TRANSCRIPT: Fed’s Powell Says Quarter-Point Cut ‘Risk Management’ Rather Than Reaction to Actual Jobs Deterioriation

WASHINGTON (MaceNews) – The following is a transcript of Federal Reserve Chair Jerome Powell’s post-FOMC news conference Wednesday:

Good afternoon. My colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people. While the unemployment rate remains low, it has edged up you, job gains have slowed and down side risks to employment has risen. At the same time, inflation has risen recently and remains somewhat elevated. In support of our goals and in light of the shift in the balance of risks, today the Federal Open Market Committee decided to lower our interest rate by a quarter of a percentage rate. We also decided to continue to reduce our securities holdings. I’ll have more to say about monetary policy after briefly reviewing economic developments.

Recent indicators suggest that growth of economic activity has moderated. GEP rose at a pace of around one and a half percent in the first half of the year, down from 2.5 percent last year.

The moderation and growth largely reflects a slowdown in consumer spending.

In contrast, business investment and equipment and intangibles has picked up from last year’s pace.

Activity in the housing sector remains weak. In our summary of economic projections, the median participant projects GDP to rise 1.6 percent this year and 1.8 percent next year, a touch stronger than projected in June.

In the labor market, the unemployment rate edged up to 4.3 percent in August but remains little changed over the past year at a relatively low level.

Payroll job gains have slowed significantly to a pace of just 29,000 per month over the past three months. A good part of the slowing likely reflects a decline in the growth of the labor force, due to lower immigration and lower labor force participation.

Even so, labor demand has softened and the recent pace of job creation appears to be running below the break even rate needed to hold the unemployment rate constant.

In addition, wage growth has continued to moderate while … outpacing inflation.

Overall, the market slowing in both the supply of and demand for workers is unusual. In this less dynamic and somewhat softer labor market the down side risks of employment have risen the the median reflection for employment rate is 4.5 percent at the end of this year and edges down thereafter.

Inflation has eased significantly from its highs in mid-2022 but remains somewhat elevated relative to our 2 percent longer run goal. Estimates bade on the consumer price index and other data indicate that total PTE prices rose 2.7 percent over the 12 months ending in August and that excluding the volatile food and it energy prices, core PPE rose 2.9 percent.

These readings are higher than earlier in the year as inflation for goods has picked up. In contrast, disinflation continues to be continuing for services. Near term measures of inflation have moved unbalanced in moves ab tariffs.

Beyond the next year or so most measures of longer term expectations remain consistent with our 2 percent inflation goal. The median projection in the FPE for total inflation is 3.0 percent this year and falls to 2.6 percent in 2026 and 2.1 percent in 2027.

Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people.

At today’s meeting, the committee decided to lower the target range for the federal funds rate by a quarter percentage rate to four, to four and a quarter percent, and to continue reducing the size of our balance sheet.

Changes to government policies continue to evolve and their effects on the economy remain uncertain. Higher tariffs have gun to push up some prices in some categories of goods but their overall effect on economic activity and inflation remain to be seen.

A reasonable base case is that the effects on inflation will be relatively short lived, a one time shift in the price level.

But, it is also possible that the inflationary effects could instead be more persistent and that is a risk to be assessed and managed. Our obligation is to ensure that a one time increase in the price level does not become an ongoing inflation problem.

In the near term, risks to inflation are tilted to the upside and risks to employment to the down side. A challenging situation. When our goals are intentional like this, our framework calls for us to balance both sides of our dual mandate. With down side to dual employment having increased the balance has shifted. Accordingly we judged appropriately at this meeting to take another step toward a more neutral policy stance.

With today’s decision, we remain well positioned to respond in a timely way to potential economic developments. We will continue to determine the appropriate stance of monetary policy based on the incoming data, the evolving outlook, and the balance of risks.

In our SPE, FOMC participants wrote down their individual assessments of an appropriate path for the federal funds rate based on what each participant judges to be the most likely scenario for the economy. The median participant projects that the appropriate level of the federal funds rate will be 3.6 percent at the end of this year, 3.4 percent at the end of 2026, and 3.1 percent at the end of 2027. This path is one quarter percent lower than projected in June.

