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Main points
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Cut interest rates by 25 basis points.Milan objected, believing that the rate cut should be cut by 50 basis points; Schmid also opposed, believing that interest rate cuts should be stopped.
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Balance sheet reduction end date: December 1.
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The market was well priced for a rate cut ahead of this meeting.
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Powell’s statement at the press conference was interpreted as hawkish. For details, please see the Q&A transcript below.
FOMC statement
Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up but remained low through August; more recent indicators are consistent with these developments. Inflation has moved up since earlier in the year and remains somewhat elevated.
Available indicators show that economic activity has been expanding at a moderate pace.Job growth has slowed this year and the unemployment rate has increased slightly but remained low through August; recent indicators are consistent with these developments.Inflation has increased since earlier this year and remains slightly high.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months.
The Committee seeks to achieve maximum employment and an inflation rate of 2% in the long term.Uncertainty about the economic outlook remains high.The Committee is concerned about two risks to its dual mission and determines that downside risks to employment have increased in recent months.
In support of its goals and in light of the shift in the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 3-3/4 to 4 percent. In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee decided to conclude the reduction of its aggregate securities holdings on December 1. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percentobjective.
In support of its objectives and in light of changes in the balance of risks,The Committee decided to lower the target range for the federal funds rate by 0.25 percentage points to 3.75% to 4%.In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully evaluate incoming data, the changing economic outlook, and the balance of risks.The Commission decided to end the reduction of its total securities holdings on December 1.The Committee remains firmly committed to supporting maximum employment and restoring inflation to its 2% objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the impact of new information on the economic outlook.The Committee will be prepared to adjust the stance of monetary policy as appropriate if risks arise that could impede achievement of the Committee’s objectives.The Committee’s assessment will consider a wide range of information, including labor market conditions, inflationary pressures and inflation expectations, as well as financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Susan M. Collins; Lisa D. Cook; Austan D. Goolsbee; Philip N. Jefferson; Alberto G. Musalem;who preferred no change to the target range for the federal funds rate at this meeting.
Voting in favor of this monetary policy action were: Chairman Jerome H. Powell, Vice Chairman John C. Williams, Michael S. Barr, Michelle W. Bowman, Susan M. Collins, Lisa D. Cook, Austen D. Goolsby, Philip N. Jefferson, Alberto G. Musallem and Christopher J. Waller.Voting against the action were Stephen I. Millan, who preferred a 0.5 percentage point reduction in the target range for the federal funds rate at this meeting, and Jeffrey R. Schmid, who preferred no change to the target range for the federal funds rate at this meeting..
Powell’s press conference opens
Good afternoon.My colleagues and I remain firmly focused on achieving our dual mission goals of maximizing employment and stabilizing prices for the benefit of the American people.Although some important federal government data has been delayed due to the government shutdown, available public and private sector data suggest that the outlook for employment and inflation has not changed much since our September meeting.Labor market conditions appear to be gradually cooling, while inflation remains high.
In support of our objectives, and given the balance of risks to employment and inflation, the Federal Open Market Committee decided today to lower our policy rate by 0.25 percentage point.We have also decided to end the reduction in our total securities holdings effective December 1.After a brief review of economic developments, I will say more about monetary policy.
Available indicators suggest that economic activity has been expanding at a moderate pace.In the first half of this year, GDP grew at a rate of 1.6%, down from 2.4% last year.Data available before the shutdown showed thatThe growth trajectory of economic activity may be a little more solid than expected, mainly reflecting stronger consumer spending.Business investment in equipment and intangible assets continued to expand, while activity in the real estate sector remained subdued.The federal government shutdown will weigh on economic activity while it lasts, but these effects should reverse when the shutdown ends.
On the labor market front, the unemployment rate remained relatively low as of August.Job growth has slowed significantly since earlier this year.Much of this slowdown likely reflects slower labor force growth due to lower immigration and lower labor force participation, although labor demand is also significantly weaker.Although official employment data for September has been delayed, available evidence suggests that both layoffs and hiring activity have remained low, and that both households’ perceptions of job opportunities and businesses’ perceptions of recruitment difficulty have continued to decline.In a less dynamic and somewhat soft labor market, downside risks to employment appear to have increased in recent months.
Inflation has fallen significantly from its mid-2022 high, but remains elevated relative to our long-term goal of 2%.Estimates based on the Consumer Price Index (CPI) show that overall personal consumption expenditures (PCE) prices rose 2.8% in the 12 months to September, with core PCE prices also rising 2.8% after excluding the volatile food and energy categories.Those readings were higher than earlier in the year as commodity inflation picked up.In contrast, the fall in inflation in the services sector appears to be continuing.Overall, measures of short-term inflation expectations have risen this year, as both market and survey-based indicators showed on the tariff news.However, over the next year or so, most long-term expectations indicators remain consistent with our 2% inflation target.
