FOMC Press Conference June 19, 2019


Transcript of Chair Powell’s
Press Conference June 19, 2019 CHAIR POWELL. Good afternoon, and welcome. My colleagues and I have
one overarching goal: to sustain the economic
expansion, with a strong job market and
stable prices, for the benefit of the American people. At the FOMC meeting
that concluded today, we maintained our
policy interest rate but made some significant
changes to our statement. Since the beginning of
the year, we have judged that our current policy
stance was broadly appropriate and that we should be patient in assessing the
need for any changes. In light of increased
uncertainties and muted inflation
pressures, we now emphasize that the Committee will
closely monitor the implications of incoming information for the
economic outlook and will act as appropriate to
sustain the expansion with a strong labor market and inflation near its
2 percent objective. I’d like to step back and
review how the changing economic and financial picture brings
us to today’s decision. So far this year, the economy
has performed reasonably well, with solid fundamentals
supporting continued growth and strong employment. Inflation has been running
somewhat below our objective, but we have expected it to pick
up, supported by solid growth and a strong job market. Along with this favorable
picture, we have been mindful of some ongoing crosscurrents,
including trade developments and concerns about
global growth. At the time of our last FOMC
meeting, which ended on May 1, there was tentative evidence that these crosscurrents
were moderating. The latest data from China
and Europe were encouraging, and there were reports
of progress in trade negotiations
with China. Our continued patient
stance seemed appropriate, and the Committee
saw no strong case for adjusting our policy rate. In the weeks since
our last meeting, the crosscurrents
have reemerged. Growth indicators from around
the world have disappointed, on net, raising concerns
about the strength of the global economy. Apparent progress on trade
turned to greater uncertainty, and our contacts in business and agriculture report
heightened concerns over trade developments. These concerns may have
contributed to the drop in business confidence
in some recent surveys and may be starting to show
through to incoming data. Risk sentiment in financial
markets has deteriorated as well. Against this backdrop,
inflation remains muted. While the baseline
outlook remains favorable, the question is whether these
uncertainties will continue to weigh on the outlook
and thus call for additional monetary
policy accommodation. Many FOMC participants
now see that the case for a somewhat more
accommodative policy has strengthened. Let me explain the
basis for this judgment, starting with the outlook
for jobs and growth. Participants see unemployment
remaining low this year and next. Monthly job gains in May were
lower than expected, however, and, in light of
recent developments, this bears watching. Still, many labor market
indicators remain strong. Community, business, and
labor leaders all tell us that the prospects for job
seekers have seldom been better, and that this is
true even for those who have traditionally
struggled to find work. Wages are rising, and
this is particularly so for lower-paying jobs. Committee participants’
growth projections from 2019 are little
revised from March, with a central tendency of
2 percent to 2.2 percent, just above their estimates
of longer-run normal growth. The growth projections
for the year as a whole mask some
important details about the composition of growth. Annual growth will be boosted by the surprisingly
strong first quarter, which had just been
reported at the time of the May FOMC meeting. As I noted then, the
unexpected strength was largely in net exports and
inventories-components that are not generally reliable
indicators of ongoing momentum. The more reliable
drivers of growth in the economy are
spending on consumption and business investment. While consumption was
weak in the first quarter, incoming data show that
it has bounced back and is now running
at a solid pace. In contrast, the limited
evidence available at this time suggests
that growth in business fixed
income has slowed in the second quarter.economy
are spending on consumption and business investment. While consumption was
weak in the first quarter, incoming data show that
it has bounced back and is now running
at a solid pace. In contrast, the limited
evidence available at this time suggests
that growth in business fixed
income has slowed in the second quarter.economy
are spending on consumption and business investment. While consumption was
weak in the first quarter, incoming data show that
it has bounced back and is now running
at a solid pace. In contrast, the limited
evidence available at this time suggests
that growth in business fixed income has
slowed in the second quarter. 1 Chair Powell intended
to say that growth in business fixed investment
slowed in the second quarter. After running close to our
symmetric 2 percent objective for most of last year, inflation
