Afternoon, everyone, and welcome. My colleagues at the Federal Reserve and I are dedicated to serving the American people. We do this by steadfastly pursuing the goals Congress has given us maximum employment and stable prices. We are committed to making the best decisions we can based on facts and objective analysis. Today, we decided to lower interest rates, as I will explain shortly. We took this step to help keep the U.S. economy strong in the face of some notable developments and to provide insurance against ongoing risks.
The U.S. economy has continued to perform well. We are into the 11th year of this economic expansion and the baseline outlook remains favorable. The economy grew at a two and a half percent pace in the first half of the year. Household spending supported by a strong job market. Rising incomes and solid consumer confidence has been the key driver of growth.
In contrast, business investment and exports have weakened amid falling manufacturing output. The main reasons appear to be slower growth abroad and trade policy developments. Two sources of uncertainty that we've been monitoring all year. Since the middle of last year, global growth, the global growth outlook has weakened, notably in Europe and China. Additionally, a number of geopolitical risks, including Brexit, remain unresolved. Trade policy tensions have waxed and waned and elevated uncertainty is weighing on U.S. investment and exports.
Our business contacts around the country have been telling us that uncertainty about trade policy has discourage them from investing in their businesses.
Business fixed investment posted a modest decline in the second quarter, and recent indicators point to continued softness. Even so, with household spending remaining on a solid footing and with supportive financial conditions, we expect the economy to continue to expand at a moderate rate. As seen from FOMC participants most recent projections, the median expectation for real GDP growth remains near 2 percent this year and next before edging down toward its estimated longer run value. The job market remains strong.
The unemployment rate has been near half century lows for a year and a half and job gains have remained solid in recent months. The pace of job gains has eased this year, but we had expected some slowing after last year's strong pace. Participation in the labor force by people in their prime working years has been increasing and wages have been rising, particularly for lower paying jobs.
People who live and work in low and middle income communities tell us that many who have struggled to find work are now getting opportunities to add new and better chapters to their lives. This underscores for us the importance of sustaining the expansion so that the strong job market reaches more of those left behind.
We expect the job market to remain strong. The median of participants projections for the unemployment rate remains below 4 percent over the next several years. Inflation continues to run below our symmetric 2 percent objective over the 12 months through July. Total PSEG inflation was 1.4 percent and core inflation, which excludes volatile food and energy prices, was 1.6 percent. We still expect inflation to rise to 2 percent.
The median projection is 1.9 percent this year and 2 percent in 2021. However, inflation pressures clearly remain muted and indicators of longer term inflation expectations are at the lower end of their historical ranges.
We're mindful that continued below target inflation could lead to an unwelcome downward slide in longer term inflation expectations. Overall, as we say in our post-meeting statement, we continue to see sustained expansion of economic activity, strong labor market conditions and inflation near our symmetric 2 percent objective as most likely. While this has been our outlook for quite some time, our views about the path of interest rates that will best achieve these outcomes have changed significantly over the past year. As I mentioned, weakness in global growth and trade policy uncertainty have weighed on the economy and pose ongoing risks.
These factors, in conjunction with muted inflation pressures, have led us to shift our views about appropriate monetary policy over time toward a lower path for the federal funds rate. And this shift has supported the outlook. Of course, this is the role of monetary policy to adjust interest rates, to maintain a strong labor market and keep inflation near our 2 percent objective. Today's decision to lower the federal funds rate target by a quarter percent to one point seventy five percent to 2 percent is appropriate in light of the global developments I mentioned, as well as muted inflation pressures.
Since our last meeting, we've seen additional signs of weakness abroad and a resurgence of trade policy tensions, including the imposition of additional tariffs. The Fed has no role in the formulation of trade policy, but we do take into account anything that could materially affect the economy relative to our employment and inflation goals. The future course of monetary policy will depend on how the economy evolves and what developments imply for the economic outlook and risks to the outlook. We've often said that policy is not on a preset course and that is certainly the case today.
As I've noted, the baseline economic outlook remains positive. The projections of appropriate policy show that persist. Participants generally anticipate only modest changes in the federal funds rate over the next couple of years. Of course, those views or merely forecasts and as always, will evolve with the arrival of new information. Let me say a few words about our better monetary policy operations.
Funding pressures in money markets were elevated this week and the effective federal funds rate rose above the top of its target range yesterday. While these issues are important for market functioning and market participants, they have no implications for the economy or the stance of monetary policy.
