Powell Talks Down Threat to Inflation Expectations

Q: Re your test for interest rates, what happens if inflation expectations move up before you see a return to full employment?

- A: It seems unlikely that we would see inflation moving up in a persistent way that would move inflation expectations up while there's still significant slack in the labor market.

• I won't say it's impossible, but it's unlikely. It's much more likely that having achieved maximum employment conditions we would also be seeing 2% inflation and be on track to see inflation moving above 2%. They tend to move together. So it's not to say that inflation might move up but for it to move up in a persistent way that moves inflation expectations up.
• That would take some time, and you would think it would be quite likely labor markets would be very strong for that to be happening.
• If that were to happen, in the statement on longer-run goals on mon pol strategy, it says: when the two goals are in conflict we weigh various factors including the time it would take to get back and so forth.
• It doesn't tell you what to do but it tells you we will weigh those two factors, and how far we are away from them and how to reach them were we to reach that pretty unlikely state.