Nydia Velázquez Asks Jerome Powell About Impact Of Keeping Interest Rates Steady

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During a House Financial Services Committee hearing on Tuesday, Rep. Nydia Velázquez (D-NY) asked Federal Reserve Chair Jerome Powell about keeping interest rates steady.

Transcript

00:00Thank you, Mr. Chairman. Good morning, Mr. Chair, Chair Powell, and thank you for being here.

00:07Last week, the FOMC decided to maintain the target range for the federal funds rate at 4.25% to 4.5%.

00:18While I was not surprised by the decision to hold rates steady,

00:24I was surprised by the committee's revised forecast since March,

00:29which represented a decrease of 0.3 percentage points for GDP,

00:36a similar increase for core PCE, and an uptick in the unemployment rate to 4.5%.

00:45Can you explain the incoming data that the committee has seen since March that caused it to make these adjustments?

00:52Sure. So, first of all, these are individual. This is not a committee forecast.

00:58These are just individuals submitting their own personal, you know, forecasts,

01:03and, you know, we don't bless those as a committee.

01:06But I think people are looking at the incoming data and having a range of different judgments.

01:11If you look at the range, if you look at the central tendency, you'll see that it covers quite a wide range.

01:17Those are the medians that you're talking about.

01:18I think so. Inflation is projected to have moved up because of what we've seen, particularly from tariffs.

01:25And I think if you look at other outside forecasters, you'll see very much the same thing.

01:29And what data are you looking for?

01:32Well, we look at the incoming data on – we look at our own forecast,

01:38and we ask ourselves what's likely to happen.

01:40You know, monetary policy has to be forward-looking.

01:43A forecast is a prediction of what's going to happen in the future.

01:47In its statement, the committee announced that it will continue to monitor the implications of incoming data

01:52and adjust the stand of monetary policy as appropriate.

01:57Some analysts predict two rate cuts by the end of the year are still on the table.

02:03Is this a fair and accurate assumption?

02:06And what incoming data will the committee need to see to consider these cuts?

02:12What will actually happen with rates is going to depend on the path of the economy, and that's highly uncertain.

02:19So I would just say what that means at this moment in time is that a significant majority of the committee,

02:27but also there's a pretty significant minority that doesn't agree,

02:30but a significant majority feels it will be appropriate to reduce rates later this year.

02:35And what that means is that each of those persons who wrote down a cut in rates later this year,

02:42they think that there's some state of the world where inflation doesn't prove to be as high,

02:47or the labor market weakens, or some combination of those two things,

02:51that it will turn out to be more likely than not appropriate to reduce policy rates,

02:55subject to great uncertainty.

02:57I mean, we will, you know, the story has been evolving,

03:00and our thinking has been adapting, and that will continue.

03:07Chair Powell, although a ceasefire has been tentatively reached in the Middle East,

03:14the situation still has the potential to open global and energy markets,

03:20especially if the ceasefire is broken,

03:23while at this point Iran is seen as unlikely to close the Strait of Hormus,

03:30that decision could change.

03:33How is the Fed assessing the current situation

03:37and incorporating those assessments as it considers future adjustment to economic projections

03:45and its stand on monetary policy?

03:48I think it's too early to know what any economic implications might be,

03:54and I would not want to speculate.

03:56Like everyone else, we are, of course, watching the situation.

04:01And, Chair Powell, after reviewing the economic data following the meeting last week,

04:07it seems to me that the committee is indicating

04:09that we could be headed for a situation where inflation accelerates

04:14while unemployment rises and growth becomes more sluggish.

04:19In this scenario, this will put the Fed's dual mandate

04:23of maximum employment and price stability in tension with one another.

04:28In this scenario, how does the Fed balance these priorities

04:33in order to achieve both mandates?

04:36So let me say that we're not facing that right now,

04:39and that isn't really our forecast that we will face such an issue in a serious way.

04:43But if that does happen, then what we do is we look at the two goals

04:47and we see which one of them is farther from its goal.

04:50Two variables, you know, is maximum employment or price stability farther from its goal,

04:55and we prefer the one that's farther than its goal.

04:56And then we also ask ourselves, how quickly will they return the goal?

05:00It's a very difficult situation for any central bank,

05:03and, you know, I would say, again, we're not in that situation right now.

05:06Thank you, Mr. Chairman. You're back.

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