Thursday, September 17, 2020

Jerome Powell’s September 16, 2020 Press Conference – Notable Aspects

On Wednesday, September 16, 2020 FOMC Chairman Jerome Powell gave his scheduled September 2020 FOMC Press Conference. (link of video and related materials)

Below are Jerome Powell’s comments I found most notable – although I don’t necessarily agree with them – in the order they appear in the transcript.  These comments are excerpted from the “Transcript of Chairman Powell’s Press Conference“ (preliminary)(pdf) of September 16, 2020, with the accompanying “FOMC Statement” and “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, under their individual assumptions of projected appropriate monetary policy, September 2020.“

Excerpts from Chairman Powell’s opening comments:

Economic activity has picked up from its depressed second-quarter level, when much of the economy was shut down to stem the spread of the virus.  With the reopening of many businesses and factories and fewer people withdrawing from social interactions, household spending looks to have recovered about three-quarters of its earlier decline.  Nonetheless, spending on services that typically require people to gather closely, including travel and hospitality, is still quite weak.  The recovery in household spending also likely owes to federal stimulus payments and expanded unemployment benefits, which provided substantial and timely support to household incomes.  Activity in the housing sector has returned to its level at the beginning of the year, and we are starting to see signs of an improvement in business investment.  The recovery has progressed more quickly than generally expected, and forecasts from FOMC participants for economic growth this year have been revised up since our June Summary of Economic Projections.  Even so, overall activity remains well below its level before the pandemic and the path ahead remains highly uncertain.

In the labor market, roughly half of the 22 million jobs that were lost in March and April have been regained as many people returned to work.  The unemployment rate declined over the past four months but remains elevated at 8.4 percent as of August.  Although we welcome this progress, we will not lose sight of the millions of Americans who remain out of work.  Looking ahead, FOMC participants project the unemployment rate to continue to decline; the median projection is 7.6 percent at the end of this year, 5.5 percent next year, and 4 percent by 2023.

The economic downturn has not fallen equally on all Americans, and those least able to shoulder the burden have been hardest hit.  In particular, the high level of joblessness has been especially severe for lower-wage workers in the services sector, for women, and for African Americans and Hispanics.  The economic dislocation has upended many lives and created great uncertainty about the future.


The changes we made in today’s policy statement reflect our strategy to achieve our dual mandate goals by seeking to eliminate shortfalls from maximum employment and achieve inflation that averages 2 percent over time, as we articulated in our Statement on Longer-Run Goals and Monetary Policy Strategy.  We view maximum employment as a broad-based and inclusive goal and do not see a high level of employment as posing a policy concern unless accompanied by signs of unwanted increases in inflation or the emergence of other risks that could impede the attainment of our goals.  And we believe that achieving inflation that averages 2 percent over time helps ensure that longer-term inflation expectations remain well anchored at our longer-run 2 percent objective.  In turn, well-anchored inflation expectations enhance our ability to meet both our employment and inflation objectives, particularly in the new normal in which interest rates are closer to their effective lower bound even in good times.  

Excerpts of Jerome Powell’s responses as indicated to various questions:

JEANNA SMIALEK. Hi, Chair Powell. Thanks for taking my question. Jeanna Smialek, New York Times. I was wondering, you beefed up your language on financial stability in the long-run statement that you unveiled with your Jackson Hole speech last month. I’m wondering if you could kind of walk us through how you think about financial stability concerns as a factor in guiding and interpreting increases. You know, would financial stability concerns on their own be enough to merit changes in the fed funds rate? Or would they have to come in conjunction with an overheating on inflation or some sort of dramatic drop in unemployment rate? If you could sort of give us an outline of your thinking there, please. 

CHAIR POWELL. So what we said in our statement on longer-run goals and monetary policy strategy was that the Committee’s policy decisions reflect its longer-run goals, its medium-term outlook and its assessment of the balance of risks, including risks to the financial system that could impede the attainment of the Committee’s goals. So that’s what we said about financial stability. And today we said that we’d be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of our goals. 