declined in the first quarter. Data since then show
some pickup. Participants broadly see
inflation moving back up toward our 2 percent
objective, but at a slower pace than had been expected. The central tendency
for 2019 core inflation, which omits volatile food
and energy components, is between 1.7 and 1.8 percent. Setting aside short-term
fluctuations, Committee participants expressed
concerns about the pace of inflation’s return
to 2 percent. Wages are rising, as noted
above, but not at a pace that would provide much
upward impetus to inflation. Moreover, weaker global growth
may continue to hold inflation down around the world. We are firmly committed to our symmetric 2 percent
inflation objective, and we are well aware
that inflation weakness that persists even in a healthy
economy could precipitate a difficult-to-arrest
downward drift in longer-run inflation
expectations. Because there are no
definitive measures of inflation expectations, we
must rely on imperfect proxies. Market-based measures of inflation compensation
have moved down since our May meeting, and some survey-based
expectations measures are near the bottom of their
historic ranges. Combining these factors with the
risks to growth already noted, participants expressed concerns about a more sustained
shortfall of inflation. Overall, our policy
discussions focused on the appropriate response
to the uncertain environment. The projections of
appropriate policy show that many participants
believe that some cut in the federal funds rate will
be appropriate in the scenario that they see as most likely. Though some participants
wrote down policy cuts and others did not, our
deliberations made clear that a number of those who wrote
down a flat rate path agree that the case for additional
accommodation has strengthened since our May meeting. This added accommodation would
support economic activity and inflation’s return
to our objective. Uncertainties surrounding the
baseline outlook have clearly risen since our last meeting. It is important, however, that
monetary policy not overreact to any individual data point or
short-term swing in sentiment. Doing so would risk adding even
more uncertainty to the outlook. Thus, my colleagues
and I will be looking to see whether these
uncertainties will continue to weigh on the outlook,
and we will use our tools as appropriate to
sustain the expansion. Thank you. I will be pleased to
take your questions. NICK TIMIRAOS. Nick Timiraos, Wall
Street Journal. Chair Powell, did you
consider a rate cut today? Specifically, was it one of the options-the policy
options in the Tealbook? And is the Committee
considering moving, given all the uncertainty
you addressed, moving its-changing its policy
before the next meeting? CHAIR POWELL. So the Committee had, you
know, our usual long discussion of global and domestic economic
and financial conditions and then spent this morning
talking about monetary policy. And I came to the view
that I expressed to you, which is that we’re going to be monitoring-monitoring
the crosscurrents and the other items that
we’ve mentioned, but that we’d like to see more going forward. Particularly, we’d like to see
whether these risks continue to weigh on the outlook. So, generally, as I mentioned, many on the Committee do see
a strengthened case-eight of those, a strengthened
case for cutting rates. Eight actually wrote
down rate cuts. A number of others see that
the case has strengthened. But the Committee wanted to
see more, as I mentioned. And I also mentioned
that some of these-some of these developments have
been of quite recent vintage. And so we do expect that we’ll
be learning a lot more on all of these issues in
the near term. And that’s our focus. NICK TIMIRAOS. Do you think something could
change before the next meeting? CHAIR POWELL. I’m sure that things will
change before the next meeting. I expect a full range of
data and information on all of these issues that
we are looking at. I think we’ll learn a
great deal more about them. And I think that’s-we think that that’s the right
way to move here. Again, many of these
developments happened, you know, part of the way through the
last intermeeting period. Only seven weeks ago, we had
a great jobs report and came out of the last FOMC meeting
feeling that the economy, and our policy, was
in a good place. So we want to see-we want
to see and we want to react to developments and trends that
are sustained, that are genuine, and not react just to data
points or just to changes in sentiment, which
can be volatile. At the same time, we are-we’re
quite mindful of the risks to the outlook and are prepared
to move and use our tools as needed to sustain
the expansion. STEVE LIESMAN. Mr. Chairman, Steve
Liesman, CNBC. Could you walk us through
your thinking about trade? It was really the threat
of tariffs against Mexico that caused at least the market
to become definitively banking, or-pricing in rate cuts. If, for example, there’s
a deal with China, does that take the possibility
of rate cuts off the table? CHAIR POWELL. Yeah, so I would say that we’re
not looking at any one thing. I guess I would start by