As is always the case, these individual forecasts are subject to uncertainty and they’re not a committee plan or decision. Policy is not on a preset course.

The Fed has been assigned two goals for monetary policy. Maximum employment and stable prices. We remain committed to supporting maximum employment, running inflation sustainably to our 2 percent goal and keeping longer term inflation expectations well anchored.

Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission and we at the Fed will do everything we can to chief our maximum employment and price stability goals. Thank you, I look forward to our discussion.

Great. Thank you. Chris Rugabar, The Associated Press. As you know, this is the first time I believe the Fed’s board has had someone with executive branch ties in decades. Does this compromise the Fed’s independence from day-to-day politics and relatedly, how can you maintain the public’s perception that the the Fed is politically independent with this dynamic.

So, we did welcome a new committee member today as we always do and the committee remains united in pursuing our dual mandate goals. We’re strongly committed to maintaining our independence and beyond that, I really don’t have anything to share.

The Associated Press: Just as a quick follow-up, you and other the Fed officials have spoke about the impact of tariffs on inflation, though perhaps with many companies appearing to eat the tariffs, tariffs may be impacting the labor market and other parts of the economy instead. Do you see that has as a possible outcome here that tariffs are the reason we’re seeing some slowing particularly in the labor market rather than in inflation? Thank you.

It’s certainly possible. We’re beginning to see, we have begun to see goods prices showing higher through inflation and actually the increase in goods prices accounts for most of the increase in inflation or perhaps all of the increase in inflation over the course of this year.

Those are not very large effects at this point and we do expect them to continue to build over the course of the rest of the year and into next year.

You know, it’s also possible that there may be effects on employment but that I would say if you’re looking at employment as much as the change in immigration so the supply of workers is coming down. There’s very little growth if any in the supply of workers and at the same time, demand for workers has come down quite sharply to the point where we see what I’ve called a curious balance. Typically, when we say things are in balance that sounds good. But in this case, the balance is because both demand and supply have come down sharply, now demand coming down more sharply because we now see the unemployment rate going up.

Nick Timiraos, The Wall Street Journal. Do the — no longer govern a strict policy?

I don’t think we can say this. Over the course of the year, we’ve kept our policy at a restrictive level, and people have different views but a clearly restrictive level I would say. We were able to do that over the course of this year because the labor market was in very solid condition with strong job creation and all those things.

I think if you go back to April and look at the revised job creation numbers for May, June, July and August, you can kind of, I can no longer say that.

So, what that means is that the risks which, the risks were clearly tilted toward inflation, I would say they’re moving toward equality. Maybe they’re not quite at equality. We don’t need to know that but we do know that they’ve moved meaningfully toward greater equality, the risks between the two goals, and that suggests that we should be moving in the direction of neutral.

That’s what we did today.

Nick Timiraos: Under what circumstances would a larger than 25 percent rate cut be warranted and how seriously was that option entertained at your meeting this week?

There wasn’t widespread support at all for a 50 point biscuit this week. We’ve done very large rate hikes an cuts in the last five years and you tend to do those at a time when we feel that policy is at a place and needs to move quickly. That’s not at all the case of wait and see cuts in the last five years.

It in place, I guess I’m just trying to square the shift in the rate forecast in the SEP. Towards more cuts than just three months ago with the fact that unemployment didn’t change.

Yeah, I think you could think of this in a way as a risk management cut because if you look at the SEP, actually, the projections for growth has actually ticked up. …

JEROME POWELL: All the individual forecasts say that. We can’t just assume that, though, right? We have to, our job is literally to make sure that that is what happens. And we will do that job. Right now, the situation we’re in is that we see, we see inflation, we continue to expect it to move up maybe not as high as we would have expected it to move up a few months ago. The pass through into, of the tariffs into inflation has been slower and smaller. The labor market has softened so that the case for their being a persistent.

To the extent we have issues right now, it’s about low response rate. That’s happened all over. Response rates are just lower in and out of the government. It’s no great secret. We want higher response rates and we need those to have less volatile data, and the way to get that is to make sure that the agencies that collect the data have sufficient resources to drive higher response rates. It’s not a complicated problem. But that’s what it takes. It’s not a mystery. In the case of the job creation, the first response rate is quite low for the first month or lower for the first month.

