Economic activity expanded at a robust Pace last year Reflecting progress on vaccinations and The reopening of the economy Fiscal and monetary policy support and The healthy financial positions of Households and businesses He has shown great strength and Resilience in the face of the ongoing Pandemic The recent sharp rise in covet cases Associated with the omicron variant will Surely weigh on economic growth this Quarter high frequency indicators point To reduced spending in coveted sensitive Sectors Such as travel and restaurants And activity more broadly may also be Affected as many workers are unable to Report for work because of illness Quarantines or caregiving needs Fortunately Health experts are finding that the Omicron variant has not been as virulent As previous strains of the virus And they expect that cases will drop off Rapidly If the wave passes quickly the economic Effects should as well and we would see A return to strong growth That said the implications for the Economy remain uncertain And we have not lost sight of the fact That for many afflicted individuals and
Families And for the health care workers on the Front lines The virus continues to cause great Hardship The labor market has made remarkable Progress And by many measures is very strong Job gains have been solid in recent Months averaging 365 000 per month over The past three months Over the past year payroll employment Has risen by 6.4 million jobs The unemployment rate has declined Sharply falling two percentage points Over the past six months To reach 3.9 percent in december The improvements in labor market Conditions have been widespread Including for workers at the lower end Of the wage distribution as well as for African americans and hispanics Labor demand remains historically strong With constraints on labor supply Employers are having difficulties Filling job openings and wages are Rising at their fastest pace in many Years While labor force participation has Edged up it remains subdued In part reflecting the aging of the Population and retirements In addition some who would otherwise Would be seeking work report that they
Are out of the labor force because of Factors related to the pandemic Including caregiving needs and ongoing Concerns about the virus The current wave of the virus may well Prolong these effects Over time there are good reasons to Expect some further improvements in Participation and employment Inflation remains well above our longer Run goal of two percent Supply and demand imbalances related to The pandemic and the reopening of the Economy have continued to contribute to Elevated levels of inflation In particular bottlenecks and supply Constraints are limiting how quickly Production can respond to higher demand In the near term These problems have been larger and Longer lasting than anticipated Exacerbated by waves of the lasting than Anticipated exacerbated by waves of the Virus While the drivers of higher inflation Have been predominantly connected to the Dislocations caused by the pandemic Price increases have now spread to a Broader range of goods and services Wages have also risen briskly and we are Attentive to the risks that persistent Real wage growth in excess of Productivity could put upward pressure On inflation
Like most forecasters we continue to Expect inflation to decline over the Course of the year We understand that high inflation Imposes significant hardship especially On those least able to meet the high Higher costs of essentials like food Housing and transportation In addition we believe that the best Thing we can do to support continued Labor market gains is to promote a long Expansion And that will require price stability We're committed to our price stability Goal We will use our tools both to support The economy and a strong labor market And to prevent higher inflation from Becoming entrenched And we'll be watching carefully to see Whether the economy is evolving in line With expectations The fed's monetary policy actions have Been guided by our mandate to promote Maximum employment and stable prices for The american people As i noted the committee left the target Range for the federal funds rate Unchanged and reaffirmed our plan Announced in december to end asset Purchases in early march In light of the remarkable progress We've seen in the labor market and Inflation that is well above our two
Percent longer run goal The economy no longer needs sustained High levels of monetary policy support That is why we are phasing out our asset Purchases and wag we expected will soon Be appropriate to raise the target range For the federal funds rate Of course the economic outlook remains Highly uncertain Making appropriate monetary policy in This environment requires humility Recognizing that the economy evolves in Unexpected ways We'll need to be nimble so that we can Respond to the full range of plausible Outcomes With this in mind We will remain attentive to risks Including the risk that high inflation Is more persistent than expected And are prepared to respond as Appropriate to achieve our goals To provide greater clarity about our Approach for reducing the size of the Federal reserve's balance sheet today The committee issued a set of principles That will provide a foundation for our Future decisions These high-level principles clarify that The federal funds rate is our primary Means of adjusting monetary policy And that reducing our balance sheet will Occur after the process of raising Interest rates has begun
Reductions will occur over time in a Predictable manner primarily through Adjustments to reinvestments so that Securities roll off our balance sheet Over time we intend to hold securities In the amounts needed for our ample Reserves operating framework And in the longer run we envision Holding primarily treasury securities Our decisions to reduce our balance Sheet will be guided by our maximum Employment and price stability goals In that regard we will be prepared to Adjust any of the details of our Approach to balance sheet management in Light of economic and financial Developments The committee has not made decisions Regarding the specific timing pace or Other details of shrinking the balance Sheet and we will discuss these matters In upcoming meetings And provide additional information at The appropriate time 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 federal reserve will do Everything we can to achieve our maximum Employment and price stability goals Thank you i look forward to your Questions
