Power Lunch - The Fed Decision 11/2/22

Episode Date: November 2, 2022

Breaking news: The Fed hikes rates by 75-basis points and the market reaction is volatile and chaotic. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

All right, welcome everybody to this special Fed edition of Power Lunch. I'm Tyler Matheson, along with Morgan. Brennan, welcome Morgan. We're minutes away from the Fed's decision on interest rates. A three-quarters of a point hike is expected by most observers, but investors will be looking and listening for signs that the central bank may be stepping back away from its aggressive rate hiking strategy. Right now, let's take a look at where stocks are. As you see the Dow, well, it's higher by 51 points, but other equity measures are in the red at this hour. The yield on the 10-year just above 4%. Let's get to our panel of experts.

David Kelly, Chief Global Strategist at JPMorgan Asset Management. Mona Mahajan, senior investment strategist at Edward Jones and Jim Caron, a global fixed income portfolio manager at Morgan Stanley Investment Management. I think we got, you know, if this was a roulette reel or a slot machine, all three cherries would comp. You all think it's going to be three quarters of a point, right? Yep. Yes. That's correct. Acknowledge the nods. Let's see the nods one more time. Everyone nod.

Raise your hand. So what would the language, Jim, Karen, be like if they were trying to signal something other than a war on inflation? What would the language feel like? Well, you know, I think this is the key. It's going to be what they say, not what they do. 75 basis points is baked into the cake. I think the language is going to be. very, very critical because Paul has to thread a very, very narrow needle. And what would be indicative of something where he might be pivoting, which is what I think many in the markets are hoping for, would be something along the lines of saying that, you know, we may be thinking about the pace of rate

hikes starting to slow or things like that, but more likely what he's going to do is he's just going to rely on data dependence. He's going to kick the can down the road. And he's going to allow for people to understand that we need to see the inflation data start to come down before he actually starts to act. So that's more likely what he's going to say. He has to be hawkish in terms of what he's saying in order to make sure that he delivers the message that he's going to remain vigilant in fighting inflation. I mean, the data dependence part of it is really tricky, right, David? Because, I mean, just in the last two days, we had jolts, right? Higher than expected job openings. This morning, we had ADP, which is greater than

expected a number of private sector jobs last month. So we're still seeing a lot of strength and resiliency in labor, which then in turn potentially translates to ongoing strength in wages as well, right? Well, two things here. First of all, what we've seen so far is that despite an extraordinarily tight labor market, the tightest labor market in over 50 years, we're not actually seeing that strong wage growth. I mean, last month, wages were up 5% year over year, which sounds high, but inflation was 8.2% here over year. So, in fact, wages are lacking behind inflation. We're not getting a lot of wage growth given, you know, how hot the labor market is. That's one thing. Second of all, data dependence is just a very bad idea for

monetary policy. You've got to be forward-looking. If you wait until inflation falls, you'll have waited too long to stay well for recession. What we are seeing here is some better news on growth. I think growth will stay positive in the fourth quarter, but we are seeing positive news and inflation. And I think the Fed will have to acknowledge that in their statement, that there's better news and inflation. The key question is whether we're going to get some indication that, you know, there'll be fewer hikes or there may be some more hikes rather than just ongoing monetary tightening. That's really the question. It's all about the messaging, as Jim said. Mono, what, quickly, what would those signals sound like to you, that perhaps the tightening

phase, they're going to be a little easier on it? Yeah, you know, I think Jerome Powell will be clear if he does indicate that perhaps the next meeting or two will be a less, you know, aggressive rate of increases, maybe lower than the 75 basis points they've done in the last three meetings plus probably what they'll do today. He'll also make it very clear that that is not necessarily followed by some sort of pause. You know, a 50 basis point rate hike is still a very aggressive rate hike by any means. And so we are continuing to see them tightening. We are well into restrictive territory. We've seen, you know, the 10-year three month yield curve now invert for a few days. And they are continuing down this path. So I think

if Jerome Powell is going to try to thread that needle, he will try to say, yes, we may go at a slower pace, but no, this does not mean a pause as ahead. And for that pause to happen, of course, we'd need to hear what all the other panelists have talked about, inflation rolling over, forward-looking indicators of inflation rolling over, which I think we're starting to see. Yeah, the language could be clear or it could be very, very, very subtle. Let's get to Kayla Touchy now with the Fed decision. Tyler, a 75 basis point increase by the Federal Reserve bringing the target range for the Fed's benchmark interest rate to 3 and 3 quarters to 4%. The decision for a fourth consecutive 75 basis point increase was unanimous, but the statement does add a new flexibility on the pace of future rate increases.

The Fed now says that it must pursue monetary policy that is, in its words, sufficiently restrictive to return inflation to its 2% target over. time. The Fed now says that in determining the future path for interest rates, it will consider what it calls the cumulative tightening of monetary policy and also the lags between its monetary policy actions and their impact on inflation and overall economic activity, acknowledging that there is a lag between the actions that it's taken to date and the impact that they've had on the economy so far, raising new questions about at what point the Fed could perhaps evaluate the impact of those actions. and at what point they'll be fully baked in. Back to you.

All right, Kayla, thanks very much. We appreciate that. Yeah, let's bring in our panel as we do see stock averages, pair of the losses. The S&P has turned positive. It's up 15 points right now, 3872. The Dow has just jumped 270 points. The NASDAQ and the NASDAQ 100 have turned positive as well. We're seeing yields come off in the Treasury market as well. The tenure is hanging on to 4%, though just barely. Let's bring in our panel. Let's bring us. panel back in. Let's also add Steve Leesman, Bob Pisani, and Rick Santelli to the conversation. Steve, let's start with you and that change in language that Kayla just laid out.

Yeah, Kayla certainly highlighted the most important part right there. And it looks like there's two pieces to it. The first one here, in determining the pace of future increases in the target range, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity, inflation, and economic developments. So the first part, the part I didn't read, is they want to make sure it's sufficiently restrictive to return policy. So that tells you maybe they have more work to do, but the idea that maybe they're taking account lags tells you maybe they're going to go slower here. I don't think I would mistake this for saying the Fed is ready to pause. I think it's something that you

might digest and say the Fed is aware that it's done an awful lot and doesn't feel it has to do quite as much as it had done in the past. I'm going to take a quick look while I'm talking here, what's happened at Fed Fund Futures, and they've come down a little bit. We'll see if that holds, but that May contract was trading at 503 for a high, for a peak funds. Right now, it's at $4.96. So not much of a change, but a little bit of coming off there. The market still is reading this, at least in the initial minutes after the statement came out as believing the Fed has still considerable work that it will be doing. So maybe a slower pace, but I'm not seeing necessarily a lower peak.

Yeah. And yet it seems to be a slightly different story where equities are concerned right now, Bob Pisani. You got the Dow jumping to 1% gain now. You got the S&P up three quarters of a percent. The NASDAQ also moving higher, markedly higher as well. I mean, when you look at the equity markets, was it just spring-loaded for any teeny tiny sign, any little bit of hope that anything could be even the slightest bit more dovish

than what we have seen previously? Oh, this is more dovish than I think most people were expecting. I mean, when I called and said, is the Fed going to indicate any kind of pivot, any hint of anything? Not in a statement, maybe in the press release. That was the consensus. But look here. All right, Steve's right. This is not a pivot.

