Powell emphasized multiple times: "We expect significant inflation in the coming months."
Written by: Zhao Yuhe, Wall Street Insights
Key points from Powell's press conference:
- Policy stance and interest rate path
The federal funds rate remains unchanged, and the Federal Reserve believes the current policy stance is "moderately tight" and "in a good position" to respond flexibly to future data changes.
Powell emphasized that policy must be forward-looking, not a mechanical reaction to current data. He stated: "We have always said that we are focused on new data, changes in the economic outlook, and the balance of risks."
- Inflation and tariff impact
Powell repeatedly emphasized: "We expect significant inflation in the coming months."
This is mainly attributed to tariffs, as he pointed out: "We have already begun to see some effects and expect to see more."
Powell stated that it is currently uncertain whether this inflation is just a one-time shock, and the Federal Reserve "cannot simply assume that tariff inflation is temporary," but actual predictions are still evolving.
He acknowledged that assessing the transmission path of tariff inflation is "very difficult to predict."
Although some forecasting agencies believe the impact is limited, he stated, "We need to see some actual data to make a judgment."
- Labor market and wages
The current unemployment rate is 4.2%, and Powell described it as "at the low end of the long-term natural unemployment rate estimate," which does not indicate weakness in employment.
Real wages are still rising, and Powell described the growth rate as "healthy," stating, "The labor market is not calling for rate cuts."
Employment growth is slowing, but labor supply is also declining, maintaining overall balance.
Powell pointed out: "Very few people are being laid off right now. But if layoffs suddenly increase while finding a job remains difficult, the unemployment rate could rise quickly." This situation has not yet occurred.
- Economic growth and outlook
The U.S. economy is still "performing robustly," with slight fluctuations in GDP driven by technical issues related to net exports, while domestic demand growth remains strong.
Despite a slight decline in consumer and business confidence recently, Powell noted that this mainly reflects concerns about trade policy.
- Artificial intelligence and long-term employment impact
When asked about the impact of AI on employment, Powell responded that the key question is: "Is AI augmenting the workforce or replacing it?"
He believes AI has "transformative potential," but is still in the early stages, with more significant changes expected in the next two years.
Powell stated that the Federal Reserve does not have a clear conclusion yet, but this is "an important issue for the long term."
- Political-related responses and personal stance
Regarding questions about previous criticism from Trump, Powell stated: "The only concern of the FOMC is a strong labor market and price stability."
When asked if he would continue to serve as a governor after his term ends, he responded: "I am not thinking about that; I am focused on my current job."
The Federal Reserve remained on hold at the June meeting, with Chairman Powell stating in the press conference that the current U.S. economic situation is solid, but adjustments in trade and fiscal policy remain uncertain, and tariffs may push up prices in the U.S., with the impact of tariffs on inflation potentially being more persistent. He reiterated that this could reveal tensions between the Federal Reserve's dual mandate (achieving full employment + maintaining price stability).
In his opening remarks, Powell stated that the current U.S. economic situation is solid, but inflation is somewhat above the 2% target, which is why they are holding steady this month. He said the current MOMC monetary policy stance is in good shape, while unusual changes in net exports complicate the indicators used to measure GDP.
He stated that the Federal Reserve is still focused on how confidence affects (business/consumer) spending. Powell noted that consumer spending growth has slowed, and surveys of households and businesses in recent months show declining confidence and rising uncertainty, mainly due to concerns about trade policy.
Regarding employment, Powell said that current conditions in the U.S. labor market remain solid, with a wide range of indicators aligning with the state of full employment, stating, "The labor market is not the main source of current inflation." He later mentioned in the press conference, "The labor market is not calling for rate cuts."
On inflation, Powell stated that short-term inflation expectations have recently risen, but most long-term inflation indicators remain consistent with the target.
Recent inflation expectation indicators have risen, as both market indicators and survey data show this. Surveys of consumers, businesses, and professional forecasters indicate that tariffs are a key factor driving up inflation expectations.
Powell stated that the Federal Reserve will continue to determine the appropriate stance of monetary policy based on the latest data, changes in the economic outlook, and the balance of risks. He said that trade, immigration, fiscal, and regulatory policies are still evolving, and their impact on the economy remains uncertain.