Our monetary policy actions are guided by our dual mission of promoting maximum employment and stabilizing prices for the American people.At today’s meeting, the Committee decided to lower the target range for the federal funds rate by 0.25 percentage points to 3.75%-4%.
Higher tariffs are pushing up prices in certain categories of goods, causing overall inflation to rise.A reasonable baseline scenario is that the impact on inflation will be relatively short-lived – a one-time change in the price level.But inflationary effects could also be more persistent, a risk that needs to be assessed and managed.Our responsibility is to ensure that a one-time rise in price levels does not turn into a sustained inflationary problem.
In the short term, inflation risks are skewed to the upside, while employment risks are skewed to the downside – a challenging situation.As we navigate this tension between employment and inflation targets, there is no risk-free path for policy.Our framework requires that we take a balanced approach to promote both aspects of our dual mission.As downside risks to employment have increased in recent months, the balance of risks has shifted.Therefore, we decided at this meeting that it would be appropriate to take another step towards a more neutral policy stance.
With today’s decision, we remain well-positioned to respond to potential economic developments in a timely manner.We will continue to determine the appropriate stance of monetary policy based on future data, the evolving outlook, and the balance of risks.We continue to face risks on both sides.During discussions at this meeting of the committee, there were strong differences of opinion on how to proceed in December.Further policy rate cuts at the December meeting are not a foregone conclusion – far from it.Policy does not follow a preset path.
At today’s meeting, the Committee also decided to end the reduction in our total securities holdings effective December 1.Our long-standing plan is to stop reducing our balance sheet when reserve levels are slightly above what we judge to be consistent with adequate reserve conditions.There are clear signs that we have met that standard.In the money markets, repo rates have risen relative to our managed rates, and we are seeing more significant pressures and increased use of our standing repo facilities on certain dates.Additionally, the effective federal funds rate has begun to rise relative to the rate on reserve balances.These developments are what we would expect to see as the balance sheet shrinks and justifies today’s decision to stop shrinking the balance sheet.
Over the past three and a half years as we have reduced our balance sheet, our securities holdings have decreased by $2.2 trillion.As a share of nominal GDP, our balance sheet has fallen from 35% to about 21%.By December, we will enter the next phase of our normalization plan, which is to keep the balance sheet size stable for a period of time while reserve balances continue to gradually decline as other non-reserve liabilities such as currency continue to grow.We will continue to allow institutional securities to mature from our balance sheet,and reinvests the proceeds from these securities in short-term Treasury securities, thereby making further progress in constructing a portfolio composed primarily of Treasury bonds.This reinvestment strategy will also help bring the weighted average duration of our portfolio closer to the outstanding stock of Treasury securities, further normalizing the composition of our balance sheet.
The Federal Reserve has been given two monetary policy goals—maximizing employment and stabilizing prices.We remain committed to supporting maximum employment, sustainably bringing inflation back to our 2% objective, and keeping longer-term inflation expectations firmly anchored.Our success in achieving these goals is critical to all Americans.We understand that our actions impact communities, families and businesses across the country.Everything we do is in pursuit of our public mission.We at the Federal Reserve will do everything we can to achieve our goals of maximum employment and price stability.Thanks.I look forward to your questions.
Record of press conference
Question:Chairman Powell, are you disturbed by the fact that the market has already priced in an interest rate cut at the December meeting?You and some of your colleagues frame this (rate cut) as a risk management exercise.At what point would you consider that enough “insurance measures” have been taken?Are you looking for some kind of improvement in the outlook, or is it likely that things will be like last year with a series of adjustments pending more information being gathered?
Powell:Here’s how I think about it: For our two major goals (full employment and price stability), the risk is clearly that inflation will be too high over a long period of time.But now things have changed.We’ve seen, especially after the July meeting, job growth numbers have been revised downwards and we’ve seen a very different picture of the labor market than before, which suggests that downside risks to the labor market are higher than we previously thought.This suggests that the restrictive policies we have maintained, which I would consider “mildly” (others might say “moderately”), need to move closer to neutral levels over time.If the risks to both goals are equal, then policy should be at a neutral level, because one goal (controlling inflation) requires you to raise interest rates, while the other goal (supporting employment) requires you to cut interest rates..So if risks rebalance, you want policy to be neutral.So this is essentially a risk management exercise.The logic I want to talk about today is roughly the same.But as I mentioned, what the future holds is another story.