Thank you for the first question we'll Go to chris Uh thanks michelle and thank you chair Powell uh So That's expected um That the fed will hike rates perhaps Every other meeting Uh but certainly in the past The fed has hiked at every meeting so i Just wanted to ask you know our rate Hikes at consecutive meetings on the Table This year is every meeting a live a live Meeting and uh on that note um Would the fed consider Front loading some of its rate hikes uh Even if it doesn't raise every meeting Thank you thanks so so as i as i Referred to in my opening statement It's it is not possible to predict with Much confidence exactly what path for Our policy rate is going to prove Appropriate and so at this time we Haven't made any decisions about the Path of policy and i i stress again that We'll be humble and nimble We're going to have to navigate Cross-currencies and currents and Actually two-sided risks now um So uh and and i'll say Also that we're going to be guided by The data in fact what i'll say is that We're going to be led by the incoming
Data and the evolving outlook Um We'll try to communicate as clearly as Possible moving steadily in transparency Transparently so More to your question We know that the economy is in a very Different place than it was when we Began raising rates in 2015. Specifically the economy is now much Stronger Uh the labor market is far stronger Inflation is running well above our two Percent target much higher than it was At that time And these differences are likely to have Important implications for the Appropriate pace of policy adjustments Beyond that we haven't made any Decisions Thank you let's go to victoria guida Politico Hi chair pal um i wanted to ask you were Talking about the health of the labor Market and i'm curious whether you would Characterize where we're at right now as Maximum employment and also along those Same lines Obviously uh rate hikes on the table This year do you think that the fed can Raise rates bring inflation under Control without hurting jobs and wages Sorry just getting both both parts of Your question written down
So I would say and this view is widely held On the committee that both sides of the Mandate are calling for us to move Steadily away from the very highly Accommodative policies we put in place During the challenging economic Conditions that the economy faced Earlier in the pandemic And i i would say that most fomc Participants agree that labor market Conditions are consistent with maximum Employment in the sense of the highest Level of employment that is consistent With price stability and that is that is My personal view um and and again very Broad support on the committee for the Judgment that it will soon be Appropriate to raise the target range Uh for the federal funds right The other thing is maximum employment Will will evolve over time and through The course of the business cycle in the Particular situation we're in now It may well increase max the level of Maximum of employment that's consistent With stable prices may increase And we hope that it will as more people Come back into the labor market as Participation gradually rises And the policy path that we're broadly Contemplating Would be supportive of that comment that Outcome as well
So The thing about the labor market right Now is that there are many millions of More job openings than there are Unemployed people so you ask whether we Can whether we can uh Raise rates and and move to less Accommodative and even tight financial Conditions without hurting the labor Market i think there's quite a bit of Room To raise interest rates without Threatening the labor market this is By so many measures a historically tight Labor market Record levels of job openings of quits Wages are moving up at the highest Pace they have in decades If you look at surveys Of workers they find jobs plentiful look At surveys of companies they find Workers scarce And all of those readings are at levels Really that we haven't seen in a long Time in some cases ever so this is a Very very strong labor market and my Strong sense is that we can we can We can move uh rates up without uh Without having to You know severely undermine it i also Would point out that there are there are Other forces at work this year which Should also help bring down inflation we Hope including improvement on the supply
Side which will ultimately come The timing and pace of that are Uncertain and also fiscal policy is Going to be Less supportive of of growth this year Not of the level of economic activity But the fiscal impulse to growth will be Significantly lower so there are Multiple forces which should be working Over the course of the year For inflation to come down uh we do Realize that the timing and pace of that Are are highly uncertain and that Inflation has persisted longer than we Um than we thought and of course we're Prepared to use our tools to assure That higher inflation does not become Entrenched Thank you let's go to nick timaros at The wall street journal Afternoon chair powell nick timarous of The wall street journal Uh i have a couple of questions on the Balance sheet the statement on the Balance sheet today calls for Significantly reducing your holdings What does that mean And then apart from moving sooner and Faster to shrink the holdings are there Any other ways in which you and your Colleagues are seriously thinking about Recalibrate recalibrating this process And and finally how much disagreement is There around how you should use this