Regarding tariffs, he emphasized that adjustments in trade and fiscal policy remain uncertain, and that increased tariffs may push up prices in the U.S., with the impact of tariffs on inflation potentially being more persistent. Powell stated that the impact of tariffs will depend on the final scale of implementation. Market expectations for tariff levels and economic impacts peaked in April and have since receded. Nevertheless, the increase in tariffs this year may still push up prices and suppress economic activity.
He said that this impact could be short-term, a one-time change in price levels, but it could also lead to more sustained inflation effects. Whether this can be avoided depends on how significant the impact of tariffs is, how long it takes to transmit to the price system, and whether long-term inflation expectations can be stabilized. He reiterated that this could reveal tensions between the Federal Reserve's dual mandate (achieving full employment + maintaining price stability).
"If we do not have price stability, we cannot achieve a long-term stable and strong labor market, which is what all Americans need."
"Currently, we believe the best course of action is to remain patient, waiting for clearer signals about the economic trajectory before deciding whether to adjust policy."
In the subsequent press conference, Powell stated that, as it stands, the overall impact of tariffs, how long they will last, and when they will fully manifest are all very uncertain. However, he indicated that there will be some inflationary pressure due to tariffs in the coming months.
This is precisely why we believe the most appropriate course of action right now is to "hold steady," observing while accumulating more information. We believe the current policy stance is appropriate, allowing us sufficient room to respond to future changes.
Now, whether external economists or those within the Federal Reserve, there is a general expectation that there will be quite noticeable inflationary pressure in the coming months. We must take this into account.
You can ask any professional economist with resources dedicated to forecasting—everyone I know is currently predicting that there will be a certain degree of inflation rise in the coming months due to tariffs. Because the cost of tariffs must be borne by someone.
He admitted that the timing of rate cuts partly depends on how significant the impact of tariffs is, and that there will be more understanding of the impact of tariffs this summer.
We expect to have more clarity on the tariff situation this summer. Initially, we did not expect tariffs to show much impact by now, and that has indeed been the case. But in the coming months, we will gradually see how significant their impact is, which will influence our policy thinking.
We still cannot confidently determine what level tariffs will ultimately settle at. The transmission process from tariffs to final consumer prices is very uncertain, and every participant in each link hopes not to bear the cost of tariffs. But ultimately, someone has to bear that cost. It may be shared among everyone, or it may be fully borne by one link. But the entire process is very difficult to predict.
We have not experienced a situation like this before. I believe we must remain humble when forecasting such issues. Therefore, we need to see more actual data to make more informed decisions. We hope to obtain more data.
Below is a transcript of the Q&A session from the press conference:
Q1: The impact of tariffs seems limited at the moment. Does this change your view on how much these policies will ultimately impact the economy? And when do you expect these impacts to be reflected in the data?
Powell: Since January and February, we have seen three consecutive months of good inflation data, which is very welcome news. Part of the reason is that core service prices—including housing services and non-housing services—are gradually approaching the 2% inflation target. This is a good thing.
At the same time, commodity inflation has slightly risen, as you pointed out, and we do expect to see more of this increase this summer. The impact of tariffs takes time to gradually transmit through the supply chain to the final consumer. For example, the goods that retailers are currently selling may have been imported months ago, before tariffs were imposed.
So, we are starting to see some effects and expect to see more. In certain related categories, such as personal computers and audiovisual equipment, we have indeed seen price increases attributed to the tariff hikes.
Additionally, we have referenced many business survey data. The results are varied, but overall, many businesses expect to pass on some or all of the tariff costs to downstream businesses, ultimately borne by consumers.
Currently, the overall impact of tariffs, how long it will last, and when it will fully manifest are all very uncertain. This is precisely why we believe the most appropriate course of action right now is to "hold steady," observing while accumulating more information. We believe the current policy stance is appropriate, allowing us sufficient room to respond to future changes.
Q2: How should we understand the predictions regarding interest rate cuts? Is it because the FOMC believes inflation will be well controlled, thus allowing for conditional rate cuts? Or is it in response to expectations of deteriorating economic activity? How should we interpret this prediction?
Powell: If you look at the predictions, you will see that there is a general expectation that inflation will rise first and then fall. But we cannot take this process for granted, as we cannot be certain it will happen.
One of our responsibilities is to ensure that a one-time rise in inflation does not turn into a long-term inflation problem. Ultimately, this depends on several factors: how significant the impact of tariffs is, how long it takes to fully reflect, and whether we can stabilize inflation expectations.