agreeing with your premise that news about trade has been
an important driver of sentiment in the intermeeting period. But we’re also looking
at global growth. It’s really trade developments
and concerns about global growth that are on our minds. So we’re not exclusively focused on one event or one
piece of data. Risks seem to have grown. In the meantime, we
have incoming data in the United States that’s
been pretty good, particularly for the consumer: Consumer
spending is solid supported by, you know, a healthy job market, high levels of employment,
wages going up. We do see, though, some areas
that we’re looking at, such as, I mentioned, business
fixed income.2 So-also, the prolonged shortfall
in inflation and perhaps job growth-we don’t
like to look at one job report. We like to average over
three or six months, but still that bears watching. 2 Chair Powell intended to say
“business fixed investment.” So we’ll be monitoring
the implications of all of those developments for
the U.S. economic outlook. We expect to learn a good
deal more, as I mentioned. And we’ll be asking the question
whether those risks are going to continue to weigh
on the outlook. And then, in the end, we’ll
use our tools as appropriate to sustain this long expansion. HEATHER LONG. Hi, Heather Long from
the Washington Post. Could you clarify what you
would do if the President tweets or calls you to say he would
like to demote you as Fed Chair? CHAIR POWELL. I think the law is clear
that I have a four-year term, and I fully intend to serve it. JEANNA SMIALEK. Hi, Chair Powell. I was hoping that-this is Jeanna
Smialek from the New York Times. I was hoping that
you could clarify for us a little bit how you’re
thinking about the risks of waiting too long to
cut rates versus the risks of cutting rates
prematurely-sort of, what the balance of risks are
and how you talk about that. CHAIR POWELL. Right. So we’re always
trying to balance that risk, but I would say that, given
the quite recent nature of some of the events, I think the
Committee felt, though, that the right thing to do
was to wait and see more. And we will see a lot more
on all of these issues in the very near term. So I don’t think the risk of waiting too long is
prominent right now. I would say, as a general
matter, it’s always something that we have to weigh. But I think we believe that
the right thing here is to watch carefully
in the near term and see how these risks unfold
and see whether they continue to weigh on the outlook. JEANNA SMIALEK. [Inaudible] CHAIR POWELL. Obviously, we try to avoid
going prematurely as well. In this case, you know,
there’s always some judgment in these things. But I would just
say that the risks that we see having
emerged are risks that have gotten our attention
and that have called a number of us to write down rate
cuts, and a number of those who haven’t to see that
the case has strengthened. MARTIN CRUTSINGER. Marty Crutsinger with the AP. You had your first dissent
in your time as Chairman. Does that give us a sense that
there was debate among a group that was pushing for
a rate cut this time? And how do you-do you expect
further dissents going forward? CHAIR POWELL. Let me let me say the same
thing as I said the last time, before there had
been any dissents, and that is that I think
the process of careful, thoughtful dissent is
a very healthy one, and I’ve always believed that. And I feel like you
make better decisions when you hear a disparity
of views. So I really do look
at it that way. I would add, though, that the
support for the path we took for the policy statement that
we adopted was quite broad. JAMES POLITI. James Politi with
the Financial Times. Mario Draghi at the ECB
yesterday sent a strong signal of new stimulus for
the euro zone. Do you think that such
actions to ease policy at other central banks around
the world will put more pressure on the Fed to do the same? CHAIR POWELL. Well, first, I think all
central banks are focused on their domestic-their
mandates are domestic, and they’re focused
on economic conditions from a domestic standpoint. And that goes for the
European Central Bank, it goes for the Fed, it
goes for all central banks. So that’s our principal focus. So it could cut either way. You know, I would think that, to the extent you see
stronger financial conditions and stronger activity in
the ECB after a rate cut, that would support-tend
to support activity.3 So we’re really focused
on, you know, the risks to our-on
the baseline outlook, which is still a
pretty favorable one, and the risks to those outlooks. That’s our principal focus. 3 Chair Powell intended to say “stronger activity
in the euro area.” HOWARD SCHNEIDER. Thanks. This is the first time that you’ve been really
issuing SEPs in an era when rates are going
to be going down. Just two sort of related
questions: Is there concern that you’ll be causing a
sort of “dot deflation” by telling people, “Well,
don’t buy your car now, because it’ll get
cheaper in six months because we’re cutting
rates,” and that that could sort of
fulfill itself? And, secondly, on inflation,
that was a pretty big drop in expected PCE, yet, you
