Powell: A rate cut in December is not a done deal, there are significant disagreements within the committee, the labor market is still cooling, and inflation faces upward pressure in the short term (full text attached)

Summary of Key Points from Powell's October Press Conference:1. Policy Rate Outlook: It is not a foregone conclusion that the Federal Reserve will cut rates again in December. There is significant disagreement today. Some FOMC members believe it is time to pause.2. Balance Sheet: There was no decision made today regarding the composition of the balance sheet. The composition of the balance sheet is a long-term process and will be gradual. There is hope to adjust towards a balance sheet with shorter duration assets.3. Labor Market: Due to the restrictive nature of policies, the labor market is still cooling. There has been no indication that the weakness in the labor market is worsening; job vacancies indeed suggest that the market has remained stable over the past four weeks. The dramatic decline in labor supply is impacting the labor market. The Federal Reserve closely monitors layoff decisions.4. Inflation: The September CPI was more moderate than expected. Service inflation, excluding the housing market, has shown a one-sided trend. Core PCE, excluding tariffs, may be around 2.3% or 2.4%. So far, non-tariff inflation has not strayed far from the 2% inflation target. The basic forecast is that the U.S. will see some additional tariff inflation.5. Government Shutdown: Data disclosed by the private sector cannot replace the statistical results from government departments (such as the Bureau of Labor Statistics). It can be imagined that a government shutdown under the Trump administration would affect the December FOMC monetary policy meeting.On Wednesday Eastern Time, the Federal Reserve announced at the FOMC that it would lower the target range for the federal funds rate from 4.00% to 4.25% to 3.75% to 4.00%, and decided to end balance sheet reduction starting December 1. This marks the first time in a year that the Fed has cut rates in consecutive FOMC meetings. Federal Reserve Chairman Powell stated at the post-meeting press conference that another rate cut in December is not a certainty.In his opening remarks, Powell noted that although some important federal government data has been delayed due to the government shutdown, the public and private sector data currently available to the Fed indicates that there has not been much change in the employment and inflation outlook since the September meeting.The labor market appears to be gradually cooling, and inflation remains slightly elevated.Powell stated that existing indicators show that economic activity is expanding at a moderate pace. GDP grew by 1.6% in the first half of this year, down from 2.4% last year.Data released before the government shutdown indicates that the growth rate of economic activity may be slightly better than expected, primarily reflecting stronger consumer spending.Investment by businesses in equipment and intangible assets continues to grow, while activity in the housing market remains weak. The ongoing government shutdown will weigh on economic activity, but these effects should reverse once the shutdown ends.Regarding the labor market, Powell mentioned that as of August, the unemployment rate remains relatively low. Job growth has noticeably slowed since the beginning of the year, with a significant portion of the slowdown likely due to a decline in labor growth, caused by factors such as reduced immigration and a declining labor participation rate, although labor demand has also evidently weakened.Despite the delay in the official employment data for September, existing evidence shows that layoffs and hiring remain at low levels; households' perceptions of job opportunities and businesses' perceptions of hiring difficulties continue to decline.In this lackluster and slightly weak labor market, the downside risks to employment have increased in recent months.Tariffs are driving up prices of some goods, and a rate cut in December is not a certaintyRegarding inflation, Powell stated that inflation has significantly retreated from its mid-2022 highs but remains slightly above the Federal Reserve's long-term target of 2%. According to estimates based on the Consumer Price Index (CPI), overall PCE prices rose 2.8% in the past 12 months ending in September; excluding food and energy, core PCE prices also rose 2.8%.These readings are higher than earlier this year, primarily due to a rebound in goods inflation. In contrast, service sector inflation seems to continue to decline. Influenced by tariff news, short-term inflation expectations have generally risen this year, as reflected in both market and survey indicators.However, in the next one to two years, most long-term inflation expectation indicators remain consistent with our 2% inflation target.Powell stated that higher tariffs are driving up prices in certain categories of goods, leading to an overall increase in inflation.A reasonable baseline judgment is that these inflation impacts will be relatively short-lived—i.e., a one-time price level increase. However, it is also possible that the inflation impacts could be more persistent, which is a risk we need to assess and manage.He noted that the short-term inflation risks are tilted to the upside, while employment risks are tilted to the downside, creating a challenging situation. As the downside risks to employment have increased in recent months, the balance of risks has shifted.Through today's interest rate decision, we are in a favorable position to respond promptly to potential