Ritchie Torres Grills Jerome Powell On Inflation: Is Inflation Is On A 'Downward Trajectory'?

4 months ago

During a House Financial Services Committee hearing prior to the Congressional recess, Rep. Ritchie Torres (D-NY) spoke about inflation rates.

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Transcript

00:00General from New York, Mr. Torres is recognized for five minutes.

00:07Chair Powell, the Fed has an inflation rate target of 2%.

00:11Are you waiting for both PCE inflation and CPI inflation to fall to 2%

00:15or only one of those metrics?

00:17So we look at different measures, but for a quarter of a century,

00:21the PCE inflation has been the Fed's goal.

00:25We've defined our goal in terms of that because we think it's the better measure

00:29of the costs and inflation that the public actually faces.

00:33And now you've said that you're willing

00:35to cut interest rates before reaching the 2% target.

00:38Is the decision to cut interest rates going to be driven

00:41by reaching a particular target en route to 2% or is it driven

00:46by the overall trajectory of the inflation rate?

00:49It's going to be driven by the totality of the data.

00:51There isn't a particular number that we have in mind that we have to get to.

00:56You look at all of the data, and the question we're asking ourselves is,

01:00are we sufficiently confident that inflation really is moving down toward 2%?

01:05So what's the underlying inflation rate, looking through the volatility?

01:08We're also looking, though, as I mentioned, at the labor market.

01:11And we're asking ourselves, you know, we have to take

01:13into account now maximum employment, that mandate.

01:16So we're looking at both of those in the decisions that we make.

01:19I mean, are you confident that the inflation rate is on a downward trajectory?

01:23I do have some confidence of that.

01:27I think we've seen that over the past several years.

01:29The question is, are we sufficiently confident

01:31that it is moving sustainably down to 2%, and I'm not prepared to say that yet.

01:36Chair Powell, you announced a re-proposal of Basel III rather than a mere revision.

01:42Do you believe that the U.S. banking system is sufficiently capitalized

01:45in the absence of Basel III?

01:48I've long been of the view that U.S. banks are well capitalized,

01:53and at the level of capital in the U.S. banking system is about right.

01:56Okay. So if the banking system is sufficiently capitalized in the absence

02:00of Basel III, then what exactly is the need for Basel III?

02:04First of all, there's no precise answer as to the appropriate level of capital.

02:09I think we've been part of developing the Basel standards.

02:12They create international broad parity.

02:16It's important that we have that.

02:18It's important that we do something that is comparable

02:21to what the other large jurisdictions are doing, and it's consistent with Basel,

02:25and I think that's what our banks want.

02:27That's what we want, and that will be best serving the public.

02:30But you agree we should conform without gold plating?

02:33You know, some things we've gold plated and some things we haven't,

02:40but I think our end game proposal should be, at the end, should be consistent

02:47with the requirements of Basel and consistent

02:49with what the other large jurisdictions are doing.

02:52Are you confident that there's no legal conflict between the standardization recommended

02:57by Basel III and the regulatory tailoring mandated by Congress?

03:01I think we can work through all that, yeah.

03:02Okay. But if there were a conflict...

03:04Basel doesn't impose any requirements on anyone.

03:07There's no enforceable requirements.

03:09Every jurisdiction does what it's going to do.

03:12Basel doesn't bind anybody.

03:15Right, but the regulatory framework you're adopting would codify those recommendations.

03:18Yes. It would have the force of law, right?

03:20Yes, that's right.

03:21And so, if there were a conflict between the codified recommendations and an act

03:25of Congress, would you agree that an act of Congress would supersede those recommendations?

03:29Yes, sure.

03:31Does the loss of Chevron deference have any implications for Basel III?

03:35You know, it's very early days to assess.

03:40There's several decisions that are about administrative law,

03:43and I think it's too early for us to say.

03:44I mean, ultimately, the question is, are the actions we're taking in compliance with the law

03:51and that that decision says that there will be less deference or no deference, maybe,

03:55to the opinions of the agency.

03:58But that just means a court will be answering the same question,

04:01which is, are those actions consistent with the law?

04:05The Fed has a target rate when it comes to inflation.

04:08Does the Fed have a target when it comes to quantitative tightening,

04:11like when it comes to what should be the size of the Fed's balance sheet?

04:15Well, we don't have a specific target, no.

04:20What would you consider to be a healthy size for the Fed's balance sheet?

04:24You know, we define it, you know, not with numbers, but with words.

04:28And, you know, we want an ample reserves regime with a buffer so that reserves are not scarce.

04:36And we think plentiful reserves, ample reserves is the right place to be.

04:39And, you know, we'll find that empirically.

04:42Can you put a number on that?

04:44No, I can't really.

04:45For four decades, we've had the best of both worlds, low unemployment and low inflation.

04:50Can the U.S. economy return to the golden age of low unemployment and low inflation,

04:54or are we doomed to live with a new normal of higher interest rates?

04:57Well, you know, I think we have low inflation.

05:00We've got a period here of very low, I'm sorry, of low unemployment.

05:04We have high inflation, so can we have the best of both worlds?

05:06We certainly can, and that's the plan.

05:08We will, we're going to return to 2% inflation, I'm reasonably confident.

05:13Some people argue that we're entering into a world of a lot of upward inflation shocks.

05:17That would be a challenging world, but, you know, that remains to be seen.

Ritchie Torres Grills Jerome Powell On Inflation: Is Inflation Is On A 'Downward Trajectory'?

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