Q3: From December 2018 to now, the Federal Reserve has cut about 25 basis points from the FOMC's predicted path each year, and by 2027, the FOMC expects interest rates to remain at a higher level than previously predicted. Is this because you believe tariffs will lead to more persistent inflation? Or have you reassessed the short-term neutral interest rate? Why have you chosen a slower path?
Powell: I would focus more on recent developments. It is difficult to predict economic trends in the later stages. You did not see people adjusting their long-term neutral interest rate expectations in this meeting. These changes are usually slow.
I think since March of this year, you can see some changes—growth has slowed, the unemployment rate has slightly increased (by about 0.1 percentage points), and inflation has risen by about 0.3 percentage points. This is similar to the economic forecast summary from December and the trends in March.
You can see the impact of tariffs. We learned in April that there might be higher tariff levels after the March meeting. Since then, expectations for tariff levels have receded but remain high. We are adjusting in real-time, and individual statements are gradually accumulating.
We have indeed said that the uncertainty regarding the economic outlook has decreased, but it remains at a high level. Many surveys reflect this. This is a statement from the Fed's internal "Beige Book," and I suggest you check the corresponding five-year historical reports.
The uncertainty regarding tariffs actually peaked in April. Since then, this uncertainty has decreased. What we mean is this—uncertainty "has lessened but remains elevated." This is the issue of uncertainty. I believe this statement is accurate.
Q4: Are you concerned that the economy is weakening, and is this also a reason for potential rate cuts in the future? While there are concerns about rising inflation, there is also the possibility that tariffs could suppress demand and slow economic growth, thereby putting downward pressure on inflation. What do you think of this possibility? How likely do you think this scenario is? Would you need several months of low inflation data before you consider the "low inflation" scenario becoming a reality?
Powell: We are certainly closely monitoring these situations. If you look at the overall picture, the current unemployment rate is 4.2%, and economic growth is around 1.5% to 2%—though this number is somewhat difficult to gauge accurately due to some unusual capital flows. Additionally, market sentiment has rebounded from previously very low levels, although it still remains weak.
Indeed, you can point out some issues. The housing market is a long-term issue as well as a short-term one. However, I do not believe the current state of the housing market indicates any fundamental problems in the overall economy. Essentially, we are facing a long-term housing shortage, compounded by currently high interest rates. I believe the best thing we can do for the housing market right now is to restore price stability in a sustainable manner while fostering a strong labor market. This is our greatest contribution to the housing market.
We can look at labor force participation rates, wage levels, and new job creation, all of which are still at healthy levels. I can say that we may see the labor market cool down very, very slowly, but there are currently no alarming signs.
However, we will monitor everything very, very closely. Overall, I want to emphasize again that the current stance of monetary policy gives us ample space at this stage to respond timely to new changes in the economy. We will continue to closely watch the data. There are many scenarios that could unfold, and various combinations, such as: inflation could reach the levels we expect, or it might not; the labor market could soften, or it might not.
I think what everyone is doing now is writing down the scenarios they believe are most likely to occur in a highly uncertain environment. But it is important to note that no one has strong confidence in their predicted interest rate paths. There is a general belief that all these predictions are data-dependent. You can provide a reasonable explanation for any interest rate path in the Summary of Economic Projections (SEP).
We make such predictions every quarter. At this point in time, it is a very difficult task. But if you see a committee member predicting a rate path that includes rate cuts, it indicates that they believe we are likely to reach a stage where rate cuts will be necessary.
Of course, this prediction could also be a "joint probability" of multiple factors occurring together. But we must always remember that we are facing very, very high uncertainty.
Q5: Under what circumstances would you feel confident about the outlook for inflation, economic growth, or the unemployment rate? Would it take several months? What signals would you want to see from the data before considering a reduction in the current restrictive interest rate level?
Powell: It is really hard to say when we will reach that point. We know that moment will eventually come, possibly soon, or it may not come quickly. As long as the economy remains robust, and as long as we continue to see a labor market like the current one, moderate growth, and inflation continuing to decline, we believe the current stance of monetary policy is appropriate, and we should maintain our position and continue to observe and learn.
In particular, we expect to have more clarity on the tariff situation this summer. We initially did not expect tariffs to show much impact by now, and that has indeed been the case. But in the coming months, we will gradually see how significant their impact is, which will influence our policy thinking. Additionally, we will also observe changes in the labor market.