Question:Thank you for answering my question.We just heard you say that the outcome of the discussion (at the December meeting) was not predetermined.I want to dig a little deeper, is there any consideration in your discussions about the household wealth effects that we’re seeing from the investments in AI and the resulting stock price increases?
Powell:I don’t think that’s a driving factor for anyone.I want to emphasize again that we are facing a situation where there are upside risks to inflation and downside risks to employment.We only have one instrument (interest rates) and we cannot solve both problems at the same time.This is a very different situation.People (referring to FOMC members) have different forecasting models, and they also have different levels of risk aversion.Some people will be more averse to excessive inflation, others more averse to underemployment.You put those factors together, and as you saw from the public discussions on the sidelines and from personal views, there are very different views, as I pointed out in my remarks.This led me to the conclusion that,We have not yet made a decision on the December meeting.I always say this.It’s true that we don’t make decisions in advance, that’s true, but I would add here: (the December rate cut) should not be viewed as a predetermined conclusion.In fact, far from it.
Question:Can I follow up with a question about QT (quantitative tightening)?How much of the tight funding we’re seeing in money markets is related to the U.S. Treasury issuing more short-term debt?
Powell:That may be one of the factors, but the reality is that we’re already seeing signs of what we’ve been looking for,Such as a higher repo rate and an increase in the federal funds rate.We have a framework for judging when we have achieved our goals.We’ve said very early on that when we feel (reserve levels) are slightly above what we think is adequate, we freeze the size of the balance sheet.From that point forward, reserves will continue to fall as non-reserve liabilities grow.So, this situation – something that indicates a gradual tightening of money market conditions has been happening for some time.Over the last three weeks or so, we’ve seen a more significant tightening and a very clear assessment that we’ve reached that (tipping) point.The other thing is that the balance sheet is shrinking very slowly right now.We’ve cut it in half twice as fast.So there’s not much benefit in holding on for that last bit of reduction, because after the balance sheet freeze, reserves will continue to shrink as non-reserve liabilities grow..As we considered this issue, there was support within the committee to go ahead and announce that we would freeze the size of our balance sheet on December 1.The December 1 date gives the market some time to adjust.
Question:Even taking into account the 2% inflation target and downside risks to the labor market, if the labor market starts to strengthen a little bit, how much does that change your view on how much interest rates need to fall from current levels?Would you be more worried about potential inflation and possible second-round effects from tariffs?
Powell:In principle, if you see data showing that the labor market is strengthening or stabilizing, that will affect the conditions for our policymaking going forward.For example, on the labor market front, we have state-level initial jobless claims data, which show a similar downward trend as before.We also have access to job vacancy data.We will also get a lot of survey data, such as the Beige Book, so we can have an understanding of the labor market.The fact that we’re not seeing a rise in claims or a significant change in job openings suggests that what you’re probably seeing is a sustained, gradual cooling, but that’s about it, so that does give you some comfort.
Question:But if the shutdown lasts longer and you don’t have access to that data, I wonder if that will prevent the committee from assessing the labor market and making the right policy decisions?How does this impact the debate on the December meeting?
Powell:Of course.I mentioned the data that we have available on the labor force.We also get some inflation data and economic activity data.We’ll get a general idea of what’s going on.We will also have the Beige Book.I would say we may not have a nuanced feel for things, but I think if there’s a significant or substantive change in the economy, in either direction, we’ll be able to capture it through those channels.As for how this affects the December meeting, it’s hard to say.With six weeks to go, we don’t know what we’re going to get.If there is a very high degree of uncertainty, that may be a reason to be cautious in our actions.But we have to see how the situation develops.
Question:This (rate cut) decision was a very close vote because you felt both sides.
Powell:I’m referring to the situation related to the December meeting.We had two no votes.One opposes an interest rate cut, while the other advocates not cutting interest rates.The vote for a rate cut was strong and solid.The strong disagreement is really about the future and what it will look like.I think people are noticing stronger economic activity, and forecasters are broadly, broadly raising their economic growth forecasts for this year and next, in some cases significantly.At the same time, we’re seeing the labor market kind of… I don’t want to say stable, but it’s not deteriorating on a case-by-case basis and may be continuing to gradually cool down.People have different forecasts and expectations for the economy, as well as different risk tolerances.When you read those seven different speeches, you know there were different views within the committee, and that’s why I said what I just said.
Question:Just to follow up on the balance sheet, if you stop shrinking it now, does that mean that sometime next year you have to start adding assets again to prevent the balance sheet from declining as a share of GDP and thus becoming a tightening factor?