economic changes. We will continue to determine the appropriate stance of monetary policy based on the latest data, changes in the economic outlook, and the balance of risks. We still face two-way risks.Powell revealed that there were significant differences among committee members regarding how to act in December during the discussions of this meeting.A rate cut at the December meeting is by no means a certainty. There is no preset path for policy.Ending balance sheet reduction from December 1Additionally, the FOMC decided to end balance sheet reduction starting December 1. Powell stated that the Federal Reserve's long-standing plan is to stop balance sheet reduction when reserve levels are slightly above what the Fed considers to be "ample reserves." There are already clear signs that the Federal Reserve has reached that standard.Powell mentioned that in the money market, the repo rate has risen relative to the Fed's managed rate, and there has been more noticeable pressure on specific dates, along with an increase in the use of the Standing Repo Facility (SRF).Furthermore, the effective federal funds rate has also begun to rise relative to the excess reserves rate. These situations align with our previous expectations of what would occur when the balance sheet size decreases, thus supporting our decision to stop balance sheet reduction todayDuring the past three and a half years of balance sheet reduction, the Federal Reserve's securities holdings have decreased by $2.2 trillion. As a percentage of nominal GDP, the balance sheet size has fallen from 35% to about 21%.He stated that starting in December, the Federal Reserve will enter the next phase of its normalization plan, which involves maintaining the balance sheet size stable for a period of time. At the same time, as other non-reserve liabilities (such as cash in circulation) continue to grow, reserve balances will gradually decline.The Federal Reserve will continue to allow agency securities (such as MBS) to mature and exit the balance sheet, and will reinvest the proceeds from these securities into short-term U.S. Treasury bonds to further drive the portfolio's structural adjustment towards a Treasury bond-dominated structure. This reinvestment strategy will also help bring our portfolio's weighted average maturity closer to the maturity structure of the Treasury market's outstanding stock, thereby further advancing the normalization of the balance sheet structure.Below is the transcript of the Q&A session from Powell's press conference:Q1: The market currently almost views your next meeting's interest rate cut as a done deal. Do you feel uneasy about this market pricing? You and some colleagues described the decision-making framework last month, including today, as "risk management." How do you determine that you have "bought enough insurance"? Do you need to see an improvement in the outlook before you stop? Or will it be like last year, with continued small adjustments over a longer period, watching and waiting?Powell: As I just mentioned, whether to further cut rates at the December meeting is not a done deal. So, I think the market needs to take that into account.I want to emphasize one point: there are 19 participants in the committee, all of whom are working very hard, and during this period of conflict between the two current goals, there will be very strong differences of opinion among the members. As I mentioned, there were clearly differing views at today's meeting. The conclusion is: we have not yet made a decision for December. We will assess based on data, the impact on the outlook, and the balance of risks; that’s all I can say for now.My way of thinking is this: for a long time, our risks have been clearly skewed towards excessive inflation. But the situation has changed. Especially after the July meeting, we saw a downward revision in employment growth, and the labor market picture has changed, showing that the downside risks to employment are greater than we previously anticipated. This means that policy—which we had maintained at what I would call a "slightly" tight level (others might call it "moderately" tight)—needs to move towards a neutral stance over time.If the risks of the two goals are roughly equal, one calling for rate hikes and the other for cuts, then policy should be roughly at a neutral level to balance both. In this sense, it reflects risk management. Today's decision-making logic is similar to this. As for the future, it will be a different situation.Q2: You just emphasized that discussions and conclusions regarding December are not yet finalized. What viewpoints were there in the meeting? For example, was there any discussion about the significant increase in current AI-related investments, and the issues of stock market rises driven by the AI concept and the increase in household wealth? Regarding balance sheet reduction, how much of the current pressure in the funding markets is due to the recent large issuance of short-term debt by the U.S. Treasury?Powell: I wouldn't say that these factors play a role in all committee members' assessments of the economic outlook, nor would I say it is a major factor in anyone's judgment.Let me explain this: the current situation is that inflation risks are skewed to the upside, while employment risks are skewed to the downside. We only have one tool (interest rates) and cannot "precisely balance" these two opposing risks at the same time. Therefore, you cannot address both simultaneously.Moreover, the members have different forecasts for the outlook; some expect inflation or employment to improve faster or slower; everyone's risk