This upward pressure re-emerged as funds flowed from the private sector to the Treasury to meet corporate tax payments and settle purchases of Treasury securities. To counter these pressures, we conducted overnight repurchase operations yesterday and again today. These temporary operations were effective in relieving funding pressures and we expect the federal funds rate to move back into the target range. In addition, as we've done in the past, we made a technical adjustment to the interest rate paid on required and excess reserve balances, setting it 20 basis points below the top of the target range for the federal funds rate.
In a related action, we also adjusted the rate on overnight on the overnight repurchase facility to five basis points below the bottom of the target range. We will continue to monitor market developments and we'll conduct operations as necessary to foster trading in the federal funds market at rates within the target range. Consistent with our decision earlier this year to continue to implement monetary policy in an ample reserves regime, we will over time provide a sufficient supply of reserves so that frequent operations are not required.
To summarize, we are fully committed to pursuing our goals of maximum employment and stable prices. As the committee contemplates the future path of a target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion with a strong labor market and inflation near its symmetric 2 percent objective. Thanks. I'll be happy to take your questions. Marty KLETZING over the Associated Press.
Mr. Chairman, when you cut rates in July, you characterized it as a mid-cycle adjustment. Is that still your view of what what's happening?
So as you can see from our from our policy statement from the SCDP, we see a favorable economic outlook with continued moderate growth, a strong labor market and inflation near our 2 percent objective.
And by the way, that that view is consistent with those of many other forecasters.
As you can see, FOMC participants generally think that these positive economic outcomes will be achieved with modest adjustments to the federal funds rate.
At the last press conference, I pointed to two episodes in August 1995 and 1998 as examples of such an approach which was successful in both of those instances. As our statement also highlights, though, there are risks to this positive outlook due particularly to weak global growth and trade developments, and if the economy does turn down, then a more extensive sequence of rate cuts could be appropriate. We don't see that. It's not what we expect, but we would certainly follow that path if it became appropriate.
In other words, as we say in our statement, we will continue to monitor these developments closely and we'll act as appropriate to help ensure that the expansion remains on track.
I'm sorry, Rich Miller with Bloomberg taking the statement. Your opening remarks and the SEP, I'm just wondering what kind of message we should take from this. Are the U.S. still does the FOMC, is it safe to say this FOMC still has an easing bias or not?
So the idea of having a bias is something that was it was a longtime practice and we don't actually have that practice anymore, so I can't really adopt it right here.
But nonetheless, I'll respond to your question. So we did we made one decision today and that decision was to lower the federal funds rate by a quarter percentage point.
We believe that action is appropriate to promote our objectives. Of course, we're going to be highly data dependent, as always are our decisions are going to depend on the implications of of incoming information for the outlook. And I would also say, as we often do, that we're not on a preset course. So. That's how we're going to look at. We're gonna be carefully looking at economic data. Sometimes the path ahead is is clear and sometimes less so.
So we're gonna be looking carefully meeting by meeting at the full range of information and we're going to assess the appropriate stance of policy as we go in.
As I as I said, we we will act as appropriate to sustain expansion. If you could just follow up. You've also said that the favorable outlook is predicated on financial conditions and the financial conditions are in turn predicated on an outlook for Fed policy. In this case, further, further cut. Wouldn't that suggest that you should be inclined to if you want those financial conditions and that favorable outlook to come about, you should be inclined to cut?
Well, what we do going forward is going to is very much going to depend Rich on on the on the flow of data and information we've seen. You know, if you look at the things we're monitoring, particularly global growth and trade developments, global growth has continued to weaken. I think it's weakened since since our last meeting, trade developments have been up and down and then up, I guess, or back up perhaps over the course of this intervening period.
In any case, they've been quite volatile. So we do see those risks is actually more heightened now. We're gonna be watching that carefully. We're also going to be watching the U.S. data quite carefully. And we'll have to make an assessment as we go. Thank you, Mr. Chairman, Nick Timiraos of The Wall Street Journal. I know you're trying to speak for the committee. When you do these press conferences, committee is clearly divided right now, at least about the outlook and the appropriate policy path.
Some people think you need to wait and see the labor market and the consumer crack or we can further before acting more aggressively.
And some people think that by the time that happens, you'll need to do even more aggressive action to arrest a downturn. Where do you stand on this?
Well, let me just say, on the general point of of diverse perspectives, you're right.
Sometimes the. And there've been many of those times in my now almost eight years at the Fed. Many times when the direction is relatively cl., relatively easy to reach anonymity.
