Transcript of Chair Powell’s Press Conference Opening Statement
May 4, 2022
CHAIR POWELL. Good afternoon. It’s nice to see everyone in person for the first time in a couple years. Before I go into the details of today’s meeting, I’d like to take this opportunity to speak directly to the American people. Inflation is much too high and we understand the hardship (gian nan)it is causing, and we’re moving expeditiously to bring it back down. We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses. The economy and the country have been through a lot over the past two years and have proved resilient (kiên cường).It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all.
From the standpoint of our Congressional mandate to promote maximum employment and price stability, the current picture is plain to see: The labor market is extremely tight, and inflation is much too high. Against this backdrop, today the FOMC raised its policy interest rate by 1/2 percentage point and anticipates that ongoing increases in the target rate for the federal funds rate will be appropriate (phù hợp). In addition, we are beginning the process of significantly reducing the size of our balance sheet. I’ll have more to say about today’s monetary policy actions after briefly reviewing economic developments.
After expanding at a robust 5-1/2 percent pace last year, overall economic activity edged down in the first quarter. Underlying momentum remains strong, however, as the decline largely reflected swings in inventories and net exports, two volatile categories whose movements last quarter likely carry little signal for future growth. Indeed, household spending and business fixed investment continued to expand briskly (nhanh chóng).
The labor market has continued to strengthen and is extremely tight. Over the first three months of the year, employment rose by nearly 1.7 million jobs. In March, the unemployment rate hit a post-pandemic and near five-decade low of 3.6 percent. 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 is very strong, and while labor force participation has increased somewhat, labor supply remains subdued (giảm).Employers are having difficulties filling job openings, and wages are rising at the fastest pace in many years.
Inflation remains well above our longer-run goal of 2 percent. Over the 12 months ending in March, total PCE prices rose 6.6 percent; excluding the volatile food and energy categories, core PCE prices rose 5.2 percent. Aggregate demand is strong, and bottlenecks and supply constraints are limiting how quickly production can respond. Disruptions to supply have been larger and longer lasting than anticipated, and price pressures have spread to a broader range of goods and services. The surge in prices of crude oil and other commodities that resulted from Russia’s invasion of Ukraine is creating additional upward pressure on inflation. And COVID-related lockdowns in China are likely to further exacerbate supply chain disruptions as well.
Russia’s invasion of Ukraine is causing tremendous loss and hardship, and our thoughts and sympathies are with the people of Ukraine. Our job is to consider the implications for the U.S. economy, which remain highly uncertain. In addition to the effects on inflation, the invasion and related events are likely to restrain economic activity abroad and further disrupt supply chains, creating spillovers to the U.S. economy through trade and other channels.
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, especially on 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 are strongly committed to restoring price stability.
Against the backdrop of the rapidly evolving economic environment, our policy has been adapting, and it will continue to do so. At today’s meeting the Committee raised the target range for the federal funds rate by 1/2 percentage point and stated that it anticipates that ongoing increases in the target range will be appropriate. We also decided to begin the process of reducing the size of our balance sheet, which will play an important role in firming the stance of monetary policy. We are on a path to move our policy rate expeditiously to more normal levels. Assuming that economic and financial conditions evolve in line with expectations, there is a broad sense on the Committee that additional 50 basis point increases should be on the table at the next couple of meetings. We will make our decisions meeting by meeting, as we learn from incoming data and the evolving outlook for the economy. And we will continue to communicate our thinking as clearly as possible. Our overarching focus is using our tools to bring inflation back down to our 2 percent goal.
With regard to our balance sheet, we also issued our specific plans for reducing our securities holdings. Consistent with the principles we issued in January, we intend to significantly reduce the size of our balance sheet over time in a predictable manner by allowing the principal payments from our securities holdings to roll off the balance sheet, up to monthly cap amounts. For Treasury securities, the cap will be $30 billion per month for three months and will then increase to $60 billion per month. The decline in holdings of Treasury securities under this monthly cap will include Treasury coupon securities and, to the extent that coupon securities are less than the monthly cap, Treasury bills. For agency mortgage-backed securities, the cap will be $17.5 billion per month for three months and will then increase to $35 billion per month.
At the current level of mortgage rates, the actual pace of agency MBS runoff would likely be less than this monthly cap amount. Our balance sheet decisions are guided by our maximum employment and price stability goals, and in that regard, we will be prepared to adjust any of the details of our approach in light of economic and financial developments. Making appropriate monetary policy in this uncertain environment requires a recognition that the economy often evolves in unexpected ways. Inflation has obviously surprised to the upside over the past year, and further surprises could be in store. We therefore will need to be nimble in responding to incoming data and the evolving outlook. And we will strive to avoid adding uncertainty to what is already an extraordinarily challenging and uncertain time. We are highly attentive to inflation risks. The Committee is determined to take the measures necessary to restore price stability. The American economy is very strong and well positioned to handle tighter monetary policy.
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.