Jerome Powell: (03:38)
Good afternoon. At the Federal Reserve, we are strongly committed to achieving the monetary policy goals that Congress has given us, maximum employment and price stability. Today, the Federal Open Market Committee kept interest rates near zero and maintained our asset purchases. These measures, along with our strong guidance on interest rates and on our balance sheet, will ensure that monetary policy will continue to support the economy until the recovery is complete. Progress in vaccinations and unprecedented fiscal policy actions are also providing strong support to the recovery. Indicators of economic activity and employment have continued to strengthen and real GDP this year appears to be on track to post its fastest rate of increase in decades. (04:25)
Much of this rapid growth reflects the continued bounce back in activity from depressed levels. The sectors most adversely affected by the pandemic have shown improvement, but have not fully recovered. Household spending is rising at an especially rapid pace boosted by the ongoing reopening of the economy and ongoing policy support. The housing sector remains very strong and business investment is increasing at a solid pace. In some industries, near term supply constraints are restraining activity. These constraints are particularly acute in the motor vehicle industry where worldwide shortages of semiconductors have sharply curtailed production so far this year. As with overall economic activity, conditions in the labor market have continued to improve. Demand for labor is very strong and employment rose 850,000 in June with the leisure and hospitality sector continuing to post notable gains. (05:26)
Nonetheless, the labor market has a ways to go. The unemployment rate in June was 5.9% and this figure understates the short fall in employment, particularly as participation in the labor market has not moved up from the low rates that have prevailed for most of the past year. Factors related to the pandemic such as caregiving needs, ongoing fears of the virus and unemployment insurance payments appear to be weighing on employment growth. These factors should wane in coming months leading to strong gains in employment. The economic downturn has not fallen equally on all Americans and those least able to shoulder the burden have been hardest hit. In particular, despite progress, joblessness continues to fall disproportionately on lower wage workers in the service sector and on African-Americans and Hispanics.
(06:19)
Inflation has increased notably and will likely remain elevated in coming months before moderating. As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly because supply bottlenecks in some sectors have limited how quickly production can respond in the near term. These bottleneck effects have been larger than anticipated, but as these transitory supply effects abate, inflation is expected to drop back toward our longer run goal. Very low readings from early in the pandemic as well as the [inaudible 00:06:52] of past increases in oil prices to consumer energy prices also contribute to the increase, although these base effects and energy effects are receding.
(07:03)
The process of reopening the economy is unprecedented as was the shutdown at the onset of the pandemic. As the reopening continues, bottlenecks, hiring difficulties, and other constraints could continue to limit how quickly supply can adjust, raising the possibility that inflation could turn out to be higher and more persistent than we expect. Our new framework for monetary policy emphasizes the importance of having well anchored inflation expectations, both to foster price stability and to enhance our ability to promote our broad-based and inclusive maximum employment goal. Indicators of longterm inflation expectations appear broadly consistent with our longer run inflation goal of 2%. If we saw signs that the path of inflation or longer-term inflation expectations were moving materially and persistently beyond levels consistent with our goal, we’d be prepared to adjust the stance of policy.
(07:58)
The effects of the pandemic on the economy have continued to diminish, but risks to the economic outlook remain. Progress on vaccinations has limited the spread of COVID-19. However, the pace of vaccinations has slowed and the Delta strain of the virus is spreading quickly in some areas. Continued progress on vaccinations would support a return to more normal economic conditions. The Fed’s policy actions have been guided by our mandate to promote maximum employment and stable prices for the American people, along with our responsibilities to promote the stability of the financial system. As the Committee reiterated in today’s policy statement, with inflation having run persistently below 2%, we will aim to achieve inflation moderately above 2% for some time so that inflation averages 2% over time, and longer-term inflation expectations remain well anchored at 2%. We expect to maintain an accommodative stance of monetary policy until these employment and inflation outcomes are achieved. With regard to interest rates, we continue to expect that it will be appropriate to maintain the current zero to one-quarter percent target range for the Federal Funds Rate until labor market conditions have reached levels consistent with the Committee’s assessment of maximum employment and inflation has risen at 2% and is on track to moderately exceed 2% for some time. In addition, we are continuing to increase our holdings of Treasury Securities by at least $80 billion per month and of agency MBS by at least $40 billion per month until substantial further progress has been made toward our maximum employment and price stability goals. Our asset purchases have been a critical tool. They helped preserve financial stability and market functioning early in the pandemic, and since then, have helped foster accommodated financial conditions to support the economy.