At some point, things will become clearer. But I cannot tell you when that point will be. We will closely monitor signals of labor market strength or weakness, as well as changes that tariffs may bring. Even in the short term, there will be many developments, especially with new developments regarding tariffs.
So I believe we cannot confidently determine what level tariffs will ultimately settle at. We currently have an estimate—predictions from various parties are now roughly aligned, but still full of uncertainty.
First, we will start by estimating the overall impact of tariff rates. People are now preparing against that level. But the transmission process from tariffs to final consumer prices is very uncertain.
As you know, there are many links involved: manufacturers, exporters, importers, retailers, and consumers. Each participant in each link hopes not to bear the cost of tariffs.
But ultimately, someone has to bear that cost. It may be shared among everyone, or it may be fully borne by one link. But the entire process is very difficult to predict.
We have not experienced a situation like this before. I believe we must remain humble when forecasting such issues. Therefore, we need to see more actual data to make more informed decisions. We hope to obtain more data.
During this period, the reason we can wait is that the overall economic situation remains robust.
Q6: Could you please elaborate on the divergences we see in the dot plot, particularly regarding the 2025 interest rate predictions? Some officials do not predict rate cuts, while others predict multiple cuts. Does this reflect differing views on the economic outlook? Or is it a different response to future risks? Or is it that there are different levels of determination to avoid making inflation mistakes again?
Powell: You are correct, and this is actually quite common. There are quite diverse views within our committee. However, there is strong support for today's decision, and there is a general belief that our monetary policy stance is appropriate.
You mentioned two important factors, and I would like to emphasize them:
First, the differences in the predictions themselves. Everyone has different forecasts for the future, and these predictions correspond to their judgments in the dot plot. For example, if you expect inflation to be higher, you are less likely to write down many rate cuts.
But remember, as more data comes out, we will have a clearer picture of how inflation will actually behave. When we really reach the point of normalizing (which is when we start cutting rates), these differences will narrow because by then we will be looking at actual data rather than the "foggy predictions" we have now.
Current predictions are essentially judgments made during a period of ambiguity. This is the first aspect—different predictions.
Second, even if everyone sees the same data, their understanding of the risks may differ. For example, some may be more concerned about rising inflation, while others may worry about the persistence of inflation, and still others may be more concerned about a weakening labor market.
These differences in risk assessment will also affect their judgments about the interest rate path. So, these two aspects together explain the divergences you see.
However, as I mentioned earlier, the current uncertainty is very high, so no one has strong confidence in their interest rate predictions. This is the current situation, determined by these factors. I believe that as the data becomes clearer, these divergences will gradually decrease.
Q7: You have repeatedly stated that the current policy stance is appropriate and "moderately restrictive." But considering the current high uncertainty, such as tariff levels, cost pass-through, rising prices, or profit compression, why not adjust interest rates closer to "neutral levels" to address this highly uncertain environment?
Powell: If we only look back at past data, we would indeed conclude that "it is time to approach the neutral interest rate." But we must look forward.
Currently, whether external economists or those within the Federal Reserve, there is a general expectation that there will be quite noticeable inflationary pressure in the coming months. We must take this into account.
Looking solely at past data, one might feel that we should return to the neutral interest rate. But we need to base our decisions on reality, as the economy remains robust, and we can take the time to observe what will happen in the future.
There are still many possibilities regarding the predictions of inflation impacts and other factors. If we wait a bit longer to clarify the "transmission path" of tariff inflation and its effects on consumption, hiring, and economic activity, we can make more informed and accurate decisions.
Q8: The U.S. President has continuously attacked you personally in public. Recent Supreme Court rulings may have legally freed the Federal Reserve from certain related influences. Are these remarks merely "noise," and should the market and the public ignore them until your term ends? Or are you concerned that such remarks could affect Wall Street or consumer confidence in the economic outlook? If you are not reappointed as chair, will you continue to serve as a "governor" after your term ends?
Powell: For me, this is not complicated. All members of the FOMC want to see a robust U.S. economy with a strong labor market and stable prices. This is the goal we pursue.
Currently, our policy stance is very suitable for achieving this goal and allows us to respond timely to changes in the data.
The resilience of the economy is partly due to our policy stance. We believe that the current position is very appropriate to respond to significant economic developments.
This is the key; for us, this is the most important thing. You could say this is our only concern. Regarding the question of what to do after my term ends, I am not considering that right now. My entire focus is on doing my current job.
