April 03, 2024
Opening Remarks
Chair Jerome H. Powell
At the Stanford Business, Government, and Society Forum, Stanford Graduate School of Business, Stanford, California
It is a pleasure to be here today. I will begin with the economy and the road ahead for monetary policy before briefly discussing the Federal Reserve's monetary policy independence.
Over the past year, inflation has come down significantly but is still running above the Federal Open Market Committee's (FOMC) 2 percent goal. In February, headline inflation was 2.5 percent over the past 12 months based on the personal consumption expenditures (PCE) index. A year earlier, it was 5.2 percent. Core inflation, which excludes the volatile food and energy components, stood at 2.8 percent; a year ago, it was 4.8 percent. While this progress is welcome, the job of sustainably restoring 2 percent inflation is not yet done.
Tight monetary policy continues to weigh on demand, particularly in interest-sensitive spending categories. Nonetheless, growth in economic activity and employment was strong in 2023, as real gross domestic product expanded more than 3 percent and 3 million jobs were created, even as inflation fell substantially. This combination of outcomes reflects significant improvements in supply that offset to some extent the effects on demand of tighter financial conditions. The healing of global supply chains helped address pent-up demand for goods, particularly in sectors that had faced considerable shortages, such as autos. In addition, labor supply increased significantly, thanks to rising participation among 25-to-54-year-olds, as well as a strong pace of immigration.
Recent readings on both job gains and inflation have come in higher than expected. The economy added an average of 265,000 jobs per month in the three months through February, a faster pace than we have seen since last June. And the higher inflation data over January and February were above the low readings in the second half of last year.
The recent data do not, however, materially change the overall picture, which continues to be one of solid growth, a strong but rebalancing labor market, and inflation moving down toward 2 percent on a sometimes bumpy path. Labor market rebalancing is evident in data on quits, job openings, surveys of employers and workers, and the continued gradual decline in wage growth. On inflation, it is too soon to say whether the recent readings represent more than just a bump. We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent. Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy.
We have held our policy rate at its current level since last July. As shown in the individual projections the FOMC released two weeks ago, my colleagues and I continue to believe that the policy rate is likely at its peak for this tightening cycle. If the economy evolves broadly as we expect, most FOMC participants see it as likely to be appropriate to begin lowering the policy rate at some point this year.
Of course, the outlook is still quite uncertain, and we face risks on both sides. Reducing rates too soon or too much could result in a reversal of the progress we have seen on inflation and ultimately require even tighter policy to get inflation back to 2 percent. But easing policy too late or too little could unduly weaken economic activity and employment. As progress on inflation continues and labor market tightness eases, these risks continue to move into better balance.
As conditions evolve, monetary policy is well positioned to confront either of these risks. We are making decisions meeting by meeting, and we will do everything we can to achieve our maximum-employment and price-stability goals.