Jerome Powell, Speech/Interview: FOMC Post Meeting Press Release Conference – November 1-2
Overview: “It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation. That’s why we say in our statement that in determining the pace of future increases in the target range, we will take into account the cumulative tightening of monetary policy and the lags with which monetary policy affects economic activity and inflation. At some point, as I’ve said in the last 2 press conferences, it will become appropriate to slow the pace of increases, as we approach the level of interest rates that will be sufficiently restrictive to bring inflation down to our 2 percent goal. There is significant uncertainty around that level of interest rates. Even so, we still have some ways to go, and incoming data since our last meeting suggest that the ultimate level of interest rates will be higher than previously expected.”
“Reducing inflation is likely to require a sustained period of below-trend growth and some softening of labor market conditions. Restoring price stability is essential to set the stage for achieving maximum employment and stable prices in the longer run. The historical record cautions strongly against prematurely loosening policy. We will stay the course, until the job is done.”
“I think you can think about our tightening program as really addressing three questions; the first of which was and has been, how fast to go, the second is how high to raise our policy rate, and then third will be, eventually, how long to remain at a restrictive level.”
Higher Levels than September: “And as I mentioned, incoming data between the meetings, both a strong labor market report but particularly the CPI report, do suggest to me that we may ultimately move to higher levels than we thought at the time of the September meeting. That level is very uncertain though, and I would say we’re going to find it over time. Of course, with the lags between policy and economic activity, there’s a lot of uncertainty so we note that in determining the pace of future increases, we’ll take into account the cumulative tightening of monetary policy as well as the lags with which monetary policy affects economic activity and inflation.”
Slow the Pace of Increases: “That’s why I’ve said it the last two press conferences, that at some point it will become appropriate to slow the pace of increases. So that time is coming, and it may come as soon as the next meeting or the one after that. No decision has been made. It is likely we’ll have a discussion about this at the next meeting, a discussion. To be clear, let me say again, the question of when to moderate the pace of increases is now much less important than the question of how high to raise rates and how long to keep monetary policy restricted, which really will be our principal focus.”
Monetary Policy Lag: “So, the way I would think about that is it’s a commonly, for a long time, thought that monetary policy works with long and variable lags and that it works first on financial conditions and then on economic activity and then perhaps later than that even on inflation. So that’s been the thinking for a long time.”
Pause: “Let me say this, it is very premature to be thinking about pausing. So people, when they hear lags, they think about a pause. It’s very premature in my view to think about or be talking about pausing our rate hike. We have a ways to go, our policy, we need ongoing rate hikes to get to that level of sufficiently restrictive. And we don’t, of course we don’t really know exactly where that is.”
Soft Landing: “I just think that the inflation picture has become more and more challenging over the course of this year, without question. That means that we have to have policy be more restrictive and that narrows the path to a soft landing I would say.”