But the committee will take into account the cumulative tightening of monetary policy. Hey, that's good enough for the bulls that are out there. Look, we just move 40, 50 points in the S&P 500, 300 points in the Dow easily on that. And that's close enough. Now, on the press release, in the press conference, excuse me, maybe he'll talk, you know, more clearly coded words. He'll say two-sided risks or risks of slow and growth, something like that. But this is a fairly nice bone to throw to the Bulls right now. I think the problem right now for the market is the job market's not cooperating.

These joltz report, the ADP's stronger, and people are afraid the Friday jobs report is going to be a lot stronger than expected. But look how far we've come here, guys. 3,900 on the S&P 500. We were at 3550 just a couple of weeks ago. Dollars a little bit lower. Two-year yields have flattened out a little bit, so it's understandable by the market has rallied. But this has really been very, very impressive right now.

The problem for the market now is what else are they going to really say to get the market notably higher? We're already trading nearly 17 times forward earnings with no change in the earnings estimates of about $2,000. $30 for next year. This is a lot of expectations already built into the market. But right now, this is about as much of a bone you're going to throw to the bulls as anyone would have expected. Rick Santelli, do you see it the same way? What is the bond market telling you about this language in the Fed statement? Well, I'll tell you what, we knew it was going to either be a pause, pivot,

or continue to punish the three peas. But I think they weaseled in a little bit and threw the market It's a small bone. Granted, it's maybe the size of a wishbone, but I'm wrong. I didn't think they'd throw any bone. The wording as it was put forth, and what I heard from Kayla and Steve, to me, sounds like they gave it a little wiggle room, which explains stocks, and the markets smelled it right. I'm always a big believer in market whispering, and if you look at a two-year yield, it started

to creep down. If you looked at the euro and the dollar index, the euro, well, it started to creep up. index started to creep down. Those are both very telltale signs that were going to be a little less hawkish than maybe many anticipated. And I think when it comes to what the Fed's going to do, I think that anybody who discusses data dependent, I just don't agree with. I think the Fed, and just based on how their statement reads, they are looking at a spot down the road and they change what that area may be. But truly data dependent just doesn't seem, to add up at this time.

And one further point I'd like to make is that if you continue to monitor how much movement we get that is tossing some of the numbers into the next Fed meeting, whether it's Fed Fund Fut futures, which the moves are small or the moves in the current treasury complex

where yields are moving down, it's certainly a different response to this meeting than the last several three-quarter point increases. Mona, I want to bring you back in this conversation, get your reaction to this, not only this increase, but this change in language in determining the pace of future increases in the target range, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy

affects economic activity and inflation and economic financial developments. I know we've already heard that red, but just to say it again, because it goes back to that conversation, and the point that Rick just brought up about data dependency and the fact that now you're starting to see the Fed look at this and approach this maybe in a slightly different way than we've seen at the past, at least in terms of this statement. What does it mean? What do you think it teased us up for with that press conference in just in just less than 25 minutes? It's interesting, Morgan. I think they brought up two important points that we really haven't addressed or seen addressed from the Fed in the past. The first is the cumulative part, which if you acknowledge they started

near the zero bound earlier this year. We're now at 4 percent on the Fed Funds rate or close to 4%. So they've already tightened this year, cumulatively, close to 400 basis points. In a given year, that is pretty unprecedented. And the second part of the statement that I think, again, perhaps a nod to the bulls or at least those that are rooting for a slower pace of rate hikes, they're acknowledging the lag impact. You know, in reality, the Fed funds rate, there is about a two to four quarter lag from when the Fed tightens to when we see it hit the real economy. Now, some parts of the market and economy are very interest rate sensitive, and we are seeing housing, for example, perhaps the most interest rate sensitive part of the market, already showing signs

of softening, weakening, perhaps even rolling over. Rental prices, which, you know, as we all know, shelter and rent components of CPI have been sticky, but the underlying fundamentals are telling us a different story. So it is interesting to hear, certainly, the Fed talk about in its statement that it is acknowledging that it's tightened quite a bit already, that there is a lag impact. Perhaps the next part that we may hear from Jerome Powell is they want to wait, see, and assess what that lag impact looks like. Do we see a softer labor economy? Do we see wage gains start to moderate a little bit? And do we see inflation rolling over in a more meaningful way? I think that's probably even whether they acknowledge it or not, that's probably what

they want to wait and see before they start or continue to move at this aggressive pace. So I think it's a good sign that they are thinking about things in a more holistic way. And certainly they're thinking about moving perhaps somewhat more moderately. Jim, I want to get your reaction to this. It sort of strikes right at the question that everybody's been asking ahead of this decision, which is under what conditions would a step down to 50 basis points be appropriate. It's worth noting that the September dot plots, they actually indicated a 75 basis point hike for this meeting today and a step down to 50, and actually you've seen that in the last two meetings. So how much has actually really changed here potentially?

So I think a lot has changed. I actually think this is pretty huge. One of the things that the Fed said is that they want to get to levels that are sufficiently above neutral. What they're communicating right now, and I think this is the big news here, is that they want to get to a point where they just stop hiking interest rates. In other words, there are many forecasters out there that would have Fed funds forecasts going up to five, five and a half, six and beyond in order to get flaked down. What the Fed just told us, is that they're willing to get to a level that's sufficiently above neutral and keep rates there, and then wait for inflation to start to come down. So what that really signals today to me is that this is the start of the end game, meaning that, yes, the next move in December might be 50 basis points, and we might get another 50 and then a 25, and maybe they end at 5% terminal Fed funds rate. But then they stop at that level for a period of time, and they wait for inflation to come down,

because sufficiently above neutral is the key. How much of a policy rate is considered to be sufficiently above neutral? Is it a 5% policy rate? The neutral Fed Funds rate is 2.5%. So at 5%, you're 250 basis points above neutral. That might be sufficient. And from a cost-benefit perspective, it doesn't do as much damage to the asset markets and to the broader economy by just in mortgage market housing and things like that by just hiking rates and hiking rates in order to achieve your inflation goal. What they want to do is let these high rates marinate, as Mona was saying, these long and variable lags are going to come into effect, and that the necessity to continue to hike rates is not necessarily there once they get to their terminal, which I think is 5%. And I think that's the message that the market's

seeing right now, and it's one of the reasons why it's bullish. I'd be bullish on this, too. David, do you see it as Jim does? Do you see it as the market does? Is this the first move of the Fed to prepare the public and the markets for the moment. I'm thinking in terms of a big 18 wheeler, the air brakes are releasing some of the air. Yes, and I think this is very significant because they've gone from data dependence to forecast dependence, which of course is what they should have done all along. And the reason this is so significant is that if you look at leading indicators of inflation, things like the global vendor delivery index, it's almost back to normal levels. There are no ships lined up outside the port of Los Angeles anymore. We've seen gasoline prices come down. We've seen use car prices come down.

