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tv   Federal Reserve Chair Holds News Conference  CSPAN  September 22, 2022 1:26am-2:13am EDT

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television companies and more, including buckeye broadband. ♪ >> buckeye broadband supports c-span as a public service, along with these other television providers, giving you a front row seat democracy. announcer: federal reserve chairman jerome powell announced another increase to interest rates by three quarters of a percentage point in response to record high inflation. it is the third consecutive time rates have increased at that level. this news conference is about 45 minutes. chair powell: good afternoon. my colleagues and i are strongly
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committed to bringing inflation back to our 2% goal. we have the tools we need and the resolve it will take to restore price stability. price stability is the responsibility of the federal reserve and serves as the bedrock of our economy. without it, the economy does not work for anyone. without priced ability, we will not achieve a sustained period of strong labor market conditions that benefit all. today, the fomc raised its policy rate by three quarters of a percentage point, and we anticipate ongoing increases will be appropriate. we are moving our stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%. we are continuing the process of reducing the size of our balance sheet. i will have more to say about today's monetary policy actions after weekly reviewing the
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economy. the u.s. economy has slowed from historically high rates of 2021, which followed the reopening of the economy following the pandemic. growth and consumer spending has slowed from last year's rapid pace, reflecting lower disposable income and tighter financial conditions. activity in the housing sector has weakened, reflecting higher mortgage rates. higher interest rates and slower output growth appear to be weighing on fixed investment, while weaker economic growth abroad is restraining exports. since june, fomc participants have marked down projections for economic activity with the median projection for real gdp growth standing at 1.2% next year.
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well below the median estimate of an longer run normal growth rate. the labor market has remained tight, with unemployment near a 50 year low, job vacancies near historical highs and wage growth elevated. job gains have been robust with employment rising by an average of 378,000 jobs per month. the labor market continues to be out of balance with demand for workers substantially exceeding the supply of available workers. the labor force participation rate showed a welcome uptake in august. fomc participants expect supply and demand conditions in the labor market to come into better balance over time, using the upward pressure on wages and prices. the median projection for the unemployment rate rises to 4.4% at the end of next year, a cap
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point higher than june projections. over the next three years, it runs above the median estimate of its longer run normal level. inflation remains well above our 2% longer run all. over the 12 months ending in july, total prices rose 3%. core pcu rose 4.6%. in august, the 12 month change in the consumer price index was 8.3%. the change in core cpi was 6.3%. price pressures remain evident across a broad range of good and services. while gasoline prices have turned down, they remain well above year earlier levels, reflecting russia's war in ukraine which has boosted prices for energy and food and created upward pressure on inflation. the median projection in the fcp for total pce inflation is 5.4
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this year, and falls to 2.8% next year, 2.3% in 2024 and 2% in 2025. participants continue to see risks to inflation weighted to the upside. longer-term inflation expectations appear to be well anchored, as reflected in surveys of how businesses and measures from financial markets. but that is not grounds for complacency. the longer the current high inflation continues, but greater the chances high inflation will become entrenched. the fed monetary policy actions are guided by our mandate to promote maximum employment and stable prices. my colleagues are acutely aware that high inflation imposes significant hardship, as it erodes purchasing power for those least able to meet the
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higher cost of essentials. we are highly attentive to the risks that high inflation poses to both sides of our mandate, and we are committed to returning inflation to our 2% objective. today, the committee raised the target range for the federal funds rate for three quarters of a point, and we are continuing the process of reducing our balance sheet. over the coming months, we will be looking for evidence that inflation is moving down, consistent with inflation returning to 2%. we anticipate ongoing increases in the target range for the federal funds rate will be appropriate. it will depend on the incoming data and the outlook for the economy. with today's action, we have raised rates three percentage points this year.