preferences are also different, with some more concerned about inflation overshooting and others more worried about insufficient employment. Combining these factors leads to divergences.You can sense these differences from the latest Summary of Economic Projections (SCP) and public speeches between meetings, where opinions are very diverse, and these were reflected as significant differences in today's meeting. I also mentioned this in my remarks.This is also why I emphasize that we have not made a decision for December. I have often said that the Federal Reserve does not make decisions in advance, and today I want to add that the market should not take a rate cut in December as a certainty—this is precisely not the case.Regarding balance sheet reduction, we have observed that the repurchase rates and federal funds rates are rising, which is exactly the signal we expected to see around the time we reach the "ample reserves" standard. We have previously stated that when we feel the level of reserves is slightly above the "ample" standard, we will stop the balance sheet reduction. Since then, as other non-reserve liabilities have grown (such as circulating cash), the reserve balances will continue to decline.In recent times, monetary market conditions have gradually tightened. Particularly in the last three weeks or so, the degree of tension has noticeably increased, leading us to judge that the conditions for stopping the balance sheet reduction have been met.Additionally, the current pace of balance sheet reduction is already very slow; our balance sheet size has been reduced by about half, and continuing to reduce it further would not be meaningful, as reserves themselves will continue to decline.Therefore, the committee supports announcing the cessation of balance sheet reduction starting December 1. This date allows the market some time to adjust.Q3: One of the main reasons you are now considering a rate cut is the concern about downside risks in the labor market. However, if these risks do not materialize and the labor market remains stable or even slightly improves, will you reassess what level rates need to be cut to? At that time, will you be more concerned about the "second-round effects" of inflation and tariffs? If the government shutdown continues longer and key economic data is missing, will you find it harder to assess the labor market due to a lack of data, thus affecting your policy decisions in December?Powell: In principle, if the data indicates that the labor market is strengthening or at least stabilizing, this would certainly affect our future policy judgments.We will continue to receive some data, such as initial unemployment claims from various states, which still show that the labor market is maintaining its current state. We will also look at job vacancy data, various survey data, and the Beige Book.As of now, we do not see a rise in initial claims or a significant decline in job vacancies, which suggests that the labor market may continue to cool very slowly but has not exceeded that extent. This gives us some confidence(Despite the government shutdown), we will still receive some data on the labor market, inflation, and economic activity, as well as information such as the Beige Book. Although the details may not be sufficient, I believe we can still sense significant changes in the economy from this data.As for how it will affect December, it is currently difficult to judge—there are still six weeks until the meeting. If there is a high degree of uncertainty, that in itself may be a reason to support more cautious actions. But we need to wait and see how the situation develops.Q4: Is this decision considered a "reluctant approval"? Or is there a fierce tug-of-war in direction?Powell: The "tug-of-war" I mentioned refers to the outlook for December, not the decision itself. In today's vote, there were two dissenting opinions: one wanted a 50 basis point cut, and the other wanted no cut. The decision to cut by 25 basis points received strong support.The "obvious divergence" mainly reflects the future path: what to do next. Some committee members noted the recent strengthening of economic activity, and many forecasting institutions are raising their economic growth expectations for this year and next, with some increases being quite significant.At the same time, we see the labor market; I don't want to say it is completely stable, but there has not been a significant deterioration, and it may continue to cool very slowly. Different committee members have different expectations for the economic outlook and varying risk preferences. You can feel the divergence of opinions within the committee by looking at their recent speeches, which is why I emphasize that we have not yet decided how to act in December.Q5: Since you are now stopping the balance sheet reduction, will you have to start increasing asset holdings again next year? Otherwise, the size of the balance sheet as a percentage of GDP will continue to decline, constituting further tightening?Powell: Your understanding is correct. Starting December 1, we will freeze the size of the balance sheet. As agency mortgage-backed securities (MBS) mature, we will reinvest the funds into short-term Treasury bills (T-bills), which will increase the proportion of U.S. Treasuries in the balance sheet and shorten the duration.With the balance sheet size frozen, non-reserve liabilities (such as cash in circulation) will still grow naturally, so reserve balances will continue to decline, and reserves are the part we need to keep at "ample" levels. This continued decline in reserves will last for a while, but not too