By the time you get to the second or third month, you’re still collecting responses for that last, for that prior month. And you get to the place where the data are much more reliable by the second and certainly the third month. So, it’s not that we don’t get the data. It’s just that we get it a little lower.

For the benchmarks, if that holds, it’s 51 percent of the jobs we thought were there weren’t really there. Shows a weaker job market coming into this year. If you had had that information, would it have changed your mind related to where the interest rates should be? Should there have been a cut earlier?

JEROME POWELL: We have to live life looking through the windshield rather than the rear view mirror as you know. All I can tell you is we see where we are now and we took appropriate action and we took that appropriate action today.

Thanks, Howard Schneider with Reuters. As you mentioned a minute ago, some margins of the job market would suggest that the slide is already happening. The blackout employment rate in August was above 7 percent, declining workweek, difficulty among college graduates finding work, rising youth unemployment.

Why do you think a quarter percentage point now is going to arrest that?

JEROME POWELL: Well, I didn’t say that a thought a quarter point would make a huge difference to the economy but you’ve got to look at the whole path of rates and market has already been baking in expectations w our market works through expectations so I think our policy path really does matter and I think it’s important that we use our tools to support the labor market when we do see signs like that.

I did mention that. You see minority unemployment going up. You see younger people, people who are more vulnerable economically, more susceptible to economic cycles. Of that’s one of the reason in addition to just lower overall payroll job creation that shows you that the labor market is weakening. I would also point to labor force participation.

Some part of the decline in the labor force participation over the last year has probably been cyclical in nature rather than just usual aging process so we put all this together and we see that the labor market is softening and we don’t need it to soften anymore, don’t want it to.

So, we use our tools, and it starts with a 25 basis point rate cut but the market is also pricing in at a rate path. I’m not blessing what the market is doing at all. I’m just saying, it’s not just one action.

Reuters: As a follow-up to that, the growth mix right now seems very complicated in investment and on the consumer spending side in the higher income groups, do you feel that that’s an unsustainable mix for the economy moving forward?

JEROME POWELL: I wouldn’t say that. I mean, you’re right. Those are two, we’re getting unusually large amounts of economic activity through the AI buildout and corporate investment. I don’t know how long that will go on. No one does.

In terms of spending, you saw the consumer spending numbers were well above expectations and that may well be skewed toward higher earning consumers. There’s a lot of anecdotal evidence to suggest that.

Nonetheless, it’s spending. So, I think the economy is, you know, it’s moving along. Economic growth is going to be one and a half. One and a half percent or better this year. Maybe a little better. Forecasts have been coming up, as you can see.

So, labor market is, unemployment is low. But. Down side risks but it’s still a low unemployment rate so that’s how we see it.

Hi, Stephanie Ruhle. MSNBC. Treasury secretary has said that the federal reserve suffers from mission create and bloat. He’s now supporting an independent review. Would you support an independent review or are you open to any sort of reform in any areas of the Fed.

JEROME POWELL: I of course am not going to comment on anything the secretary says or really any other officer says. In terms of reformat the Fed we just went through a lengthy and I think very successful process of updating our monetary policy framework.

I would say there’s a lot of work going on behind the scenes at the Board, we’re actually going through a 10 percent head count reduction through the whole fed, including the Board and all the reserve banks.

The employment at the Fed at the end of that will be basically at the same level it was more than ten years ago so we will have had zero job growth for more than a decade when we’re finished with that and I think we’ll probably do more than that.

So, I think we’re certainly open to constructive criticism and ways to do our jobs better.

CSNBC: But not an independent review?

JEROME POWELL: We’re certainly open to always trying to do better.

Mr. Chairman, Neil Irwin with Axios. There’s been some debate on whether AI is already starting to affect the labor market in terms of high productivity by contrast, lower labor demand. Do you buy that and if that’s true does it have implications for the monetary policy setting?

JEROME POWELL: So, there’s great uncertainty around that. I think my view which is also a bit of a guess but widely shared, I think, is that you are seeing some effects but it’s not the main thing driving it.

So, particular focus on young people coming out of college. And yeah, there may be something there. It may be that companies or other institutions that have been hiring younger people right out of college are able to use AI more than they had in the past. That may be part of the story.