Q9: Recently, there has been a noticeable increase in workplace raids by immigration enforcement agencies. What impact do you think this enforcement activity will have on the labor market?
Powell: You know, I don't want to speculate. From an economic perspective—we do not comment on immigration policy; that is not our responsibility, nor is it something we should comment on.
However, you can see that the unemployment rate has remained very stable at a low level and has not risen, remaining within the mainstream estimates of "maximum employment." This indicates a phenomenon where both labor supply and demand are declining simultaneously.
Labor demand is slowing, which you can see from the employment growth data; but at the same time, labor supply is also decreasing, as we see far fewer immigrants than before.
These two factors—supply and demand—are working together to keep the unemployment rate within a relatively stable range.
Q10: You just mentioned potential adjustments to the Summary of Economic Projections (SEP). Could you elaborate on this aspect?
Powell: This part actually divides into two main lines:
The first line is about our overall policy framework, which is reflected in the consensus statement. We have already stated that we will complete the revision of this part and officially announce it before the end of this summer. Our current process is progressing smoothly; we have completed the necessary internal meetings, and we will soon enter the discussion phase to study some specific wording changes.
This is the content of the "framework" part.
The second line is about improvements in our communication methods and tools. This part will be the focus moving forward, and we plan to advance this in the meetings this fall.
We mainly did preparatory work at this meeting, engaging in high-level communication and discussing many different ideas.
The SEP is just one of many communication tools being considered. We are actually reflecting on whether our current communication methods have room for improvement. Many good suggestions were made, and the discussion was very valuable.
However, in the fall, we will ask staff to provide further reports and deeply consider various possible options. What I want to say is that regarding "how to change communication methods," I will only support those proposals that have broad support.
We need to be particularly cautious in communication because I believe our current communication system is generally functioning well; it is not "broken." Therefore, "more" does not necessarily mean "better," but "clearer" is truly better.
Our goal is to find a way to communicate that allows the public to better understand our work, making policy transmission clearer and more effective.
Q11: You are known for making decisions "based on data" rather than "guessing." You have also said that current inflation data looks good, but we are still unclear about the impact of tariffs. However, when you cut rates last December, the tariff issue was not yet settled, and inflation at that time was higher than it is now. Why did you choose to cut rates when inflation was higher, but not now? What made you feel reassured then but not now?
Powell: In December of last year, our forecast for core PCE inflation in 2025 was 2.5%. At that time, it was a decent inflation forecast. But that was made without knowing what the subsequent specific policies would be.
What we gradually learned—especially in April—was that the scale of tariffs would be much higher than most forecasters had expected. Our predictions were actually similar to those of other well-resourced institutions. At that time, everyone underestimated the scale of the tariffs.
You can now see that the forecast has changed from 2.5% in December to 2.8% in March, and now to 3.1%. The forecast for 2025 has been raised by 0.6 percentage points, which is a significant change. And this change is primarily due to the impact of tariffs.
We are still uncertain about what level tariffs will ultimately reach, but it is certain that their final impact will be much greater than what was generally speculated at the end of last year.
Q12: Ordinary consumers are waiting for interest rate cuts on mortgages and loans to catch a break. Cumulative inflation over the past five years has exceeded 20%, and people have indeed gone through a tough time. So, is there a critical point to your "wait and see" strategy? In other words, how do you judge whether it is "helping" the public or has started to "harm" them?
Powell: What we are currently striving to restore is price stability. The most important thing for the public we serve is to stabilize the inflation rate at 2% and maintain it sustainably. At the same time, we also need to achieve maximum employment. If these two goals can be achieved, that is the greatest help we can provide to households and businesses.
Only then can they make decisions without constantly worrying about inflation.
We must keep interest rates at a high level to bring down inflation. In fact, current interest rates are not particularly high. Our policy is slightly tight, or moderately tight. From the economic performance, it does not seem to be in a very stringent monetary environment. I would say the current interest rate level is "moderately restrictive."
What we want is confidence that inflation will continue to decline. If it weren't for the tariff issue, this confidence should have been gradually established by now. You can see that housing services and non-housing services prices are now steadily declining.
But we still need to further understand the impact of tariffs. I am currently uncertain about how we should respond to these impacts because it is difficult to make confident judgments without understanding the specific scale of the effects.