long.Ultimately, at some point, we will need to gradually increase reserve balances again to match the expansion of the banking system and the economy, so at some future stage, reserves will be increased again.Additionally, although we did not make a decision on this today, we did discuss the structure of the balance sheet. Currently, our asset duration is significantly longer than the average duration of Treasury securities in the market, and we hope to gradually shorten the duration to bring the balance sheet structure closer to the duration distribution of the Treasury market. This process will be very slow and take a long time, without causing significant fluctuations in the market, but that is the direction of future adjustments.Q6: How do officials interpret the latest CPI report? Some components were below expectations, but core inflation remains at 3%. What new insights do you have about the drivers of inflation from the current data? Additionally, where do you think the Federal Reserve is more likely to make a mistake—employment or inflation?What measures can you take to address stubborn service sector inflation, especially in the context of potentially limited labor supply?Powell: Regarding the CPI report for September, we have not yet received the subsequent PPI data, which is very important for estimating the PCE inflation that we are more concerned about. However, even so, we can still roughly assess its direction, and there may be slight adjustments after the PPI is released.Overall, the inflation data is slightly softer than expected. We usually break down inflation into three parts:First, commodity prices are rising, primarily driven by tariffs. Compared to the long-term trend of slight deflation in commodity prices in the past, the price increases caused by tariffs are now pushing up overall inflation.Second, housing services inflation is declining and is expected to continue to decline. If you remember a year or two ago, everyone thought it would decrease, but it didn't happen for a long time, and now it has been declining for a while, and we expect it to continue.Third, inflation in services excluding housing (i.e., core services) has basically fluctuated sideways over the past few months. A considerable portion of this segment belongs to "non-market services," and its price changes do not well reflect how tight the economy is, so the signal value is limited.In summary, there are a few points:First, if we exclude the impact of tariffs, current inflation is actually not far from our 2% target. Different calculations vary slightly, but if core PCE is at 2.8%, excluding tariffs, it is about 2.3% to 2.4%, which is not far from the target.Second, the inflation caused by tariffs should be a one-time event under baseline conditions, although it may continue to push inflation up in the short term. However, one thing we are very focused on this year is ensuring that it does not evolve into persistent inflation and carefully assessing which channels might turn "one-time" into "stubborn inflation."One possibility is an extremely tight labor market, but we are not seeing that at the moment; another is rising inflation expectations, but we are not seeing that either. Therefore, we remain highly vigilant rather than assuming that tariff inflation is necessarily a one-time event. We fully understand that this is a risk that needs to be closely monitored and ultimately managed.In service sector inflation, the part that is not declining as we would like is mainly the "non-market services" within "non-housing core services." We expect this part to gradually decline, as it largely reflects income in financial services that is "market-valued rather than actually paid," related to the rise in the stock market.Additionally, I believe current policy is still in a "modestly restrictive" state, which should help cool the economy gradually and is one of the reasons for the very slow cooling of the labor market. A slightly restrictive monetary policy itself helps to gradually push down service inflation.I want to emphasize that we are fully committed to bringing inflation back to 2%. You can see from long-term inflation expectations and market pricing that the policy commitment remains highly credible, and there should be no doubt from the outside about our ultimate achievement of the target.Q7: Currently, AI infrastructure is undergoing a massive construction boom. Does this investment frenzy mean that interest rates are not actually that tight? If interest rates are further lowered at this time, could it potentially drive up investment and even create asset bubbles?How does the Federal Reserve view this? You mentioned that in the absence of government data, there are still some data points available to monitor inflation and growth trends. We have a clear understanding of employment, so in the absence of official data, what indicators do you rely on to track inflation?Powell: You're right, there is a significant amount of data center construction and related investment happening across the U.S. and globally. Large American companies are investing substantial resources to study how AI impacts their businesses, and AI will rely on and operate within these data centers, so this is a very important matter.However, I don't believe that investments in data center construction are particularly sensitive to interest rates. They are more based on a long-term judgment—that this is a field where future investments will be substantial and can enhance productivity. As for the ultimate effects of these investments, we don't know, but compared to other industries, I think their sensitivity to interest rates is not high.