So we're seeing auto inventories go up. All of these things suggest that inflation is on a downward track. And if the Fed just has a patience to let that happen and is willing to be forward looking about that, that means they don't have to get us high. And so I do think this is a big positive for the bond market. It's a big positive for the equity market. And markets are correct and reacting so positively to this this afternoon. Steve Leesman, want to bring you back into the conversation here. I have somebody who watches the Fed and these meetings so closely, the significance from your standpoint. And, well, yeah, let's start there. I'm having a hard time seeing much change here. I mean, it is true that the Fed did put in to the

statement that which I believe the market had already precisely priced already. I'm not seeing a big change, for example, in the odds for a 50 or 75 base point high. in December. It's about 6040. We went in 55-45. I'm seeing the terminal rate or the peak rate still priced around 495. One of the prior guests laid out was precisely the way the market has it priced already, which is that they do 75, they do 50. Morgan, you were talking about this already. They bring it up to around 5 and they wait there for a while. Our CNBC Fed Survey from yesterday said precisely that. It said they'd stay there for 10 months. And I guess I'm I go into this and I wonder, all right, as my risk changed at all, maybe it's a little bit less

to the upside on the funds rate than it was previously. But all of that is dependent upon the data cooperating at inflation coming down. If inflation does come down, yeah, then I can start to spin a more doveish scenario for the Federal Reserve. If it doesn't, I have to spin a tougher one. So I think the Fed has an appointment with four and a half. I don't think that changes. I think that appointment is sometime in the spring in their calendars, four and a half to five, that is, in the spring in their calendars. I don't think much about this statement changes that. They are going to be what they say to get to be sufficiently restrictive. More hikes are on the way. And then it's a wait and see and a pause, which I think is what was priced in. I think the

significance here is now it's in the statement, now it's part of policy, but it was already in the market. Rick Santelli, give us some thoughts on the 30 year. I know you're watching that one closely. You know, the 30 year was at 407 prior to the announcement. The 10 year was at 402. Two years, we're at 452 plus. Right now, the 30-year bond is the only maturity that's popped above its pre-statement level. You know what that screams? We're all done with the lower yield move until the press conference and any more information. So viewers, if you're a technician, you should put a red dot on all the low yields, 2s, 5, 7, 10s, 20s, and 30s, because the we start to take those out during the press conference, that would be technically significant.

Very interesting. Jim, let me come back to you, if I might, and ask you, do you see it as Steve does, which is to say that perhaps the Fed is going to reach its terminal point sometime in the spring? I do. I do think what Steve said is correct. What's been pricing the markets is that the Fed gets to it, the top level of their terminal rate of 5%. And I think that's that's exactly correct. What's different is that, as Steve also pointed out, is that they put it in this statement. So I think what that does for us is in the markets in terms of thinking about the probability of outcomes, I can now start to trim the tail that probability distribution tail, that is, that rates go materially higher than that. Whereas before this statement was made, somebody could have said,

hey, they might have to go to five and a half percent in order to bring the unemployment rate up or even go even higher than that in order to bring the unemployment rate up to bring down inflation. And what I'm hearing today from the Fed is that they may not be as willing to do that and that getting to that 5 percent level, even though that was in the price, but the fact that they're acknowledging it tells me that that tail, that Fed policy rates continue to move higher, is not going to be as highly valued in the markets anymore. And that's a good thing for risky assets and bonds. Mona, since the Fed went into its blackout period ahead of this meeting, we've seen the

S&P rally something like 5, 6 percent. Obviously, we're seeing these gains right now on the heels of this statement and the change to language. Any reason to believe, just based on history, even recent history, going back to Jackson Hole, that Chair Powell's not going to come out and essentially break the market? I mean, I can't imagine that Fed officials have shifted pod like. implicit policy here and would be thrilled to be seeing equities move so much higher in in midst of this conversation around inflation and what it means in financial markets.

Yeah, you know, I think we all were worried a little bit that if financial conditions eased too much and we're starting to see a bit of that, Powell and team would come back and really walk back the market and try to take that more hawkish tone. I think, and we'll see in the conference, the statement today alleviated some of those concerns because we're starting to hear a little bit more about being more forward thinking, thinking about the lags, etc. That talks to or speaks to a Fed that may be thinking about, as we've all said, moving at a more moderate pace doesn't certainly imply a Fed pause. But to Jim's point, you know, as you think about heading towards a peak in the Fed funds rate, and perhaps now we can start thinking about

modeling that in a more, you know, realistic manner, when you do look historically through Fed cycles, when we are, you know, at the point of that terminal rate, The 12 months after that, in particular for equity markets, are quite strong and historically, and of course every cycle is unique, but on average, the 12 months after the Fed peak is up about 16% on the S&P. Notably, the bond market also, of course, acts very well when we're headed towards a peak not only in Fed funds rate, but a peak in that 10-year treasury yield. And we may be getting that as well alongside or maybe even ahead of a peak in Fed funds rate.

So interesting time for not only equity investors here, but bond market. markets for the first time in a long time have become more and more attractive across the curve, you know, more recently the shorter end, but now I think the longer duration parts of the market are starting to make a little bit more sense as well, and not only in bonds, but in equities, too. So I think it can start to become a very attractive time if we get more comfort around. We're heading towards, you know, the beginning of the end here. And I think that's the process that markets have to go through. Bob, let's turn back to you, Bob, Pazani, for some further thoughts here. it seems to me that what the Fed is saying is we've still got work to do and we're going to do it.

But we also are cognizant of the fact that there is a cumulative effect of what we've already done, and we haven't seen all of those cumulative effects just yet. And we are cognizant of the fact that there are lagging effects that will ensue after we take a couple of more steps here. So it's a very nuanced picture. But what isn't nuanced is the market reaction, there's the dollar index. I look, I was been looking at a lot of the, the financials, they're reacting very positively here. Right. Right. So here's the key point. Everything you said is right. But why is the market reacting so well to this? And, you know,

my old motto on this is don't yell at the stock market. Don't say the stock market doesn't understand something here. Look why it's going up and try to understand why it's rallying. And the reason it's rallying is there has been a fear for a long time that the Fed is going to be far more aggressive than the market anticipated. That was sort of built in. And what it's saying here is we're a little relieved by what we're seeing here. We're less fearful. So the logical question for Powell, the first question is, so Mr. Powell, does this lag with which monetary policy

affects economic activity inflation that you cite in your press release? Does this mean, forget 75 basis points, it's not happening, 50 basis points is likely, and how much time do you need to let high rates marinate? Jim used the word marinate. I love that word. It's terrific before you essentially decide to start going in the other direction. They've opened the door to that question right here, and that's why the market is rally, much less anxiety about the Fed outpacing everybody else and essentially raising much faster than anybody had anticipated. All right, Bob, and our panelist, David Kelly, Mona Mahaj and Jim Caron, as well as Steve and Rick.

Thank you both. Thank you all very much. Let's bring in now former Federal Reserve Board Governor Frederick Michigan. He's also a CNBC contributor. He's a professor. He's a lot of things. Frederick Michigan, welcome. In my notes, it says, given this, you say, it is premature for there to be any talk of slowing the pace of rate hikes because that will weaken the Fed's credibility that it will do what is necessary to contain inflation.

You've listened to a lot of discussion here. You have read and seen what the Fed has said. Have they fallen into the trap that you outlined in your note? Not yet, but I do worry that it's premature to talk about slowing down increases in interest. rates, realize that we're still at very low interest rates relative to inflation. And that's the key that in order to deal, and also that the Fed got behind the curve up until recently, I have to tell you, I think they performed extremely well in terms of really turning 180 degrees.

They made, I think, very major mistakes, which I've been talking about for almost a year and a half. But they now got their act together. The problem here is that when you look historically, And you look at cases where inflation gets out of control, the central bank or the Federal Reserve gets behind the curve. You've got to raise rates, and these are real interest rates, the interest rates adjusted for inflation, two levels, which are at least two, three percent. And sometimes you have to even hit the economy much harder with the baseball bat, which is what Volker had to do.

