Federal-Reserve
During the February 1, 2023 FOMC press conference, Chair Powell highlights the Fed's strong commitment to bringing inflation back to their 2 percent goal and acknowledges the hardship caused by high inflation. Although the US economy slowed down last year, the labor market remains tight with the unemployment rate at a 50-year low, job vacancies still high, and wage growth elevated. The FOMC raised their policy interest rate by 25 basis points and will continue to anticipate ongoing increases to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. Chair Powell discusses the accumulating evidence that the FOMC will use to make decisions about policy, with the committee strongly resolved to complete their mission.
In this section, Chair Powell acknowledges the hardship caused by high inflation and states that the Federal Reserve is strongly committed to bringing inflation back down to their 2 percent goal. She notes that while rapid tightening measures have been taken to stabilize prices, there is still more work to be done in order to achieve a sustained period of labor market conditions that benefit everyone. Today, the FOMC raised their policy interest rate by 25 basis points and the Fed will continue to anticipate ongoing increases to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. Even though the US economy slowed down last year, with real GDP rising at a below-trend pace of 1 percent, the labor market remains tight with the unemployment rate at a 50-year low, job vacancies still high, and wage growth elevated.
In this section, the Chair of the Federal Reserve reports that job gains have slowed in the past year and nominal wage growth has eased, although employment is still out of balance. Inflation remains high but there is welcome reduction in the monthly pace of increases. The Fed is committed to returning inflation to their 2% objective and is keeping a close eye on the risks inflation poses to both sides of their mandate. The Committee has raised the target range for the federal funds rate by 25 basis points to 4.5% to 4%. The Fed will continue to assess economic progress towards their goals and will make decisions meeting by meeting. The Fed is striving to achieve maximum employment and price stability and everything they do is in service to their public mission.
In this section of the FOMC press conference, Chair Powell emphasized the importance of sustaining the policy restraint to bring inflation down to 2% and acknowledged that while many things affect financial conditions, their focus is not on short-term moves but sustained changes to broader financial conditions. He also addressed the deceleration in prices, wages, and consumer spending, saying that the disinflationary process is at an early stage and there is still a large sector where disinflation hasn't yet been seen. However, thus far there has been progress without any weakening in labor market conditions. Additionally, Powell addressed job openings as an important indicator, although it has been quite volatile recently. The job market is still very strong by many indicators. Finally, he noted that the median for the ultimate level of the fed funds rate was between 5% and 5.25%, based on their best estimates, back in December.
In this section of the transcript, Chairman Powell discusses the FOMC's decision not to update their inflation assessments during the February meeting but suggests that these assessments will be updated at the March meeting. The FOMC still believes that ongoing rate hikes are necessary to attain a sufficiently restrictive stance of policy to bring inflation back down to 2%. Powell admits that although financial conditions have tightened, there is work left to do, and the FOMC will be looking carefully at incoming data between now and the coming meetings to decide on the exact course of action. Powell also describes why disinflation has not yet taken place in the housing services sector and says that the risk of doing too little is greater than that of tightening.
In this section, Chair Powell discusses the progress of inflation in the core services ex-housing sector and explains that they have yet to see disinflation in that segment. Powell states that they anticipate the majority of the core PCE index to move downwards fairly soon and that they have more persistent inflation in that sector, which will take longer to get down. Powell also explains that they are being honest with themselves about their role completing the job. Later, when asked by Victoria Guida about the debt ceiling, Powell stresses that only Congress can pay all the debt on time without assumptions that the Fed can shield the economy from failure to act on raising the debt ceiling.
In this section, journalists asked Chair Powell about the possibility of pausing rate increases and resuming them later, to which Powell said the committee is not exploring in any kind of detail, although it is theoretically possible. He also explained that core PCE inflation is expected to go back up to 4 percent by the middle of the year, suggesting there's work left to do, and that while some nonhousing services are sensitive to slack in the economy, others are not, making it difficult to draw a singular conclusion as to what's needed to address sector-specific inflation.
In this section, Chair Powell discusses the relationship between inflation and the labor market. He notes that a sustained return to 2% inflation will require a better balance in the labor market, which may require increased unemployment. However, he believes there are a number of ways the labor market can soften and that there is a path to getting inflation back down without a significant uptick in unemployment, due to ongoing disinflation. Powell also mentions that it's possible to get there with 5% unemployment, although it may take more slowing than expected. He concludes that, while most forecasts predict positive growth at a subdued level this year, there are factors such as the global picture, a strong labor market, and state and local government spending that could support economic activity.
In this section, Chair Powell discusses the accumulating evidence that the FOMC will use to make decisions about policy. By the March meeting, the FOMC will have two more employment reports and two more CPI reports, as well as another ECI wage report. While he doesn't want to put a number on it in terms of months, Powell says that as the accumulated evidence comes in, it will be reflected in the FOMC's assessment of the outlook and policy over time. Additionally, Powell emphasizes that delivering 2 percent inflation is the FOMC's job and that they are "strongly resolved" to complete the task, which will support economic activity and benefit the public for years to come. Lastly, regarding the hard part of going from 6.5 to 2 percent CPI inflation, Powell states that he doesn't think anyone knows how long it will take or how to forecast it, and it may take some time.
In this section, Powell discusses the Federal Reserve's outlook for the US economy, stating that although participants have different forecasts, generally, the forecasts are for continued subdued growth, some softening in the labor market, and inflation moving down somewhere in the mid-threes or lower than that this year. Powell mentions that although markets show inflation coming down quicker in some cases, their outlook does not anticipate any rate cuts this year. Additionally, Powell confirms that the Federal Reserve no longer considers public health as an important role in the economy, as people and the economy are currently handling COVID-19 better. Finally, Powell explains how people's expectations of future inflation are an important part of the process of creating inflation and considers that expectations are well anchored and that the fact that people now believe that inflation will come down to 2% is positive for the process of getting it down.
In this section, Chair Powell addresses concerns about the effects of financial conditions on tightening measures and reassures that the markets reflect the tightening that the Fed is putting in place. He also discusses the uncertainty surrounding the forecast for the inflation rate and emphasizes the need for patience and the maintenance of higher rates for a longer period. In response to the question about whether the debt ceiling could play a role in quantitative tightening, Chair Powell notes the difficulty in predicting the interactions between the two but believes Congress will act to raise the debt ceiling in a way that does not affect inflation, the economy, or the financial sector.
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