Tool Including active sales rather than Passive sales or changes in the Composition of reinvestments thank you So I'm afraid to tell you that Those are all great questions and there Are questions that the committee is just Turning to now so we had we had a Discussion as you know at the last Meeting an introductory discussion of The balance sheet and teeing up of the Issues at this meeting we've Uh gone through and carefully put Together a set of principles at a high Level and those are meant to guide the Actual decisions we'll make about the Pace and about all the questions that You're you're asking and i expect that This process Will will be something that we spend Time on on in coming meetings i can't Tell you how many i can't tell you how Long it will take but and then you know At the appropriate time we'll provide Additional information So i did the last cycle when we went Through balance sheet issues we did find That Over over the course of two or three Meetings for example we did come to Interesting and better answers we Thought so We're just in that process now and at
The next meeting we'll be turning to you Know more of the details that you're That you're asking about Um i i would say this the balance sheet Is is much bigger It's it has a shorter uh duration than The last time And the economy is much stronger and Inflation is much higher So and and i think that leads you to and I said i've said this uh Being willing to move sooner than we did In the last time And also perhaps faster but but beyond That it's it's really it's really not Appropriate for me to speculate Exactly what that would be and but i Would point you to principle number one Which is the committee views changes in The target rate for the federal funds Rate as its primary means of adjusting The stance of monetary policy so We do want the federal funds rate we we We want to operationalize that and we Want the balance sheet uh to be Declining in a predictable manner and we Want it to be declining primarily by Adjusting Reinvestments so if i could follow on That raising rates and reducing the Balance sheet both restrain the economy Both tied in monetary policy How should we think about the Relationship between the two for example
How much passive runoff is equal to Every quarter percentage point increase In your benchmark rate So again we we think of the balance Sheet as as moving in a predictable Manner sort of in the background and That the active tool meeting to meeting Is not both of them it's the federal Funds rate There there are rules of thumbs i'm i'm Reluctant to land on one of them that That equate this and there's also an Element of uncertainty around the bounty I think we have a much better sense Frankly of how rate increases affect uh Financial conditions and hence economic Conditions balance sheet uh is is still A relatively new thing for Uh for the markets and for us so we're Less certain about that so again our i Think our the pattern will follow is to Is to arrive at a uh you know a timing And a pace and and composition and all Those things And then announce that with advanced Notice and and and it will uh It will start in the background and then We will look to have that just running In the background and have and have the Interest rates again be the active tool Of monetary policy that's that's at Least the plan i i can't tell you much More about any of the any of the very Good issues about size
Pace composition those sorts of things We'll be turning to all of those at Coming meetings Thank you Thanks now we'll go to neil irwin Uh thank you chair pals neil irwin from Axios uh glad to be back um sir i was Wondering if uh the volatility we've Seen in financial markets in the last Few weeks strikes there's anything uh Alarming or that might affect the Trajectory of policy uh conversely to The degree that financial conditions Have tightened some uh might not be Desirable in some ways and achieving Your uh your tightening goals So As you know uh the ultimate focus that We have is on the real economy maximum Employment price stability and financial Conditions matter to the extent that They have implications for achieving the Dual mandate and you also know that we We look at broader financial conditions Not one or two things one or two markets And what we're always asking ourselves Is are we seeing changes that are both Persistent and material enough that Of a change in financial conditions that That they Are inconsistent with the achievement of Our goal so that's how we're looking at That and Um i i don't want to comment on today's
Financial conditions broadly but We're not looking at any one market or Or so so that that's how we're thinking In terms of um What we've seen I would say this uh you know we said uh At our last meeting we we published this Summary of economic projections the Meeting of which the media participant Expected three rate increases this year And um you know it's six weeks seven Weeks later now and you have seen That our communication channel with the Markets is working markets are are now Pricing in number of rate increases Uh uh surveys show that uh market Participants are expecting Uh a balance sheet runoff to Begin you know At the appropriate time sometime later This year perhaps we haven't made that Decision yet So we We feel like The communications we have with market Participants and with the general public Are working And the financial conditions are Reflecting in advance the decisions that We make and Monetary policy works significantly Through expectations So That that in and of itself is
Appropriate Thank you let's go to howard schneider You know for a year or so oh hi uh Thanks to your pal howard schneider's so For a year now the statements reference The benchmarks for this initial interest Rate increase Now that we're approaching that moment What are the benchmarks going to be for Subsequent rate increases i know you Can't stipulate the path but how should We think about the criteria for the next Step in the next step Well you're right we haven't got we Haven't gotten to that point we haven't Made a decision yet and we'll make that Decision at the march meeting We'll make a decision whether to raise The federal funds rate i i would say That the committee is Is is of a mind to to to raise the Federal funds rate at the march meeting Assuming that uh Conditions are appropriate for doing so We have we have our eyes on on the risks Particularly Around the world uh but uh uh We do expect some softening in the Economy from omicron but we think that That should be temporary and we think That uh the economy should the Underlying strength of the economy Should Um you know should should show through