So we're in a situation where any projections of what we think inflation will be over the next couple of years is certainly above three percent. maybe we'll get lucky. And so this is telling us that the Fed needs to get at least to five, and I think even higher than that. And indeed, because they got behind the curve, they've got to show that they're really serious about getting inflation under control. And if they don't do it, they'll have to raise rates by even more, which would make things even worse.

So let me go back to what my notes say you report said to us, and that is that it would be wrong to make, do any, quote, talk of slowing the pace of interest rate rises? And it seems like you're saying they didn't say that. They didn't fall into that trap. So what is it that they did say in saying we are cognizant of the fact that there are cumulative effects of what we've already done and that there will be lagging effects of from what we will be doing? So this is actually what you should always do.

So that monetary policy has long lags. I do worry a little bit that there are some more voices and you sometimes hear them from the Fed about some concerns about whether they could go. too far, I just think that it's premature to do that now. That should they worry about this? Absolutely, they should. But we've seen absolutely no evidence that inflation is, particularly inflation, which is taking out some of these volatile elements like food and energy, is contained, is moving back

to 2%. No evidence of that. And the Fed did get behind the curve. They've got to correct for that. I think actually they're very striking and extraordinary moves. These are the largest meeting rate increases that we've seen since the Fed started targeting the federal funds rate. So there were larger increases during the Volcker era, but that was not a period where the Fed actually

said it had a target for the federal funds rate. So that's extraordinary, but they have to keep on doing it to basically make sure that people realize that no matter what, they're not going to get inflation. It's been out of control. Because if they do, they'll have the mistake that Volker made in 1980 when the Fed backed off. And the markets then, and then it took a lot more. They had to really kill the markets. They backed off the lowered interest rates,

and then they had to raise them another 1,000 bits, another 10 percentage points in order to get where they were. And that really killed the economy. So that was the worst recession in post-war era. I don't think we're going to be there. I think the Fed is cognizant of this. But mistakes could be made. And I have to be honest,

I actually think the mistake, I'd rather have a mistake right now be made that the economy ends up a little softer than otherwise, rather than easing up and then really having to collaborate economy later. So, you know, it's a balance of risks. You got it. It's not an easy business to do this. The Fed has made some mistakes. It's got some very bad breaks. The Ukraine war is a nightmare for deciding on what to do policy-wise. It's a bad, bad shock. And, of course, it's a disaster

for the Ukrainian. So it's a tough position. But I think that which way they have to lean, and particularly in their rhetoric, is to indicate to people that they're not going to make the mistake of easing up too quickly, as has been done in the past. Yeah, as a millennial, I'm still wrapping my head around a thousand basis points. But because we haven't seen that really in my lifetime. That being said- I had a mortgage at one point during that period. And boy, you know, they had mortgage rates which were close to the 20%.

I had a 12% mortgage. It's incredible. Remembered well. So given all the points you're making, Frederick, given the fact that the labor data, for example, has continued to be very robust. the key data that the Fed watches most closely from an inflation standpoint has continued to be very sticky here. What would you expect from Chair Powell when he takes the podium in four minutes,

given the fact that in many ways, this has been, Richard Fisher said it this morning on our air, this has been the most transparent Fed historically we've seen, given the fact that he does do all of these pressers after all of these meetings? Well, I don't know if I completely agree with that. The Fed started these press conferences a while ago, I think that they are a big plus in terms of transparency. I've actually faulted Jay for not being transparent enough. I think that this was a big problem with the way they did average inflation targeting. It was not done transparently and as a result actually weakened what looked like the commitment

of the Fed to the 2% inflation goals. So I would take a disagree quite strongly with Richard on that. But it is true that the Fed is now much more transparent than it used to be. There's a title of a book that's not a very good book, but I love the title. it was called Secrets of the Temple, and it was about the Federal Reserve, where the Federal Reserve basically was not very upfront. And we know that Alan Greenspan was not a big fan of transparency. You know, there was this famous case where the one senator said to him, you've been very clear and Alan Greenspan said, I must have made a mistake. So there has been tremendous improvement

in that regard. But I actually think that we can't say that Jay has done a better job in terms of communicating and more transparent than the previous two chairman or chair people. Okay. Frederick Michigan. Thank you for joining us. Always great to have you here. Yeah, to get those insights from a former insider. Okay, we just have a few minutes left before Fed Chair Powell's news conference, as we mentioned. Let's get over to Mike Santoli at the New York Stock Exchange for the reaction we are seeing on the floor there and in stocks more broadly. Yeah, Morgan, mild relief. I think the market probably has it correct, that this was not in the statement any kind of a real game change or not a statement. of intent to go a lot easier, but definitely a signal of emerging potential flexibility in how the Fed goes. Wouldn't be surprising to see Chair Powell essentially point us to the fact that this

new statement is pretty consistent with the September FOMC consensus outlook for where the Fed funds rate would end up next year, averaging 4.4. So this, you know, slowing the pace a little bit, seems like it's not that big a break from where we were about, you know, six or so weeks ago. that's probably number one. I do think that it shows you that the Fed is not at this point, you know, as a sense of urgency or dogmatism about exactly where rates have to go. But as Steve was saying, as everybody's been saying, anything that they do in the way of slowing down is premised upon inflation cooperating. And we have yet to see that. So in that sense, we're data dependent, even if they're not saying we are data dependent.

So, yeah, it does feel that way. It feels like they're saying, We recognize, acknowledge the need to watch and see what the effects of our moves have been, which is then just one sort of half step away from saying, we're cognizant of the idea of the fact that we may have to take our foot off the break a little bit at some point before we get to that point of 2% inflation. That's right. And look, we know what's gone on with housing. We know they've described their campaign. as front-loading the tightening process.

And if they're front-loading it, then getting to 4% in seven months or eight months, seems like that's a pretty good job of front-loading. So all that stuff is pretty consistent with where they've been for a while. I think we got used to a Fed that was sometimes looking for a plausible excuse to go easier. That's not this Fed. They can't operate that way. They can't afford to when, you know, inflation is running at three to four times their target. All righty.

Well, let's keep talking here a little bit while we wait for Chair Powell. who is probably going to come out here in just a couple of seconds because we are at 2.30 p.m., and he is typically runs very, very, very punctual. And I don't want to bring you into another question here and answer, Michael, because I probably have to break you off. The Dow right now is up 1.19% or 382 points here. Well, Michael, since I got you, financials have really done very well in reaction here.

Absolutely. They've started to respond to the higher general yield levels and also the fact that they're just just when I asked you, here comes the chair. Good afternoon. My colleagues and I are strongly committed to bringing inflation back down to our 2% goal. We have both the tools that we need and the resolve it will take to restore price stability on behalf of American families and businesses. Price stability is the responsibility of the Federal Reserve and serves as a, the bedrock of our economy. Without price stability, the economy does not work for anyone. In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all. Today, the FOMC raised our policy interest rate by 75 basis points, and we continue to anticipate that ongoing increases will be appropriate. We are moving our policy stance

purposefully to a level that will be sufficiently restrictive to return inflation to 2 percent. In addition, we're continuing the process of significantly reducing the size of our balance sheet. Restoring price stability will likely require maintaining a restrictive stance of policy for some time. I will have more to say about today's monetary policy actions after briefly reviewing economic developments. The U.S. economy has slowed significantly from last year's rapid pace. Real GDP rose at a pace of 2.6 percent. last quarter, but is unchanged so far this year. Recent indicators point to modest growth of spending and production this quarter.

