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Chair Powell Asked On The Fed's Policy Reaction Function

FED
  • Q: What's your policy reaction function? Looking at incoming data? Are you ruling out the rate cuts priced in by markets?
  • A: We look at a combination of data and forecasts. Readings on inflation, wages, growth, labor market. A particular focus now and going forward is what's going to happen with credit tightening, credit standards, and the impact on lending. I would just point out we've raised rates 500bp, QT ongoing, and now credit conditions tightening more due to what's happened. And have to factor all of that in whether our policy stance is sufficiently restrictive.
  • On rate cuts: The FOMC has a view that inflation will come down not so quickly, will take some time. In that world, if the forecast is broadly right, it would not be appropriate to cut rates. If you have a different forecast, you would factor that. If you look at non-housing services, inflation is quite stable. So demand and the labor market will have to weaken to begin to see progress there. In that world it wouldn't be appropriate for us to cut rates.
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