Fairly quickly after that If i could follow uh Just a Related question the december steps have This copacetic sort of set of Circumstances where inflation Comes down without the federal funds Rate ever getting over the estimate of Neutral Uh given development since then do you Still think that's a credible narrative For the ultimate path to policy My path is highly uncertain in that We're committed using our tools to make Sure that inflation High inflation that we're seeing does Not become entrenched So A number of factors would be it's not Just monetary policy A number of factors are supporting a Decline in inflation as i mentioned Fiscal policy will be will providing Significantly less of an impulse to Growth We do expect this year although uh we do Expect now that it will come slower than We had expected and hoped that there Will be relief on the supply side so That too Should should lower these supply-side Barriers which are a big part of the Story why inflation is like in addition Monetary policy will becoming
Significantly less accommodative so the Question is you know We'll we'll be asking this question all Year long and that will be uh are things Turning out As we expect there's a case that Uh for whatever reason the economy slows More inflation slows more than expected We'll react to that if instead we see Inflation at a higher level or more Persistent level then we'll react to That and again we're well aware that This is a different Economy than that existed during the Last Tightening cycle and our policy is going To reflect those differences [Music] Thank you let's go to gina smiling Let's go to gina Okay let's go to steve liesman Thank you uh mr bunton thank you mr Chairman uh michelle and i've um One sort of technical question and one Question on principle um the technical Question is if you're going to discuss Balance sheet at next upcoming meetings And you won't begin balance sheet Reduction until after you begin rate Hikes It seems to technically mean that you Won't or can't begin uh balance sheet Reduction until the summer is that Correct that's the first thing second of
All you suggested that the um Uh With balance sheet running in the Background uh that you would possibly be Raising rates and running off the Balance sheet at the same time that's Sort of the technical question part of It the the principal question i have is You said it's going to be running in the Background but the statement on On balance sheet principle says the Committee's prepared to adjust any of The details of its approach um based Economic and financial developments Which suggests there's something of a Reaction function Associated to the balance sheet and it Won't be running in the background so Could you give us any uh a sense of the Discussion or presentation on what is The reaction function surrounding the Balance sheet So let me let me let me start by talking About that last paragraph so you'll Remember during the last cycle That uh This process of building up and then Shrinking the balance sheet is a Complicated one and it involves Inevitably surprises and so during During the years During the prior cycle we amended our Balance sheet principles a number of Times now we didn't intend to do that it
Just events required us to do so so we Got a pretty robust paragraph there that Says we're free to do this at any time And and it doesn't mean we're going to But if the situation turns out to be Different than we had thought We're not going to be we're not going to Stick with something that isn't working That that's all that's saying it's meant To be quite a general statement rather Than A a hint So i mean i i i like to think that our You know our philosophy of the balance Sheet is is embodied in these principles So you know the the idea that for Example that the federal funds rate is The primary means of uh adjusting the Stance of policy that will use uh Determine the timing and pace of Reducing the size of the balance sheet To foster the dual mandate That we'll begin to reduce the size After we begin the process of uh raising Rates and on and on like that i mean That those are all the things that that Try to describe Uh how we will proceed but it may be at A higher level to try to get at your Question Um You know asset purchases were were Enormously important at the beginning Of the
Recovery in terms of restoring market Function as they were right after the in The critical phase of the global Financial crisis And then after they they were a Macroeconomic tool to support demand And now the economy no longer needs this This Highly accommodative policy that we put In place so It's time to stop asset purchases first And then at the appropriate time Start to shrink the balance sheet now The balance sheet is is substantially Larger than it needs to be we've Identified the end state as Um In amounts needed to implement monetary Policy efficiently effectively in the Ample reserves regime So there's a substantial amount of Of Shrinkage in the balance sheet to be Done that's going to take some time we Want that process to be orderly And predictable and um Uh So Those are some of the ways i would think This this lays out our um you know the Way we the way we're thinking about this In terms of the timing i i i can't Really help you you know it just says After after we get underway so
We're i would say we are We're going to have another discussion At at the next meeting And my guess is we'll have at least one Other discussion at the meeting after That And uh you know we'll we'll we'll tell You as we make progress And uh we'll you know we'll start the Process of uh Allowing runoff and shrinking the Balance sheet at what we find to be the Appropriate time it's i wish i could say More but honestly we haven't made those Decisions and we actually haven't even Really had The the important discussions on a lot Of the details that we will have at Coming meetings Thank you let's go to craig torres Chair Good afternoon michelle chair powell Craig george from bloomberg um The beginning of the conversation you Said risks are two-sided and i'm Wondering if you can elaborate on what Are the risks to the elusive soft Landing is fed policy a risk over Tightening or what are the risks And then second chapal i have a quick Administrative question um You know uh Robert kaplan's disclosure of his Securities transactions in a couple