Once we have a clearer understanding, we can make better decisions. The reason we have time to observe slowly now is that the current economic situation is stable: the unemployment rate is 4.2%, wages are rising, and real wages have shown significant growth; and looking at the data over the past 12 months, overall inflation is at 2.3%.
This is a situation of "healthy growth" and "stable economy."
Q13: So you just said that uncertainty has decreased, economic growth is robust, and inflation has been declining over the past three months, everything is moving in the right direction. Are you implying that the American public should prepare for some economic pain in the second half of this year?
Powell: I absolutely do not mean that. From our standpoint, I can say that the current state of the U.S. economy is good. Inflation is declining, the unemployment rate is at 4.2%, real wages are rising, job growth is at a healthy level, the unemployment rate is low, and labor force participation is performing well.
The conditions we are waiting for to cut rates are to clarify how the inflation caused by tariffs will evolve. There is still a lot of uncertainty regarding this.
You can ask any professional economist with resources who specializes in forecasting—everyone I know is currently predicting that there will be a certain degree of inflation increase in the coming months due to tariffs. Because the costs of tariffs must be borne by someone.
This cost will be transmitted among manufacturers, exporters, importers, retailers, the product supply chain, and final consumers, with each participant trying to avoid bearing this cost themselves.
But ultimately, someone has to pay the cost of tariffs, and part of it will eventually fall on consumers. We know this—businesses say so, and past data supports this view. So we know this pressure is on the way.
What we want to do is to see a little bit of actual impact before making judgments, rather than jumping to conclusions too early.
Q14: You have been saying "data-driven" for the past few years, but now you are making decisions based on "looking forward." Can you be more direct and say that the data we see now actually indicates that rates should be cut?
Powell: It should not. Monetary policy must be forward-looking; this is a fundamental principle.
We have always said that our decisions are based on "the latest data, changes in the economic outlook, and risk balance." We emphasize this repeatedly, so policy is always forward-looking.
Think about when the pandemic first started; we immediately cut rates to 0% even though the economy had not yet shown actual decline, but we knew the situation would become very serious, so we made very aggressive, forward-looking decisions.
The current situation is similar. We know that this wave of pressure (referring to tariffs) is coming, but we do not yet know how significant its impact will be. And currently, the economic performance remains robust.
The labor market is not "crying out for rate cuts." On the business side—although there was indeed a bit of a shock in April, business sentiment has clearly improved now. Everyone is working hard to cope with the situation and knows what to do next.
The overall atmosphere now is much more positive and constructive than it was three months ago. So I will say again that we believe the current stance of monetary policy is appropriate.
Q15: In February of this year, you told Congress that the Federal Reserve's "workload is too heavy," but it may not be "overstaffed." However, in May, you mentioned in a memo to staff that a deferred resignation program would be initiated and expressed a desire to "right-size" the Federal Reserve. These two statements seem contradictory. Can you explain what changed in those three months that led you to decide to reduce staff?
Powell: I do not think these two statements are contradictory. At that time, someone asked me if the Federal Reserve was overstaffed, and my answer was that it was not about having too many people, but about having too much work. We are indeed working very hard.
We are really working hard. But I want to say that we are careful stewards of public resources, and sometimes we need to demonstrate this to the public. In the modern history of the Federal Reserve, we have actually had several experiences like this, such as initiating buyout programs to show that we are serious about managing public funds.
So this time, we thought similarly, and I personally believe that our staff numbers have been growing by about 1% each year. We now plan to conduct a comprehensive review of the Federal Reserve Board and the regional banks over the next few years to see if we can streamline 10% of positions, identifying those that can be repurposed to improve operational efficiency.
We believe this goal can be achieved within a few years. Moreover, we believe it can be done without affecting our core mission.
So this must be a very careful and thoughtful process. We must always respect the critical responsibilities we bear.
In my previous career, I have been involved in many staff reduction processes. Such matters need to be advanced professionally, with thorough planning, careful processes, and phased implementation. I believe the Federal Reserve will ultimately be fine.
The public will not perceive any decline in our service capabilities.
We just want to show the public that we are responsibly managing their resources. This plan is essentially to offset the staff growth of the past ten years in one go, so we hope to demonstrate our management attitude through this initiative.
The "staff reduction" plan has just begun, and the buyout program is currently being initiated. I believe we can achieve this goal.
In fact, many institutions have found this approach to be feasible. You certainly do not want to do this every year, but doing it intermittently is completely acceptable. As long as it is done well, it will not affect operational capabilities.
