Powell Sees Policy Framework as Well Understood by Markets

Q: Have markets bought into the Fed's new framework? Investors think the Fed might overtighten.

• A: RE bond markets, I don't think there's a real consensus on what explains the moves between the last meeting and this meeting. Long-term yields have gone down significantly. Some of that is a fall in real yields, which may have been connected to sentiment around the spread of Delta, and about growth. There was also some decline in inflation compensation, and there are so-called technical factors which is where you put things you can't quite explain.
• I don't see in any of that that there is really anything that challenges the credibility of our framework. We are committed to achieving 2% over time. What we said was in particular when we see a very strong labor market, low levels of unemployment, that won't be enough for us to raise interest rates until we see some inflation.
• We're a ways away from maximum employment but we have high inflation. It's the opposite case and we have to deal with that by looking at the inflation and asking whether it is broad based, and likely to be persistent, and whether inflation expectations are implicated in a way that could cause them to rise. We're monitoring that very carefully. And we're prepared to use our tools as appropriate.
• But, again, our framework is pretty well understood and I think the real test of it will be down the road when it's time to think about raising interest rates.