know, without reacting to it, are you not sort of undermining
your own credibility in terms of commitment to the
2 percent target? CHAIR POWELL. I’ll take the inflation
one first. I didn’t quite follow
your “dot” question. HOWARD SCHNEIDER. Well, the fact that
expected inflation went from 1.8 to-Howard Schneider
with Reuters-went from 1.8 to 1.5, it’s the fact that
you’re not responding to that. CHAIR POWELL. That’s the inflation question. HOWARD SCHNEIDER. Yes. CHAIR POWELL. I’m saying you- HOWARD
SCHNEIDER. On def-no, the fact that you’ve
signaled rate cuts are coming. Or is-was there any
concern on the Committee that this would tell consumers,
tell people, “Don’t borrow now, don’t spend now, because
rates will get cheaper later”? CHAIR POWELL. I see. Okay, right. Okay. So let me let me answer
the inflation question first. So we’re saying that we know-I
noted in the statement and also in my-what I said here. We saw that market-based
measures of inflation expectations,
breakevens, dropped. We noted that also
in the statement. And I noted it as a
reason for us to-one of several reasons why it
feels to us that the case for more accommodation
has strengthened. So we find that notable. Not only that, the actual
forecast for inflation for this year, among
FOMC participants, dropped a couple of tenths. So that means a more prolonged
shortfall of inflation. Let me say, on inflation, it’s
something I’ve been concerned about for quite a long time. It’s one of the principal
reasons why I called for the review. In a world where policy
rates are going to be closer to the effective lower bound,
then, just as a general matter, we need to be really strong
on 2 percent inflation. So I think, you know, we
certainly don’t want to be seen as weak on inflation, and
I don’t believe we are. In terms of the dots, you’re
right, this is the first time, I believe, we’ve
had-we’ve talked about cutting in the “dot era.” I guess the dot era
began in January 2012. And, you know, we’re
working our way through it. And I think it’s
just something we do. You know that my view on the
dots is that they, overall, provide useful information
for people, but that we need to do our absolute best
to explain what they are and what they are not. Speaking of which, they are
not a forecast of the group, they’re not discussed or debated
at the meeting, they’re an input to policy more than
an output of policy, and they’re also only
the most likely case. So, in a situation where there’s
relatively high uncertainty, there’s the most likely case, but the second most likely
case might only be a little bit less likely. But that doesn’t
show up in the dot. The dot is either one
thing or it’s another. So I just would say that, if
you pay too close attention to the dots, then you may lose
sight of the larger picture. CHRISTOPHER CONDON. Thank you. Chris Condon, Bloomberg News. Mr. Chairman, if and when the
Committee decides to cut rates, I suspect there’ll be a
debate over whether to move by 25 or 50 basis points. Indeed, there’s a
pretty substantial body of academic literature arguing
that a central bank close to the zero lower bound ought to
act sooner and more aggressively than it otherwise would. I’m wondering what you
think of that prescription, and if you could spend a couple
of minutes discussing the pros and cons of the 50
basis point cut and how you approach
that question. CHAIR POWELL. On the specific question
of that, that’s just something we
haven’t really engaged with yet, and it will depend very
heavily on incoming data and the evolving risk
picture as we move forward. So it would be-so nothing I
can say about that is specific to the near-term
question that we face. More generally, though,
the research you refer to essentially notes that, in
a world where you are closer to the effective lower
bound, it’s why-research kind of shows this-it’s wise
to react, for example, to prevent a weakening
from turning into a prolonged weakening. In other words, sort of, an ounce of prevention
is worth a pound of cure. So I think that is
a valid way to think about policy in this era. I don’t know-and it’s always in
the-I think it’s in the minds of policymakers, you
know, during this era, because it’s well
understood to be correct. Again, I don’t know what that
means in terms of the size of a particular rate
cut going forward. That’s going to depend heavily
upon, you know, the actual data and the evolving risk picture. DONNA BORAK. Donna Borak with CNN. Thanks, Chairman Powell. Democratic presidential
candidate Elizabeth Warren has provided a proposal to revalue
the U.S. dollar in order to address concerns about
rising trade deficits. The President himself
has routinely complained about the strength
of the U.S. dollar, saying it has resulted
in, quote, “tremendous,” close quote, competitive
advantage with countries like China and others. Do you think that an overvalued
dollar has been a drag on America’s global
competitiveness? And would you support
an intervention of some kind on this issue? CHAIR POWELL. The U.S. Treasury
has responsibility for exchange rate policy, not
the Fed, and we don’t comment, in that sense, on the