(Regarding economic data), we look at many sources, but it should be emphasized that this data cannot replace government official data. Just to give a few examples: online price data provided by PriceStats, Adobe, etc.; for wages, we look at ADP data; for spending—I'm aware you will ask about this next—we also have various alternative data.Additionally, the Beige Book will also provide information, and it will be released as usual during this cycle. This data cannot replace government data, but it allows us to grasp the situation roughly. If there are significant changes in the economy, I believe we can capture signals from this data. However, during periods of missing official data, we indeed cannot make very detailed, granular judgments as we usually would.Q8: I would like you to further explain the point you mentioned earlier: the government shutdown leading to data gaps will make December's actions more difficult and may even make you more cautious. If you have to rely more on private data of lower quality than official data, or on your own surveys, the Beige Book, and other information, are you concerned that you might end up in a situation of "making policy decisions based on fragmented anecdotes"?Powell: This is a temporary situation. Our job is to collect all the data and information we can find and evaluate it carefully. We will do this; that is our responsibility.You asked whether the shutdown would affect the December decision? I'm not saying it definitely will, but there is indeed that possibility. In other words, if you are driving in heavy fog, you would slow down. Whether this situation will occur, I cannot judge right now, but it is entirely possible.If the data resumes publication, that would be great; but if the data remains missing, then taking a more cautious action may be a reasonable choice. I'm not making a commitment, but I am saying: there is indeed a possibility—that in unclear visibility, you would choose to "go slower."Q9: We have recently seen major companies like Amazon announce layoffs. I would like to know if these signs have entered your discussions today? The tension between the labor market and economic growth seems to be starting to tilt unfavorably for employment. Secondly, are concerns about a "K-shaped economy"—for example, signs that healthcare costs for low-income families may rise significantly—also being considered in policy deliberations?Powell: We are closely monitoring these situations.First, regarding layoffs, you are correct that many companies have announced reduced hiring and even layoffs. Many companies have mentioned AI and the changes it brings. We are very concerned about this, as it could indeed impact job growth. However, we have not yet seen a significant reflection of this in the initial unemployment claims data — this is not surprising, as data typically lags behind, but we will monitor it very closely.As for the "K-shaped economy," the situation is similar. If you listen to the earnings calls of companies, especially large ones targeting the consumer market, many are discussing the same phenomenon: the economy is diverging, with low-income groups under pressure, reducing consumption, and turning to cheaper goods; while consumption among high-income and high-wealth groups remains strong. We have collected a lot of anecdotal information on this.We believe this phenomenon is real.Q10: You said, "A further rate cut in December is not a foregone conclusion, far from it." If the reason for not cutting rates in December is not due to a lack of data, what other factors might make you reluctant to cut rates? In other words, if it’s not due to a lack of data, what are the concerns? Since you mentioned that the divergence within the committee mainly focuses on the future path of interest rates, does this divergence stem more from concerns about inflation, concerns about employment, or deeper ideological differences in policy?Powell: From the committee's perspective, we have already cut rates by a cumulative 150 basis points this year, and the current rate range is between 3% and 4%, while many estimates of the neutral rate are also in the 3%-4% range. The current rate is roughly at the neutral level and is above the median estimate of committee members.Of course, some members believe the neutral rate is higher, and these views can be discussed, as the neutral rate itself cannot be directly observed.For some members of the committee, it may be time to pause and observe — to see if there really is a downside risk to employment and to assess whether the current observed economic growth rebound is real and sustainable.Typically, the labor market reflects the true momentum of the economy better than spending data. However, the signs of a slowdown in employment this time make interpretation more complex. We have already cut rates by an additional 50 basis points in the past two meetings, and some members believe we should "pause for now"; others wish to continue cutting rates. This is why I mentioned that "there are clear divergences."Every member of the committee is committed to doing the right thing to achieve our policy goals. The divergences partly stem from different economic forecasts, but a significant portion also comes from different risk preferences — this is a normal phenomenon that has existed in previous Federal Reserves.Different people have different tolerances for risk, which naturally leads to differing opinions. You should have sensed this from the recent public speeches of the committee members.The current situation is that we have cut rates twice in a row, and we are now about 150 basis