This is a time of difficult judgments.
And as you can see, disparate perspectives. And as a I really do think that's nothing but healthy. And so I see a benefit in having those diverse perspectives. Really? So your question, though, is your own view? Because the data is to some extent lagged, especially when you have these risks on the horizon. And the markets obviously think these risks could materialize more than what you and your colleagues are projecting and the dot plot today. So I wonder, where are your own views about the tension between risk management, which implies some degree of data independence and this idea of being data dependent?
Yeah. So I'll try to I'll try to get at that this way.
I think that the idea that if you see trouble approaching on the horizon, you steer away from it if you can. I think that's that's a good idea in principle. And I think history teaches us that it's better to be proactive in adjusting policy if you can't. I think applying that principle in Situate in a particular situation is is is where the challenge comes.
So I told you where the committee, the bulk of the committee is, is going meeting by meeting. And I think the main takeaway is that this is a committee that has shifted its its policy stance repeatedly, consistently through the course of the year to support economic activity as it has felt that it's appropriate.
The beginning of the year, we were looking at further rate increases than we were patient. And then we cut once, then we cut again. And I think you've seen us being willing to move based on data, based on the evolving risk picture. I have no reason to think that will change, I think. But it will continue to be data dependent and depend. Data includes the evolving risk picture. That's where I am and that's where I think the bulk of the committee is.
You're right. Steve Liesman, CNBC And when he does this, it doesn't go both times. If you're concerned about how the Federal Reserve operated through the recent liquidity crunch in markets, we talked to many traders who said the tax date payment was known well in advance. There were several reports of people pointing to September as a potential crunch time. You closed Monday at the top end to the Fed funds rate. Tuesday came along and there wasn't an operation until nine o'clock and no announcement until of a second operational 4:00 in the afternoon.
Was the Fed listening to markets well ahead of time, going back a year when there were blowouts in the overnight rate at year end and the turn of the year? Are you concerned about how, for example, the New York Fed operated through this?
You know. So I would say I doubt that anyone is closer to and has more invested in in carefully following the, you know, the behavior of these markets. So, of course, we were well aware of the, you know, the tax payments and also of the settlement of the large bond purchases.
And, you know, we were very much waiting for that, but we didn't expect the response to that was stronger than we expect. And by the way, our sense is that that's a surprise. Market participants, a lot too many people were writing about this and publishing stories about it weeks ago. It wasn't a surprise, but it was it was a stronger response than certainly than we expected. So, no, I'm not concerned about about about that.
Dance to your question. I can go on a little bit about how we're looking at that. And I do that.
So as I mentioned, it doesn't we don't see this as having any implications for the broader economy or for the economic outlook, nor for our ability to control rates. The strains in the money markets reflect forces that we saw coming, and they just had a bigger effect than I think most folks anticipated strong demand for cash to purchase treasuries and pay corporate taxes. We took appropriate actions to address those pressures to keep the Fed funds rate within the target range in those measures were successful.
If we experience another episode of pressures in money markets. We have the tools to address those pressures. We will not hesitate to use them. And since we're talking about this, let me take a step back and say this earlier in the year. As you will all recall, after careful study over a period of years, actually, the committee announced the decision to implement monetary policy in an ample reserves regime. And we've been operating in that regime for a full decade.
We think it works well to implement our rate decisions. The main hallmark of that regime is that we use adjustments in our administered rates. The Iwe are in our R.P. rates to keep the Fed fund raise rates in the target range. It's designed specifically so that we do not expect to be conducting frequent open market operations for that purpose. So going forward, we're going to be very closely monitoring market developments in assessing their implications for the appropriate level of reserves. And we're going to be assessing, you know, the question of when it will be appropriate to resume the organic growth of our balance sheet.
And I'm sure we'll be revisiting that question during this intermeeting period and certainly at our next meeting.
Do you think you've underestimated the amount of reserves necessary for the banking system?
So we've always said that it's that the level is uncertain. Right. And that's something we've tried to be very clear about. And as you know, we've invested lots of time talking to many of the large holders of reserves to assess their what they say is their demand for reserves.
We tried to assess what that is. We've tried to combine all this together. We've put it out.
So the public can react to it. But, yes, there's real uncertainty. And it is certainly possible that we will need to resume the organic growth of the balance sheet earlier than we thought. That's that's always been a possibility and it certainly is. Now, again, we'll be looking at this carefully in coming days and and taking it up at the next meeting.