Q17: Can you describe the atmosphere of discussions within the FOMC regarding fiscal policy in recent days? And has this influenced the committee members' economic forecasts for 2026 and beyond to some extent?
Powell: Well, we do not actually sit around debating or deeply discussing fiscal policy. We typically view fiscal policy as a completely exogenous variable, meaning it is something we cannot control or are responsible for formulating.
So we actually had very little discussion about the bill itself or its specific contents because it is still evolving. We will assess its impact when it gets closer to finalization…
You also have to remember that the U.S. is a very large economy, so the impact of such policies is only marginal.
I believe these impacts may already be reflected in the data, and they will certainly be taken into account before the next meeting. At that time, we will conduct an assessment. But it is not a major factor, nor is it the focus of our discussions.
This matter may have been mentioned once or twice in the meeting as something upcoming, but I think the outcome is still uncertain, so it is difficult to discuss it specifically.
Q18: Recently, there has been some reduction in the scale of economic data collection, and there are concerns that long-standing issues such as funding shortages and declining survey response rates may be worsening. Is this situation within your area of concern? How confident are you in the statistical data used to assess the economy?
Powell: I want to make two points. First, the data we are currently obtaining is still sufficient for us to do our work. I am not worried that we cannot work; that is not the point.
The real issue is that we are starting to see some phenomena: some important data collection agencies are laying off staff and indicating that they have to scale back their surveys. This will lead to increased volatility in statistical surveys.
We should look at this issue from a higher level. From our perspective at the Federal Reserve, as well as from the perspective of businesses, government, and even society as a whole, having access to high-quality economic data at any given time is an extremely important public resource.
This data is not only useful for the Federal Reserve but is also crucial for the government, Congress, and the executive branch, and more importantly, it is extremely helpful for businesses. They need to know the current state of the economy.
For many years, the United States has been a global leader in measuring and understanding the economy. Our economy is large and vibrant, and understanding how it operates has always been our strength.
So, I regret to see that we are now experiencing cuts in this area. Ensuring that the public can better understand the current economic situation and future trends is itself a tremendous benefit to the public.
Accurately measuring the performance of the U.S. economy is actually very difficult. There is a book that discusses this—estimating U.S. GDP requires understanding a multitude of factors, which is very, very complex.
Doing this well is very important. So I would say this should never be an area where investment can be cut. On the contrary, we should continue to increase investment, which benefits the entire public.
Q19: You are currently evaluating the monetary policy strategy framework. However, we may have a new Federal Reserve Chair next year. I wonder if this will affect your current evaluation approach? How do you ensure that this framework is sustainable?
Powell: This policy framework can be traced back to 2012. It is a document of the entire committee, not something created solely by one chair. We are not trying to invent a completely new policy model but are continuously adjusting and evolving the existing framework. Therefore, it should not depend on who is serving as chair but rather on what is actually happening in the economy and what strategy the committee as a whole wants to adopt.
Thus, it does not fundamentally rely on any specific chair. Previously, we updated this framework annually; now it is updated every five years. But I have never heard anyone say, "If a new chair takes office, they might completely overturn the original direction." I think that is unlikely to happen. However, that is not for me to decide.
Q20: The relatively low oil prices this year have helped to suppress inflation in recent inflation reports, but this trend is reversing due to the Middle East crisis. How do you view the impact of the Israel-Iran conflict on the economy? Additionally, what lessons did we learn from the surge in oil and gas prices due to the Russia-Ukraine conflict in 2022?
Powell: We, like everyone else, are closely monitoring this situation. I have no further comments on it.
It is indeed possible to see energy prices rise in the future. Historically, when there is turmoil in the Middle East, energy prices typically spike in the short term but then fall back. Such events usually do not have a long-term impact on inflation; of course, the 1970s were an exception because a series of very severe shocks occurred that had lasting effects.
But we are not seeing similar situations now. Additionally, the U.S. economy's dependence on foreign oil is now much lower than it was in the 1970s. So… we will continue to observe.
Q21: Some tech company executives warn that AI could replace a large number of entry-level jobs and significantly raise unemployment rates. How concerned are you about the threat that artificial intelligence poses to the job market?
Powell: This is indeed a very critical issue. The real question is: Will AI enhance human work capabilities, or will it directly replace labor?
We have all seen those public statements, including today's. But I will not overinterpret one or two data points. Because while AI may replace certain jobs, it may also create new ones. It is likely that both are happening.