Months triple or maybe sooner you and i Will file our tax returns and we'll list Transactions and all kinds of things and Next to those transactions we'll put Dates And bloomberg asked for the dates of mr Kaplan's transactions the dallas fed is Not giving us the dates and i don't see Why this is a matter for the um Uh inspector general or anybody else i Mean why can't he give us the dates will You help us get the dates of those Transactions thanks So um You asked about the risks first So you know the one risk is that Inflation risks are still to the upside In the views of of most Fomc participants and certainly in my View as well There's a risk that that the high Inflation we're seeing will be prolonged And there's a risk that it will move Even higher so uh And we don't we don't think that's the Base case but you ask what the risks are And um That's a we have to be in a position With our monetary policy to address All of the plausible outcomes And that calls for us to be in position Um we have an expectation About the way the economy is going to be Evolved but we've got to be in a
Position to it to to address Different outcomes including the one Where inflation remains higher And of course that is a risk to the to The um To the expansion you know what we've Been saying that What we need here is another long Expansion Which is the kind of thing we we saw Over the last which is the record long Expansion we saw labor first Participation rise we saw wages uh Persistently higher for people at the Lower end and there were there really Was no Obvious imbalance in the economy that Threatened that expansion it could have Gone on for years were it not hit by The pandemic so we'd love to find a way To get back to that that's going to Require price stability and that's going To require The fed to tighten interest rate policy And do our part In getting inflation back down to our Two percent goal So i mentioned two-sided risks um you Know A couple of things one Um the covet is not over And covet can continue to Evolve and it's just we have to accept That it's not over and the risks to it
Uh can slow down growth Uh and that that would be that's sort of A downside risk from a growth standpoint I would point to you know Another another risk is um Uh just further further um Problems in the supply chains Which could slow down activity and you You see the situation in china as a Situation there where that's um Uh Their their their no covet policy May cause more lockdowns is likely to And that may play into uh may play into Uh more problems in supply chains in Addition there's what's going on in Eastern europe and things like that so It there's plenty of risk out there And uh we You know we we can't um we can't forget That there are risks on both sides so That's that's there that's what i would Say Um I know you've been all over this issue With uh with my colleagues craig on on The issue of of information we don't we Don't have that information at the board And uh you know i hand i asked the Inspector general to do an investigation And uh that is out of my hands i'm Playing no role in it i seek to play no Role in it and I i don't i really i can't help you here
Today on on this issue And uh I'm sorry i can't Okay okay Thank you we'll go to gina now Thanks for taking our question to Chairpal and uh sorry for my tech issues I wonder if you could tell us a little Bit about Where you're thinking on inflation Stands today you know the last time we Saw an sap back in september we saw that You you and your colleagues were Projecting that inflation would sort of Sink back down quite close to target by The end of the year and i wonder if you Still think that projection from December is a reasonable one and if your Thinking has changed at all i wonder how You're thinking about that and i also Wonder if you could talk a little bit About the pathway to getting to that Deceleration like how do how do we get From here seven percent cpi to where you Expect to be at the end of the year So i'd say um You know since since the december Meeting i would say That the inflation situation is Uh about the same but probably slightly Worse I i'd be inclined to uh raise my own Estimate of 2012 Core pce inflation let's just go with
That Um by a few tenths today But we're not writing down an scp at This meeting but i think it hasn't Gotten better it's probably gotten just Just a bit worse and that's been the Pattern that's been the pattern So um I think if you look at the f the fmc Participants are they have there's a Range there And that range has been moving to the Right For for a year now and by the way if you Look at other forecasters essentially All other macro forecasters who do this For a living You've seen the same pattern so uh what Do we think about that well i i think we You know we wrote down rate increases in The december meetings each of us Individually And i think to the extent the situation Deteriorates further our policy will Have to address that If it deteriorates meaningfully further Either in the time dimension or in the In the size of the inflation dimension So that's how we're thinking about it i As i mentioned though i i think it's Part of this will be that we're us the Fed moving away from a very highly Accommodative Policy to a substantially less
Accommodative policy and then over time To a policy that's not accommodative in Time i don't know when that will be That's those are the things that were That we're thinking about that's that's Part of it um another part of it is um That fiscal policy provided An impulse to growth over the last two Years that impulse will be less in fact Will be will be negative this year and So that's another thing the other one is We will eventually Get relief on the supply side and you Know the ports will be cleared up uh and Uh there will be semiconductors and Things like that now what we're learning Is it's just taking Much longer so i think uh longer than Expected and that i think does raise Raise the risk that that high inflation Will be more persistent Um i i do think we'll come off of the Highs that we saw in the in the early Part of this episode in the in the Spring last year but really what's the Question is going to be what is Inflation running at and so we'll be Watching that and i you know we our Objective is to get inflation back down To two percent it's also to provide Enough support to keep the labor market Healthy the labor market is very very Strong right now uh and i think that That strength will continue
