Days after dashing investors' expectations for a March interest rate cut, Fed Chairman Jerome Powell spoke with Scott Pelley on CBS's “60 Minutes” to discuss what the Fed has done so far and what it will do next. He outlined his arguments and made broader proposals. Central Bank.
For investors following this Fed cycle closely, many of Powell's statements were repeats of the most revelatory parts of Wednesday's press conference.
For the more mainstream audience the Fed hopes to reach with its “60 Minutes” roundtable, Powell's two memos will likely stand out.
The first is Powell's note on the difference between inflation and the price level of goods and services in an economy, which consumers often confuse. (Emphasis added, transcript via Bloomberg.)
Perry: Inflation is one thing. Price is separate. And do people have any reason to believe that prices of things will fall?
POWELL: So the price of some things will go down. Others will rise. However, the overall price level is not expected to decline. That kind of thing doesn't happen in the economy unless it's a very negative situation. But we do see that inflation is declining.
People are experiencing rising prices. If you think about the basic necessities, like bread, milk, eggs, different types of meat, if you look back. Prices are significantly higher than before the pandemic. So we think that's a big reason why people are relatively dissatisfied with an otherwise pretty good economy.
Overall, professional investors, who are better versed in the logic of economics than the average American, know that prices don't go down and that inflation is a rate of change, not a level. But Mr. Powell's articulation in front of a large audience, while perhaps not satisfying, may help better frame the conversation around the dinner table. After all, workers don't expect their pay to decrease year after year.
And then about housing.
Perry: I've talked to a lot of young couples recently, and they say they can't imagine how they'll be able to get a mortgage right now. what do you say to them?
POWELL: Well, Congress gave us the job of providing maximum employment and price stability. That means that when inflation arrives, when there is a real threat that high inflation will persist, we will use tools to lower inflation. For those young couples, especially those with less financial means, it is very important that we make this a success.
And so I do. I will do that. But what this means is that interest-rate-sensitive expenses, such as mortgages and purchases of durable goods, will remain expensive for some time. That would slow down the economy. But this is all part of a return to stable prices, with interest rates likely to be sustainably low again.
Perry: Are you asking for patience from the American people?
Powell: Yes. And I think people have persevered and gotten through some pretty difficult times. And now I think we've gotten through that period and are starting to feel a little bit better about things. Mortgage rates have fallen in anticipation of lower interest rates, and have fallen slightly in anticipation of lower interest rates.
But you know, we do what we're asked to do when it's necessary. And that was to try to slow down the economy a little bit. And a good example of how rising interest rates slow inflation is the interest in reducing inflation in interest rate-sensitive sectors, particularly housing.
That's not an answer most aspiring homeowners will be happy with.
But at least he's honest.