points closer to the "neutral level." There are increasingly more voices suggesting that we should perhaps "wait for a cycle to see," observe before making decisions. It is as simple and transparent as thatYou have already seen this divergence in the economic forecast (SEP) from September and the public speeches of the committee members. I can also tell you that these views will be reflected in the minutes. What I am saying now is what actually happened in today's meeting.Q11: How would you explain the reasons for the current weakening of the labor market? What effect will this rate cut have on improving employment prospects?Powell: I believe there are two main reasons for the weakening labor market.First, there has been a significant decline in labor supply, which includes two aspects: one is the decrease in labor force participation rate (which has cyclical factors), and the other is the reduction in immigration—this is a major policy change that started under the previous administration and has accelerated under the current administration. Therefore, a large part of the reason comes from the supply side. Additionally, labor demand has also declined.The decrease in the unemployment rate means that the decline in labor demand is slightly greater than the decline in supply. Overall, the current situation is mainly caused by changes on the supply side, which is a judgment I share with many others.So, what can the Federal Reserve's tools do? Our tools mainly affect demand.In the current situation, if we adjust for employment (considering the possibility that statistics may "overestimate employment growth"), new jobs are basically close to zero. If this zero growth persists in the long term, it is hard to call it a "sustainable maximum employment state," which is an unhealthy "balance."Therefore, many members of the committee and I believe that it was appropriate to support demand through rate cuts in the past two meetings. We have done so, and interest rates are significantly less tight than before (although I wouldn't say they have turned into accommodative), which should help prevent the labor market from deteriorating further. However, the situation remains quite complex.Some believe that the current issues mainly stem from the supply side, and that monetary policy has limited effects; but there are also those—myself included—who believe that the demand side still plays a role, and therefore we should use policy tools to support employment when we see risks.Q12: You also mentioned that tariffs have led to a "one-time price increase." Will American consumers continue to feel the price increases caused by tariffs this year?Powell: Our basic expectation is that tariffs will continue to push inflation up for a period of time, as tariffs take time to gradually transmit along the production chain to the consumer end.The effects of the tariffs implemented in previous months are now becoming apparent. New tariffs will take effect in February, March, April, and May, and these effects will last for a while, possibly until next spring.These effects are not large, likely pushing inflation up by 0.1 to 0.3 percentage points. Once all tariffs are in place, they will no longer continue to increase inflation but will result in a one-time increase in the price level, after which inflation will fall back to levels excluding tariffs, and the inflation excluding tariffs is currently not far from 2%.However, consumers do not care about this technical explanation; they only see that prices are much higher than before. What truly makes the public dissatisfied with inflation are the significant price increases in 2021, 2022, and 2023. Even though the rate of increase has slowed now, prices are still much higher than three years ago, and people still feel the pressure. As real income rises, the situation will gradually improve, but it will take timeQ13: Are you worried that the current stock market valuation is too high? You should also be aware that interest rate cuts will push up asset prices. So, how do you balance the contradiction between "interest rate cuts supporting employment" and "stimulating AI investment that may even lead to more layoffs"? In recent weeks, thousands of layoffs related to AI have been announced.Powell: We do not focus on a specific type of asset price and say, "This is unreasonable." That is not the responsibility of the Federal Reserve. We are concerned about whether the overall financial system is robust and can withstand shocks.Currently, banks are well-capitalized; although low-income households are under pressure, overall, household balance sheets remain relatively healthy, and debt levels are manageable. Lower-end consumption has indeed slowed, but the overall situation is not particularly concerning.Let me emphasize again that asset prices are determined by the market, not by the Federal Reserve.I do not believe that interest rates are the key factor driving data center investment. Companies are building data centers because they believe these investments have very good economic returns and high discounted cash flow value. This is not something that can be decided by "25 basis points."The Federal Reserve's responsibility is to use tools to support employment and maintain price stability. Lowering interest rates will marginally support demand, thereby supporting employment, which is why we do it.Of course, whether it is a cut of 25 basis points or 50 basis points, it will not have an immediate decisive effect, but lower interest rates will support demand and promote hiring over time. At the same time, we must proceed cautiously because we are very aware that