It’s also part of the story, though, that job creation more broadly has slowed down. The economy has slowed down so it’s probably a number of things.

But, yeah, it’s probably a factor, hard to say how big it is.

Thanks, Mr. Chairman. What evidence do you see of tariffs showing up in inflation?

JEROME POWELL: Well, if you can take goods, just sort of a broad goods category, and last year, goods inflation was negative. If you go back 25 years, that was the typical thing was that goods inflation was goods inflation went down even relative to quality. Now, I think goods inflation over the past year is 1.2 percent, which doesn’t sounds like a lot but it’s a big change.

So, we think, analysts have different views but we think it’s contributing, .3 or .4, something like that, to the inflation which is 2.9 percent. So, it’s contributing.

What seems to be happening is that the tariffs are not, mostly not being paid by exporters. Mostly being paid by really the companies that sit between the exporter and the consumer. So, if you buy something and you sell it to retail or use it to make a product, you’re probably taking a lot of those costs on and not able to pass it fully along to the consumer yet.

That appears to be what we’re seeing. All of those companies and entities in the middle, they’ll tell you that they have every intention of passing that through in time but they’re not doing that now. To the consumer, the pass through has been pretty small. It’s been slower and smaller than we thought, but the evidence is, it’s very clear that there’s some pass through.

I also wanted to ask, if you could share with us, the conditions under which you might consider leaving the Fed in May?

JEROME POWELL: I have nothing new on that for you today.

Catarina Saraiva with Bloomberg News. I just wanted to follow up on one of your answers a couple minutes ago. We’ve often heard you talk about how you and your colleagues do not think about politics. This does not enter the room. But one of your new colleagues does come from this world, right, where everything is seen through this framework of politics and of what party is being helped and, that person is still employed by the White House.

How can markets and the public interpret, you know, some of his speeches, for example, and then, some of the forecast that we see today?

I mean, the median for this year was moved because of the introduction of his forecast. I’m talking about the number of rate cuts seen this year. What do you say to markets and the public that are trying to interpret, you know you what you gays are saying?

JEROME POWELL: So there’s 19 participants, of whom 12 vote, as you know, on a rotating basis. So, no one voter can really, the only way for any voter to really move things around is to be incredibly persuasive and the only way to do that in the context in which we work is to make really strong arguments based on the data and ones understanding of the economy.

That’s really all that matters. Of that’s how it’s going to work. And I think a way the institution, if that’s in the DNA of the institution, that’s not going to change.

And then I wanted to ask about a Gallup poll that showed that Americans now have more confidence in the president than the federal reserve when it comes to what’s doing for the economy. Why do you think that is and what’s your response, your message to the public?

JEROME POWELL: Our response is we’re going to do everything we can to use our tools to achieve the goals that Congress has given us and we’re not going to get distracted by anything. So I think that’s what we’re going to do. We’re going to keep doing our jobs.

Financial Times. Given the range of views expressed prior to the meeting, I think there was a lot less dissent today than a lot of people expected.

It would be good to know just what you think the drivers were coming into the very strong consensus in the meeting and also on the flip side to just explain why the plots are really so scattered between, you know, someone even expecting rates to end up higher by the end of the year to five cuts.

I mean, what were the kind of range of views you had about, on one side, why there was so much support for a cut today and on the flip side, why there’s so much divergence about what comes next?

JEROME POWELL: So, I think there’s quite a wide assessment that the suggestion has changed with respect to the labor market.

Whereas, we could still say, and did say, in July, at the time of the July meeting that the labor market was in solid condition and we could point o to 150,000 jobs per month and many other things. Think that the new data we’ve had and it’s not just payrolls, other things as well, suggests that there is meaningful down side risks. I would say there were down side risks then but I think that risk is now a reality and there’s clearly more risk so I think that’s broadly accepted. And so that meant different things for different people. Some wrote down, almost everyone wrote down support of this cut and some supported more cuts and some didn’t, as you will see from the dot plot.

So, that’s just the way it is. I mean, people have, it’s, you have people who take this work very seriously, think about it all the time, do their work, discuss it with our colleagues. We endlessly discuss this within ourselves and then we have a meeting where we put it all out on the table and this is what you get.

