Fed Chair Powell speaks Thomas Laubach Research Conference
Fed Chair Jerome Powell’s comments center around inflation , which is currently much higher than the Fed’s target. He reiterates the importance of price stability as the bedrock of a strong economy and the central bank ‘s responsibility to maintain it. Despite the significant challenges posed by inflation, the Fed remains steadfastly committed to achieving its 2% inflation goal.
He underscores the strength and resilience of the banking system and explains the separate yet often complementary roles of monetary policy and supervisory tools. Powell suggests that due to tightening bank credit conditions, policy rates might not need to rise as high as might otherwise be expected.
Regarding potential supply shocks, Powell acknowledges their likelihood but notes their unpredictability. He affirms that positive supply shocks during globalization periods have historically helped maintain low inflation but doesn’t expect a repeat of this phenomenon. He insists that central banks’ responsibility for price stability persists, irrespective of supply shocks.
Discussing the labor market, Powell asserts the relationship between labor market slack and inflation has not fundamentally changed post-pandemic. While labor market slack didn’t initially influence inflation, he believes it will be a factor in future inflation. Inflation and nonhousing services are seen as particularly susceptible to labor outcomes.
Powell points out the utility of the Fed’s economic projections, although he clarifies that they are not forecasts. He also expresses some uncertainty about the lagged effects of policy, indicating a shift from clear-cut further tightening to more careful evaluation of conditions that might warrant further tightening.
He notes that market pricing suggests a different rate path than the Fed, presumably anticipating a more rapid decrease in inflation. However, he maintains that current data support the view that reducing inflation will take time. He also highlights the inclusion of risk compensation in market prices.
Finally, Powell states that while the Fed has not yet determined whether rates are sufficiently restrictive, the objective is to reach a sufficiently restrictive policy stance. The Fed hasn’t decided on how much more tightening might be necessary, but Powell suggests that the balance between doing too much and too little is becoming more evenly balanced.