There's a there's really a shortage of Workers we see it particularly among Production and non-supervisory workers And and people in the lowest quartile You see very large wage increases I mentioned some of the other indicators So I think that's that's what we're looking At and we're also you know we realize i Think as everyone does that that this Outlook is quite uncertain and that We're going to have to adapt Uh and we're going to communicate as Clearly as we can But we're going to have to be adaptable And You know move move as appropriate Great thank you Thank you let's go to colby smith Thank you michelle chair powell when you Talk about being humble and nimble about The path forward for monetary policy Does that also include the possibility Of raising interest rates by larger Increments and say doing a 50 basis Points hike at some point if inflation Does not moderate sufficiently and Should we interpret this approach as a Departure from the gradual pace that we Saw during the last hiking cycle So As i mentioned we have not made these Decisions we really haven't and and what I can tell you now though is
That we fully appreciate that uh this is A different situation Um if you look back to where we were in 2015 16 17 18 we were raising rates Inflation was very close to two percent Even below two percent unemployment was Was not at our estimates of the natural Rate and growth was um you know in the Two to three percent range Right now we have inflation running Substantially above two percent and and You know more persistently than we would Like we have growth even in in forecasts Even in the somewhat reduced forecast For 2022 we still see growth higher than Substantially higher than what we Estimate to be the potential Growth rate and we see a labor market Where By so many measures it is historically Tight I think the you know in a way the least Tight aspect of it is is looking at the Unemployment rate which is still below Our our median estimate of Maximum employment if you look at things Like Quits and job openings as i mentioned Earlier and wages you're seeing and just The the ratio of job openings to Unemployed you're seeing a very very Tight labor market now we also know that Uh Labor force participation is
Significantly lower it's a percentage Point and a half lower than it was in February of 2020. Maybe a percentage point of that is is Retirements some part of those Retirements are Are you know related to covet rather Than just regular retirement so we think There's there is a pool of people out There who could come back into the labor Force But it's not happening very quickly and It may not it may continue to not happen Very quickly as long as the pandemic is On So That's that's a that's that's how we Think about that we we haven't made to Your specific question we really have Not addressed those questions And we'll begin to address them as we as We move into the march meeting and Meetings after that Let's go to rachel Thank you michelle and thank you chair Powell for taking our questions i'm Wondering if you can talk to us about Any metrics that the fed uses to assess How inflation affects different groups Of americans especially lower Lower income earners and are you worried That the fed underestimates or can't Effectively measure the impact of Inflation on some of the most vulnerable
Households thank you So it's it's more a matter of uh I think the problem That we're that we're talking about here Is really that people are on fixed Incomes who are living paycheck to Paycheck Um They're spending most or all of their of Of what they're earning on Food gasoline rent Heating their Heating things like that basic Necessities And So Inflation right away right away forces People like that to make very difficult Decisions So that's really the point i i don't i'm Not aware of um You know inflation literally falling More on on different uh socio-economic Groups it's that's not the point the Point is some people are just really In in Prone to suffer more i mean for people Who are economically well off Inflation isn't good it's bad a high Inflation is is bad But they're going to be able to continue To eat and keep their homes and and Drive their cars and things like that It's more so that that's really how i
Think of it And you know we we um To control inflation for the benefit of All americans Uh but part of part of it is just that It's it's particularly hard on people With fixed incomes and low incomes who Spend most of their Uh of their Income on on necessities Which are which are experiencing high Inflation now Thank you let's go to edward lawrence Uh thanks michelle thank you mr chairman For taking the question here so year Over year inflation's at a 40-year high The input costs uh for producer price Index for all of 2021 was the highest on Record some investors fear that the fed Might be moving too late um now you said No decisions were made on the path of Rate hikes but was a rate hike more than 25 basis points discussed today and as a Follow that because i have problems with The mute button um As a fault of that you testified that The supply chain issues could be worked Out by the end of the year you talked About that uh today the ceo of ford Though told fox business today that the Chip shortage will last into 2023 so Today you said inflation will start to Ease this year i want to drill down and Get a timeline that you see as to when
