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Transcript: Fed Chief Powell's Postmeeting Press -3-

There are also a significant number of people who said they've retired. A large number of people who say that they're retired. Now, it's hard to say whether they will come back in as the labor market strengthens and as Covid, you know, becomes in the rearview mirror -- or, in the history books, if you will. So, but clearly there's something going on out there as many companies are reporting labor shortages. We don't see wages moving up yet, and presumably we would see that in a real -- you know, in a really tight labor market. And we may well start to see that.

I do think -- so what will happen? What we saw during the last expansion, and it may be a different expansion. We don't know. But what we saw was that labor supply generally showed up. In other words, if you were worried about there -- about running out of workers, it seemed like we never did, you know? That labor-force participation held up. People came in the labor force. They stayed in the labor force longer than expected. So my guess would be that you will see people coming back into the labor force and these jobs will be -- the labor market will reach equilibrium. Maybe pay will go up.

But I do think that -- and I do think also that unemployment insurance benefits will run out in September. So to the extent that's a factor, which is not clear, it will no longer be a factor fairly soon. My guess is it will come back to this economy where we have, you know, equilibrium between labor supply and demand. It may take some months, though.

MODERATOR: Thank you. Heather Scott.

Q: Can I have a quick follow on?

MODERATOR: I'm sorry. Go ahead. Go ahead, Chris.

MODERATOR: We lost you, Chris. Let's go onto Heather.

Q: Thank you. Good afternoon, Chair Powell. I wanted to ask, you know, you've been hearing, of course, these concerns raised by Larry Summers and others about inflation and the fact that they think the Fed might be -- might let things get out of hand with the new policy stance. So my question is, can you tell us what is different this time versus previous periods, like in the '60s, when inflation got out of control? Why are you confident, with the lags in monetary policy, that the Fed can get ahead of inflation and make sure it doesn't go too far above the 2 percent target?

MR. POWELL: That's a fair question. So I actually have a couple things I would like to say about inflation, including addressing your question. So let me start with just saying that we're very strongly committed to achieving our objectives of maximum employment and price stability. Our price stability goal is 2 percent inflation over the longer run. And we believe that having inflation average 2 percent over time will help anchor long-term inflation expectations at 2 percent. With inflation having run persistently below 2 percent for some time, the committee seeks inflation moderately above inflation for two times -- sorry -- above 2 percent for some time.

So with a little bit of context, we're making our way through an unprecedented series of events really, in which a synchronized global shutdown is now giving way to widespread reopening of economies in many places around the world. In the United States, fiscal and monetary policy continue to provide strong support. Vaccinations are now widespread, and the economy is beginning to move ahead with real momentum. During this time of reopening, we are likely to see some upward pressure on prices, and I'll discuss why, but those pressures are likely to be temporary as they are associated with the reopening process.

And an episode of one-time price increases as the economy reopens is not the same thing as, and is not likely to lead to, persistently higher year over year inflation into the future, inflation at levels that are not consistent with our goal of 2 percent inflation over time. Indeed, it is the Fed's job to make sure that that does not happen. If, contrary to expectations, inflation were to move persistently and materially above 2 percent in a matter that threatened to move longer-term inflation expectations materially above 2 percent, we would use our tools to bring inflation expectations down to mandated, consistent levels.

And I would say, if I may, that is a principal difference from -- we're very familiar, at the Fed, with the history of the 1960 and '70s, of course. And we know that our job is to achieve 2 percent inflation over time. We're committed to that. And will use our tools to do that. So that's a very different situation than you had back in the 1960s. There are many, many differences, actually.

So let me talk quickly about the two reasons -- you could say three -- but really two main reasons why we think the inflation will move up in the near term. The first is the base effects. Twelvemonth measures of inflation are likely to move well above 2 percent over the next few months as the very low inflation readings recorded in March and April of last year drop out of the calculation. That process has already started to show up.

You saw it in the March CPI reading. And you'll see it later this week in the PCE price data. These base effects will contribute about 1 percentage point to headline inflation and about 7/10th of a percentage point to core inflation in April and May. So significant increases. And they'll disappear over the following months. And they'll be transitory. They care no implication for the rate of inflation in later periods. So that's base effects.

The other big one I would talk about is bottlenecks. So this is what we're seeing in supply chains in various industries. And we're in close touch with all of these industries. You know, the Fed has a network of contacts that is unequaled in businesses and nonprofits, for that matter too. So what do we mean by a bottleneck? A bottleneck really is a temporary blockage or restriction in the supply chains for a particular good or goods, something that slows down the process of producing goods and delivering them to the market.

We think of bottlenecks as things that, in their nature, will be resolved as workers and businesses adapt. And we think of them as not calling for a change in monetary policy, since they're temporary and expected to resolve themselves. We know that the base effects will disappear in a few months. It's much harder to predict with confidence the amount of time it will take to resolve the bottlenecks or, for that matter, the temporary effects that they will have on prices in the meantime.

So, you know, I'll just sum up and say: We understand our job. We will do our job. And we are focused, as you've seen -- for many years we've been focused on inflation deviating below 2 percent. And we used our tools aggressively to keep it back up at 2 percent. If we see inflation moving materially above 2 percent in a persistent way that risks inflation expectations drifting up, then we will use our tools to guide inflation and expectations back down to 2 percent. No one should doubt that we will do that. This is not what we expect, but no one should doubt that in the event we would be prepared to use our tools.

Q: (Audio break) -- Powell, you said a few weeks ago -- (audio break). Thank you, Chair Powell. You said a few weeks ago that it would take a string of months of job creation of about a million to achieve progress towards your goal. Can you define what your definition of a "string of months" is more specifically? And on inflation, the FOMC said the rise in inflation we're beginning to see largely reflects transitory factors, as you just described. Why use the word "largely"? And what are the factors driving higher prices that may not be transitory, based on the initial data that you're seeing?

MR. POWELL: So what is a string? What do I mean by a string? Well, I would say what we have right now is one really good -- I can tell you what it's not. It's not one really good employment reading, which is what we got in March. We got close to a million jobs in March and a very strong labor market reading. And I was just suggesting that we'd want to see more like that. We're 8 1/2 million jobs below where we were in February of 2020. And that doesn't account for growth in the labor force and growth in the economy, the trend we were on. So we have -- we're a long way from our goals. We don't have to get all the way to our goals to taper asset purchases, we just need to make substantial further progress. It's going to take some time.

On "largely," you know, there are a bunch of factors. I was really thinking -- we were thinking of the base effects and also the energy effects. I wasn't meaning to say there were some real effects. I mean, there are always -- there are always relative prices going up and down within inflation. You know, there's a basket for CPI or PCE. There are, you know, many, many, many factors that go into it. Relative prices are always moving up and down. This, we would -- we think it's very fair to say that the increases we see, and frankly are about to see later this week, are largely due to base effects. It would have been more contentious to say entirely due to base effects, because there are some things that are always going up, and so we just said "largely."

Q: Hi, Chair Powell. Thanks for taking our questions. Over the past decade, the Fed has invested significant resources in large-scale bank supervision, has completely overhauled that approach, and it's even created a special committee that looks horizontally across the largest banks to find common risks. Did the Fed not see that multiple banks have large exposures to Archegos? If not, why not? And then what regulatory changes would you like to see implemented to change that going forward?

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April 28, 2021 17:36 ET (21:36 GMT)

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