A few days after dashing investor hopes for a March rate cut, Fed Chair Jerome Powell made a broader pitch, sitting down with Scott Pelley on CBS’ “60 Minutes” to outline his case for what the Federal Reserve has done and what’s next for the central bank.
For investors following this Fed cycle closely, much of what Powell said was a reiteration of the most revelatory parts of Wednesday’s press conference.
For the more mainstream audience the Fed is hoping to reach by doing a “60 Minutes” sit down, we think two notes from Powell stand out.
The first is Powell’s note on the difference between inflation and the price level of goods and services in the economy, which are often conflated by consumers. (Emphasis added, transcript via Bloomberg.)
PELLEY: Inflation is one thing. Prices are another. And I wonder if there’s any reason to believe that people will see the prices of things decline?
POWELL: So, the prices of some things will decline. Others will go up. But we don’t expect to see a decline in the overall price level. That doesn’t tend to happen in economies, except in very negative circumstances. What you will see, though, is inflation coming down.
People are experiencing high prices. If you think about the basic necessities, things like, you know, bread and milk and eggs and meats of various kinds, if you look back, prices are substantially higher than they were before the pandemic. And so, we think that’s a big reason why people are, have been relatively dissatisfied with what is otherwise a pretty good economy.
A professional investing public that is, on balance, more familiar with the logic of economics than the average American knows that prices don’t go down, and that inflation is about the rate of change not the level. But Powell’s articulation for a large audience likely doesn’t satisfy folks, but may help better frame that conversation around the dinner table. After all, workers don’t expect to see their pay go down year to year.
And then on housing.
PELLEY: I have spoken to many young couples recently who have said they can’t imagine how they could afford a mortgage today. What do you say to them?
POWELL: Well, Congress has given us the job of providing maximum employment and price stability. And that means when inflation comes, when high inflation really threatens to become persistent, we use our tools to bring down inflation. It’s very important for that young couple — and particularly for younger couples starting out who may not have great financial means, that we succeed in this effort.
And we will. We will do so. But what that means is that interest-sensitive spending like mortgages and buying, you know, durable goods and things like that, that’s going to be expensive for a while. That’s going to slow the economy down. But this is all part of getting back to a place of price stability when interest rates can be low again on a sustainable basis.
PELLEY: You’re asking the American people for patience?
POWELL: Yes. And I think people have been patient and have been through a pretty difficult time. And I think now we’re coming through that time and starting to feel a little bit better about things. Mortgages rates have come down in anticipation, come down a bit in anticipation of lower rates.
But, you know, we do what we’re charged to do when we need to do it. And that was to try to slow the economy down a bit. And the interest to get inflation down in the interest-sensitive areas, particularly housing are, you know, a good example of the kinds of things that do slow down when rates go up.
Not an answer that is likely to satisfy most aspiring homeowners.
But at least an honest one.