But you asked specifically about financial stability. One thing I would say is that monetary policy should not be the first line of defense — is not the first line of defense on financial stability. We look to more appropriate tools in the first instance, as a first line of defense. And those would be regulation, supervision, high-capital, high-liquidity stress testing, all of those things, macroprudential tools. All of those things are really the first line of defense on financial stability. But we always leave open the idea that we will not ignore those kinds of risks, and other kinds of risks more broadly that could impede the attainment of our goals in setting monetary policy. So that’s really how we think about it. But principally that, you know, other tools are the frontline as I mentioned. 

JEANNA SMIALEK. Just to follow up quickly, if other tools aren’t forthcoming, would financial stability concerns in and of themselves be enough to warrant a rate hike? 

CHAIR POWELL. So you know, again, what we said in the longer-run — you know, in our consensus statement is that we, you know — policy decisions reflect the balance of risks including risks to the financial system that could impede the attainment of the Committee’s goals. So the test would be, you know, does a majority of the Committee feel that monetary policy is triggering that? And that would be the test. And you know, it’s not something that we’ve done. We do monitor financial stability concerns of course intensely and regularly. We try to use our other tools on them, but we do keep them in mind as we think about monetary policy. 


RACHEL SIEGEL. Hi, Chair Powell. Thanks very much for taking my question. I wanted to ask if you anticipate a slowing in the pace of the recovery if there is not another stimulus package. And specifically, if there are particular holes still remaining in the economy that you think could be helped by more aid from Congress. Thanks very much. 

CHAIR POWELL. Sure. So first if you look at the Summary of Economic Projections that my colleagues and I filed for this meeting, what you’ll see is an expectation that the recovery will continue, that it will continue at a reasonable pace through 2021, ’22 and ’23. We do expect that that pace will slow just because you would expect that the pace would be fastest right at the beginning of the — right at the beginning of the recovery, because you had such a sharp decline. You would expect that the third quarter should be the fastest gains, and that after that the pace should slow down to a more normal pace. So we do expect that. 

In terms of fiscal policy, you asked about fiscal policy. So you know, one thing — I guess I would start by saying that the initial response from fiscal authorities was rapid. It was forceful and pretty effective. And we’re seeing the results of that today in income and household spending data, in the labor market data, in the construction data, in the data for business equipment spending, and the fact that businesses are staying in business, and you know, the pace of default and things like that has really slowed. So there’s been a really positive effect. 

That said, my sense is that more fiscal support is likely to be needed. Of course, the details of that are for Congress, not for the Fed. But I would just say there are still roughly 11 million people still out of work due to the pandemic, and a good part of those people were working in industries that are likely to struggle. Those people may need additional support as they try to find their way through what will be a difficult time for them. We’ve also got struggling small businesses, especially those in the business of facing directly to the public. And we have state and local governments dealing with a drop in revenue at the same time spending has gone up, much of it related to the pandemic and economic effects. 

So again, I would say the fiscal support has been essential in the good progress we see now. And finally, I’ll note that just about all — the overwhelming majority of private forecasters who project an ongoing recovery are assuming there will be a substantial additional fiscal support.


MICHAEL MCKEE. Mr. Chairman, Michael McKee from Bloomberg Radio and Television. Based on what you were just saying about keeping policy accommodative for a very long time into the recovery, lower for longer as far out as three years in your latest projections, is that basically it for the Fed? In other words, since interest rates are your main tool, the things you can do would push down on interest rates. But is it the case now that the only additional stimulus that can come to the economy is from the fiscal side? 