Powell:You are right.We will freeze the size of our balance sheet on December 1st.As mortgage-backed securities (MBS) mature, we will reinvest those funds in short-term Treasury securities, which will promote more Treasury balance sheets and shorten duration.At the same time, if you freeze the size of the balance sheet, non-reserve liabilities, such as cash, will continue to grow organically and reserves will shrink further as the balance sheet is frozen, and reserves are what we manage and must remain adequate.This will continue for a while, but not for long.At some point in time you would want to see reserves start to grow gradually to keep up with the size of the banking system and the economy, so at some point we will start to increase reserves.That’s the last point.Even then, we… we have not made a decision on that today,But we did discuss today the composition of the balance sheet.There is a desire that the balance sheet…It currently has a much longer duration than the outstanding Treasury portfolio in the market.We want to move toward a duration closer to the outstanding Treasury portfolio.This will take some time.We haven’t made a decision on the ultimate endpoint yet, but we agree that we want to move toward a balance sheet that more closely reflects the composition of outstanding Treasury debt, which means a shorter duration balance sheet.It’s going to be a long process and it’s going to be very, very slow.I don’t think you’ll notice it in market conditions, but that’s the way things are going.
Question:How do officials interpret the latest CPI report?Some components were lower than expected, but core inflation remained at 3%.What do you know about the drivers of inflation at this point?Also, do you think there is a greater risk that the Fed will make a mistake on employment or inflation?
Powell:Regarding the September CPI report, we didn’t get the PPI data afterward, which is important to convert into the PCE inflation that we focus on, but we can still make a pretty good assessment.There may be some adjustments when we get PPI.So, to put it bluntly, it’s a little milder than expected.We always break it down into three parts.Basically, you’re seeing commodity prices going up, and that’s really due to tariffs.This is due to…This contrasts with the long-term very mild deflationary trend in commodity prices.This is pushing up inflation.On the other hand,The good news is that housing services inflation has been falling and is expected to continue falling.If you remember a few years ago, people had been expecting it to be like this, and now that it’s been going on like this for a while, we expect it to continue.This leaves the largest category of services other than housing services.The category has been largely trading sideways over the past few months.A large portion of these are non-market services.We won’t get much of a signal about the level of economic stress from that portion of the data.So, if you add all of this up, there’s a couple of things to say.First, inflation excluding the impact of tariffs is actually not far from our 2% target.We estimate — people have different estimates on this, but it’s probably 0.5 or 0.6 percentage points higher.If core PCE is 2.8%, then excluding tariffs it could be in the range of 2.3% or 2.4%.That’s about it, so it’s not far from your goal.So, we focus on that.Regarding tariff inflation, the base case assumption is that it will come and it may rise further, but it will be a one-time rise.We’ve been very focused this year on making sure that’s the case and thinking carefully about the pathways through which it might evolve into something else, namely troublesome inflation.One way is that the labor market is very tight.We didn’t see this.Another possibility is that inflation expectations are out of control, but we don’t see that either.So, we’re watching this very carefully.I don’t think we’re just assuming it’s going to be a one-time inflation.We fully understand this is a risk that we must monitor and ultimately manage.
Question:In the face of stubborn services inflation, what can we do to address this problem, especially as we are likely to see labor supply challenges?
Powell:Please say it again.
Asked by:The stubborn service industry.
Powell:Oh, services inflation.Again, the part of services inflation that hasn’t gone down as much as we would have liked is the non-market part of non-housing services.Overall, we expect this segment to decline.The non-market component should be down, reflecting mostly higher inventory prices and financial services (which are accrued rather than actually paid for), which is a big part of it.Also, we think the policy remains, in my opinion, mildly restrictive.This situation should lead to a gradual cooling of the economy.That’s one of the reasons you’re seeing the labor market cool down.The Fed’s policy is mildly restrictive, so that should help with that as well.I would say we are absolutely committed to getting inflation back to 2%.If you look at long-term surveys or market pricing, you will see that this is a credible commitment and there should be no doubt that this is the direction we are aiming for.
Question:Thank you.As you know, there is a huge systemic boom in AI infrastructure right now.I wonder whether the existence of this boom is a sign that interest rates are not so restrictive after all, and whether further rate cuts at this time would fuel investment or market bubbles at absolute levels.How is the Fed thinking about this issue?
Powell:You are right.A large number of data centers are being built and other investments are being made across the country and around the world.Big companies in the United States are putting a lot of resources into thinking about how artificial intelligence will impact their business, and that artificial intelligence will be based on or run through these data centers, so this is a big deal.I don’t think the spending on building data centers across the country is particularly interest rate sensitive.It’s based on the long-term assessment that this is an area where there’s going to be a lot of investment, and it’s going to drive higher productivity and so on.I don’t know how these investments will turn out, but I think compared to other industries,They are not particularly sensitive to interest rates.
