Federal-Reserve
During the FOMC Press Conference on May 4, 2022, Fed Chair Jerome Powell committed to restoring price stability and discussed the Federal Reserve's plans for its balance sheet, which includes reducing its securities holdings in a predictable manner. Powell acknowledged that the economic outlook is uncertain, and the Fed will need to be nimble in responding to incoming data and evolving circumstances while avoiding adding more uncertainty to an already challenging time. He emphasized the importance of supply and demand balance in the labor market to reduce inflationary pressures, and how monetary policy is working through expectations. Powell also addressed concerns about balancing the Fed's dual mandate of stable prices and maximum employment, highlighting the Fed's focus on achieving price stability to create a labor market serving all Americans.
In this section, Chair Powell acknowledges the hardship caused by high inflation and commits to restoring price stability. The FOMC raised its policy interest rate by ½ percentage point and anticipates ongoing increases in the target rate for the federal funds rate will be appropriate. The size of the balance sheet will also be reduced. Though economic activity edged down in the first quarter, improvements are widespread, including in labor market conditions, where employment rose by nearly 1.7 million jobs and the unemployment rate hit a post-pandemic low. However, labor demand is outstripping supply, causing difficulty in filling job openings and rising wages, which contribute to high inflation. Inflation remains well above the longer-run goal of 2%. Supply constraints and disruptions, such as the invasion of Ukraine by Russia and COVID-related lockdowns in China, are affecting prices of goods and services.
In this section, Chair Powell discusses the Federal Reserve's plans for its balance sheet, which includes reducing its securities holdings in a predictable manner by allowing principal payments to roll off the balance sheet up to monthly cap amounts. The cap for Treasury securities will start at $30 billion per month for three months and increase to $60 billion per month, while the cap for agency mortgage-backed securities will start at $17.5 billion per month for three months and increase to $35 billion per month. The Fed is committed to restoring price stability and making appropriate monetary policy decisions. However, Powell notes that the economic outlook is uncertain, and the Fed will need to be nimble in responding to incoming data and evolving circumstances while avoiding adding more uncertainty to an already challenging time.
In this section, Fed Chair Jerome Powell discusses the possibility of moderating demand in the labor market to reduce vacancies without increasing unemployment, which could result in more supply and demand balance and a decrease in wage and inflation levels. He mentions the strong financial positions of households and businesses and the growth of the labor market as indicators of a soft economic landing if tighter monetary policies are implemented. Powell also addresses questions about the possibility of rates larger than 50 basis points, saying that the Fed is not actively considering 75 basis points increases and that the Committee plans to make decisions depending on their observations of evolving economic and financial conditions rather than one-month readings.
In this section, Chair Powell of the Federal Reserve addressed questions about the neutral policy setting in terms of the fed funds rate and whether there is evidence of inflationary psychology. Powell explained that the neutral rate is an estimate, and the Fed would be making a judgment about whether they have done enough to get them on a path to restore price stability. While there has not yet been strong evidence of change in inflationary psychology, short-term inflation expectations remain quite elevated, and the Fed is not comfortable with this risk. Powell emphasized that the Fed's tools do not work well on supply shocks, an issue raised in the statement regarding potential upside risks to inflation from Russia and China.
In this section, Chair Powell emphasizes that the tools the Fed has on hand can only affect demand and not commodity prices like oil or food. He mentions that the current imbalance in the labor market, with excess demand compared to the supply of workers, must be tackled and that this has a higher priority than supply chain issues. Powell is doubtful about the effect of Russia or China on future path as the shocks could prevent global supply chain healing, which would further increase inflation. Powell confirms that there is no set goal for the unemployment-to-vacancy ratio, and wages and inflation are the key focuses. When asked whether further stock market declines could reduce household consumption, he notes that the Fed does not have a particular number in mind regarding the ratio. Instead, they look at progress in general.
In this section of the FOMC press conference on May 4, 2022, Chair Powell responded to questions about how the American people will feel the effects of a 50-basis-point rate hike in terms of their daily expenses. The chair acknowledged the pain of inflation and its impact on grocery bills, rent, and energy, but asserted that it is the Fed's job to prevent high and unpleasant inflation from becoming entrenched in the economy. Powell explained that the Fed aims to restore supply and demand balance in the economy to reduce inflationary pressures, which could lead to higher mortgage and borrowing rates. Although the process might be unpleasant, Powell stated that everyone, especially those in fixed incomes and at the lower end of the income distribution, is better off with stable prices. The chair noted that the economy is doing well, expecting a solid growth rate this year, with strong household spending and business investment alongside a vibrant labor market. While a recession could be possible due to global events and the removal of fiscal policy effects, Powell is optimistic about maintaining economic stability without a drastic increase in unemployment or slowdown.
In this section, Powell notes that while there is potential to reduce the surplus demand without putting people out of work, the absence of precise tools like interest rates, the balance sheet, and forward guidance pose a challenge to achieving this goal. Powell also states that Congress or the Administration could help with inflation but it's not the Fed's job to evaluate or make recommendations in this regard. He emphasizes the importance of price stability for a functional economy, particularly for the labor market. While there's no concrete plan in place, Powell believes that if the Fed concludes a need to move policy to levels seen as restrictive, it wouldn't hesitate to do so and Volcker is an inspiration in doing what is right.
In this section, Powell addresses various concerns that have been raised during the press conference. He mentions the outsized response from fiscal and monetary policy, inflation, war in Ukraine, and the current shutdowns in China that have created inflationary shocks that are very different from anything people have seen in 40 years. Powell recognizes the challenges in finding price stability out of these situations since numerous supply shocks make it difficult to deal with. Amidst these challenges, he states that they will continue to move towards neutral levels at an appropriate pace, and they are considering the measures necessary to curb inflation. Furthermore, he speaks about Feds communication efforts with the American people, stressing that they feel their pain and they are working hard to fix the inflation issue. However, Powell does not think that the Fed has a credibility problem.
In this section of the FOMC press conference, Powell discusses how monetary policy is working through expectations and how the markets' forward rate curve's tightening in response to their guidance and actions amplifies their policy. Looking to future hikes, Powell explains that as they raise interest rates, demand moderates, leading to businesses investing a little bit less and consumers spending a little bit less. This pain will ultimately help get the demand and supply in balance, preventing inflation from becoming entrenched and giving the economy a footing where people can lead successful economic lives without worrying about inflation. Powell also highlights the evolving situation and fast-moving adaptation of the Committee to the data and situations presented with an expectation of 50-basis-point hikes in the next couple of meetings.
In this section, Chair Powell is asked about how the Federal Reserve is balancing its dual mandate of stable prices and maximum employment, particularly with regards to the discrepancies in unemployment rates between Black and white workers. Powell states that while the unemployment rates for all racial groups have significantly improved, they're still out of balance, and the labor market currently has a shortage of workers. Powell emphasizes that to create a labor market serving all Americans, especially those in the lower-income bracket, the Fed must focus on achieving price stability. This will result in sustainable wage increases and long economic expansions that will benefit all people, especially those in the workforce.
No videos found.
No related videos found.
No music found.