We could see that relief thank you So i i would not say that i would expect The supply chain issues to be completely Worked out by the end of this year i do Not expect them and i have not expected Them What i would say and i have been saying Is that i expect progress to be made Uh in the second half of this year Mainly Progress because we're not making much Progress if you look at A ton of metrics you can find some that Suggest That delivery times are shorter and Inventories in some industries moving up But overall We're not we're not making progress and You know things like the semiconductor Issue are gonna they're gonna be Uh quite a long time i would think They'll go more than through to uh 2023. Um In terms of uh so in terms of being too Late i would just say this we our policy Needs to be positioned To address the full range of plausible Outcomes as i said and particularly the The possibility that inflation will Continue to run higher more persistently Than we'd expected And uh we think we are positioned to Make the changes in our policy to do That and and we're committed to doing
That and that that's that's really where We are In terms of your your your question About the the the size of rate increases We we haven't we haven't faced those Decisions we haven't made them Uh it isn't possible to sit down here Today and and tell you with any Confidence what the what the precise Path Will be Um but in in as we work our way through Meet this meeting by meeting we are Aware that this is a very different Uh different expansion as i've said a Couple times with higher inflation Higher growth A much stronger economy And i think those differences Uh are likely to be reflected in In The policy that we implement Thank you let's go to mike nicky Thank you mr chairman um i'd like to Sort of weave some of the strands of Your answers together and ask you as you Start to reverse policy what your goal Is are you going to be raising interest Rates until you get inflation to 2 Do you want to go below 2 so that on Average you get a 2 inflation rate and Because you said we have to protect the Uh employment part of your mandate is There some sort of circuit breaker that
Would stop you from Raising interest rates on the employment Side So no there's no there's nothing in our Framework about having inflation run Below two percent so uh that we would do That try to achieve that outcome so the Answer to that is is no what we're Trying to do is get inflation Keep inflation expectations Well anchored at two percent that that's Always the the ultimate goal And we do that in the service of having Inflation Uh We we get to that goal by having Inflation average two percent over time And if inflation doesn't average two Percent over time then it's not clear Why inflation expectations would be Anchored at two percent so that that's The way we think about that Um You know What was the last part of your of your Question I i was asking if you're protecting the Employment side of the mandate whether There's some sort of circuit breaker There Nothing like that i mean i would say You have a tremendously strong Labor market and you have growth this Year at forecast to be
Well above uh Well above Uh Potential i mean people are forecasting Growth if you think potential growth is Around two Most forecasts are significantly above That for 2022 And that's even with uh with um Policy becoming substantially less Accommodative so the labor market's Going to be strong for some time We're we ideally what we're trying to Achieve is inflation getting back down To two percent Uh and we're trying to do that in a Process that that that that it Accomplishes You know that will also leave the labor Market in a very strong position and No one really knows what that will take Again i would say that it isn't just Monetary policy that's helping inflation Get down it'll be supply side uh Improvements and it'll be less less fisc You know less fiscal impulse in all Likelihood so but monetary policy will Do our job it is our job to get Inflation down to two percent and a Situation where where the two goals are The two goals can be Intention It's a difficult one but but i i don't Really think they are here though
Because i think A really significant threat to further Strengthening in the labor market in the Form of higher participation over time Is high inflation And also high inflation is taking away The benefits of some of these large wage Increases that we're seeing now So We do hope to achieve And our plan is to achieve both of those Goals If i can follow if i could follow up um Does the danger of tightening too much Uh as policy works its way into the Economy with a lag mean that you should Go back to being more forecast dependent In making decisions rather than the State dependency you've been using as a Framework for the last year and a half Or so Dependency was particularly around um The thought that Um If we if we saw a very strong labor Market We would wait to see actual inflation Actual inflation Before we tightened and so that was a Very state-dependent thought because for A long time we've been tightening On the expectation of high inflation Which never appeared And that was the case for for a number
Of years So in this particular situation we will Be Clearly monitoring incoming data as well As the evolving outlook Let's go to michael derby Uh thank you for taking my question um i Want to ask you with the benefit of Hindsight uh and i rise i mean that is What it is but Uh Do you feel that you know monetary Policy and fiscal policy maybe did too Much to react to the crisis and that Part of the inflation problem that we're Having right now is because the Government response you know Collectively was more than what the Economy ended up needing So i think It's too soon to write that history Really uh but what i would say is this Um The If you remember what it felt like at the Beginning of the pandemic literally the Global economy shutting down in large Part including our own economy and People going to their homes for weeks on End in masks and there are no vaccines And It could be a really long time to get Them You know and then and you know you have
