Chair Powell On The Trade-off Between Unemployment & Inflation

Q: How is FOMC thinking about unemployment and inflation tradeoff?

• A: What we need to see is a series of declining monthly readings in inflation. Right now our policy rate is well below neutral. Soon enough, the policy rate will be up where we think it should be. Is it appropriate to slow down rate hikes or speed up? Ultimately we won't declare victory until we see compelling evidence inflation is coming down. Will be careful about declaring victory.
• As reflected in the SEP, our objective is to bring infl down to 2% while the labor market remains strong. What's becoming more clear is that many factors we don't control will decide whether that's possible: commod prices, war in Ukraine supply chain. Where the mon pol stance doesn't affect things.
• But there's a path for us to get there. It's getting more challenging due to these external forces, to move demand down. There's surplus demand in the labor market.
• When demand comes down, you could see prices coming down more than the typical econ relationships you see in the textbooks due to the unusual supply-side situation.
• So there's a path. It won't be easy.