Jerome Powell, Speech/Interview: FOMC Press Conference, February 1, 2023

Sufficiently Restrictive

“And it is our judgment that we’re not yet at a sufficiently restrictive policy stance, which is why we say that we expect ongoing hikes will be appropriate.”

Overtightening – Rate Cuts Almost Mentioned

“I continue to think that it’s very difficult to manage the risk of doing too little and finding out in six or 12 months that we actually were close, but didn’t get the job done and inflation springs back and we have to go back in. And now you really do worry about expectations getting unanchored and that kind of thing. This is a very difficult risk to manage, whereas of course we have no incentive and no desire to overtighten, but if we feel like we’ve gone too far, we can certainly, and inflation is coming down faster than we expect, then we have tools that would work on that.”

Fed Funds

“We’ve raised rates four and a half percentage points and we’re talking about a couple of more rate hikes to get to that level we think is appropriately restrictive.”

25bps Rate Hike

“We’re trying to make a fine judgment about how much is restrictive enough. That’s all. That’s why we’re slowing down to 25 basis points. We’re going to be carefully watching the economy and watching inflation and watching the progress of the disinflationary process.”

Recession

“I continue to think that there’s a path to getting inflation back down to 2% without a really significant economic decline or a significant increase in unemployment. And that’s because the setting we’re in is quite different. The inflation that we originally got was very much a collision between very strong demand and hard supply constraints, not something that you really have seen in prior business cycles. And so now we see goods inflation coming down for the reasons we thought and we understand why housing inflation will come down and I think a story will emerge on the non-housing services sector soon enough. But I think there’s ongoing disinflation and we don’t yet see weakening in the labor market, so we’ll have to see.”

“My base case is that the economy can return to 2% inflation without a really significant downturn or a really big increase in unemployment. I think that’s a possible outcome. I think many, many forecasters would say it’s not the most likely outcome, but I would say there’s a chance of it.”

GDP

“We had a GDP growth of 1% last year and also final sales growth which we think is a better indicator of about 1%. I think most forecasts and certainly my assessment would be that growth will continue at a fairly subdued level this year.”

Rate Cuts

“I mean there are many different forecasts, but generally it’s a forecast of slower growth, some softening in labor market conditions and inflation moving down steadily, but not quickly. And in that case, if the economy performs broadly in line with those expectations, it will not be appropriate to cut rates this year to loosen policy this year. Of course, other people have forecasts with inflation coming down much faster. That’s a different thing if that happens, inflation comes down much faster. And it’ll be incorporated into our thinking about policy.”

“And given our outlook, I don’t see us cutting rates this year. If our outlook turns true, as I mentioned just now, if we do see inflation coming down much more quickly, that’ll play into our policy saying, of course.”