You’re right. There’s a range of views in the dots and I think that’s, like I said, very unsurprising given the quite unusual historically unusual nature of the challenges that we face.

Let’s remember, though, the unemployment rate is 4.3 percent. The economy is growing at one and a half percent. So, it’s not a bad economy or anything like that.

We’ve seen much more challenging economic times but from a policy standpoint, the stand point of what we’re trying to accomplish, it’s challenging to know what to do. There are, as I mentioned earlier, there are no risk free paths now. It’s not incredibly obvious what to do, so, we have to keep our eye on inflation. At the same time, we cannot ignore and must keep our eye on maximum employment. Those are our two equal bowls and you’ll see that there are just a range of views on what to do.

Nonetheless we came together at the meeting and acted with a high degree of unity.

Thank you. Archie Hall from the Economist. You mentioned earlier that job inflation is running below the break even rate. I’d be curious about that and where you think the break even rate is.

JEROME POWELL: There are many different ways to calculate it and none of them is perfect but it’s clearly come way down. You can say it’s somewhere between zero and 50,000 and you’d be right or wrong. I mean, there are just many different ways to do it.

So, whatever, wherever it was, 150,000, 200,000, a few months ago, it’s come down quite significantly. That’s because very lower amount of people are joining the labor force. The labor force really is not growing much at this point and that’s a lot of where the supply of labor was coming from over the last two or three years so we’re not getting there now.

We’ve also got much lower demand. It’s interesting that supply and demand have really come down together so far except now we do have inflation — sorry, unemployment ticking up outside just one tick outside of the range where it’s been for a year.

4.3 percent is still a low level but, you know, I think this level of, this speedy decline in both supply and demand has certainly gotten everyone’s attention.

If I may, you mentioned the down side risk to employment a fair amount but it’s striking that measures have come in activity and output for the third quarter.

Those we have seem pretty strong. You mentioned strong PC numbers as well. How do you square those things? Have is there a chance there could be an upside risk to the labor market?

JEROME POWELL: That would be great. We’d love that to happen. I don’t know that you see a big tension there but it’s gratifying to see that economic activity is holding in so it’s a good bit from consumption. It looks like consumption was stronger than expected what we got earlier this week, I guess.

And also we’re getting, a lot of economic activity which is the AI buildout and business investment.

So, you know, we watch all of it and I would say we did move up, the median for growth this year actually moved up between June and September SEPs.

And really the inflation and labor market didn’t change much. It’s really the risks that we’re seeing to the labor market that were the focus of today’s decision.

Hi, Nicole Goodkind with Barron’s. Thank you for taking my question.

Given the cumulative impact of high interest rates on the housing sector, I’m wondering how concerned you are that current rate levels are exacerbating housing affordability issues and potentially behind erg household affirmation and wealth accumulation for a segment of the population.

JEROME POWELL: Housing is an interest sensitive activity so it’s at the very center of monetary policy when the pandemic hit and we cut rates to zero, the housing companies were incredibly grateful and they said the only thing that kept them going was that we cut so aggressively and provided credit and things like that and they were able to finance because we did that.

The other side of that is when inflation gets high and we raise rates and you’re right, it does burden the housing industry and so you rates have come down a bit and as that happened, we don’t cut mortgage rates but our policies do tend to impact mortgage rates. That will raise demand. Lower borrowing rates for builders will help get builders supply.

Some of that should happen. I think most analysts think it would have to be pretty big changes for it to matter a lot, big changes in rates for it to matter a lot for the housing sector and the other thing is by achieving maximum employment and price stability, that’s a strong economy, that’s a good economy for housing and the last thing I’ll say is there’s a deeper problem here. Not a cyclical problem the Fed can address, pretty much nationwide lowing shortage. A lot of — housing shortage. A lot of places in the country just don’t have enough housing for people and all of the areas around metropolitan areas like Washington are very built up so you’re having to build farther and farther out so that’s where it is.

And just a quick follow-up. During the last press conference following the SEP you seemed to indicate that policy makers lack conviction about their projections and I’m wondering if you still feel that way.