inflation still carries uncertainty, so the path of interest rate cuts has always been "small steps and slow progress."Q14: Regarding AI, a significant portion of current economic growth seems to come from AI investment. If technology investment suddenly contracts, are you worried about what impact it might have on the overall economy? Do other industries have enough resilience to support it? In particular, do you think we can draw some lessons from the 1990s (the internet bubble period) to deal with the current situation?Powell: This situation is different. The technology companies that are highly valued today are genuinely profitable, with business models and profits to support them. Looking back at the "internet bubble" of the 1990s, many of those were just concepts, not mature companies, and it was a very obvious bubble. (I won't name specific companies) But now these companies are profitable and have mature business models, so the nature is completely different.Currently, equipment investment and investments related to data centers and AI are one of the important sources of economic growth.At the same time, consumer spending is far greater than AI investment and has been stronger than many pessimistic forecasts this year. Consumers are still spending, although it may primarily come from high-income groups, but consumption remains strong, and consumption's weight in the economy far exceeds that of AI-related investments.From the perspective of growth contribution, AI is an important factor, but consumption drives the economy more significantly.The main reason for the current slowdown in the labor market is a significant decline in labor supply, mainly due to reduced immigration and a decline in labor force participation. This means that the demand for new jobs is decreasing because there are not enough new workers entering the market to absorbIn other words, there are not as many new job seekers emerging.In addition, labor demand is also declining. The drop in labor force participation rate more accurately reflects weak demand this time, rather than just trend factors. Therefore, we are indeed seeing a weakening labor market.Economic growth is also slowing down. Last year's growth rate was 2.4%, and we expect it to be 1.6% this year. Without the impact of the government shutdown, it could have been a few basis points higher. There will be a rebound after the shutdown ends, but overall, the economy is still growing moderately.Q15: I would like you to elaborate on how you think about monetary policy in the absence of data. Does this "data drought" make you more inclined to stick to the original path, or does it make you more cautious due to uncertainty?Powell: We will only know what to do when we actually face this situation—if it really happens. There may be two directions for interpreting this situation.As I have mentioned several times before, if we indeed do not have enough information and cannot make clear judgments, while the economy still appears robust, stable, and without significant changes, some may argue that in the face of unclear visibility, we should slow down our pace. I don't know how persuasive this view would be at that time, but there will certainly be people advocating for it.Of course, there will also be those who propose the opposite view: since it seems unchanged, we should proceed as planned. But the problem is, you may not really know whether the situation has truly remained unchanged.I don't know if we will ultimately encounter such a scenario. I hope not, and I hope that by the December meeting, the data will return to normal, but in any case, we must do our job well.Q16: A few years ago, you mentioned that the overall capital level of the financial system was roughly appropriate. Now the Federal Reserve is advancing a revision plan involving additional capital requirements for globally systemically important banks (G-SIBs). Has this changed your view on capital levels? Do you plan to significantly reduce the capital levels within the system?Powell: Discussions are currently ongoing among regulators, and I do not want to comment prematurely on the outcomes of these discussions. I still believe, as I said in 2020, that the capital level of the system was roughly appropriate at that time. Since then, through various mechanisms, the capital level has further increased.I look forward to these discussions continuing. The discussions are still in the early stages and have not formed a complete plan, so I do not have much to add at this time.Q17: Is the weakness in the job market accelerating? If interest rate cuts cannot effectively alleviate further slowdowns in employment, which groups are at the greatest risk? When deciding on interest rate cuts, do you consider more the low-income groups or those who may lose their jobs due to automation? Is there a specific group that you pay particular attention to?Powell: We currently do not see the kind of "accelerating weakness in the job market" that you mentioned. Admittedly, we did not receive the September non-farm payroll report, but we will look at the initial jobless claims, which remain stable. You can also look at the relevant data; there have been no signs of deterioration over the past four weeks. Looking at the job vacancy data from the job site Indeed, it is also stable and does not show any significant deterioration in any part of the job market or economyBut as I mentioned, you will see some large companies announcing layoffs or stating that they will not expand their total workforce in the coming years. They may adjust their staffing structure, but do not require a larger workforce.From the