Growth in consumer spending has slowed from last year's rapid pace, in part reflecting lower real disposable income and tighter financial conditions. Activity in the housing sector has weakened significantly, largely reflecting higher mortgage rates. Higher interest rates and slower output growth also appear to be weighing on business-fixed investment. Despite the slowdown in growth, the labor market remains extremely tight, with the unemployment rate at a 50-year low, job vacancies still very high, and wage growth elevated. Job gains have been robust, with employment rising by an average of 289,000 jobs per month over August and September. Although job vacancies have moved below their highs, and the pace of job gains has slowed from earlier in the year, the labor market continues to be out of balance. with demand substantially exceeding the supply of available workers.

The labor force participation rate is little changed since the beginning of the year. Inflation remains well above our longer run goal of 2%. Over the 12 months ending in September, total PCE prices rose 6.2%, excluding the volatile food and energy categories. Core PCE prices rose 5.1%. And the recent inflation data again have come in higher than expected. Price pressures remain evident across a broad range of goods and services. Russia's war against Ukraine has boosted prices for energy and food and has created additional upward pressure on inflation.

Despite elevated inflation, longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets. But that is not grounds for complacency. The longer the current bout of high inflation continues, the greater the chance that expectations of higher inflation will become entrenched. The Fed's monetary policy actions are guided by our mandate to promote maximum employment and stable prices for the American people.

My colleagues and I are acutely aware that high inflation imposes significant hardship as it erodes purchasing power, especially for those least able to meet the higher costs of essentials like food, housing, and transportation. We are highly attentive to the risks that high inflation poses to both sides of our mandate, and we're strongly committed to returning inflation to our 2 percent objective. At today's meeting, the committee raised the target range for the federal funds rate by 75 basis points, and we are continuing the process of significantly reduced, the size of our balance sheet, which plays an important role in firming the stance of monetary policy. With today's action, we've raised interest rates by three-and-three-quarters percentage

points this year. We anticipate that ongoing increases in the target range for the federal funds rate will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. Financial conditions have tightened significantly in response to our policy actions, and we are, seeing the effects on demand in the most interest rate sensitive sectors of the economy, such as housing. It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation. That's why we say in our statement that in determining the pace of future increases in the target range, we will take into account the cumulative tightening of monetary policy

and the lags with which monetary policy affects economic activity and inflation. At some point, as I've said in the last two press conferences, it will become appropriate to slow the pace of increases as we approach the level of interest rates that will be sufficiently restrictive to bring inflation down to our 2 percent goal. There is significant uncertainty around that level of interest rates. Even so, we still have some ways to go. And incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected.

Our decisions will depend on the totality of incoming data and their implications for the outlook for economic activity and inflation. We will continue to make our decisions meeting by meeting and communicate our thinking as clearly as possible. We're taking forceful steps to moderate demand so that it comes into better alignment with supply. Our overarching focus is using our tools to bring inflation back down to our 2% goal and to keep longer-term inflation expectations well anchored. Reducing inflation is likely to require a sustained period of below-trend growth and some softening of labor market conditions. Restoring price stability is essential to set the stage for achieving maximum employment and stable prices in the longer run.

The historical record cautioned strongly against prematurely loosening policy. We will stay the course until the job is done. To conclude, we understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals. Thank you, and I look forward to your questions. Thank you, Colby. Thank you, Colby Smith with the Financial Times. On the need to slow the pace of rate increases at some point, is a downshift contingent on a string of better inflation data specifically between now and, let's say, the December meeting?

Is that something that the Fed could potentially proceed with independent of that data given the lagged effects that you mentioned? So a couple things on that. We do need to see inflation coming down decisively and good evidence of that would be a series of down monthly readings. Of course that's what we'd all love to see. But I've never thought of that as the appropriate test for slowing the pace of increases or for identifying the appropriately restrictive level that we're aiming for.

We need to bring our policy stance down to a level that's sufficiently restrictive to bring inflation down to our 2% objective over the medium term. How will we know that we've reached that level? Well, we'll take into account the full range of analysis and data that bear on that question, guided by our assessment of how much financial conditions have tightened. The effects that tightening is actually having on the real economy and on inflation, taking into consideration lags, as I mentioned. We will be looking at real rates, for example, all across the yield curve and all other financial conditions as we make that assessment. Hi, Howard Schneider with Reuters. Look, I'm sure there's going to be tons of confusion out there about whether this means you're going to slow in December or not. Would you say that the bias right now is not for another 75 basis point in Greece?

So what I want to do is put that question of pace in the context. of our broader tightening program, if I may, and hit to talk about the statement language along the way. So I think you can think about our tightening program as really addressing three questions. The first of which was and has been how fast to go. The second is how high to raise our policy rate. And the third will be eventually how long to remain at a restrictive level. So on the first question, how fast to tighten policy, it's been very important that we move expeditiously. and we have clearly done so. We've moved three and three-quarters percent since March, admittedly, from a base of zero. It's a historically fast pace, and that's certainly appropriate, given the persistence and strength in inflation and the low level from which we started. So now we come to the second question, which is how high to raise our policy rate? And we're saying that we'd raise that rate to a level that's sufficiently restrictive to bring inflation to our 2 percent target over time, and we put that into our post-meeting statement.

because that really does become the important question we think now is how far to go. And I'll talk more about that. We think there's some ground to cover before we meet that test, and that's why we say that ongoing rate increases will be appropriate. And as I mentioned, incoming data between the meetings, both the strong labor market report, but particularly the CPI report, do suggest to me that we may ultimately move to higher levels than we thought at the time of the September meeting. That level is very uncertain, though, and I would say, you know, we're going to find it over time.

Of course, with the lags between policy and economic activity, there's a lot of uncertainty. So we note that in determining the pace of future increases will take into account the cumulative tightening of monetary policy, as well as the lags with which monetary policy affects economic activity and inflation. So I would say as we come closer to that level, move more into restrictive territory, the question of speed becomes less important than the second and third questions. And that's why I've said at the last two press conferences, that at some point it will become appropriate to slow the pace of increases. So that time is coming and it may come as soon as the next meeting or the one after that.

No decision has been made. It is likely we'll have a discussion about this at the next meeting, a discussion. To be clear, let me say again, the question of when to moderate the pace of increases is now much less important than the question of how high to raise rates and how long to keep monetary policy restrictive, which really will be our principal focus. If I could follow up on that, to what degree was there an importance or weight given to a need to signal this possibility now, given all the concerns really around the globe about Fed policy sort of driving ahead and everybody else, dealing with our own stress as a result.