JEROME POWELL: Forecasting is very difficult even in placid times. As I’ve mentioned before, forecasters are a humble lot without much to be humble about. I think right now is a particularly challenging time even more than usual so I don’t know any forecaster anywhere, really, ask any of the forecasters whether this have great confidence in their forecast, I think they’ll honestly say no.

Thank you, Chair Powell, Jennifer Berger. If you’re cutting rates, why continue to reduce than pause the unwinding?

JEROME POWELL: Well I think we’re cutting the size of our balance sheet quite largely. As you know, we’re still in abundance reserve condition and we’ve said that we’ll stop somewhat above an amp reserve level and that’s what we are. Getting closely to that. We don’t think that has significant macro effects. These are pretty small numbers moving inside a giant economy. The level of runoff is not very large so I wouldn’t attribute macro economic consequences to that at this point.

And at his recent confirmation hearing, Stephen Myran brought up the Fed actually has three mandates. Not just job and stable crisis but also moderate long-term interest rates so what does Congress mean by moderate long-term interest rates? How should we understand that when we see the ten year treasury moving and how do you think about this part of the mandate when policy choices like rate reductions or balances affect the long end of the yield curve?

JEROME POWELL: So, we always think of it as the dual mandate, maximum employment price stability for a long time because we think moderate interest rates are something that will result from stable inflation. Low and stable inflation and maximum employment.

So we haven’t thought about that for a very long time as a third mandate that requires independent action.

So, that’s where that is. And as far as I’m concerned, there’s no thought of considering that and of considering that, incorporating in a different way.

Thanks, Chair Powell. Matt Egan from CNN. We recently learned that average FICO credit points are down by 2 percent, the most since the great depression. Delinquencies are high for personal loans, credit cards. How concerned are you about the health of consumer finances and do you expect today’s cut will help?

So, we’re aware of that. I think default rates have been kind of ticking up and we do watch that. They’re not at a level, I don’t believe we’re at a level overall terribly concerning that we watched lower rates, I don’t believe that one rate cut will have visible effect but over time, a strong economy with a strong labor market is what we’re aiming for and stable prices so that should help.

Just a follow-up. This rate cut is coming at a time when the stock market is at or near all time highs and some evaluation metrics are elevated historically.

Is there a risk that cutting rates could overheat financial markets, potentially fueling a bubble?

JEROME POWELL: You know, we’re tightly focused on our goals, right? And our goals are maximum employment and price stability so we take the actions that we take with an eye on those goals and that’s why we did what we did today.

Separately, we monitor financial stability very, very carefully. I would say it’s a mixed picture but households are in good shape. Banks are in good shape. Overall, households are still in good shape in the aggregate and I know that people at the lower end of the income spectrum are under pressure, obviously but from a financial stability perspective, we monitor that picture.

We don’t have a view that there’s a right or wrong view of asset levels but we monitor the whole picture really looking for structural vulnerabilities.

I would say those are not elevated right now.

Gene, we’ll go to you for the last question.

Jean Yung with Market News. I wanted to ask about inflation expectations. You said the Fed can’t take the inflation expectations for granted. You mentioned at the short run they’ve gone up a little bit. I wondered if you could talk a bill about that.

Also, at the long run, wondering do you see evidence that the debate over Fed independence and the growing deficit is putting pressure on inflation expectations.

JEROME POWELL: So, as you said, shorter term inflation expectations have tended to respond to near term inflation. So, if inflation goes up, inflation expectations will predict that it takes a little while to get back down. Throughout this period, longer term inflation expectations break even in the markets, almost all of the long-term surveys,

Michigan being a bit of an outlier lately, have been just rock solid in terms of running at levels that are consistent with 2 percent inflation over time.

So we don’t take that for granted. We actually assume that our actions have a real effect on that and that, you know, we need to you know, continually show and also mention, discuss, our commitment to 2 percent inflation.

So, you’ll hear us doing that. But, you know, as I mentioned, it’s a difficult situation because we have risks that are both affecting the labor market and inflation, our two goals and so we have to balance those two. When they’re both at risk, we have to balance them and that’s really what we’re trying to do.

Your latter part of your question was about independence. I don’t see market participants, I don’t see that something they’re factoring in right now in terms of setting interest rates. Thanks very much.