overall data, it is still not very apparent, but new job creation is very low, and the proportion of unemployed individuals finding new jobs is also very low. At the same time, the unemployment rate remains very low—4.3% is still considered low.Our tools cannot provide targeted support for any specific demographic or income level. However, I do believe that when the job market is in good shape, the biggest beneficiaries are the general public.We saw this during the long recovery process after the global financial crisis. When the job market is strong, low-income groups benefit the most. In the past two to three years, the income of low-income groups has improved the most, and the demographic structure and employment trends at that time were very positive.We are no longer in that phase. A stronger job market is the most important thing we can do for the public. This is also half of our responsibility. Maintaining price stability is the other half. Inflation particularly harms those on fixed incomes, so we must balance both points.Q18: The terms of the 12 regional Federal Reserve Bank presidents will expire at the end of February next year. Can you share the timeline for the Board's consideration of these reappointment decisions? Will we see all reappointments, or could there be changes? The last three FOMC meetings have seen dissenting votes in different directions regarding interest rate decisions. Did you feel pressure while presiding over these meetings? What does this divergence mean to you?Powell: The relevant procedures will be carried out as required by law. According to the law, regional Federal Reserve Bank presidents must undergo a reappointment evaluation every five years. This process is currently underway, and we will complete it in a timely manner. That's all I can say for now.(As for dissenting votes in the opposite direction), I do not view it that way, nor would I say it puts pressure on me. We must face the current situation, which is indeed very challenging: the unemployment rate is at 4.3%, economic growth is close to 2%, and the overall situation is not bad. However, from a policy perspective, we are simultaneously facing upward risks to inflation and downward risks to employment.This is very difficult for the Federal Reserve because one risk points to rate cuts, while the other points to rate hikes, and we cannot satisfy both directions at the same time; we can only seek a balance in between.In this environment, you will naturally see differing views among committee members, including how to act and the pace of action. This is completely understandable. Committee members are extremely serious, diligent, and wish to make the best decisions for the American people, but they may have different judgments on "what the right course of action is."It is my honor to work with such dedicated individuals. I do not find this unfair or frustrating. This is simply a time when we must make difficult adjustments in a real-time environment. I believe the actions we have taken this year are correct and prudent. We cannot ignore the issue of inflation, nor can we pretend it does not exist.At the same time, since April, the risk of "persistently high inflation" has clearly decreased. If it is appropriate to lower interest rates again in the future, we will do soUltimately, we hope that by the end of this cycle, the job market will remain robust, inflation will fall to 3%, and further move towards 2%. We are doing our utmost in a very complex environment.Q19: Both regional banks and large banks are experiencing losses and delinquencies on loans. As Jamie Dimon said, "If you see one cockroach, there may be more." How do you view these loan losses? Do they pose a risk to the economy? Is this a warning sign?Powell: We have been closely monitoring credit conditions. You are correct that we have seen an increase in subprime defaults for some time now. Recently, some subprime auto loan institutions have reported significant losses, some of which are reflected on bank balance sheets. We are keeping a close eye on this situation.However, at this point, I do not believe this is a broader debt risk issue. It does not seem to be spreading widely among financial institutions. But we will continue to monitor closely to ensure that this is indeed the case.Q20: The economy is currently showing a "dual divergence": high-asset individuals are still spending, while low-income groups are cutting back on expenditures. To what extent is the current resilience in consumption dependent on strong stock market performance? Is the stock market supporting the economy to some extent?Powell: The stock market does play a role, but it is important to remember: the more wealth one has, the lower the marginal utility of additional wealth in driving consumption. Once wealth reaches a certain level, the marginal propensity to consume declines significantly.Therefore, a decline in the stock market will indeed affect consumption, but unless there is a very sharp drop in the stock market, it will not lead to a drastic decline in consumption.The marginal propensity to consume among low-income and low-asset groups is much higher; any additional income or wealth they receive is more likely to be directly converted into consumption, but they do not have much wealth in the stock market.So, the stock market is indeed one of the factors currently supporting consumption. If the stock market undergoes a significant adjustment, you will see some weakening in consumption, but it should not be assumed that every dollar the stock market drops will result in a dollar-for-dollar decrease in consumption; that is not the case