Powell Defends Fed Framework in Final Answer

Final Qs: Critics on Wall Street say that under the new policy framework you say you will react to actual data and not to forecasts, yet the actual inflation data is coming in hot and you are relying on the forecast that it will cool down in order to make policy. 2nd Q, are you trapped by a fear of a taper tantrum from accelerating the time period in which you announce a taper?

• A: I think people misinterpret the framework. There is nothing wrong with the framework and there is nothing in the framework that would in any way interfere with our ability to pursue our goals. All of our discussions and all of our thinking and planning are taking place in the context of our new framework, we are committed to it.
• We think it's well suited to our goals, including in this unique time. Our committee's economic forecasts are all consistent with that.
• The specific question I guess was will we be behind the curve. That is not the situation we are facing at all. The situation that we addressed in our statement of longer goals and monetary policy is a situation in which employment was at high levels but inflation was low. We said we wouldn't raise interest rates just because unemployment was low and employment was high if there was no evidence of inflation or other troubling imbalances. That is not at all the current situation.
• The current situation we have millions of people who are unemployed and we have inflation running well above target. The question we face with this inflation is nothing to do with our framework. It is a very different, very difficult version of a central banking question, that is: how do you separate things that follow from broad upward price pressures, from things that are function of idiosyncratic factors due to particular things?
• It is not easy to tell in realtime which is which. But that is the question you would face under any framework, and we are trying to sort that out. I've tried to explain today about how we think about that. We do think that these are temporary factors and that they will wane. We can't be absolutely certain about the timing of that. We are prepared to use our tools as appropriate.- We will taper when we feel that the economy has achieved substantial further progress. We will communicate very carefully in advance on that. That is what we are doing. That is what we are going to do. We will follow through on that. We will do what we can to avoid a market reaction, but ultimately, when we achieve our macroeconomic goal, we will taper as appropriate.
• We have to balance the two goals, maximum employment and price stability. Often they do pull in the same direction of course. But when we raise rates to control inflation there is no question ithas an effect on activity. We don't think we are in a situation like that now, the economy is recovering from a deep unusual hole because it's to do with shutting down the economy. It's easier to create demand than it is to bring supply back. There is no reason to think that process will last indefinitely. But we are going to watch carefully to make sure that evolving inflation and our understanding of what is happening is right. In the meantime, we will conduct policy appropriately.
• Press conference ends