Brennan Grill with the Financial Times earlier this year or actually in September, the governing board put out a research paper looking trying to quantify trade uncertainty. And it suggested that it could drag through the business investment channel on growth as much as a percentage point over the course of the next year. How much confidence do you have in the Fed's ability to estimate the real effects of trade uncertainty? And if you have confidence in that paper, it would seem to suggest a sort of a more aggressively dovish path and the one that you've chosen.
Yeah. So I think to provide a little context, Fed economists do research all the time. It's generally a very high quality. It's their research. It's not an official finding of the Federal Reserve Board or their Federal Reserve system. It's just. And by the way, they put it out for public. Review that you can you can see there are kind of metric, you could see all of it. Their whole work is exposed to critique by the whole profession.
So it's a great tradition that we have. And you know what this particular piece of work did is it?
It went after measuring trade policy uncertainty through a couple of channels, including concerning tariffs, also concerning the threat of more tariffs. And it looked at deeply at the data to try to assess the effects on output.
And while I would say directly answering a question, there's there's there's real uncertainty around these around these effects. It's a twenty two trillion dollar economy to try to isolate the effects of certain things. It's very challenging, but we do the best we can. So in this this piece of research, research found significant effects. And that's frankly consistent with a number of other research projects that economists have undertaken. It's also consistent with what we've been hearing in the Beige Book.
So, one, I mean, I think if you take a step back from that, we do feel that trade uncertainty is having an effect. You see it in weak business investment, weak exports. Hard to quantify it precisely, though. Hi, Howard Schneider with Reuters. I was struck by the sort of anchored median federal funds right here through 2020 and bad in comparison to the fact that you now have sort of three very discrete groups of opinions around where the Fed funds rate is heading.
And I wanted to. Is it fair to say that the opinions have become sort of firmer in their conviction and that it's going to take some sort of real material change in the outlook now for that to move in either direction?
And you're asked specifically about 2020? Well, the fact that this the Fed funds rate is now seen as not moving through 2020 suggests to me that these opinions are pretty, pretty well anchored right now in those groups.
You know, honestly, I think it's hard to have hardened expectations about where rate policy is going to be a year from now.
I think the closer you get to the current day, the more confidence you can have.
But even then, knowing where the knowing what the data will say in the end, the way geopolitical events and other events are going to evolve in the next 90 days and the implications of that for the economy, I would say there's a lot of uncertainty around around around that.
Fair enough. Particularly if you if you look at 2020, I think I think the use of this as individual participants write down their forecasts. It should give you a sense of how people are thinking about the likely path of the economy and and the appropriate path for monetary policy in that individual person's thinking. And I think that's a good thing to know. I think I'd be very reluctant to look at it as hardened views or a prediction, really. But just to follow, if I could.
There were a number of arguments in July around the reason for cutting rates. Have any of those gotten substantially weaker or changed around the table?
No, I I think if you look at the US, look at the U.S. economy. You got economies generally performed roughly as expected, roughly consumer spending at a healthy clip.
I'd say business fixed investment and exports have weakened further and say the manufacturing PMI suggests more weakness ahead. The labor market is still strong, though. So generally that is the same. I think if you look at the global economy, I think has weakened further in the EU and China. And I think, you know, trade policy developments have been a big mover of markets and and of sentiment during that intervening period. So that's why I think what's that's what's happened over the intervening period.
And, you know, different people around the table have different perspectives as you as you obviously know. Gina? Hide your pal Gina Smiley at The New York Times. I'm just curious on your balance sheet point. You talked about the committee thinking about resuming organic growth, you know, over time. I guess the question is if you have shrunk your balance sheet, maybe just a little bit too small to the point that reserves are too scarce to get through sort of these unusual periods.
Is organic growth in the balance sheet enough to get back to a point of ample reserves that can get us through those tough times? Or would you need to see something a little bit above that? And is that a possibility the committee would consider?
You know, I think it's it's hard to deal with every hypothetical possibility. I think for the foreseeable future, we're going to be looking at if if needed, doing the sorts of things that we did the last two days. These temporary open market operations, that'll be the tool that we use. And the question will be then as we as we go through quarter end, as we as we learn more, you know what really how much of this really has to do with with the level of reserves.
And I think we'll learn quite a lot in the next six weeks. Victoria grajeda with Politico. Another money market question. You know, banks have been pointing to liquidity rules as having contributed to some of the volatility we've seen in repo markets. And, you know, potentially some capital rules as well. Are you all looking at whether, you know, some tweaks to the liquidity coverage ratio might help? And also, what is the status of the net stable funding ratio rule?