Question:A quick follow up question.You did mention that in the absence of government data, you have inflation and growth data that you are looking at.I think we know a lot about the employment data.Can you tell us what you are looking at to track inflation in the absence of government data?Thanks.
Powell:There are many things.It does not replace government data.You all know this.I will mention some of the numerous names.Price Snap, Adobe and others.For wage inflation, there’s the ADP data, and for spending – you’ll ask about spending in a moment – we look at a lot of other things.But again, it’s a lot of different sources.Again, including the information we have from the Beige Book, it will be mid-cycle as usual.It doesn’t replace government data, but it again gives us a picture.I think if something big happens, if there’s a big development, I think we’ll catch it.I don’t think we can get a granular understanding of the economy during the period when these data are not available.
Question:I’d like to ask you to elaborate on your statement that the ongoing government shutdown will make taking action in December more difficult and may make you more cautious.To the extent that you rely on private data, or rely on your own surveys or the Beige Book, are you concerned that at some point you’re going to have to start setting policy through anecdotal evidence?
Powell:You know, this is a temporary state.We do our job, collect every bit of data we can find, evaluate it and think about it.This is our job.That’s what we’re going to do.If you ask me, will this affect the December meeting, I’m not saying it will, but yeah, you can imagine —What would you do if you were driving in fog?You will slow down.So, this may or may not be the case.I don’t know how this will affect things.We may get the data — the data may come back, but there’s a possibility that it makes sense to move more cautiously.Again, I’m not promising this,But I say that’s certainly a possibility, and you’re like, we can’t really see clearly, so let’s slow down.
Question:As a follow-up to the debate at this conference, we’ve recently seen some pretty big layoffs announced by Amazon and other companies, and I’m wondering if that came up in the discussion, that is, whether you’re starting to see this tension, the tension between growth and jobs, starting to be resolved, but at the expense of jobs.Second, some pressures are beginning to appear at the bottom of the so-called “K-shaped” economy.Home health insurance premiums could go up significantly, and so on.Have these become a factor in your policy discussions?
Powell:These are things that we are watching very, very carefully.You are right to start with layoffs.You see quite a few companies,Either announce they won’t be hiring much, or actually lay off employees.A lot of times they talk about artificial intelligence and what it can do.So, we’re watching this very carefully.Yes, this could definitely have an impact on job creation.We haven’t really seen it in the jobless claims data yet.Now, it’s not surprising that we didn’t see that.It’s going to take some time for that to reflect, but we’re watching it very carefully.But again, that’s not seen in the jobless claims data yet.I would say the same or similar thing about the “K-shaped” economy.We — if you listen to earnings calls or reports from large consumer-facing public companies, many, many of them are saying there’s a bifurcated economy where consumers at the lower end are struggling, buying less and moving to lower-cost products.But at the top, people with high incomes and high wealth are spending – so there’s a lot of anecdotal data on that.So, we think there’s definitely something there.
Question:Mr. Chairman, I would like to discuss the suggestion that further interest rate cuts are not preordained.You say “far from it”.If there may not be a rate cut in December because of a lack of data, where do the other concerns come from?If lack of data isn’t the reason December isn’t predestined, what might be the other concerns?
Powell:The view among people on the committee is that now that we have cut rates by 150 basis points, we have moved into a range of between 3% and 4%, and most estimates of the neutral rate – many estimates have the neutral rate between 3% and 4%.You are there now.You are above the committee median.I think there are people on the committee who have a higher estimate of the neutral rate, and you can argue those positions because it’s not directly observable.I think for some on the committee, you know, it’s time to take a step back and look at whether there are real downside risks to the labor market or whether the stronger growth that we’re seeing is real.Typically, the labor market is a better indicator of economic momentum than spending data.It’s tempting.In this case, this gives us more downside readings.So people have, again – we’ve cut rates another 50 basis points over the past two meetings.For some, there’s a sense that, let’s pause here.Others want to move on.But that’s why I say there are different points of view, strong different points of view.
Question:So regarding the divergence, you’re talking about the future direction.What is more important in this disagreement?Is it an inflation risk, an employment risk, or are there deeper philosophical differences within the council?