level of the dollar. We have the responsibility
for maximum employment and stable prices, and we use
our tools to achieve that. Of course, we do that through
changing financial conditions, and one of those is the dollar,
but we don’t target the dollar. It’s just something
that we don’t do. In fact, central
banks-or, rather, nations, when they get together,
routinely adopt a communique that says we will target
our domestic, economic, and financial conditions
and not our exchange rate in using monetary policy, and
that includes the United States, that includes the
G-20 communique that we adopted 10 days ago. So I’m not the right person
to ask about that sort of dollar policy intervention. PAUL KIERNAN. Thank you, Chairman Powell. Paul Kiernan from Dow Jones. If the most-according
to the dot plot, I mean-if the most likely
case is that you will have to cut rates in the next
18 months and given some of the concerns about, you know,
policy needing to react sooner and more aggressively, what would have been the
downsides to cutting rates now? Why not just cut them now? CHAIR POWELL. So, why not now? And, I would say, there
was not much support for cutting rates
now at this meeting. There was, as you see, a number
of people wrote down rate cuts. But all of those,
but apparently one, felt that it would be better
to see more to-before moving. And I gave a couple of
reasons why that is the case. First, it’s just the fact that
some of these developments are so recent that we want to
see whether they’ll sustain. So we felt that it would be
better to get a clearer picture of things, and that
we would, in fact, learn a lot about these
developments in the near term. Ultimately, the question we’re
going to be asking ourselves is, are these risks going
to be continuing to weigh on the outlook? And we will act as
needed, including promptly, if that’s appropriate,
and use our tools to expand-to sustain
the expansion. EDWARD LAWRENCE. Yes. Thank you for
doing this, Chairman. Edward Lawrence from
Fox Business Network. How do you reconcile the
conflicting economic data coming in? You know, on one hand, you
have strong overall growth. Consumer spending is strong. On the other hand, manufacturing
numbers were a little bit weaker, you have growth in jobs
but coming in a little weaker, and then you have low inflation. And then, specifically,
what data are you looking at that you decided
not to have a rate cut? Why didn’t you do that? [0:24:15.5] CHAIR POWELL. Well, you gave a
pretty good picture. I mean, it’s a complicated
picture, and, you know, the answer is, we
look at all of it. But I would say, the big
pieces of it are this: The baseline outlook
has been a good one, and that has basically been
consumer spending coming back up in the second quarter. That is coming true. And consumer spending is at a healthy level,
and that makes sense. You’ve got a tight labor market. You’ve got companies in surveys
saying that labor is scarce. You’ve got workers in surveys
saying that jobs are plentiful. You’ve got wages going up. You’ve got high levels
of household confidence. So, all of that,
underlying fundamentals for the consumer spending
part of the economy, which is 70 percent of the
economy, is quite solid. Job creation, if you take
a three-month average, is still well above, you
know, the entry-level of entry into the workforce. So that part of the
economy is solid. You mentioned manufacturing, and we’re seeing this
all around the world. Manufacturing, investment,
and trade have been weaker. It’s not solely a domestic
issue, and it may be that there are a range of
factors that are contributing to that, including, for
example, what China has done over the last couple
of years in working to bring down its leverage. Some of it may be uncertainty
over your supply chains due to trade developments. The Boeing 737 issues may be
contributing in their own way. So there-lower oil
prices are contributing to lower investment,
although they’re also leading to lower gas prices,
which supports spending. So there are many, many things. There isn’t any one thing
that explains it all. But it’s something
that we’re watching. But you do see growth in
services, so you-this pattern around the world of weak
manufacturing but growth in the far larger part of the
services economy, which has led to low unemployment, good
job creation, rising wages, that’s kind of the two big
pieces of it that you see. Then you see the crosscurrents. If you lay the crosscurrents
on top of that-concerns about global growth and trade
developments-you have the full picture. And I think what that
picture-what we took away from that picture is that
we’d like to see more, that we do see these risks,
and what we want to do is, we want to watch and see
whether they continue to weigh upon the outlook. MICHAEL MCKEE. Michael McKee, Bloomberg
Television and Radio. If consumer spending is solid and business investment has
been slowed by uncertainty, I’d like to get your thinking
on what a Fed rate cut would do? Have you modeled the
additional growth and inflation you might
get from a rate cut? Can you identify any