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as the stance of monetary policy tightens further, it will become appropriate to slow increases, while we assess how our policy adjustments are affecting the economy and inflation. we will continue to make decisions meeting by meeting, and communicate our thinking as clearly as possible. restoring price stability will likely require maintaining a restrictive policy stands for some time. the record cautions strongly against prematurely loosening policy. as shown in the sep, the projection for the appropriate level of the federal funds rate is 4.4% at the end of this year, 1% higher than projected in june. the projection rises to 4.6% at the end of next year, and declines 2.9% by the end of 2025. these projections do not represent a committee plan, and no one knows where the economy
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will be a year or more from now. we are taking rapid steps to moderate demand, so it comes into better alignment with supply. our focus is using tools to bring inflation back to our 2% goal, and to keep longer-term inflation expectations anchored. reducing inflation is likely to require a sustained period of below trend growth. there will likely be softening of labor market conditions. restoring price stability is essential to set the stage for achieving stable prices over the longer run. we will keep at it until we are confident the job is done. to conclude, we understand our actions affect communities, families and businesses. everything we do is in service to our public mission. we will do everything we can to achieve maximum employment and price stability. thank you and i look forward to
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your questions. reporter: 5:00, chair powell, if you could give us a little detail around how you will know when to slow down rate increases? and how you will eventually know when to stop? chair powell: i want to start by saying my main message has not changed since jackson hole. the fomc is resolved to bring inflation down to 2%, and we will keep at it until the job is done. the way we're thinking about this is, the overarching focus of the committee is getting inflation to 2%. to accomplish that, we need to do two things to achieve a period of growth below trend, and some softening in labor market conditions.
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on the first, the committee's forecast and outside forecasts show growth running below its potential this year. on the second front, there is modest evidence the labor market is cooling off. job openings are down a bit, quits are off their all-time highs, some wage measures are flattening out. in light of the high inflation we're seeing, we think we will need to bring our funds rate to a restrictive level and keep it there sometime. what will we be looking at, i guess is your question. growth continuing below trend, but also the labor market returning to a better balance between supply and demand. and clear evidence inflation is
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moving down to 2%. that's what we'll be looking for. in terms of reducing rates, we want to be confident inflation is moving down to 2%. reporter: mr. chairman, can you talk about how you factor in the variable lags on inflation? and the extent to which the outlook for rates should be seen as linear to the extent that you keep raising rates. chair powell: sure. of course, monetary policy does
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famously work with longer-term variable lags. financial conditions have usually been affected well before we announce our decisions. then changes in financial conditions begin to act in economic activity fairly quickly , within a few months. it will take some time to see the full effects of changing financial conditions on inflation, so we are very much mindful for that. that's why noted in my opening remarks, that as the stance of policy tightens further, it will become appropriate to slow the rate of -- pace of rate hikes. your second question, sorry was? reporter: is raising rates linear? chair powell: i know better than to answer your second question. [laughter]
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reporter: is there a pause where you figure out what has happened to the economy? chair powell: i think it is very hard to say with precise certainty the way this is going to unfold. what we think we need to do and should do is move our policy rate to a restrictive level that is restrictive enough to bring inflation back to 2%. what you see in the sep numbers is peoples views as of this meeting of the kind of levels that will be appropriate. this will evolve over time. i think we will just have to see how that goes. there is a possibility that we would go to a certain level we are confident in and stay there for a time. but we're not at that level. clearly today, we have just
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moved probably into the very lowest level of what might be restrictive. that is my view and in the view of the committee there is a ways to go. reporter: rachel segal from the washington post. projections show unemployment rising to 4.4% next year. historically, that kind of rise would typically bring a recession, should we interpret that to mean no soft landing? and is that necessary to bring inflation down? chair powell: in the sep, there is what i would characterize as a relatively modest increase in the unemployment rate. why is that? that is what we generally expect because we see the current situation as outside of historical experience in a
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number of ways. first, job openings are incredibly high relative to the number of people looking for work. it's plausible that job openings could come down significantly, without as much of an increase in unemployment as has happened in earlier historical episodes. in this cycle, longer run inflation expectations have generally been fairly well anchored. as i've said, there has been no basis for complacency. to the extent that continues to be the case, that should make it easier to restore price stability. the third thing that is different is that part of this inflation is caused by the series of supply shots we have had beginning with the pandemic and the reopening of the economy, and amplified by russia's invasion of ukraine, have all contributed to the sharp increase.