Powell:Look, everyone on the committee is deeply committed to doing the right thing to achieve our goals — and some of it is different forecasts, but a lot of it is also different risk aversion on different variables, which is common across all Feds.People just have different risk tolerances, so to speak.This leads to people having different perspectives.You already know this from the speeches of my colleagues.So, we’re in a position now where we’ve actually had two more rate cuts.Now we are 150 basis points closer to the neutral rate than we were a year ago, whatever the neutral rate is.There is now a growing sense that maybe we should wait at least a cycle.Something like this.That’s it.It’s just what you think it is.Again, you’ve seen this in the September forecast summary and in the public comments of FOMC participants, and I’m telling you, you can expect this in the minutes.I’m telling you, this is what happened at the meeting.
Question:Do you have any explanation for why the job market is weak right now?How will this rate cut improve employment prospects?
Powell:I think there are two factors affecting the job market.One is the sharp reduction in the supply of new workers.There are two aspects to this.One was a drop in labor force participation, which is a cyclical phenomenon, and then there was a drop in immigration, a major policy change that started under the previous administration and is now accelerating.So,A big part of the whole story is the supply side story.In addition, labor demand has also declined.Unemployment fell.This means the demand for workers has fallen slightly more than the supply.So, this is what’s happening.This is primarily a supply function.I think, and many people think too, that this is primarily a function of changes in supply.The question then is, what can our tools, the tools that support the requirements, do.So, I would say, when you’re in a situation where job creation, if you adjust for possible overcounting by the Bureau of Labor Statistics, it’s very close to zero.So, maximum employment, on a sustainable basis, if you create zero jobs, if that’s a balance or an imbalance, that’s also a very strange balance.So,I think, and many of my colleagues also believe – and indeed you’ve seen over the last two meetings – that it’s appropriate for us to respond by supporting demand with interest rates.We already do this.We lowered interest rates, so interest rates are looser.I wouldn’t say they are loose now, but they are significantly less tight than they were before.This should help at least keep the labor market from getting worse, but it’s a complicated situation.Some people think it’s a supply issue and we can’t really affect much with our tools, but others, like me, think there’s a demand side impact and we should use our tools to support the labor market if we see that happening.
Question:You also mentioned that tariffs caused one-time price increases.Should U.S. consumers and households expect prices to continue rising this year due to tariffs?
Powell:The basic expectation is that there will be some additional increase in inflation, as it takes time for tariffs to be transmitted through the production chain and ultimately reach consumers.We are seeing these effects now from the tariffs that were implemented a few months ago.But if you put tariffs in place – they’re in effect through February, March, April, May, that’s all happening.So, this will continue for a while, probably into spring.These are not big increases.These are about a tenth of the impact on inflation, or maybe a specific product that is subject to tariffs, but overall they are quite modest.With 2.8% inflation, you’d get another 0.2 or 0.3 percentage points, maybe.But when all tariffs are implemented,They stop generating inflation.You get a one-time price increase.This is how we believe and hope it will play out.Once the last tariff is put on something, at that point it becomes a higher price level, but it stops going up, if you want to call it that.Prices stopped rising.They will only stay at that level.Measured inflation will then fall back to the level of inflation without tariffs.Tariff-free inflation is now not far from 2%.Now, consumers are not interested in the story.Their prices are higher.More importantly, the reason they are so upset about inflation is the inflation we experience in 2021, 2022 and 2023.You can argue that prices aren’t rising as fast, but that doesn’t mean people aren’t feeling the higher prices that inflation brought about two or three years ago.They do feel it, which is why most of the public, if you sample people, inflation still makes people very unhappy.It’s a good thing that prices aren’t rising as fast as they once were, but they’re still much higher than they were before.This effect will take some time to wear off.Feelings will get better over time as real income increases, but it takes time.
Question:Are you concerned that the stock market is approaching overvaluation right now?
Powell:We don’t look at any single asset price and say, hey, that’s wrong.That’s not our job.We’re looking at the entire financial system.We’re asking if it’s stable, if it can withstand impacts, right?So, banks are well capitalized and while some households are clearly under stress, overall household finances are in good shape and debt levels are relatively manageable.Among low-income groups, you’re seeing a decline in long-term auto loans, but otherwise it’s very good.It’s a complicated picture, but not an overly worrying one.Again, this is inappropriate.We do not set asset prices.The market does this.
Question:You must be well aware that by lowering interest rates, you are fueling further increases in asset prices.I’m wondering how you balance the idea that lower interest rates help the labor market with the reality that it seems more likely to spur more investment in artificial intelligence, which is the reason for the thousands of layoffs announced over the past few weeks.
