we wouldn't raise interest rates just because unemployment was low and employment was high, if there was no evidence of inflation or other troubling imbalances. so that's what we said. that is not at all the current situation. in the current situation, we have many millions of people who are unemployed, and we have inflation running well above our target. the question we face with this inflation has nothing to do with our framework. it's a very difficult version of a standard investment, sorry, a central banking question. and that is, how do you separate
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in inflation, how do you separate things that follow from broad upward price pressures from things that really are a function of sort of idiosyncratic factors due to particular things? i mean, a classic example was, to pick a narrow example, was the cell phone price war back in 2017. if you remember, prices were incredibly low, and it held down core pce 3 tenths or something for a year, and then it fell out. so this is much bigger than that. and of course, it's not easy to tell in real time which is which, but that's the question you would face under really any framework. and, you know, we're trying to sort that out. i've tried to explain that today about how we think about that. and, you know, we do think that these are temporary factors, and that they'll wane. we can't be absolutely certain about the timing of that, and we're prepared to use our tools as appropriate. your second one was? oh.
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you know, we will taper when we feel that the economy has achieved substantial further progress. and we will communicate very carefully in advance on that. and that's what we're doing. that's what we're going to do, and we will follow through on that. there's no, i mean, we will do what we can to avoid a market reaction. but ultimately, when we achieve our macroeconomic goal, we will taper as appropriate. the third thing was, what was the third thing? >> if you raise rates to control inflation, you also slow the economy. and the history of the fed is that sometimes you go too far. chairman powell: that's right. and look, we have to balance the two goals, maximum employment and price stability. often they do pull in the same direction, of course. but when we raise interest rates to control inflation, there's no question that has an effect on activity.
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and that's one of the channels through which we get to inflation. we don't think that we're in a situation like that right now. we think that the economy is recovering from a deep hole, an unusual hole actually, because it's to do with shutting down the economy. it turns out it's a heck of a lot easier to create demand than it is to, you know, to bring supply back up to snuff. that's happening all over the world. there's no reason to think that that process will last indefinitely. but you know, we're going to watch carefully to make sure that evolving inflation and our understanding of what's happening is right. and in the meantime, we'll conduct policy appropriately. >> thank you, mr. chair. >> i remain of the view of the worst arguments for the lockdown
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for the initial ones, i said behalf to protect the hospital from an overflow. who would need to be forced to avoid behavior that might result in hospitalization. then there was the argument, the imperial college said 2.3 million americans will die unless we take away freedom. but if they predicted 30 million? ask yourself the question. what amount of force from government would have meant anything at that point? >> sunday night on q and day. the director of the center for economic rhythm on his book, when politicians panic. the impact of the lockdown on the economy. sunday night on 8:00 p.m. eastern. you can also listen as a podcast. find it wherever you get your podcasts. >> tonight o


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