After the Fed’s 75 basis point rate hike, Fed Chairman Powell makes a statement at the press conference.
Starting his speech by saying that the most important thing is to reduce inflation, Powell talked about the transition to 75 basis points increase and today’s monetary conditions set the course.
We are in the process of significantly reducing our balance sheets. We are in the lowest employment period in 50 years.
Unemployment rate will rise a little more in the coming years. We expect an unemployment rate of 4.1%.
The war in Ukraine and Russia and the covid problem from China also increased the problem in inflation. Food and energy prices are on the rise. Inflation continues to push us. We strive for stability in prices and maximum employment.
We will do our best to bring inflation to the 2% target.
We show a decrease in the balance sheet. The decrease in the balance sheet is very important for the strong course of monetary policies. We said that we are aware of the inflation risks. We said that we will act according to the outlook of the upcoming economic data. We have now substantially revised our inflation expectations.
We will continue to increase policy interest rates until we reach our 2% inflation target.
We believe that inflation will decrease in the coming years. We think the current rate hikes are necessary. At the next meeting, we will consider an increase of 50 or 75 basis points.
Inflation has been a development that has surprised us in recent years. We carry out studies in line with the requirements of the developing economic situation. In this process, we need to make very serious efforts. We will do our best to ensure stability. As America, we have the power to maintain tighter policies right now.
To the question on what role do you play right now:
We always try to express ourselves as clearly as possible. We do not want to express any uncertainty in our actions. We know that monetary policies will only work if understood correctly. There is an uncertain environment. We need clarity in this uncertainty. There have been reactions in the markets this year. We think the markets understand the path we are currently taking. In general, we think that this is reflected in the framework of the guide we have presented. We said that if we get worse data than our expectations, we can be more aggressive. We have CPI data. We think this. This was the most appropriate step to take. What are you doing? Will you wait? You may ask. We have now taken our decision in this direction.
Can you explain how you decided how aggressive you should be? Can you explain why 75, not 100? to a question in the form of:
There are some clear markers. I said we are addicted to data. The data show us inflation risks. Contrary to expectations, inflation surprised us. Projections have also moved to the increase side this year. For this reason, we thought that we should take a stronger action and announced it. We may need to do much more. There are 6 months until the end of the year. A lot of data will come. Of course, we need to look at the results in order to predict what will come at the moment, and we need to be open to future data. As a result, we are dependent on data. We may go for more monetary tightening in the following years. That’s what we need to get it down to 2% again. This increase seemed right and we made this decision.
Do you think 3.8% and 4% are enough to reduce inflation?
I think you want to ask how much interest should go up. Neutral rates in the long run are comparable to this. Much broader financial markets can be looked at. Let’s look at the effects on the economy. Now, where is the policy rate? The real policy rate looks positive, but it is not. We are in a negative situation compared to previous years. We have to look at it this way, we increased the policy interest rates. It will affect the economy. But it will bring the economy to where it needs to be.
Will the rates you set be sufficient?
When we see positive real interest rates, we will see a decline in inflation. We have to try and see a bit. I am not saying that we will proceed completely based on a certain model. We’ll try and see. We will be open to anything.
What will be your reaction if unemployment is not as you envisioned or if inflation is not reduced?
We want to see the downward movement of inflation. But right now our policy rate is just slightly below neutral. We believe that sooner or later our interest will come to the right place. Will you speed up at this point? Or will you slow down? You can ask them. However, when we see the data showing the monthly decrease in inflation, which is important for us, we will say it’s okay. We will not declare victory immediately for this reason. Our practices will be flexible. There are currently 2 vacancies for every job seeker. At this point, people need to come to more affordable salary levels. The same goes for product markets. A really strong demand needs to reach a level that capacity can meet. The demand is very high and it shows itself with high prices. We have a way forward, and that way will not get any easier. Our goal is to facilitate, but this will also depend on external factors.
New projections show that employment will decrease in 2024. How many more jobs must people lose to control inflation?
If we are going to reduce inflation and unemployment to the points we want, we do not currently expect lower unemployment rates. Of course, we are not trying to make people unemployed. We want to create a market where more people work and more people can find jobs. We want to return to the pre-pandemic era, when employees received salary increases, higher salary increases at the lowest level. There is a gap between the various groups. We want this fixed. At the moment, this will not improve with this inflation. By solving this, we want to achieve these goals.
Can you tell me why the committee is trying to create a recession at the point of achieving your goals?
We are not trying to create a recession. We are trying to achieve 2% inflation. This will bring with it a stronger unemployment rate. We will see an unemployment rate of 4%. This is a seriously good rate.
8.6% was announced in the CPI, do you think consumers are slowly starting to manage their spending sparingly?
There is ongoing behavior change. Consumers are in a good state, they are spending. Consumer confidence is said to be low, they are said to be due to security prices and supply prices. However, we do not see a decrease in consumer spending. Consumption accounts for two-thirds of the economy. For this reason, we follow these data very closely. America has a good economy so it can fight this situation.
How long will we have to chase oil prices? If the main reason for the current process is oil prices, how long will we have to follow it?
Core inflation is more important, as other central banks do. It is much more useful about the tools we use. There are things in expectations that we cannot influence. Since energy prices are affected by global commodity prices, we cannot influence them much.
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