sectors that would benefit from a lower cost of capital? Or is this really about the Fed
being the only game in town? CHAIR POWELL. Well, we have the tools we have,
and we’re committed and sworn to use them to support
economic activity. And they do support economic
activity through a number of channels that are reasonably
well understood-some more directly tied to interest
rates than others. But we do generally believe
that-that our interest rate policy can support demand and support business
investment as well. And so we will use those
tools and use them as we see as appropriate to achieve our
objectives, which really are to sustain this expansion, and I
would just make a note of that. The reason why we say
“sustain the expansion” is, you’re seeing now, for
the first time, you know, communities that are being
brought into the benefits of this expansion that
hadn’t been earlier. You’re 10 years deep into this, and that’s something we heard
quite a lot at the conference in Chicago on the review. And I just would say,
that’s why we think-it’s one of the reasons why we
think it’s so important to sustain the expansion,
keep it going, because we really are benefiting
groups that haven’t seen, you know, this kind of
prosperity in a long time. MICHAEL MCKEE. But given your description
of the crosscurrents, do you think Fed policy
can solve those problems? CHAIR POWELL. So we take the-you know, we take
the crosscurrents as a given, and we have our tools. You know, we don’t-we react
to anything in principle that could undermine
our achievement of our dual-mandate
goals-maximum employment, stable prices-is
worthy of our attention and can call forth
a policy response. And that’s just how
we look at it. VICTORIA GUIDA. Hi, Victoria Guida
with Politico. You’ve said that the Fed doesn’t
take short-term political considerations into account, and you’ve defended
the Fed’s independence. So I was wondering, is there a
point at which you think that, publicly or privately,
you should push back on the President’s criticisms
rather than ignoring him? And also, do you think that you and the President
have the same goals when it comes to
monetary policy? CHAIR POWELL. You know, I don’t-I don’t
discuss elected officials publicly or privately, really. So I would just say
that we are-at the Fed, we’re deeply committed to
carrying out our mission, and also that our independence from direct political
control we see as an important institutional
feature that has served both the
economy and the country well. NANCY MARSHALL-GENZER. Nancy Marshall-Genzer
with Marketplace. Chair Powell, are you concerned
that new digital currencies like Libra, which Facebook
unveiled this week, could undermine the Fed
and erode your power to influence the economy? And did anyone from
Facebook talk with anyone at the Fed before Libra
was unveiled this week? CHAIR POWELL. So, on your specific question of digital currencies replacing
central bank currencies, I think we’re a long
way from that. And, of course, the-so I think
we’re a long way from that. Digital currencies
are in their infancy. So, essentially, not too
concerned about, you know, the central banks no
longer being able to carry out monetary policy
because of cryptocurrencies or digital currencies. You know, Facebook, I believe, has made quite broad rounds
in-around the world really with regulators,
supervisors, and lots of people to discuss their plans, and
that certainly includes us. And we’re-you know, it’s
something we’re looking at. We meet with a broad range of private-sector firms all the
time on financial technology, and there’s just a
tremendous amount of innovation going
on out there. You know, there are
potential benefits here. There are also potential risks,
particularly of a currency that could, you know, that
could potentially have large application. So I would echo what
Governor Carney said, which is that we will wind up
having quite high expectations, from a sort of safety
and soundness and regulatory standpoint,
if they do decide to go forward with something. NANCY MARSHALL-GENZER. Do you think the
Fed will be involved in regulating Libra then? CHAIR POWELL. You know, we have-we don’t
have plenary authority over cryptocurrencies as such. They play into our world
through consumer protection and money laundering
and things like that. But, I would say that, you know,
through international forums, you know, we have
significant input into the payment system and, as
you know, play an important role in the payment system
here in the United States. GREG ROBB. Thank you, Chairman Powell. Greg Robb from MarketWatch. I want to take you back
to Chicago and the review of your monetary
policy strategy. And something interesting,
I think, is developing, is that outside experts are
excited and are-like the idea of the Fed shifting
your inflation target up to 4 percent-around
there, roughly, I guess. They think that that would,
you know, help monetary policy, and that there’s no-2 percent
is not, like, sanctimonious or anything, or whatever,
sacred. It seems that you’ve
taken that off the table. So I was wondering if
you could discuss that. Have you taken it off the table? And then, if so, why, or-and