Well, I think I'm pleased that we have moved as fast as we have. I don't think we've overtightened. I think there's very difficult to make a case that our current level is too tight, given that inflation still runs well above the federal funds rate. So I think that at this meeting, the last two meetings, as I've mentioned, I've said that there would come a point, and this was a meeting at which we, had a discussion about what that might mean. And we did discuss this, and as I mentioned, we'll discuss it again in December. But there's no, I don't have any sense that we've overtightened

or moved too fast. I think it's been good and a successful program that we've gotten this far this fast. Remember, though, that we still think there's a need for ongoing rate increases, and we have some ground left to cover here, and cover it we will. of the Wall Street Journal. Chair Powell, core PCE inflation on a three or six-month annualized basis and on a 12-month basis has been running in the high fours close to 5%. Is there any reason to think you won't have to raise rates at least above that level to be confident that you are imparting enough restraint to bring inflation down? So this is the question of does the policy rate need to get above the inflation rate? And I would say they're arranging.

of views on that. That's the classic Taylor principle view. But I would think you'd look more at a forward a forward-looking measure of inflation to look at that. But I think the answer is we'll want to get

the policy rate to a level where it is, where the real interest rate is positive. We will want to do that. I do not think of it as the single and only touchstone, though. I think you put some weight on that. You also put some weight on rates across the curve. Very few people borrow at the short end of the at the federal funds rate, for example. So

households and businesses, if they're very, you know, meaningfully positive interest rates all across the curve for them, credit spreads are larger, so borrowing rates are significantly higher. And I think financial conditions have tightened quite a bit. So I would look at that as an important feature. I'd put some weight on it, but I wouldn't say it's something that is the single dominant thing to look at. up. What is your best assessment or the staff's best assessment right now of the current rate of underlying inflation? I don't have a specific number for you there. There are many, many models that look at that. And, I mean, one way to look at it is that it's a pretty stationary object and that when inflation runs above that level for sure, substantially above for some time, you'll see it move up, but the movement will be fairly gradual. So I think that's what the principal models. would tend to say. But I wouldn't want to land on any one assessment. There are many different,

as you know, many different people publish an assessment of underlying inflation. Thank you. Hi, Chair Powell. Thank you for taking our questions. Gina Smiley, New York Times. I wonder, do you see any evidence at this stage that inflation is or is at risk of becoming entrenched? Is inflation becoming entrenched? So I guess I would start by pointing to expectations. So if we saw longer-term expectations moving up, that would be very troubling. And they were moving up a little bit at the middle part of this year, and they've moved now back down. That's one piece of data.

Shorter-term inflation expectations moved up between the last meeting and this meeting. And we don't think those are as indicative, but they may be important in the wage-setting process. There's a school of thought that believes that. So that's very concerning. I guess the other thing I would say is that the longer we have, we're now 18 months into this episode of high inflation, and we don't have a clearly identified scientific way of understanding at what point inflation becomes entrenched. And so, you know, the thing we need to do from a risk management standpoint is to use our tools forcefully but thoughtfully and get inflation under control, get it down to 2%, get it behind. behind us. That's what we really need to do and what we're strongly committed to doing. Rachel.

Hi, Terpao. Thank you for taking our questions. Rachel Siegel from the Washington Post. The statement points to the lag times. I'm wondering if you can walk us through how you judge those lag effects, what that timeline looks like over the coming months or even a year, and where you would expect it to show up in different parts of the economy. Yeah, so the way I would think about that is, It's a commonly, for a long time, thought that monetary policy works with long and variable lags,

and that it works first on financial conditions and then on economic activity and then perhaps later than that even on inflation. So that's been the thinking for a long time. There was an old literature that made those lags out to be fairly long. There's newer literature that says that they're shorter. And, you know, the truth is we don't have a lot of data of inflation this high in what is now the moderate economy. economy. One big difference now is that it used to be that you would raise the federal funds rate, financial conditions would react, and then that would affect economic activity and inflation. Now, financial conditions react well before in expectation of monetary policy.

That's the way it has moved for a quarter of a century is in the direction of financial conditions than monetary policy because the markets are thinking what's, you know, what is the central bank going to do? And, you know, there are plenty of economists that also think that once financial conditions change, that the effects on the economy are actually faster than they would have been before. We don't know that. I guess the thing I would say is it's highly uncertain, highly uncertain. And so from risk management standpoint, but we do need, it would be irresponsible not to ignore them, but you want to consider them but not take them literally.

So I think it's a very difficult place to be, but I would tend to want to be in the middle, looking carefully at what's actually happening with the economy and trying to make good decisions from a risk management standpoint, remembering, of course, that, you know, if we were to over-tighten, we could then use our tools strongly to support the economy. Whereas if we don't get inflation under control because we don't tighten enough, now we're in a situation where inflation will become entrenched. And the costs, the employment costs in particular, will be much higher potentially. So from risk management standpoint, we want to be sure that we don't make the mistake of either failing to tighten enough or loosening policy too soon.

And if I could follow up, should we interpret the addition to the statement to mean that more weight is put into those lag effects and they would have been after previous rate heights? So I think as we move now into restrictive territory, as we make these ongoing rate hikes and policy becomes more restrictive. it'll be appropriate now to be thinking more about life. Of course, we think about the lags are just sort of a basic part of monetary policy, but we will be thinking about them, but we won't be, you know, I think we'll be considering them because it's appropriate to do so. Let me say this. It's it is very premature to be thinking about pausing.

So people, when they hear lags, they think about a pause. It's very premature, in my view, to think about or be talking about pausing our rate hike. We have a ways to go. Our policy, we need ongoing rate hikes to get to that level of sufficiently restrictive. And we don't, of course, we don't really know exactly where that is. We have a sense, and we'll write down in September, sorry, in the December meeting a new summary of economic projections, which updates that. But I would expect us to continue to update it based on what we're seeing with incoming data. Thanks, Chair Powell and Neil Irwin with Axios.

As you look around the economy, the clearest impact of your tightening so far has been on housing, maybe some venture-funded tech companies. It's been relatively narrow in terms of the labor market, consumer demand, a lot of sectors, you don't see a ton of effect. Is the pathway and channels through which monetary policy works changing? Is it narrower than it used to be? And on housing in particular, are you at all worried that you're crimping housing supply in ways that might cause problems down the road?

I don't know that the channels through which policy works have changed that much. I would say a big channel is the labor market, and the labor market is very, very strong, very strong. And household, of course, have strong balance sheets. So we go into this with a strong labor market and excess demand in the labor market, as you can see through many different things, and also with households who have strong spending power built up. So it may take time. It may take resolve. It may take patience.

It's likely to get inflation down. It may, I think you see from our forecasts and others that it will take some time for inflation to come down. It'll take time, we think. So, sorry, was that getting to your question there? Housing, the housing part of it. Yeah, so, you know, we look at housing. Of course, housing is significantly affected by these higher rates, which are really back where they were before the global financial crisis. They're not historically high, but they're much higher than they've been.

And you're seeing housing activity decline. you're seeing housing prices growing at a faster rate and in some parts of the country declining. You know, I would say housing was the housing market was very overheated for the couple of years after the pandemic. As demand increased and rates were low, we all know the stories of how overheated the housing market was. Prices going up, many, many bidders, no conditions, that kind of thing. So the housing market needs to get back into a balance between supply and demand. We're well aware of what's going on there. You know, from a financial stability standpoint,

we didn't see in this cycle the kinds of poor credit underwriting that we saw before the global financial crisis. Housing credit was very carefully, much more carefully managed by the lenders. So it's a very different situation and doesn't present potential financial, doesn't appear to present financial stability issues. But no, we do understand that that's really we're a very big effect. of our policy says. Victoria.