Powell:Yes.I don’t think interest rates are a big part of the data center story.I think people think there’s good economics in building these data centers, they make a lot of money building them, they think they have a very high present value and so on.It’s really not about 20 basis points here or there.You know, we use our tools to support the labor market and create price stability.This is what we do.Those are our two jobs, right?So, here we are, supporting demand by lowering rates at the margin, which will support more hiring, and that’s why we’re doing this.Now, no 25 basis point or even 50 basis point rate hike is going to be the decisive thing, but ultimately lower rates will support more demand, which will support hiring over time.Of course, we have to be careful about that as well, and that’s what we’ve been doing because we know where the inflation is and we know — I told you the story.It’s a complicated story, but it’s the best assessment we can make, and, you know, because there’s uncertainty about inflation and the future path of inflation, that’s why the pace we’re moving forward has been a cautious pace.
Question:Regarding AI, I’m wondering, a lot of the economic growth we’re seeing seems to be driven by investments in AI.How worried are you about what a sudden contraction in tech investment will mean for the overall economy?Do other industries have enough power?Specifically, have you learned any lessons from the 1990s and how are you going to deal with what’s happening now?
Powell:The difference this time is thatCompanies that are highly valued actually have something like profitability.If you go back to the 90s and the dot-com bubble, those were ideas not companies.There’s a definite bubble there.I won’t go into specific names;But they’re profitable, it looks like they have a business model and profits and stuff like that, so it’s really a different thing.You know, the investment we make in equipment, even those things that are used to create data centers and feed artificial intelligence, it’s obviously a big source of economic growth.Consumer spending, which is also much larger than that, has been growing, defying many negative forecasts, and continues to do so this year.Consumers are still spending.It might be primarily high-end consumers, or it might skew toward that side, but consumers are consuming, and that’s a big chunk of what’s happening in the economy, much bigger than artificial intelligence.You can point to growth, I mean, really – growth rather than levels, but consumer spending is a much larger part of the economy.
Question:Why do you think the labor market has slowed so much even though consumer spending is strong?
Powell:What we’re seeing is a sharp decline in the supply of workers, primarily due to immigration, but also because of lower labor force participation.That means there’s less demand for new jobs because there’s not that flow of people into the labor pool, you know, people who need jobs.There are none of those people anymore.There is no supply of workers looking for work.Also, demand is down, so as the labor force participation rate is down, that’s more of a sign of demand as well as a trend, so I think you’re seeing some softening.You know, the economy is growing slower than it used to.Last year it was 2.4%, and we think it will be 1.6% this year.Without the shutdown, it would probably be a few tenths of a percentage point higher, and of course, that would reverse, but you’d still see the economy growing at a modest pace.
Question:I wanted to ask you if you could elaborate on how you view policy in the context of the data drought.Does this make you more inclined to stick to your plan, or proceed more cautiously because of the uncertainty?
Powell:Well, when we face that problem, if we face that problem, we’ll know.There could be two arguments, but I’ve said it a few times here, there’s one argument if you really don’t get the information, you really don’t know, and the economy looks solid, stable, and not really changing.I don’t know how convincing it would be, but there would be an argument that says when you can’t see that far, you should slow down.Others might argue – and you’re absolutely right – you could also argue that things haven’t really changed, but you might not know that.I don’t know if we will face this problem.I hope we won’t.I hope by the time of the December meeting we’ll have a better data flow, but we have to do our job regardless.
Question:I also wanted to ask, I think you said a few years ago, the total amount of capital in the system is about the same.Has any of this changed as the Fed moves forward with its revised proposal and moves to a G-SIB surcharge?Or do you plan to significantly reduce the amount of capital in the system?Thanks.
Powell:Discussions are ongoing between agencies and I do not want to comment ahead of that discussion.I still think, as I said in 2020, the capital levels are about the same.A lot of capital has been added since then through various mechanisms, but I look forward to — I know these discussions are just beginning.They haven’t gotten to the point where there’s a complete plan or anything like that, so I really don’t have much to say.
Question:Hello, Chairman Powell, NBC News.Is the job market weakness accelerating?If interest rate cuts are not an effective remedy for further slowdown in the labor market, who is at risk?
Powell:So, we’re not seeing the softening that you’re talking about, which is accelerating in the job market.I would say — again, we didn’t get the jobs report for September, the non-farm payrolls report, but we did get — the jobless claims we looked at were still supported.You can look at the numbers.The same goes for the job openings we get from Indeed.There has been little story over the past four weeks.It is stable.You don’t see any signs that the job market, or any part of the economy, is taking a major turn for the worse.But I mentioned, you see big companies announcing layoffs, or the idea that they can — they don’t need to hire.Their headcount is not expected to increase for several years.There may be different people working there.They say the same thing, but they don’t need more employees.You don’t see that in the totals.But job creation is very low, and the rate at which unemployed people find work is also very low.The unemployment rate is also very low, 4.3% is a low unemployment rate.