Are you all still planning on putting that out soon?
You know, so I think if we concluded that we needed to raise the level of required reserves for banks to meet the LCR, we'd probably raise the level of reserves rather than lower the LCR.
I mean, it's not impossible that we would come to a view that the LCR is calibrated to high, but that's not something that we think right now.
On the other hand, it might be that more reserves are needed, in which case we are in a position to supply them in terms of the net stable funding ratio. It's I believe we put it up for comment and got comments, and I believe we're looking at it finalizing that in the relatively near future.
I mean, in terms of tweaks to the LCR, I mean, there's also been some talk about potentially giving banks some room in times of stress to maybe dip into their liquidity buffers. And we I think we want banks to, you know, to use their liquidity buffers in times of stress rather than pull back from the markets and pull back from serving their clients. As a general rule. So about a month ago, Edward Lawrence from Fox Business Network.
Thank you, Mr. Chairman. About a month ago or so, you said that there's no precedent to integrate trade uncertainty into monetary policy.
In the last few weeks, have you figured out how to incorporate trade on this level of trade uncertainty into monetary policy going forward? You've talked about uncertainty, uncertainty many times today.
So my point really was that to start that trade policy is not the business of the Fed, it's the business of Congress and the administration.
But so why are we talking about it? We're talking about because anything that affects the achievement of our goals can, in principle be something that monetary policy should take into consideration. And our discussions and the research we have suggests that trade policy is something that's weighing on the outlook.
So I pointed out in recent remarks that the thing we can't address really is what businesses would like, which is a settled roadmap for international trade. We can't do that. We don't have that tool, but we do have a very powerful tool which can counteract weakness to some extent by supporting demand through sound monetary policy. And we think our path, our policy tools support economic activity through fairly well understood channels by reducing interest burden and encouraging consumer purchase of durables, homes and other interest sensitive items by creating broadly more accommodative financial conditions which support spending and also investment by businesses and also by boosting household and business confidence.
So, you know, I don't wanna be heard to say that our tools don't have an effect. They do. But I was making the point that there is a piece of this that we really can't address. Well, I think. Yeah. I mean, it's a challenge. There's no there's no simple bottom line answer where I could say, yes, I've got it for you here. But what it amounts to is this. What you see is probably the kind of volatility that's typical of of of an important, complex, ongoing negotiation.
And I think what we need to do is to try to look through the volatility and react to the underlying forces, the underlying things that are happening that are relevant to our mandate. We don't we have nothing to do with setting trade policy or negotiating trade agreements. We're supposed to be reacting on behalf of the American economy to support maximum planet and stable prices.
So we need to look through what what's a pretty volatile situation.
So that means not overreacting quickly. He's not under reacting, too. So that's really what we're trying to do. And, you know, I would say the outlook is is is positive in the face of these crosswinds we've we've felt. And so to some extent, that's I do believe there are shifting to a more accommodative stance over the course of the year has been one of the reasons why the outlook has remained favorable. Fed funds. Michael McKee from Bloomberg Radio and Television.
That funds futures trading since the statement was released shows that investors still think another rate cut is coming this year on their behalf. Let me ask what what is going to guide Fed policy to either pull them towards where the dot plot suggests no more moves this year or keep them in place? Are you reacting to data now? Are you reacting to your gut feeling about what trade tweets might mean? Should they just watch for Jay Powell speeches to decide what's going to happen going forward?
What's the Fed's reaction function now?
So what we are looking for through all of the data, all of the all the events that are going on around the world, we'll be looking at the evolving geopolitical events. When we look at global growth, we're looking at trade policy uncertainty. Most importantly, we'll be looking at the performance of the U.S. economy. We'll be looking for the things that are affecting the outlook for the U.S. economy, particularly the outlook as it relates to maximum employment and stable prices.
So all of those things in principal can affect the achievement of our goals. It's an unusual situation because, you know, we know that the U.S. economy itself, the largest part of it, the consumer part of it is, is is is in strong shape. The manufacturing part less so. But overall, you see an economy that I think generally forecast show growth similar to our own forecast coming at about 2 percent, which is a good solid year.
So the difference here is we have significant really risks to that outlook from not just the geopolitical events, but also from slowing global growth and trade policy uncertainty. So we'll be looking at all of that and also financial market conditions and how they are affecting the outlook. I can't. It's it is a it's a challenging time. I admit it.