(09:52)
At our meeting that concluded earlier today, the Committee continued to discuss the progress made toward our goals since the Committee adopted its Asset Purchase Guidance last December. We also reviewed some considerations around how our asset purchases might be adjusted, including their pace and composition, once economic conditions warrant a change. Participants expect that the economy will continue to move toward our standard of substantial further progress. In coming meetings, the Committee will again assess the economy’s progress toward our goals and the timing of any change in the pace of our asset purchases will depend on the incoming data. As we’ve said, we will provide advanced notice before making any changes to our purchases. On a final note, we announced the establishment of two standing repo facilities, a domestic one for primary dealers and additional banks, and another for foreign and international monetary authorities. These facilities will serve as backstops in money markets to support the effective implementation of monetary policy and smooth market functioning.(10:57)
To conclude, we understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to support the economy for as long as it takes to complete the recovery. Thank you. I look forward to your questions.
Speaker 1: (11:19)Thank you. Let’s go to Steve Liesman with CNBC.
Steve Liesman: (11:23)Thank you very much. Mr. Chairman, I wonder if you might be able to put some, I don’t know, numbers or maybe more detail around this concept of substantial further progress. What counts as the progress numerically, if you will, or citing data, if you could, that you cited in the statement today? And if you could be more specific about what substantial further progress would look like and if that would then lead you to an announcement of an actual reduction in the purchases of your assets. Thank you.
Jerome Powell: (11:56)Great. Thank you. More detail on substantial further progress, let’s talk about the maximum employment part of that. As you know, with maximum employment, unlike with price stability, where we can target a number 2% on average, with maximum employment, there isn’t a single number that we can target. We monitor a broad range of data about different aspects of the labor market. There’s unemployment, unemployment among different age groups and such, there’s participation, there’s wages, there’s all kinds of flow data, and we look at all of it to try to arrive at a picture of what is maximum employment. So I can’t give you a set of numbers, for example, a numerical threshold like we used for a time back in 2012, I guess it was. (12:52)
We didn’t do that here. What we said was substantial further progress toward our goals, and what we said was, effectively, we would give advanced warning and more and more clarity as we move forward. And that’s what we’re going to try to do. So what would substantial further progress be? I’d say we have some ground to cover on the labor market side. I think we’re some way away from having had substantial further progress toward the maximum employment goal. I would want to see some strong job numbers, and that’s the idea.
Steve Liesman: (13:35)If I could follow-up, you talked about one side of the equation. Does that mean you feel like you’ve reached your goal when it comes to the inflation side. Thank you.
Jerome Powell: (13:44)So inflation is running well above our 2% objective, and has been for a few months and is expected to run up certainly above our objective for a few months before we believe it’ll move back down toward our objective. The question whether we’ve met that objective formally is really one for the Committee to make. I can’t do that by myself. But it’s clear that at this time inflation is actually running above 2% and, again, has been and will be, at least we expect it will, in coming months before returning down toward our target.
Speaker 1: (14:18)Thank you. Ann Saphir, with Reuters.
Ann Saphir: (14:27)Hello? Can you hear me? Hello? Can you hear me? I’m sorry.
Jerome Powell: (14:33)Yes, yes, we can hear.
Ann Saphir: (14:34)I apologize. Just to follow-up on the question, I want to ask, is it correct to see this as the start of the advance notice process before a taper? And, also, can you speak to how the recent surge in COVID factors into your thinking on the taper.Thanks.
Jerome Powell: (15:04)So as you know, we’re in a process now where what we said is that at this meeting and incoming meetings we’re going to be continuing to assess the economy’s progress toward our goals and give advance notice. We’ll be trying to provide additional clarity about our thinking, both in the post-meeting statement and in the minutes and in the public comments that people make. Our approach here has been to be as transparent as we can. We have not reached substantial further progress yet, so we’re not there and we see ourselves as having some ground to cover to get there. So that’s what I would say. In terms of COVID and the Delta strain, I’ll say a couple things, of course it will have significant health consequences for many, and we need to keep that in mind before we mention and move to the economic questions.
(16:04)
This is a… Rising cases in a number of parts of the country and some forecasts are for them to rise quite significantly, we’ll see. What we’ve seen though is with successive waves of COVID over the past year and some months now, there has tended to be less in the way of economic implications from each wave. And we will see whether that is the case with the Delta variety, but it’s certainly not an unreasonable expectation. So it certainly is plausible that people would pull back from some activities because of the risk of infection. Dining out, traveling, some schools might not reopen. We may see economic effects from some of that, or it might weigh on the return to the labor market. Some people might choose. Again, we don’t have a strong sense of how that might work out. So we’ll just be monitoring it carefully.
Michelle: (16:58)Thank you. We’ll go to Nick Timiraos at The Wall Street Journal.
