Jerome Powell, Speech/Q&A: FOMC Press Conference – March 2023

Speech

Inflation

“The process of getting inflation back down to 2 percent has a long way to go and is likely to be bumpy.”

Inflation Expectations

“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.”

Monetary Policy

“Since our previous FOMC meeting, economic indicators have generally come in stronger than expected, demonstrating greater momentum in economic activity and inflation. We believe, however, that events in the banking system over the past two weeks are likely to result in tighter credit conditions for households and businesses, which would in turn affect economic outcomes. It is too soon to determine the extent of these effects and therefore too soon to tell how monetary policy should respond. As a result, we no longer state that we anticipate that ongoing rate increases will be appropriate to quell inflation; instead, we now anticipate that some additional policy firming may be appropriate.”

Economy

“We remain committed to bring inflation back down to our 2 percent goal and to keep longer-term inflation expectations well anchored. Reducing inflation is likely to require a period of below-trend growth and some softening of labor market conditions.”

Q&A

Monetary Policy

“So we also assess, as I mentioned, that the events of the last two weeks are likely to result in some tightening credit conditions for households and businesses and thereby weigh on demand, on the labor market and on inflation. Such a tightening in financial conditions would work in the same direction as rate tightening.

“In principle, as a matter of fact, you can think of it as being the equivalent of a rate hike or perhaps more than that. Of course, it’s not possible to make that assessment today with any precision whatsoever. So our decision was to move ahead with a 25 basis point hike and to change our guidance, as I mentioned, from ongoing hikes to some additional hikes. Some policy firming may be appropriate. So going forward, as I mentioned, in assessing the need for further hikes, we’ll be focused, as always, on the incoming data and the evolving outlook and in particular on our assessment of the actual and expected effects of credit tightening.”

“It’s possible that this will turn out to have very modest effects, these events will turn out to be very modest effects on the economy, and inflation will continue to be strong, in which case the path might look different. It’s also possible that this potential tightening will contribute significant tightening in credit conditions over time. And in principle, that means that monetary policy may have less work to do.”

“What I heard was a significant number of people saying (in the FOMC meeting) that they anticipated there would be some tightening of credit conditions and that would really have the same effects as our policies do, and that therefore they were including that in their assessment and that if that did turned out not to be the case, in principle, you’d need more rate hikes.

Rate Cuts

“We published an SEP today, as you will have seen, and it shows that basically participants expect relatively slow growth, a gradual rebalancing of supply and demand in the labor market, with inflation moving down gradually. In that most likely case, if that happens, participants don’t see rate cuts this year, they just don’t. I would just say, as always, the path of the economy is uncertain and policy is going to reflect what actually happens rather than what we write down in the SEP. But that’s not our baseline expectation.”

“Financial conditions seem to have tightened and probably by more than the traditional indexes say … the question for us, though, is how significant will that be and what will be the extent of it and what will be the duration of it? … So we’ll be looking to see … how serious is this and does it look like it’s going to be sustained? And if it is, it could easily have a significant macroeconomic effect and we would factor that into our policy decisions.”

Recession (or Soft Landing)

“It’s too early to say really whether these events (the banking crisis) have had much of an effect. It’s hard for me to see how they would’ve helped the possibility (of a soft landing), but I guess I would just say it’s too early to say whether there really have been changes in that. The question will be how long this period is sustained (the impact of the banking crisis). The longer it’s sustained, then the greater will be the likely declines in or tightening in credit standards, credit availability. So we’ll just have to see. I do still think, though, that there’s a pathway to that (a soft landing). I think that pathway