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these are not seen in prior business cycles. in principle, if those start to get better and we do see some evidence of the beginnings of that. for example, commodity prices look like they may have peaked. supply disruptions are beginning to resolve. those developments could ease the pressures on inflation. how much of these factors will turn out to really matter in this sequence of events remains to be seen. we have always understood was going price stability while achieving a modest increase in unemployment in a soft landing will be challenging. no one knows whether this will lead to recession or how significant that would be. that's going to depend on how quickly wage and price inflation pressures come down, whether inflation expectations remain anchored, and until we get more
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labor supply which would help as well. in addition, the chances of assad landing are diminished to the extent that policy needs to be more restrictive, or restrictive for longer. we think a failure to restore price stability would mean far greater pain later on. reporter: our vacancies still at the top of your list in terms of understanding a labor market? chair powell: vacancies almost 2 to 1 ratio in relation to unemployed people. that is different from other cycles were generally very unemployment rate is the best indicator. we think those things for some time now have added value in understanding with the labor of today's -- understanding where
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the labor market is. reporter: you said in describing the policy destination, there is still a way to go. i imagine you have to have some idea of how you are thinking about your destination, whether it is a stopping or a pausing point. would you discuss how you are thinking about as the data comes in, if inflation doesn't perform as you expect, do you want to have a policy rate above the underlying inflation rate? and do you have an estimate for where you think the underlying inflation rate might be in the economy right now? chair powell: we believe we need to raise our policy stands to a level that is restrictive. by that, i mean putting
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meaningful downward pressure on inflation. that's what we need to see in the stats. -- stanza policy. there are variables as it relates to inflation, so it is challenging. when you look at broader financial conditions, where reads are -- rates are, real and nominal, and you see this. this is nothing we talked about in the meeting, and you see this in committee forecasts, you want to be in a place where real rates are positive across the entire yield curve. and think about -- measure those against some forward-looking assessment of inflation expectations, at that time, you would see positive real rates across the yield curve and
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that is an important consideration. reporter: thanks for the opportunity. you say it is meeting by meeting, but it looks like we are going to 50, 75, 25. chair powell: the decision we made today was to raise the federal funds rate by 75. you are right that the median for the year end suggests another 125 basis points in rate increases. but there is another large group that saw 100 basis points in addition to where we are today. that would be 25 basis points less. we didn't make that decision
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today. i would say we are committed to getting to a restrictive level for the federal funds rate, and getting there quickly. that's what we're thinking about. reporter: making about risk management considerations, what is the incentive to continue frontloading? is it lack of progress on inflation as seen in cpi reports, or a motivation to get as much done while the job market is still strong? chair powell: our expectation has been that we would begin to see inflation come down, largely because of supply-side healing. by now we thought we would have seen some of that. we have seen some supply-side healing but inflation has not come down. if you look at core cpe, which is a good measure where inflation is running now.
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on a three, six and 12 month trailing annualized basis, you would see it at 4.5%, 4.8%. that is a pretty good summary of where we are with inflation. what that tells us is we need to continue and keep doing, and we did today do another large increase, as we approach level we think we need to get to. but people are running that down in their sep where they think policy needs to be, so that's how we're thinking about it. reporter: chair powell, how should we interpret the fact that core inflation is still not forecast to be back to target in 2025? the dot plot projects cuts as early as 2024, does that mean
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there is a level of inflation -- chair powell: core is at 2.1 in 2025, and headline median is at 2.0, so that is pretty close. we write down our forecasts and figure out the median and publish it. so, it's not done. i would say, if the economy followed this path, this would be a pretty good outcome. reporter: if the concern is that underlying inflation is becoming more entrenched each month, then why forgo the more aggressive 100 basis point increase today? chair powell: as we sat at the last press conference, we said we would make our decision based on the overall data.
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we got a surprisingly low reading in july, and a surprisingly high reading for august. you never want to overreact too much to anyone data point. if you really look at this years inflation, 3, 6 and 12 month trailing, inflation is too high. it is 4.5% above, you don't need to know much more than that. this committee is committed to getting to a meaningfully restrictive stance of policy and staying there until we feel confident inflation is coming down. reporter: i wanted to ask about the balance sheet. you have left open the possibility that you might sell mortgage-backed securities, but
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we have seen slowing in the housing market and rates have gone up significantly, i'm wondering whether conditions there might affect plans for how quickly you have the runoff? chair powell: we have said we would consider that once balance sheet runoff is well underway. it's not something we're considering right now and not something i expect to be considering in the near term. it's something we will turn to but the time to turn into it has not come. i think a number of things might affect that decision. we are not considering that decision and i don't expect we will anytime soon. reporter: a number of commentators have come to the view that simultaneous global tightening around the world creates a risk of a global
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recession that is worse than is necessary, how do you see that risk, and is there risk of overdoing it on the global level? chair powell: my colleagues and i just got back from one of our frequent trips to basel, switzerland to meet with bank officials from around the world. we also have a domestic mandate in our case. price stability and maximum employment. we discussed what we see in our economy and international spillover. it is an ongoing constant process. we are very aware of what is going on in other economies and what that means for us, and vice versa. our forecast that our staff puts together tries to take all of that i into account.