Hi, Victoria Guida with Politico. I wanted to ask about the labor market. You mentioned early on again that job openings are very high compared to available workers. And I'm just curious, to what extent you do and don't draw a signal from that? So for example, if wage growth is slowing and if maybe the unemployment rate starts to take up, will that

make you sort of decrease your focus on job openings? What do you see? Are wages, what's really important? How are you thinking about the labor market as it relates to inflation? So we talk a lot about vacancies in the vacancy to unemployed rate, but it's just one. It's just another data series. It's been, it's been unusually important in this cycle because it's been so out of line, but so has quits, so have wages. So we look at a very wide range of data on the unemployment, on the labor market. So, you know, I'd start with unemployment, which is typically the single statistic you would look to, is at a 50-year low, 3.5%. We're getting really nothing in labor supply now. We had, I think, very small increase this year,

which we had really thought we thought we would get that back. Most analysts thought we would get some labor supply coming in. You mentioned wages. So I guess I would characterize that is sort of a mixed picture. It's true with average hourly earnings you see. So I would call it a flattening out at a level that's well above the level that would be consistent over time. with 2% inflation, you know, assuming a reasonable productivity. With the ECI reading this week, again, a mixed picture. The headline number was a disappointment. Let's just say it was high. It didn't show a decline.

There's some rays of light inside, you know, that. If you look at private sector workers, that did come down. The compensation did come down. But overall, though, the broader picture is of an overheated labor market where demand substantially exceeds supply. job creation still exceeds, you know, the sort of the level that would hold the market where it is. So that's a picture. Do we see, you know, we keep looking for signs that sort of the beginning of a gradual softening is happening? You know, maybe that's there, but it's not obvious to me because wages aren't coming down.

They're just moving sideways at an elevated level, both ECI and hourly earnings. because we want to see, we would love to see vacancies coming down, quits coming down. They are coming down. Vacancies are below. They're all-time high, but, you know, not by as much as we thought. Because, you know, the data series is volatile. We never take any one reading. We always look at, you know, two or three.

So it's a mixed picture. I don't see the case for real softening just yet. But we look at, I guess I just, as I just showed you, we look at a very broad range of data on the labor market. So do you see wages as being a significant driver of inflation? You know, I think wages have an effect on inflation, and inflation has an effect on wages. I think that's always been the case. There's always going back and forth. The question is, is that really elevated right now? I don't think so. I don't think wages are the principal story of why prices are going up. I don't think that. I also don't think that we see a wage price spiral,

But again, it's not something you can, you know, once you see it, you're in trouble. So we don't want to see it. We want wages to go up. We just want them to go up at a level that's sustainable and consistent with 2% inflation. And, you know, we think we can, we do think that given the, you know, given the data that we have, that this labor market can soften without having to soften as much as history would indicate through the unemployment channel. It can soften through job openings declining. We think there's room for that, but we won't know that. That'll be discovered empirically.

Thank you so much. Kayla Taushi from CNBC. Earlier last month, the United Nations warned that there could be a global recession if central banks didn't change course. The new UK Prime Minister warned of a profound economic crisis there. And I'm wondering how the Fed is weighing international development. in light of a very strong economy here in the U.S. that would seem to be bucking those trends.

So, of course, we keep close tabs on economic developments and also geopolitical developments that are relevant to the economy abroad. We're in very frequent contact with our foreign counterparts, both through the IMF meetings and the regular meetings with central banks that we have. that we have, and I have one this weekend, with many, many central bankers. So we're in touch with all of that. So I guess what, it's, you know, it's clearly a time, difficult time in the global economy. We're seeing, you know, we're seeing, you know, very high inflation in Europe significantly because of high energy prices related to the war in Ukraine. And, you know, we're seeing

China's having issues with the zero COVID policy and, you know, much slower growth than we're used to seeing. So we're seeing, we see those difficulties. The strong dollar is a challenge for some countries. But, you know, we have a, and we take all of that into account in our models. We think about the spillovers and that sort of thing. Here in the United States, we have a strong economy and we have an economy where inflation is running at 5%. core PCE inflation, which is a really good indicator of what's going on for us, is the way we see it, is running at 5.1% on a 12-month basis, and sort of similar to that on a 3, 6 and 9-month basis. So we know that we need to use our tools to get inflation of the control. The world's not going to be better off if we fail to do that.

That's a task we need to do. Price stability in the United States is a good thing for the global economy over a long period of time. Price stability is the kind of thing that pays dividends for our economy for decades, hopefully, even though it may be difficult to get it back. Getting it back is something that provides value to the people we serve for the long run. Thank you. The Fed is acknowledged in the past that the tools that you have don't affect things like energy and food prices that stem from some of those conflicts overseas,

and they're some of the biggest pain points for consumers. So as you pursue the current path that you've outlined, is there a risk that some of those prices simply don't come down? So we don't directly affect, for the most part, food and energy prices, but the demand channel does affect them just at the margin. The thing about the United States is that we also have strong, in many other jurisdictions, the principal problem really is energy. In the United States, we also have a demand issue.

We've got an imbalance between demand and supply. which you see in many parts of the economy. So our tools are well suited to work on that problem, and that's what we're doing. You're right, though. We don't, you know, the price of oil is set globally, and it's not something we can affect. I think by the actions that we take, though, we help keep, you know, longer-term inflation expectations anchored and keep the public believing in 2% inflation by the things that we do, even at time, even in times when energy is part of the story of why inflation is high. Hi, Chair Powell, Janelle Marte with Bloomberg.

So the Fed is facing two more ethics-related incidents with the revision of the financial statements from President Bostic and President Bullard is speaking at a closed event. So some senators like Elizabeth Warren are saying that this is a sign of greater ethics problems at the Fed. Could you talk about what this? this does to the public's trust in the bank and what the Fed is doing to prevent this kind of behavior from becoming common.

Sure. So you're right. The public's trust is really the feds and any central bank's most important asset. And anytime one of us, one of the one of the policy makers violates or falls short of those rules, we do risk undermining that trust. And we take that very seriously. We do. So at the beginning of our meeting yesterday, actually, we had a committee discussion of the full committee on the importance of holding ourselves individually and collectively accountable for knowing and following the high standard that's set out in our existing rules with respect to both personal investment activities and external communications. And we've taken a number of steps and I would just say we do understand how important those

issues are. I would say that our new investment program that we have is, is up now and running and actually it was through that that the problems with with President Bostick's disclosures were discovered when he filed his new disclosures that's you know we now have a central group here at the Board of Governors it looks into disclosures and follows them and approves people's disclosures and also all of their trades any trade anyone has to make those that was covered has to be approved pre-approved and there's a lag it has to be pre-approved 40 days before it happens so there's no ability to gain market so

It's a really good system. It worked here. And I think we all said to each other today, yesterday, actually yesterday morning, we recommitted to each other and to this institution to hold ourselves to the highest standards and avoid these problems. Do you have an update on the investigations that are pending? I don't. So, you know, as you know, I referred the matter concerning President Bostic to the Inspector General. And once that happens, I don't discuss it with the inspector general or with anybody.

It's just the inspector general has, he has the ability to do investigations. We don't really have that. So that's what he's doing. Michael. Michael McKee from Bloomberg Television and Radio. Earlier this year, you touted the three-month bill yield out to 18 months as the yield curve with 100% explanatory power. And you said, quote, if it's inverted, that means the Fed's going to cut, which means the economy is weak. That curve is only two basis points away from inversion now. So I'm wondering why you are so confident that you have not overtightened,

particularly given that rates work with a lag. Well, so we do monitor the near-term forward spread. You're right. And that's been our preferred measure. We think it, you know, just empirically, it dominates the ones that people tend to look at, which is twos, tens, and things like that. So So it's not inverted. And also, you have to look at why things, you know, why the rate curve is doing what it's doing. It can be doing that because it expects cuts or because it expects inflation to come down. In this case, if you're in a situation where the markets are pricing in significant declines in inflation, that's going to affect the forward curve. So, yes, we monitor it. You're right.