what’s your thoughts on that? Thank you. CHAIR POWELL. We have-we’ve said
that we wouldn’t look at raising the target
rate for inflation. We did say that. And the reason is, it’s become
a global norm, 2 percent. Our statutory mandate
is price stability. And so we’re actually
taking a less-we’re looking at less radical ideas,
such as how to make the 2 percent inflation
objective more credible. This gives me a chance to say a
couple things about the review and Chicago, in particular. So it’s a new thing for us. It’s something that-I thought
it was both appropriate and important for us to do. It’ll be a yearlong, or
even longer, process, looking at our strategy,
tools, and communications. And it’s meant to be a
way to open ourselves up, to let the sunshine in, and
have dialogue and criticism with the constituencies
that we serve. We’ve had a series of Fed
Listens around the country at every Reserve Bank, and we had an academic
conference earlier this month, with seven papers
written and criticized, and leading global experts. But I’ll just say,
again, that the heart of the conference was the two
panels on-with practitioners in low and moderate
income-who live in low- and moderate-income communities and are part of those
communities. And they were-there, I think,
people were quite struck by their intervention,
which was really uniformly around how important
maximum employment is and what it means in
their communities. You know, the idea being,
they haven’t had, you know, a bull market in
these communities. They haven’t had, just,
a booming economy. What they have had
is low unemployment, lots of social problems. And just now, you have, you
know, companies who want to hire and are bringing people into
the-providing opportunities for people to come
into the labor force to an extent not seen
in quite a long time. And that is, I think, you know,
for someone who does this work, that was very focusing
and motivating, too. So I think everybody
thought, you know, that’s-that was really
quite worth doing. I mean, there was some
thought at the beginning that we should-some
people recommended that we just talk to, you know,
econ Ph.D.’s about this, but, no, that’s not what
we chose to do, and we’re glad this
is the choice we made. GREG ROBB. But even those two panels
that you just referenced, the people that spoke, they-when
they were asked about, you know, 2 percent inflation
or higher inflation, they kind of shrugged
their shoulders, you know? So-is 4 percent inflation
radical? And to who? CHAIR POWELL. I don’t think it’s-I don’t think
it’s a practical alternative. And I’ll tell you why. I think you see disinflationary
pressures around the world. You see central banks having
a hard time getting inflation up to their-close
to their objective. We’ve done better than
other large central banks that are not, you know, open
economies, like the U.K., where you have big
currency moves that move inflation around. So-but it’s quite challenging
to get inflation-it’s been-even with very high levels
of resource utilization, inflation has been lingering and
not getting back up to target in a sustained, symmetric
kind of a way. So saying that you’re
going to go for 4 percent-I wonder
how credible that will be. JOHN HELTMAN. John Heltman with
American Banker. I have a question about
the Fed’s-or, I guess, the bank regulators’ leveraged
lending guidance from 2013. As you know, the GAO
had a letter saying that they thought it was a
rule, and it sort of went away. But yet leveraged lending
is a source of concern. You yourself have said that credit underwriting
quality seems to be deteriorating
somewhat lately, and that the Fed has
tools to supervise banks and to prevent leveraged lending from becoming too
much of an issue. I want to know what the-is
the 2013 guidance still representative of the,
sort of, Fed’s thinking about leveraged lending? And does the Fed have
any intent-intention to either issue, like,
a leveraged lending rule or a new guidance that
is less problematic? Or is the plan to
just kind of carry on with supervision
as you’re-as you are? CHAIR POWELL. So the 2013 guidance is not
binding, and that’s what came out of the GAO review. But that’s really the
beginning of this-of the story. You know, we have the authority
we need to examine the banks for safety and soundness
exposure. So, this-the first
thing you start with as a bank supervisor is the
risks that the banks are taking to themselves through their
portfolio, through the risks that they’re running and
the pipeline-you know, the obligations that they’ve
undertaken to underwrite deals. And so we monitor that very
carefully-so do the banks-and you see exposures
that are much smaller than they were before
the crisis. And, by the way, we test that
regularly in the stress tests. We impose very large
losses on those portfolios, so we kind of have a
sense of what that is, whereas before the crisis, there
was a lot of lack of knowledge about what the losses would be. So that’s where it starts for
us in supervision, is the risks that the banks are running-you
know, running on their own books and to themselves