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we can do it perfectly, but it's not as if we think about monetary decisions and economic developments that are economy. that is baked into our own understanding of the u.s. economy, it would be perfect. -- won't be perfect. it is hard to talk about collaboration in a world where people have different levels of interest rates. there were coordinated cuts at various times but really we're all in very different situations. our contact is more or less ongoing, it's not coordination but there is a lot of information sharing. and we all are informed by what other economies, economies that are important to the united states, are doing. reporter: chair powell, you
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talked about some ways higher interest rates are affecting the economy but we've also seen a resilience labor market with durable consumption. strong corporate profits. i'm wondering what your story is on the resilience of the economy? your colleagues said we started tightening in march, and then treasury rates moved up, so we should have had a lot of tightening. why is the economy in your view so resilient, and doesn't mean we might need a possibly higher terminal rate? chair powell: the labor market in particular has been very strong. there are sectors of the economy that are the most interest-rate sensitive, that are showing the effects of our tightening. the obvious example is housing,
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where you see the decline in activity and price increases moving down. we're having an effect on interest spending. an effect on exports and imports. so, all of that is happening but , and we have said this, this is a strong, robust economy. people have savings on their balance sheet from the period where they couldn't spend and were getting government transfers. there are still significant savings but not as much at the lower end of the income spectrum. the states are very flush with cash. so, there is good reason to think this will continue to be a reasonably strong economy. the data is showing growth will
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be below trend this year. we were forecasting growth well below that but you are right, there is certainly a possibility growth could be stronger than that. that's a good thing because then you see the economy will be more resistant to a significant downturn. but of course, we are focused on getting inflation back down to 2%. we can't fail and do -- to do that. if we work to, that would be most painful for the people we serve. that has to be our overarching focus. and you see that in the sap, the levels of rates we will move to, assuming things turn out in line with the sep.
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reporter: in a world of euphemisms with below trend growth and modest increase in unemployment, i wonder if i could ask a couple of direct questions for the american people. do the odds where you're going with interest rates favor recession? is there acceptable job loss and given that the data is backward looking and the lags in policy are forward-looking, how will you know, or will you know, if you have gone too far? chair powell: i don't know what the odds are. i think there is a very high likelihood that we'll have a period of the low trend growth. and we're seeing that now. the median forecast this year
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for my colleagues was 0.2%. below trend next year was 1.2, also very low. that is a slow level of growth and could lead to increases in on a plumbing. that is something we think we need to have. and we need softer labor market conditions as well. we're never going to say there are too many people working but the real point is this. what we hear when we meet with people is they really are suffering from inflation. if we want to set ourselves up to another period of a strong labor market, we have got to get inflation behind us. i wish there were a painless way to do that, there isn't. we need to get rates to the point where we are putting meaningful downward pressure on
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inflation. that's what we're doing. we certainly don't hope. we certainly haven't given up the idea that we could have a relatively modest increase in unemployment. nonetheless, we need to complete this task. reporter: how will you know if you have gone too far? chair powell: it is hard to hypothetically deal with that question. our really tight and now continues to be ongoing rate increases to get the policy rate where it needs to be. you can look at this sep as today's estimate of where we think those rates would be, of course, they will evolve over time. reporter: i wanted to follow up with what you had mentioned about the labor market. you said that to have the labor market we want, we need price stability. you suggested maybe there isn't
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a trade-off in the long run, but in the short run there is concern about higher unemployment as a result of rate hikes. can you explain, what about high inflation now threatens the job market? you seem to suggest that high inflation will eventually lead to a wickard -- weaker top market. in his blood for the general public how that would work? chair powell: people are seeing wage increases enough by inflation. if your family is one where you spent most of your paycheck every cycle on gas, food, transportation, clothing, basics of life and prices go up the way they are going up, you are in trouble right away. you don't have a question and this is painful for people at the lower end of the wealth spectrum. that's what we're hearing from people, very much inflation is
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really hurting. so how do we get rid of inflation? it would be nice if there was a way to wish it away, but there isn't. we have to get supply and demand back into alignment. the way we do that is by slowing the economy, hopefully we do that by slowing the economy and receive some softening in labor market conditions and we see a big contribution from supply-side improvements and things like that. but out of that is guaranteed. -- none of that is guaranteed. stability as an asset that just delivers large benefits to society over a long period of time. we saw that for a long time. the u.s. had 2% inflation, did move around much, that was beneficial to the public that we serve. we have to get back to that and keep it for another long period of time to pull back from the task of doing that, you're just postponing the record shows, if you postpone that, the delay is