But we really have to be open to all those things. We're not on a preset course. We're going to be making decisions meeting by meeting as we see this. And, you know, we'll try to be as transparent as we can as we go. Don. Board chairman Pal down Donna Borg with CNN with the rate cut today and potentially another modest adjustment coming down the road. Do you worry about lessening the Fed's firepower? Should there be a recession?
And is there any scenario in which you would envision rates drifting lower into negative territory? And are there any other tools that you could use before having to go there?
Thanks. You know, one. In terms of firepower, I think I think the general principle, as I mentioned earlier, is it can be a mistake to try to hold on to your firepower until a downturn gains momentum. And then it's so there's a fair amount of research that would show that that's the case now. I think that principle needs to be applied carefully to the situation at hand. What we believe we're facing here, but we think we're facing here, is a situation which can be addressed and should be addressed with moderate adjustments to the federal funds rate.
As I mentioned, we are watching carefully to see whether that is the case, if in fact, the economy weakens more than we're prepared to be aggressive and we'll do so if it turns out to be appropriate. You mentioned negative interest rates, so negative interest rates is something that we looked at during the financial crisis and chose not to do. We chose to.
After we got to the effect of lower bound, we chose to do a lot of aggressive forward guidance and also large scale asset purchases. And those were the two unconventional monetary policy tools that we used extensively. We feel that they worked fairly well. We did not use negative rates. And I think if we were to find ourselves at some future date again at the effective lower bound and not something we were expecting, then I think we would look at using large scale asset purchases and forward guidance.
I do not think we'd be looking at using negative rates. I just don't think those will be at the top of our list. By the way, we are in the middle of a monetary policy review where we're looking through all of these questions about the longer run framework, the strategy tools and communications, and we expect that to be completed sometime around the middle of next year. Donnelly with the L.A. Times. How much input and can you talk about the mechanism in which the two rate cuts will affect the real economy and how much?
To what extent will it offset the negative effects of the trade, uncertainty and tensions?
So in terms of how how our rate cuts will affect the real economy. First, we think monetary policy works with it with, as Friedman said, long and variable lags. So I think the real effects will be felt over time. But, um. You know, we we think that lower interest rates will reduce interest burden for borrowers so that that interest sensitive things like housing and durable goods and other things like that cars, it supports purchases of those just again, broadly more accommodative financial conditions, higher asset prices.
That's the models. And the data show that that's that's another powerful channel. I also think there's a confidence channel, you see.
You see household and business confidence turn up when financial conditions become more accommodative. So I think through all of those channels, monetary policy works. It isn't precisely the right tool for every single possible negative thing that can happen to the economy. But nonetheless, it broadly works. And, you know, we're going to use the tool we have. And if it comes to it, we'll use all of our tools. So that's how that's how we think it works and how we think it's working.
It's it's very hard to say. It's, you know, it's it's it's tough to say. Well, we'll we'll we'll use our tools to offset the negative. That's that's really the job of monetary policy is to the extent it can to offset offset, you know, things that drive us away from maximum employment and stable prices. Nancy Marshall Genzer with Marketplace, your pal, are you worried that the low interest rates are adding to or could create a bubble of consumer and corporate debt that could make it more difficult for especially consumers to recover from the next recession or survive the next recession?
You know, so if you look at if you actually look at households. Households are in very strong shape. They're less levered. They've got less debt. They've got more income relative to other interest requirements. And and that they're in very good shape, much better shape than they were in before the financial crisis. So the household sector, as a as a sort of aggregate matter is is in very good shape. That doesn't mean that every single person in the household sector is in good shape.
But overall, it's really not a concern. The business sector is something that, you know, we've talked about a lot and studied a lot. And the situation there is that the level of debt relative to GDP in the business sector is at a high level.
However, so is the size of the business sector. So actually the business sector itself is not materially higher leverage than it was nonetheless. There are a lot of highly levered companies and that that's the kind of thing that happens during a long cycle when there aren't downturns for now into our 11th year. You you get you know, you do get that kind of phenomenon in a long cycle.
So that's something we're monitoring. And I think our view still is that that that that's a real issue. But what it really represents is a potential amplifier of a macro economic downturn. It does not have the makings of anything that would undermine the workings of the financial system, for example, or itself create a shock that would turn the economy down. It's more it's more of an amplifier. We take it very seriously, though. And, you know, we're we're monitoring it carefully.