Anyone who has had contact with AI will be amazed by its capabilities. It is indeed something entirely new. I believe it has the potential to change industry dynamics, and we may still be in a very early stage.
Some say that the AI we see now will be vastly different from the AI we will see two years from now, becoming much more efficient.
So I think it is really difficult to make a clear judgment right now. Of course, some optimists believe it will greatly enhance productivity for everyone; others worry that it will widely replace jobs across all income levels and types of occupations, whether white-collar or blue-collar.
I do not know the answer, and the Federal Reserve does not have a clear viewpoint. But I can say for sure that this issue will be a very important topic for a long time to come.
Q22: Recently, many articles and columns have discussed that the U.S. and global economies are undergoing a profound transformation, similar to the major upheaval during the dissolution of the Bretton Woods system in the 1970s. Don’t you think the Federal Reserve should explain to the American people what we are experiencing?
Powell: We are indeed in a time of significant change. Whether from a geopolitical perspective, trade, or immigration policy, these changes are not only happening in the U.S. but globally. So, indeed, a lot is happening.
However, in the short term, these changes will not alter how we formulate monetary policy, nor will they change our goals and what we need to do. These issues are not within our purview; they are matters for the elected government to address.
However, there is no doubt that we are in a truly transformative period, and it is also difficult for us to predict where these changes will lead.
You mentioned that many people believe this will usher in an era of greater inflationary pressure—this is possible, but it is not certain. AI could have the opposite effect: enhancing productivity and thereby reducing inflationary pressure. It is hard to say.
You are right, but to be honest, our focus needs to be more practical. What we are most concerned about right now is how to maintain low inflation and high employment levels. That is the problem we need to solve every day.
Q23: What is your view on the "lying flat" perspective in the job market? This includes slowing job growth, a slight expected increase in the unemployment rate, and whether workers can still demand raises in the current environment of rising inflation.
Powell: In fact, you are not seeing an increase in the unemployment rate right now, nor are there obvious signs of "lying flat" in employment. Marginally speaking—our current unemployment rate is 4.2%. This number has been considered very low for many years. Although it has indeed risen from a lower point post-pandemic (3.4%), 4.2% is roughly at the lower limit of the "long-term sustainable natural unemployment rate." So, I would not agree with the statement that "the job market is weakening."
As for wages, real wages (i.e., wages adjusted for inflation) are still rising, and the rate of increase exceeds the level that would match 2% inflation. The current wage growth is more in line with the framework of "2% inflation + reasonable productivity growth." So I believe the current performance of the labor market is good.
The speed of job growth has indeed slowed, but the supply of labor is also decreasing, and the number of new entrants to the labor force is declining. So we see the unemployment rate remaining stable, around 4.2%, with a maximum of 4.3%. These are good numbers, indicating that the overall condition of the labor market is still acceptable.
Of course, a more concerning point is that the number of new job openings is not high. This means that if you are looking for a job, it may indeed be somewhat difficult. But at the same time, the number of layoffs is also very low.
So this creates a "balanced state" that we are highly concerned about: if one day there begins to be large-scale layoffs while finding a job remains difficult, then the unemployment rate will quickly rise. But that situation has not yet occurred.
Q24: Recently, there has been much discussion about the issue of interest rate cuts. Why is it that in forecasts, almost no one expects interest rates to rise next year, and even maintaining the current level is rarely predicted? After all, you forecast that inflation will rise to 3% next year, and there is considerable skepticism in the market about whether these price increases are merely a "one-time event."
Powell: Indeed, many people on the committee predict that there will be no rate cuts this year, but there will be some cuts next year.
So what I want to say is: when people fill out the forecast path, they write down what they believe to be the "most likely scenario," but that does not mean other scenarios are completely impossible. You can understand it as: in a highly uncertain environment, this is the "least likely to go wrong" path.
Additionally, I want to emphasize that no one has 100% confidence in the interest rate path they write down; no one would say, "The interest rate path I predicted will definitely happen in two years." What they are actually writing is: if you were me, how would you write a forecast in this uncertain environment? This is not an easy or certain task.
So I think that is the situation—we have neither ruled out nor limited any scenarios. Of course, given the current situation, raising rates is not the "baseline scenario" we are considering, nor is it the path most people have written down.
But in the meantime, we will do our best to make the most reasonable predictions, and these predictions also represent the different views and responses among committee members.
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