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only likely to lead to more pain. so, i think we are moving to do what we need to do and do our jobs. and that is what you see us doing. >> thank you for taking the question. you had said that americans had businesses need to feel economic pain as we go forward, how long from here should americans be prepared for that pain? chair powell: how long? it really depends on how long it takes for wages and more than that prices to come down for inflation to come down. what you see in our productions today -- projections today is inflation moves down significantly over the course of next year and mourned the next year after that. i think once you are on that path, that's a good thing. things will start to feel better . they will feel lower inflation
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into the economy improving. if our projections are close to right, you'll see that. the cost in employment, there meaningful, and certainly meaningful to the people who lose their jobs. quite a lot. at the same time we would be sitting up the economy for on the long period -- this rewrite has been noted for long expansions, three of the four longest in measured history since we got inflation under control. and that is not an accident. when inflation is low and stable you can have these 9, 10, 11 year extensions, and you can see what we saw in 2018, 2019 and 2020, very low unemployment, the biggest wage gains going to people at the lowest end of the spectrum, the smallest racial gap since we started keeping track of that. we went to get back to that.
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but to get there we are going to have to get supply and demand back in alignment, and that is going to take tight monetary policy for a period of time. >> what is that economic pain in your mind? is it god blesses, higher interest rates on credit cards? chair powell: it is all of those things. if higher interest rate slow growth and a higher interest market are all painful for the public we serve, but they are not as painful as failing to preserve price stability and having to come back and do it down the road again and doing it at a time when now people have come to expect hi inflation. if the concept of high inflation becomes interest in people's economic taking in their decisions, then sort of getting back to price stability -- the cost of getting back to price
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stability only rises, so we went to avoid that. we went to act aggressively now and get the job done and keep at it until it is done. >> nicole, cnn. >> thank you, chairman l. existing home sales have fallen for 70 one st, mortgage levels are at the highest levels since 2008 yet housing prices are still elevated. at the end of your june conference you talked about plans to reset the market. what do you think will it take to actually get there? chair powell when i say reset i am not looking at a particular set of data or anything. what i'm saying is we have had a time of a red-hot housing market all over the country where famously houses were selling to the first buyer at 10% above the ask before seeing the house, that kind of thing.
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there was a big imbalance between supply and demand, housing prices were going up at an unsustainable level. the deceleration in housing prices should help bring prices more in closely in line with rent and other housing fundamentals, and that is a good thing. for the longer term, what we need is for supply and demand to get better aligned. housing prices go up at a reasonable level, a reasonable pace and people can afford houses again, so we and the housing market after go to correction to get back to that place. there are also longer run issues with the housing market as you know, it is difficult to find lots close enough to cities, so builders are having a difficult time getting zoning and lots and workers and materials. i'm a business cycle standpoint -- from a business cycle standpoint, this digital correction should put the housing market back in better
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balance. >> [indiscernible] >> shelter made up a large part of this hot cpi report we saw. do you think we will see that come down in the coming months or do you think there is this imbalance that needs to be addressed? chair powell: i think shelter inflation will remain high for some time. we are looking for her come down but we are not clear when that will happen. it may take some time. hope for the best, plan for the worst. i think on shelter inflation you have to assume it is going to remain high for a while. >> [indiscernible] >> jean young with market news. you have talked about the need to get real rates into positive territory, and you said earlier policy is just moving into that territory now. i'm curious, how restrictive is rates at 4.6 perspective?
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is that expected to be next year, how restrictive? chair powell: if we look and we do get to this level, which i think is likely, what you are going to do is adjust that for some forward looking measure of inflation, and that could be you pick your measure. there are all kinds of different things you can pick. what you would get is a positive number. in all cases you will get forward inflation expectations for the short term that will be significant. you will have a positive federal funds rate at that point, which could be 1% or so, but i do not know what it will be but it will be significantly positive when we get to that level. let me say we have written down what we think is a positive path for the federal funds rate. the path that we actually
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execute will be enough to restore price stability. this is something that as you can see they have moved up, and we are going to continue to watch incoming data and evolving outlook and ask ourselves whether the policy is on the right place as we go. thank you very much.
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