Federal Reserve Chair says the path ahead for inflation remains “highly uncertain.”
Powell said inflation forecasts of private-sector forecasters or of Federal Open Market Committee participants broadly show a significant decline over the next year. However, forecasts have been predicting just such a decline for more than a year, while inflation has moved stubbornly sideways.
Powell said the central bank anticipates ongoing interest rate increases will be appropriate.
“It seems to me likely that the ultimate level of rates will need to be somewhat higher than thought at the time of the September meeting and Summary of Economic Projections,” Powell said. “We have more ground to cover.”
Powell spoke on the outlook for the economy, inflation, and the changing labor market at the Hutchins Center on Fiscal & Monetary Policy at the Brookings Institution.
Following his prepared remarks, Powell was interviewed by Hutchins Center director David Wessel and took questions from the audience.
Powell on jobs
Powell said, “Wage increases will be an important part of the story going forward.”
The Fed chair said there’s an incentive for moderating employment demand. “Right now people’s wages are being eaten up by inflation,” Powell said, while noting wages at the lower end are rising faster than inflation.
He said the labor market will not come into balance until there is price stability, pointing out the latest jobs data shows there are 1.7 job openings for every unemployed worker. Powell opined the employment imbalance, in one sense, signals a great job situation, perhaps too great, he said.
“Without stable prices, we can’t have maximum employment,” Powell said.
The situation the Fed would love to have a very long economic expansion. “Those are very beneficial to society,” he said.
Powell said the labor market could come into balance through declining job openings.
The Fed chair added that wages have to go up with a level consistent with 2% inflation to keep inflation under control.
“We understand that real wages are not going up for most people,” Powell said. “This labor shortage doesn’t look like it’s going away any time soon.” As a result, Powell expects investment in labor replacement technology.
JOB OPENINGS EASED IN OCTOBER IN EARLY SIGN OF A SLOWDOWN
Powell on inflation
The Fed chair says the natural assumption is to assume inflation will recede, but that hasn’t happened.
Powell said the central bank will continue to make forecasts but will be humble. He noted there is a tendency to overtighten monetary policy.
“It’s a very difficult situation to forecast inflation,” Powell said.
The Fed chair said policymakers will look at economic factors including forecasts, actual data, macroeconomic conditions, asset prices, private borrowing rates in an effort to identify policy that is sufficiently restrictive to bring inflation down.
“It will have to be judgement,” Powell said.
Powell on monetary policy
The Fed chair says the central bank doesn’t want to overtighten monetary policy. “That’s why we’re slowing down,” Powell explained.
“At a certain point we’re just going to call it,” he opined, noting the Fed wants to stop at a place “where it’s safe.”
Powell continues to believe there’s a path to a soft economic landing, saying it is “very plausible” and “still achievable.”
The Fed chair says the central bank monitors global developments, noting the best thing the Fed can do to help the global economy is to get inflation under control. Powell said the global costs of inflation will only rise with delay.
“I feel like we’re now in a place where we can slow down,” he said. “I don’t regret getting to where we are.”