MNI TRANSCRIPT: Powell on Avoiding Deflation, Markets

     WASHINGTON (MNI) - The following is the portion of a transcript from

Federal Reserve Chairman Jerome Powell's press conference Wednesday:

     Q: Mr. Chairman, given the demands drop, demand shock and the drop in oil

prices, do you anticipate that we might see any kind of deflation, even for a

very short period, that would require a fed response, if we get a negative print

on CPI or PCE how should people think about that? 

     Second question, there is a disconnect, it appears, between the markets and

the economic outlook right now, and I know you said that this isn't the time to

worry about hazard but do you worry with the size of stimulus that you and the

congress are putting into the economy, there could be financial stability

problems as this goes along?

     A: In terms of inflation, we think that inflation is very closely and

strongly related to inflation expectations, and during the global financial

crisis there was a concern that we might see deflation. But it didn't happen.

Inflation tended to move down a little bit, as it will when demand is weak. And

but inflation expectations did not move strongly down here in the United States.

They have in other places in the world though, over the past 25 years. There has

been downward pressure on inflation for several decades now. I would say as long

as inflation expectations remain anchored, then we shouldn't see deflation, and

the Federal Reserve is strongly committed to maintaining 2 percent inflation

over time. We will be there to work on that. I think U.S. about headline

inflation if low energy prices, very low energy prices were to drop headline

inflation negative, I would hope that people would see through that, and we will

be monitoring it carefully, would see through it and look to core which is a

better predictor of future inflation. We will be keeping very close track of

that. 

     In terms of the markets, our concern is that they be working. We are not

focused on the level of asset prices in particular, it's just markets are trying

to price in something that is so uncertain as to be unknowable, which is the

path of this virus globally and its effect on the economy. That is very very

hard to do. That is why you see volatility the way it's been, market reacting to

things with a lot of volatility. But what we are trying to assure really is that

the market is working, the market is assessing risks, lenders are lending,

borrowers are borrowing, asset prices are moving in response to events. That is

really important for everybody, including the most vulnerable among us, because

if markets stop working and credit stops flowing, then you see that is when you

see very sharp negative even more negative economic outcomes. I think our

measures have supported market function pretty well, you know. We are going to

stay very careful, carefully monitoring that. But I think it's been good to see

markets working again, particularly the flow of credit in the economy has been a

positive thing, as businesses have been able to build up their liquidity

buffers, and households have been able to be home, people have been home

concerned about their jobs, but they are not concerned about the financial

system collapsing as they were in 2008 and 9.

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

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