Nick Timiraos: (17:04)Hi, Chair Powell. Nick Timiraos at The Wall Street Journal. In your opening statements in March and April, you noted that a transitory rise in inflation above 2% this year would not meet the threshold of moderately exceeding 2% for some time. And I noticed you didn’t repeat that qualification last month or today. And so in your view, has the rise in inflation this year met the threshold of moderately exceeding 2% for some time?
Jerome Powell: (17:38)That would again be a question for the committee. But I would really say the guidance that you’re talking about is really the guidance to do with liftoff, right? What the guidance is for liftoff, we had to have labor market conditions consistent with full employment, inflation at 2% and on track to run moderately above 2% for some time. It really isn’t relevant now because we’re looking at tapering asset purchases. We’re clearly a ways away from considering raising interest rates. It’s not something that is on our radar screen right now. So when we get to that question, when we start to get to the question of liftoff, which we are not at all at now or near now, that’s when we’ll ask that question. That is when that will become a real question for us.
Michelle: (18:30)Thank you. Jeanna Smialek at the New York Times.
Jeanna Smialek: (18:34)Hi, Chir Powell. Thank you for taking our questions. I wonder if you could talk a little bit about [inaudible 00:18:39]. Does that affect how you’re thinking about tapering? Does it affect how you’re thinking about potential lift off down the road? And if you could just talk a little bit about that.
Jerome Powell: (18:58)Jeanna, I’m sorry, for the first 15 seconds of your question you froze. Could you say that again? I apologize.
Jeanna Smialek: (19:04)Oh yeah. No, sorry. So I was wondering if you could talk a little bit about how the divergence in global growth and the sort of multi-speed recovery we’re seeing around the world impacts how the Fed thinks about its policies. So do you take into account that sort of multi-speed recovery when you’re thinking about tapering QE, and do you take it into account when you’re thinking about liftoff?
Jerome Powell: (19:26)Thanks. So an important feature of this recovery is how uneven it is. And in many cases, that’s related to the fact that some countries have had little in the way of access to vaccines and so they’re seeing significant outbreaks and it’s weighing on economic activity. Whereas other countries such as the United States in particular are having a very strong rebound. And now Europe is having a stronger rebound bound as well. So it’s a feature of our economy. Now, how does it affect our policy? In a couple of ways, potentially. One just is that in general economies through financial markets and through trade are deeply interconnected now. And so a stronger global economy will lead to more us exports and that’ll help economic activity. To the extent the global economy is weak and the United States is strong, we’ll wind up exporting some of our demand through imports rather than having a lot of exports. That’s one way. Another way though is more on the risk side. And that is as long as COVID is running loose out there, as long as there’s time and space for the development of new strains, no one’s really finally safe. These strains, there’s no reason they just can’t keep coming. And one more powerful than the next. We don’t know that, but that’s certainly a plausible outcome. Now, as vaccinations rise, we can nonetheless get back to our economic activity. But it is both the right thing to do and very much in our interest to make sure that vaccination happens broadly around the world, just for that reason.
Michelle: (21:13)Thank you. James, at the FT.
James Politi: (21:17)Thank you very much. Chair Powell, how would you describe the risks to the outlook on inflation at the moment after the last data came out higher than expected? Do you believe the risks are tilted to the upside and does the committee share that view or are they imbalanced? Are you still worried that there could be a hit to demand from the Delta variant that could tilt them sort of to the downside again? If you could give us a sense of that, that would be very helpful.
Jerome Powell: (21:47)Sure. I’d be glad to. So if you look again, if you look at the most recent inflation report, what you see is that it came in significantly higher than expected. But essentially all of the overshoot can be tied to a handful of categories. It isn’t the kind of inflation that’s spread broadly across the economy. It’s new, used and rental cars. It’s airplane tickets, it’s hotels and it’s a couple of other things. And each of those has a story attached to it that is really about the reopening of the economy. So we look at that and we think that those are temporary things because the supply side will respond, the economy will adapt. We have a very adaptable, flexible economy and labor market, and it’s a real asset that we have. And so we think that inflation should move down over time.
(22:34)
Now, we don’t have much confidence, let’s say, in the timing of that or the size of the effects in the near term. I would say in the near term that the risks to inflation are probably to the upside. I have some confidence in the medium term that inflation will move back down. Again, it’s hard to say when that will be. I will say, though, that inflation is half of our mandate, price stability is half of our mandate. And if we were to see inflation moving up to levels persistently that were significantly materially above our goal and particularly if inflation expectations were to move up, we would use our tools to guide inflation back down to 2%. So we won’t have an extended period of high inflation. We think that some of it will fall away naturally as the process of reopening the economy moves through. And it could take some time. In any case, we will use our tools over time as appropriate to make sure that we do have inflation that averages 2% over time.
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