We're actually looking at the federal Financial Stability Board is actually conducting a project right now to identify where these loans are held all around the world. So it's a subject of a lot of study and work. And, you know, we're trying to keep on top of it. Thank you, Jim. Pilot Greg Grob from MarketWatch, I'm hearing two things from you. You're you're saying that the economy is doing well, but but there's this sense of with people that the economy is actually starting to slow now and people are more and more.
You talked there's talk about recession for you and even the Fed thinks the downside risks are rising.
So is economy over the next year between now and the end of next year. You think GDP growth is going to hold steady and the unemployment rate? Could you talk about just how do you see the economy evolving over the next year or so?
I think in my colleagues and I, I think all think that the most likely case is for continued moderate growth, continued strong labor market and inflation moving back up to 2 percent. I think that's, by the way, widely shared among forecasters.
You know, the issue is more the risks to that. You have downside risks here. And we've talked about them. It's it's that global growth will have an effect on U.S. growth over time, less so than for many other economies. But still, there's a there's a sector of our economy that's exposed to that trade policy. Uncertainty also has apparently apparently has an effect.
So and you can see some weakness in the U.S. economy because of all that. But nonetheless. So the job of monetary policy is to adjust to both to both to insurance. Sure. Against those downside risks, but also to support the economy in the light of the existing weakness that we do see. So we're not we're as I mentioned, we're not we don't see a recession. We're not forecasting a recession, but we are adjusting monetary policy in a more more accommodative direction to try to support what is, in fact, a favorable outlook.
And the inverted yield curve that we hear is that the bond market signaling recession. What is that? And so that's not that single is not pertinent to you or what we do.
So we monitor the yield curve carefully along with a large wide range of financial conditions.
We don't sort of. It's not. There's no one thing that that is dispositive among all phonic financial conditions, the yield curve is something that we that we follow carefully. And again, based on our assessment of all the data, we still think it's a positive outlook thing. So just to talk about the current situation you've seen. You saw the you saw long term rates move down a whole lot and then retraced two thirds of that move in the space of a few days.
So I think what really matters for all financial conditions generally is when there are changes, material changes that are sustained for a period of time. So but why? Why are long term rates low?
There are a number. There can be a signal about expectations, about. About growth there for sure. But there can also just be low term premiums, for example. Well, it can just be that there there's this large quantity of negative yielding and very low yielding sovereign debt around the world.
Inevitably, that's exerting downward pressure on U.S. sovereign rates without really necessarily having an independent signal. Nonetheless, that is a signal about weak global growth probably and weak global growth would affect us. So global capital markets and the global economy are quite integrated. So this is something where we pick careful if we're not going to be dismissive about the yield curve. But I think you can tell on the on the on the committee there's a range of views.
There are some who are very focused on the yield curve. Others not so much. You know, from my perspective, you watch it carefully. And, you know, I think you need to be asking yourself a lot of questions if if the yield curve is inverted as to why that is and and how long it sustained.
Chairman Powell, Paul Kiernan from Dow Jones Newswires. You mentioned trade policy being a complex, ongoing discussion. What is your first rule for stopping?
As far as interest rate cuts go, you referred to this as a mid-cycle adjustment. The median dot suggests no more rate cuts. But, you know, if we get continued kind of back and forth between the U.S. and China, trade policy uncertainty is going to remain heightened. So, you know, under what circumstances would you say, you know what, I think we've cut enough. We stop now. And secondly, as leader of this institution, have you felt a need to take any steps to boost like employee morale at a time when the president is constantly criticizing the Fed thinks?
You know, I'd love to be able to articulate a simple, straightforward stopping role, but it's really just going to be when we think we've done enough. And, you know, our eyes are open. We're watching the situation. We've cut rates twice. We've moved really through the course of this year, as I discussed. And, you know, we see ourselves as as taking actions to sustain the expansion and thereby achieve our goals. And if you if you look at sort of things that are happening in the economy, I think I personally see a high value in sustaining the expansion because we really are reaching this positive economy, is reaching communities that haven't been reached in a long time.
There'd be great benefit in having that last as long as possible. That's all. So I don't have a specific stopping role for you, but I think we're watching carefully and there will come a time, I suspect, when we think we've done enough. But there may also come a time when the economy worsens and and we would then have to cut more aggressively. We don't know. We're going to be watching things carefully. The incoming data and the evolving situation.
And that's what's going to guide our our guide us on that path in terms of the morality institution. I would say it's very high. We're very unified. We feel like we're we're doing the best job we can serving the American people. Hi, chairman had with American banker. It's been reported that the CFTC is investigating Bank of America for opening unauthorized accounts. I'm wondering if the Fed is also investigating this and given the pending order against Wells Fargo, if you're concerned that these banks are too big to manage.
