Jerome Powell, Speech/Q&A: FOMC May 2-3 Meeting Press Conference
Q&A Segment –
Fed Funds
“So policy is tight and you see that in interest sensitive activities. And you also begin to see it more and more in other activities. And if you put the credit tightening on top of that and the QT that’s ongoing. I think you feel like we may not be far off or possibly even at that level.”
“So support for the 25 basis point rate increase was very strong across the board. I would say, a number of people, and you’ll see this in the minutes, I don’t want to try to do the headcount in real time, but people did talk about pausing but not so much at this meeting. I mean, there’s a sense that we’re much closer to the end of this than to the beginning. That as I mentioned, if you add up all the tightening that’s going on through various channels. We feel like we’re getting closer or maybe even there. But that again, that’s going to be an ongoing assessment and we’re going to be looking at those factors that we listed, to determine whether there’s more to do.”
Pause
“A decision on a pause was not made today. You will have noticed that in the statement from March we had a sentence that said, the committee anticipates that some additional policy firming may be appropriate. That sentences is not in the statement anymore. We took that out and instead we’re saying that, in determining the extent to which additional policy firming may be appropriate to return inflation at 2% over time the committee will take into account certain factors. So that’s a meaningful change that we’re no longer saying that we anticipate. And so we’ll be driven by incoming data, meeting by meeting, and we’ll approach that question at the June meeting.”
Pause and Hold
“The reason is that we, again, with our monetary policy, we’re trying to reach and then stay at for an extended period, a level of a policy stance that’s sufficiently restrictive to bring inflation down to 2% over time. And that’s what we’re trying to do with our tool. I think slowing down was the right move. I think it’s enabled us to see more data and it will continue to do so. So we really have to balance, we always have to balance the risk of not doing enough and not getting inflation under control. Against the risk of maybe slowing down economic activity too much. And we thought that this rate hike along with the meaningful change in our policy statement was the right way to balance that.”
Tightening Credit Standards
“So it does complicate the task of achieving a sufficiently restrictive stance (the tightening of credit standards due to the banking crisis). But I think conceptually though, we think that interest rates, in principle, we won’t have to raise rates quite as high as we would have had this not happened. The extent of that is so hard to predict because we don’t know how persistent these effects will be. We don’t know how large they’ll be and how long they’ll take to be transmitted, but that’s what we’ll be watching carefully to find out.”
Is 5.25% the Terminal Rate?
“So that’s going to be an ongoing assessment. We’re going to need data to accumulate on that. Not an assessment that we’ve made. That would mean we think we’ve reached that point and I just think it’s not possible to say that with confidence now. But nonetheless, you will know that the summary of economic projections from the March meeting. Showed that at that point in time that the median participant thought that this (5.25%) was the appropriate level of the ultimate high level of rates. We don’t know that, we’ll revisit that at the June meeting. And we’re just going to have to… Before we really declare that, I think we’re going to have to see data accumulating and make that, as I mentioned, it’s an ongoing assessment.”
Rate Cuts
“Yeah, so we on the committee have a view that inflation is going to come down, not so quickly, but it’ll take some time. And in that world, if that forecast is broadly right. It would not be appropriate to cut rates, and we won’t cut rates. If you have a different forecast and markets have been from time to time pricing in quite rapid reductions in inflation, we’d factor that in, but that’s not our forecast.”
Recession
“So it’s actually good that the staff and individual participants can have different perspectives. So broadly, the forecast was for a mild recession, and by that I would characterize it as one in which the rise in unemployment is smaller than has been typical in modern era recessions. I wouldn’t want to characterize the staff’s forecast for this meeting. We’ll leave that to the minutes, but broadly similar to that.”
Speech/Statement Segment –
Fed Funds
“Today, the FOMC raised its policy interest rate by 1/4 percentage point. Since early last year, we have raised interest rates by a total of 5 percentage points in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. We are also continuing to reduce our securities holdings. Looking ahead, we will take a data-dependent approach in determining the extent to which additional policy firming may be appropriate.”
“In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. We will make that determination meeting by meeting, based on the totality of incoming data and their implications for the outlook for economic activity and inflation. And we are prepared to do more if greater monetary policy restraint is warranted.”