and to each other. So, in that, I feel-I feel like
that is-that’s in a good place, but we never-we never say
“Mission accomplished” on that. We will keep-you know, keep
monitoring that carefully. What’s happened, though,
is, the paper is now owned by market-based vehicles:
collateralized loan obligations, mutual funds, and
things like that. And so we now have-you know,
we have a good sense of, domestically, of
where that paper is. I think, internationally,
not as much, and the Financial Stability
Board is actually looking more carefully at that. And we-you know, we
monitor those vehicles to see what they are. And they’re actually pretty
stably funded, in the sense that there’s no run risk, but there’s still
macroeconomic risk. And, you know, this is something
that we take very seriously and that the FSOC, the Financial
Stability Oversight Council, is looking at. And, you know, we call it
out as a macroeconomic risk, but it’s not really a financial
stability risk, in the sense that it could undermine the
ability of the financial system to do its job of
intermediating credit. JOHN HELTMAN. Is there any intention, is there
any plan on the part of the Fed or other regulators to sort of create any additional
clarity for, or-and consistency, really-that’s the other
point of guidance, right?-is to make sure
everyone knows kind of what the supervisory
expectations are for leveraged lending
and for all-for anything, for that matter. Is anything else coming? Or is it just going to remain
kind of, like, bilateral kind of conversations with banks? CHAIR POWELL. You know, I think
the issue isn’t that the banks don’t
understand what the rules are. The issue is that the
risk isn’t in the banks. It’s in-it’s out in those
market-based vehicles. So I don’t, I don’t-you know, I
no longer am day-to-day involved in this as I was
before I took this job. But my sense is, though, that
that’s really not the problem. I’m not saying it’s perfect, but I think we do understand
what risks the banks are running. And really the question is,
how concerned should we be about large holdings by
market-based vehicles that I mentioned, and what
risks do they present? And we’re very carefully
assessing that. And we continue to take
all these risks seriously. You know, I gave a whole speech
about this a few weeks ago, so. BRIAN CHEUNG. Hi. Brian Cheung
with Yahoo Finance. I’m just wondering if you
could expand a little bit on the labor market. So the statement noted that
the labor market still remains strong, but the May jobs
report that that we saw missed on estimates, but
employment rates still stayed at 3.6 percent. I’m wondering how you
reconcile that with the fact that we only got 3.1 percent
year-over-year wage growth in that report. What does that tell
you about employment, and by all standards
compared to, say, a month ago or a year ago, are we
closer or farther away from full employment
or maximum employment? CHAIR POWELL. You know, we have to be closer, because more jobs
are being created than people are entering
the labor force. The unemployment rate is lower. You know, by just lots
and lots of numbers, the labor market
is in a good place. You mentioned wages. So the level of wages
is very consistent with what it should
be, in the sense that it’s approximately equal to inflation plus productivity
increases on an hourly basis. So what’s, I guess, a
little surprising, though, is that you could
reach these levels of unemployment late-you know,
long into a cycle, let’s say, and not see even higher
wages that are pushing up on inflation, because
wages at this level, even though they’re
growing at a healthy rate, at an appropriate rate,
they’re not growing at a rate that would provide much
upward thrust for inflation. So, you know, we watch-we watch
all of this very carefully, and I think we’re very careful
about not assuming that we’re, you know, that would-that
there’s no more slack in the labor market. You know, we’ve all
lived through-you know, when I got to the Fed, we were
in the 8 percent-plus range, and it’s just gone
down and down and down, and you haven’t seen
wages picked up. You haven’t seen real
signals that we’re at maximum employment. You have seen a tightening
labor market. You know, it-the surveys that
I mentioned will all show that the labor market
has tightened, but not overtightened. JEAN YUNG. Hi, Jean Yung with Market News. I wanted to ask-did the
FOMC discuss a change to its balance sheet
policy at this meeting, perhaps ending runoffs
earlier than planned? And would the Committee be
inclined to do something like that if it lowers
rates before September? CHAIR POWELL. So, of course, we haven’t
made any decisions yet. Balance sheet runoff
is very close to the end of its planned life. I would say this: If
we do provide more accommodation-again, we haven’t
really addressed this-but if we do provide
more accommodation, we’ll certainly keep in mind
what we said earlier this year, which is that we’ll
always be willing to adjust balance sheet policy so that it serves our
dual-mandate objectives. Thank you very much.

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