And that's what I would say. If I could follow up. You also said several meetings ago that the risk of doing too little outweighed the risk of doing too much. Is what you're trying to tell us today is that that risk assessment has changed a little bit? Well, what's happened is time has passed and we've raised interest rates by 375 basis points. I would not change a word in that statement, though. I think until we get inflation down, you'll be hearing that from me. Again, if we over-tighten, and we don't want to, you know, we want to get this exactly right.

But if we over-tighten, then we have the ability with our tools, which are powerful to, as we showed at the beginning of the pandemic episode, we can support economic activity strongly if that happens, if that's necessary. On the other hand, if you make the mistake in the other direction and you let this drag on, then it's a year or two down the road and you're realizing inflation, behaving the way it can, you're realizing that you didn't actually get it, you have to go back in. By then, the risk really is that it has become entrenched in people's thinking. And the record is that the employment costs, the cost to the people that we don't want to hurt, you know, they go up with the passage of time. That's really how I look at it. So that isn't going to change.

What has changed, though, you're right. We're farther along now. And I think as we're farther along, we're now focused on that. you know what's what's the place what's the level we need to get to to rates and you know I don't know what we'll do when we get there by the way we you know it doesn't we'll have to see there's been no decision or discussion around exactly what what steps we would take at that point but the first thing is to is to find your way there thanks Chris Ruegaher

thank you Chris Ruegaver at Associated Press just to go back to housing for a minute you mentioned the impact that rate increases have had on housing home sales are down 25% in the past year and so forth, but none of this is really showing up and, as you know, in the government's inflation measures. And as we go forward, private real-time data is clearly showing these hits to housing. Are you going to need to put a greater weight on that in order to ascertain things like whether there's overt tightening going on, or will you still focus as much on the more lagging government indicators? So this is an interesting subject.

So I start by saying, I guess, that the measure that's in the CPI and the PCE, it captures rents for all tenants, not just new leases. And that makes sense, actually, because for that reason, that conceptually, that is, that's sort of the right target for monetary policy. And the same thing is true for owner's equivalent rent, which comes off of, is really. It's a re-waiting of tenant rents. The private measures are, of course, good at picking up at the margin, the new leases. And, you know, they tell you a couple things. One thing is once you, so I think right now, if you look at the pattern, a pattern of that series of the new leases, it's very pro-cyclical. So rents went up much more than the CPI and PCE rents did.

And now they're coming down faster. So what, but what's your, the implication is. is that we there are still as people as as as as non new leases roll over and become and and expire right you still they're still in the pipeline there's still some significant rate increases coming okay but at some point once you get through that the new leases are going to tell you that what they're telling you is there will come a point at which at which rent inflation will start to come down but that point is is well out from where we are now so we're well aware of that of course and we look at it. And we, you know, but I would say that in terms of what the right way to think about inflation really is to look at the, at the measure that we do look at, but considering that we also know that at some point you'll see rents coming down. Great, just a quick follow.

It looks like stock and bond markets are reacting positively to your announcement so far. Is that something you wanted to see? Is that a problem or what has that? How that might affect your future policy to see this positive reaction? You know, we're not targeting any one or two particular things. You know, our message should be, what I'm trying to do is make sure that our message is clear, which is that we think we have a ways to go. We have some ground to cover with interest rates before we get to,

before we get to that level of interest rates that we think is sufficiently restrictive. And putting that in the statement and identifying that as a goal, is an important step and that's it's meant to put that question really as the important one now going forward um i've also said that that we think that the level of rates that we we estimated in september the incoming data suggests that that's actually going to be higher and that's been the pattern i mean i would have little confidence that the forecast if we made a forecast today if we were doing an sEP today you know the pattern has been that one after another they go up and you know that'll end when it ends but there's no sense that that uh that uh

you know, that inflation is coming down. It just, if you look at the, I have a table of the last 12 months of 12-month readings, and there's really no pattern there. We're exactly where we were a year ago. So, okay, so I would also say it's premature to discuss pausing, and it's not something that we're thinking about. That's really not a conversation to be had now. We have a ways to go.

And the last thing I'll say is that, I would want people to understand our commitment to getting this done and to not making the mistake of withdraw of not doing enough or the mistake of withdrawing our strong policy and doing that too soon. So those I control those messages and and that's my job. Edward Lawrence with Fox Business. Thank you, Fed Chairman. So how big of a headwind is all the fiscal spending to what the Federal Reserve is trying to do to get inflation back to the 2 percent target? You know, in theory it was a head win this year, but I do think the broader context is that you have households that have these significant amounts of savings and can keep spending.

So I think those two things do tend to wage to sort of counterbalance each other out. It appears consumer spending is still positive. It's at pretty modest growth levels. It's not shrinking. but, and, you know, people are, and, you know, the banks that deal with retail customers, and many retailers will tell you that the consumers are still buying and they're still, you know, they're fine. So I don't know how big the fiscal headwinds are, and they haven't shown up in the way that we thought they would in restraining spending.

So it must have to do with the savings that people have. What about the spending? There's tens of billions yet to be spent. I mean, from the Inflation Reduction Act, the American Rescue Plan, Chips Act, bipartisan infrastructure bill. How does that go play in your thinking about the future? You know, demand is going to have some support from those savings and also from the strong demand that's still in the labor market. We still see pretty significant demand and a tightening labor market in some respects, although I think overall, I would say it's not really tightening or loosening. So we see those things. And what those things tell us is that, you know,

our job is going to require some resolve and some patience over time. We're going to have to stick with this. It's, and, you know, that's just, we take all that as a given, but we know what our objective is. We know what our tools can do. And that's how we think about it. Thanks. We'll go to Nancy for the- Hi, Chair Powell, Nancy Marshall Ginsburg from Marketplace.

I'm wondering, has the window for a soft landing narrowed? Do you still think it's possible? Has it narrowed? Yes. Is it still possible? Yes. I think we've always said it was going to be difficult, but I think to the extent rates have to go higher and stay higher for longer, it becomes harder to see the path. It's narrowed.

I would say the path is narrowed over the course of the last year, really. Hard to say. Hard to say. You know, again, I would say that the sort of array of data in the labor market is highly unusual, and to many economists, there is a path to, ordinarily there's a relationship to GEP going down and and vacancies declining, translating into unemployment. Or there's Oaken's law. So all those things are relationships that are in the data and they're very real. Data is a little bit different this time, though, because you have this tremendously high level of vacancies. And we think on a very steep part of the beverage curve, all I would say is that the job losses may turn.

out to be less than would be indicated by those traditional measures because because job openings are so elevated and because the labor market is so strong. Again, that's going to be something we discover empirically. I think no one knows whether there's going to be a recession or not, and if so, how bad that recession would be. And, you know, our job is to restore price stability so that we can have a strong labor market that benefits all over time. all over time, and that's what we're going to do.

But just real quickly, why do you feel like the window has narrowed? Because we haven't seen inflation coming down. The implication of inflation not coming down. And what we would expect by now to have seen is that, really as the supply side problems had resolved themselves, we would have expected goods inflation to come down by now, long since by now. And it really hasn't, although it's, actually it has, come down but it's not to the extent we had hoped at the same time now you see services

inflation core services inflation moving up and um i just think that the inflation picture has become more and more challenging over the course of this year without question that means that we have to have policy be more restrictive and that narrows the path to a soft landing i would say thanks very much