Economic activity drops by a shocking Amount in one course so there was a real Risk of Lasting damage And i think uh congress responded Remarkably with the With the cares act incredibly timely Very powerful People will always be flaws in these Things but in real time Uh it was a remarkable achievement and We responded and what we were able to do Was you know stave off a collapse of the Financial system At the beginning and make time for what Really needed to happen which was the Income replacement and then the recovery That congress enabled with the cares act So now that was a lot of that was a lot And what we did was a lot And you know now so what we have now is We have the strongest recovery of any Any country and we have we have a Recovery that looks completely unlike Other recoveries that we've had because We've we've put so much support behind The recovery And we're managing the the relatively High class problems that come with that Which are high inflation and a labor Shortage So and these are serious problems very Serious problems that we you know we're Working as hard as we can on
Um Was it too much again i'm going to leave That to the historians and uh but and Look in 25 years we'll look back at this Incident which will be a you know two Three four five year period And we'll say you know we'll have a much Better basis to make a judgment about The actions that people took Um But it was all founded though in a very Strong reaction to a um You know to a unique historical event And uh i guess i'll believe it that i Look for i hope i hope i'll be around to See How that looks in 25 years Thank you Thank you let's go to gene young Thanks michelle um chair pal some Investors are expecting the yield curve Could flatten or even invert after rate Hikes begin Um would that worry you and how Important is that risk in the fed's Consideration for adjusting policy So um We we do Monitor the the slope of the yield curve But we don't control the slope of the Yield curve um many flak many factors uh Influence longer term interest rates but It is something that we watch and and You will know that from
When we had this issue a few years ago And we take it into account along with Many other financial conditions as we Try to assess the implications of all Those conditions for the economic Outlook so That's that's One thing i would say another is Currently you've got Uh a slope if you think about twos to Tens two to your treasury to ten year Treasury i think that's around 75 basis Points That's well within the range of a normal Of a normal yield curve slope Um So it's something we're monitoring uh We don't think of it as i don't think of It as some kind of an iron law But we do look at it and try to Understand the implications and what is Telling us and it's one of many things That we monitor Can i follow up real quick and ask um if It if it did invert would you tie it to Us fundamentals or would it be driven by A much broader set of factors We'd have that's that's a good question In real time um obviously u.s long-term Sovereign debt is a is an important uh Global asset And it and uh the fact that our rates Are so much higher than than other Uh
Risk-free sovereign rates around the World may put something of a ceiling on Our on our rates i don't know but uh it Would really depend on the on the facts And circumstances at that time Thank you let's go to brian chung for The last question Hi chairman powell brian yahoo finance Uh within the context of just the broad Effort to normalize rates would you Describe what you want to do as a Gradual hiking and then secondly within The context of hiking cycles it's often The talking point for financial Stability and wanting to make sure that Asset bubbles don't emerge is that Something that has also factored into The conversation as you start to think About hiking rates thanks I would describe what we're doing Along these lines This is going to be a year In which we move steadily away From the very highly accommodative Monetary policy that would put in place To deal with the with the economic Effects of the pandemic And that's going to involve a number of Things it's going to involve and does Involve Finishing asset purchases It's going to involve lifting off And it's going to involve additional Rate increases as appropriate and we we
Have We're going to write down in march our Next assessment of what that might be It's going to continue to evolve as the Data evolve we need to be quite Adaptable i think in our understanding Of this The last thing we're going to do is We're going to Have a couple more meetings i think to Talk about Allowing the balance sheet to begin to Run off And Do so in a predictable manner and that That's that's something that we will Also Uh be doing as appropriate and i i i Wouldn't um i don't think it's possible To say Exactly how this is gonna go and uh We're we're going to need to be as i've Mentioned Nimble about this And um The economy is quite different this time I've said this several times now the Economy is quite different it's stronger Inflation is higher the labor market is Much much stronger than it was and Growth is above trend even this year Let alone last year so all of those Things are going to go into our thinking As we make as we make monetary policy
And you asked about financials to have Concerns Uh In connection with our policy is that Your question Um um Yeah within the context of other hiking Cycles it seems like uh worries about Asset bubbles emerging as a result of Easy rates has been part of that i Didn't know if that was part of the Discussion today I i would just say this um we we of Course have a financial stability Framework And what it shows is um A number of positive aspects of Financial stability but You mentioned really asset prices is one Of the four So asset prices prices are somewhat Elevated and they reflect a high risk Appetite and that sort of thing I don't really think asset prices Themselves represent A significant uh threat to financial Stability and that's because Households are in good shape financially Than they have been businesses are in Good shape financially defaults on Business loans are low and that kind of Thing The banks are highly capitalized with High liquidity and quite resilient
And strong There are some concerns in the in the Non-bank financial sector around still Around money market funds although the Sec is making uh has made some Very positive proposals there and we Also saw some things in the treasury Market during the the acute phase of the Crisis which which Uh we're looking at ways to address but Overall the financial stability Vulnerabilities are are manageable or Manageable i would say Thank you very much Thank you [Music] You