Question:With these rate cuts, are you thinking about low-income workers, or are you thinking about workers whose jobs could be automated, are you looking at any particular market in particular?
Powell:Our tools do not allow us to target any demographic or income level.I do think that people – we saw this during the global financial crisis and the long recovery.If you have favorable labor market conditions, it benefits people.People at the bottom of the income ladder have reaped the biggest benefits over the past two or three years, and a lot of very constructive things have happened demographically in that area.We are not in that position now.A stronger labor market is the best thing we can do for the public.This is part of our job, half of our job.That’s absolutely the best thing we can do for people while keeping prices stable, those two things.Inflation also hurts people living on fixed incomes more than others.
Question:As you know, the terms of the 12 Reserve Bank governors expire at the end of February.I was wondering if you could give a timeline as to when the council will consider these appointments and whether we can expect everyone to be renewed or if we can expect some changes?
Powell:This is a process we carry out in accordance with the law.The way the law works is that we have a reappointment process every five years for all the Reserve Banks – every one and all of them.We are in the middle of this process.We will get it done in time.That’s really all I can say.
Question:OK.Thanks.
Question:What I’m trying to say is that in three consecutive meetings you had objections going in both directions, and going forwardInterest rate cut path.Does that reflect your role at the FOMC meeting, and if so, how?
Powell:I wouldn’t say that.No.You have to accept reality.The reality right now is a pretty challenging situation, first of all, we have an unemployment rate of 4.3%.Our economy is growing close to 2%.So, you know, overall, it’s a good picture, but in terms of our policies, we have upside risks to inflation and downside risks to employment.It’s a very difficult thing for central banks to do because, you know, one of them requires interest rates to be lowered.One calls for an increase in interest rates.We can’t have it both ways, so we have to balance both.This is a challenging thing.As we go through this process, you would expect there to be a variety of views within the committee on what to do and how quickly we should do it.And that’s what we have.This makes sense to me.All of these are people who take their jobs very seriously, work very hard at it, and want to do the right thing for the American people, but they have different ideas about what that is.It’s a privilege to work with people who care so much.Yeah, but I don’t think it’s unfair, or anything like that.This is just a period where we’re making pretty difficult adjustments in real time, and I’m confident we’ll get through this.I think we’ve done the right things so far this year.I think it’s appropriate for us to be cautious about this.I don’t think it’s appropriate to ignore or assume that the inflation problem doesn’t exist.At the same time, the risk of higher and more sustained inflation has declined significantly since April.If we eventually resume cutting rates at some point, we will.But at some point, we’re trying to end the cycle with the labor market in good shape and inflation heading towards 3%, or at 2%.That’s all we’re trying to do, and do it under pretty challenging circumstances, and do it to the best of our ability.
Question:Thank you very much, Chairman Powell, Jennifer from Yahoo Finance.Both regional and large banks are taking losses on loans and experiencing delinquencies, and when you see one it’s probably a cockroach, there are probably more, Jamie Dimon said.I’m curious what you think about low losses, or whether it poses a risk to the economy.Is this a warning sign?
Powell:We watch credit conditions very carefully.you’re right.We’ve been seeing defaults on subprime credit rising for some time.Now you’re seeing significant losses at some of the subprime auto lenders, and some of those losses are showing up on banks’ books.We are studying it carefully.We are paying close attention.I don’t see the broader issue at the moment.It does not appear to be a problem with very broad application among financial institutions.But you know, we’re going to be monitoring this very carefully and making sure that’s the case.
Question:Additionally, many people, including yourself, have said that we are now in a bifurcated economy, with high-net-worth individuals continuing to spend while low-income earners are scaling back.The extent to which the sustainability of consumer spending depends on the stock market remaining strong.Do markets help keep the economy active to some extent?
Powell:So, there’s some correlation there, but remember,The more wealth a person has, the less important an additional dollar of wealth is.So, when you reach a level of stock market wealth, your marginal propensity to consume drops dramatically.So, the stock market, if the stock market falls it will affect spending, but unless there’s a pretty big fall in the stock market, spending won’t fall dramatically.People at the lower end of income and wealth have a much higher marginal propensity to consume a dollar of incremental income or wealth, but they do not have stock market wealth.This is certainly a factor supporting consumption at the moment.But — if you see a significant correction in spending, you’ll see it.But it’s not going to — you shouldn’t think it’s going to — stop spending dollar for dollar, because that’s not going to be the case.Thank you so much.