CHAIR POWELL. Well, no, I certainly would not say that we’re out of ammo, not at all. So first of all, we do have lots of tools. We’ve got the lending tools. We’ve got the balance sheet, and we’ve got forward guidance, further forward guidance. So there’s still plenty more that we can do. We do think that our rate policy stance is an appropriate one to support the economy. We think it’s powerful. And as I mentioned, you know, this is the kind of guidance that will provide support for the economy over time. The idea being that policy will remain highly accommodative until the recovery is well along, really very close to our goals. And then we’ll remain accommodative even after we lift off. So I think that’s a really strong place for rate policy to be. But again, we have the other margins that we can still use. So no, certainly we’re not out of ammo.

MICHAEL MCKEE. If I could follow up, in terms of the balance sheet, are you concerned that your actions are more likely to produce asset price inflation than goods and services inflation? In other words, are you risking a bubble on Wall Street? 

CHAIR POWELL. Yeah, so of course we monitor financial conditions very carefully. These are not new questions. These were questions that were very much in the air a decade ago and more when the Fed first started doing QE. And I would say if you look at the long experience of, you know, the ten-year, eight-month expansion, the longest in our recorded history, it included an awful lot of quantitative easing and low rates for seven years. And I would say it was notable for the lack of the emergence of some sort of a financial bubble, a housing bubble or some kind of a bubble. The popping of which could threaten the expansion. That didn’t happen. And frankly, it hasn’t really happened around the world since then. That doesn’t mean that it won’t happen, and so of course it’s something that we monitor carefully. After the financial crisis, we started a whole division of the Fed to focus on financial stability. We look at it through every perspective. The FOMC gets briefed on a quarterly bases. At the Board here we talk about it more or less on an ongoing basis. So it is something we monitor. But I don’t know that the connection between asset purchases and financial stability is a particularly tight one. But again, we won’t be — we won’t be just assuming that. We’ll be checking carefully as we go. And by the way, the kinds of tools that we would use to address those sorts of things are not really monetary policy. It would be more tools that strengthen the financial system. 

DON LEE. Chair Powell, I’d like to ask you about the labor market. As you know, in August there were about 30 million persons claiming unemployment benefits. Yet the BLS jobs report for August showed about 13.5 million unemployed, only about 6 million more than before the pandemic. I wonder how you reconcile that and what you think the actual labor market conditions are. 

CHAIR POWELL. So I mean, I think the overall picture — take a step back from this. The overall picture is clear, and that is that the labor market has been recovering, but that it’s a long way — a long way from maximum employment. I think that’s the bottom line on it. So within that though, take claims in particular. The number of claims, the quantity of claims — and frankly the fact that PUA claims are new, the pandemic unemployment assistance claims — that’s a new system that had to be set up. The actual counting of the claims is volatile and it’s very difficult to take much signal about the particular level. So you know, because people were setting those systems up, and when they got them set up, they counted them all at once and things like that. I think though, what you’ve seen is that the level of — certainly the level of initial claims has declined very sharply from the very high levels of March and April and is now at a lower level, continues either to be flat or gradually decline. It’s worth noting. And that’s good. It’s worth noting that that level is maybe five times the level of what claims were — claims were around 200,000. Now they’re 900,000 in that range weekly for initial claims. So that just tells you the labor market has improved, but it’s a long, long way from maximum employment. And it will be some time getting back there. I think that’s the best way to think about it. In many parts of the economy, there’s just a lot of disruption and it’s really hard to say precisely where we are. I’ll give you another example with — we say unemployment’s 8.4 percent, but if you count those who are misidentified as employed when they’re actually unemployed and you add back some part of the participation numbers. So if you had a job and you were in the labor force in February and you lost it because of the pandemic, some of you are now being reported as out of the labor force. But you know, I would more look at those people as unemployed. If you add those back, the level of unemployment’s probably 3 percent higher. On the other hand, by that metric, the unemployment rate would have been in the 20’s in April. So the improvement has been quite substantial under any measurement. But the level is still quite high.



The Special Note summarizes my overall thoughts about our economic situation

SPX at 3336.73 as this post is written 

No comments:

Post a Comment