You know, so I saw the headline like this morning during all of the preparation and everything in this morning's meeting. I really don't have anything for you on that. I will say about Wells Fargo that, you know, there were quite wide breakdowns in risk management which resulted in, you know, mistreatment of consumers that we know was was quite harmful to the consumers and to the image of the institution. I have no idea whether that's what happened at Bank of America.
I really don't know standing here today. Steve Beckner filing for NPR freelance, the Fed and your fellow central banks have been sort of exploring the far reaches of what's possible for monetary policy, even going so far as to make rates negative in some cases with mixed results. Meanwhile, fiscal and regulatory, not to mention trade policy or pursuing their own separate courses as you and your colleagues do this monetary policy framework review. Do you ever consider the limitations of monetary policy?
Should you be more explicit about what monetary policy can and cannot do in this environment?
You know, we try to be clear about that. But really, I think. Our job is to use our tools as best we can to achieve to do the jobs that Congress has assigned us, which is achieve maximum employment and stable prices. That's our real job in terms of giving the fiscal authorities who, by the way, are the ones who created us advice about how to do their job. You know, we keep that at a high level, I think.
And at a high level, yes. I would say and I've said before that it's really fiscal policy that is more powerful and that that has much more to do with fiscal policy can do those things that will increase the longer run growth wage rate of the United States by improving productivity and labor force participation and the skills and aptitudes of workers. All of that comes from the private sector, but also from more the kinds of things that can be done with fiscal policy over the long run.
We can't really affect the growth rate of the United States. The potential growth rate of the Untied States is not a function of monetary policy. It's a function of other things. So I I try to be clear about that. And so but but ultimately, fiscal fiscal authorities will do what they what they seem appropriate deem appropriate.
Samir Hussein, BBC News. Mr. Trump has been a very vocal critic of you and your colleagues recently calling you boneheads and just now has called you a terrible communicator. How do you respond to these criticisms and any regrets to have this many press conferences? I don't.
I'm not going to change my practice here today of of not responding to comments or addressing comments made by elected officials. I will just say that I continue to believe that the independence of the Federal Reserve from direct political control has served the public well over time. And I assure you that my colleagues and I will continue to conduct monetary policy without regard to political considerations. We're gonna use our best judgment based on facts, evidence and objective analysis. In pursuing our goals and.
That's what I have to say on it. Right. I tremble Brian Chung with Yahoo! Finance. Thanks for taking my question. As we saw with falling yields, at least up until the beginning of this month, there's been a lot of demand for U.S. Treasuries and even that was partly maybe to blame for the liquidity crunch in repo markets that we saw this week. I mean, does the Fed have concerns over the impacts of a global glut for U.S.
debt? Is that a conversation that you also have with Treasury Secretary Manoogian about what the proper way to maybe address some of the challenges down the road with that type of kind of heavy interest globally?
Not really. No, that's really that's really Treasury's job and Congress's job in terms of how much to spend and how big the deficits are and how to finance it. And, you know, none of that really calls for advice from the Fed. We take we take fiscal policy pretty much as exaggerates to our work. Now, that doesn't stop. Stop us from time to time from saying that we think it's important that the U.S. fiscal picture return to a sustainable footing.
And right now it's not. That's been the case for a long time. And that's something we will have to address. And in a good time to do it is when the economy is strong. So we limit ourselves to high level statements like that. Hi. How long from The Washington Post? Mr. Chairman, in your view, is there any risk to the United States having much higher interest rates than Europe and Japan and other parts of the world?
Is there any risk to the U.S. economy, to that divergence or any risk to the global economy?
So I guess I would say it this way. It's global capital markets are highly integrated.
And, you know, our rates are our long rates are definitely being pulled down by the very, very low rates that are abroad.
And, you know, the way I characterize it is this that low rates abroad are a symbol or a sign, rather, of of weak global growth, expectations of low inflation, local low growth. And and, you know, just kind of a lack of policy space to move against or ideas about how to break out of that low equilibrium. Now, that has implications for us. You know, we in a world where we're economies and financial markets are tightly integrated.
That matters for the U.S. economy. So that's going to pull down U.S. rates and U.S. financial conditions can tighten because of that. And so I think we put all all of that goes into our into our thinking and into our models. We do understand how the you know, how the international sector interfaces with the U.S. economy. We take that into account in setting our interest rate policy. Thank you very much.