Powell: "Next time will not be a basic assumption of interest rate hikes," progress has been made on non-tariff inflation, and AI has limited impact on employment (full text attached)

Summary of Key Points from Powell's Press Conference on December 10: 1. Monetary Policy: Does not believe that "the next rate hike" is anyone's baseline assumption. 2. Labor Market: Needs to cautiously assess household employment data. Data that has not been collected may cause distortions. Technical factors may distort CPI and household employment data. The unemployment rate may only rise by one-tenth to two-tenths. Job growth has been exaggerated, which is undisputed. Artificial Intelligence (AI) may be one of the reasons for weak employment, but its impact is not significant. 3. Inflation: The U.S. has made progress in non-tariff inflation. If the U.S. does not implement new tariffs, goods inflation may peak in the first quarter of 2026. 4. U.S. Government Shutdown in October-November: Growth expectations for 2026 have been revised upward to some extent, reflecting the impact of the U.S. government shutdown in October-November. 5. Personal Future: No new plans after the term of the Federal Reserve Chairman expires. 6. Market Reaction: The S&P narrowed its gain from 1.2% to 0.7%, the Dow is currently up 556 points, a gain of 1.1%, the Nasdaq is up 0.4%, the semiconductor index is up 1.4%, and the bank index is up 2.7%. The two-year U.S. Treasury yield fell below 3.54%, refreshing the daily low, down 7.5 basis points; the ten-year U.S. Treasury yield fell about 5 basis points, refreshing the daily low to below 4.14%. Spot gold rose 0.6%, refreshing the daily high, approaching $4239, and at 03:41 Beijing time (during Powell's press conference), refreshed the daily low, approaching $4182. As Powell's press conference was nearing its end, Bitcoin briefly rose to $94,500, refreshing the daily high. On Wednesday, December 10, Eastern Time, the Federal Reserve announced after the Federal Open Market Committee (FOMC) meeting that the target range for the federal funds rate was lowered from 3.75% to 4.00% to 3.50% to 3.75%, while initiating the purchase of short-term U.S. Treasury bonds. Federal Reserve Chairman Powell stated at the post-meeting press conference that the currently available data indicate that the economic outlook has not changed, and the scale of Treasury bond purchases may remain at a high level in the coming months. In his opening remarks at the press conference, Powell stated that although some important federal government data from the past month or two have not yet been released, existing public and private sector data show that since the October meeting, the U.S. employment and inflation outlook has not changed significantly, and economic activity continues to expand at a moderate pace. The labor market appears to be gradually cooling, while inflation levels remain slightly high, consumer spending looks robust, and business fixed asset investment continues to grow. He noted that, in contrast, activity in the real estate sector remains weak. The federal government's temporary shutdown may have caused some drag on economic activity this quarter, but as the government resumes operations, these effects are expected to be offset by higher growth in the next quarter. In the Federal Reserve's "Summary of Economic Projections," the median forecast among participants indicates that this year's real GDP growth rate is expected to be 1.7%, and next year's is expected to be 2.3%, which is slightly higher than the forecast in September In terms of the labor market, Powell stated that although the official employment data for October and November have not yet been released, existing evidence indicates that both layoffs and hiring activities remain at low levels. At the same time, households' perceptions of job opportunities and businesses' feelings about hiring difficulties continue to decline. The unemployment rate has continued to rise slightly, reaching 4.4%, while employment growth has noticeably slowed compared to earlier this year. This slowdown may largely reflect a deceleration in labor supply growth, including reduced immigration and changes in labor participation rates. However, at the same time, labor demand itself has indeed weakened. In such a declining and weakening labor market, the downside risks to employment have increased in recent months. The committee expects the unemployment rate to be around 4.5% by the end of this year, before slightly retreating thereafter. Regarding inflation, Powell stated that inflation has significantly retreated from its mid-2022 peak, but remains slightly above the Federal Reserve's long-term target of 2%. He noted that there have been few inflation data releases since the October meeting. For the 12 months ending in September, the overall Personal Consumption Expenditures (PCE) price index rose by 2.8%; the core PCE inflation, excluding food and energy, was also 2.8%. These readings are higher than earlier this year, primarily due to a rebound in goods inflation, reflecting the impact of tariffs. He indicated that, in contrast, the downward trend in service inflation seems to be continuing. Short-term inflation expectations have retreated from their earlier highs this year, as reflected in both market indicators and survey data; while most long-term inflation expectation indicators remain aligned with the Federal Reserve's 2% inflation target. In the Summary of Economic Projections, Federal Reserve officials' median forecast for overall PCE inflation is 2.9% for this year and 2.4% for next year, slightly lower than the September forecast. Thereafter, the median inflation is expected to fall back to 2%. Powell stated that currently, the risks of inflation are tilted to the upside, while the risks to employment are tilted to the downside, presenting a challenging situation. There is no risk-free policy path when addressing the tension between employment and inflation targets. A reasonable baseline judgment is that the impact of tariffs on inflation will be relatively short-lived, essentially a one-time upward shift in price levels. Our responsibility is to ensure that this one-time price increase does not evolve into a persistent inflation problem. However, at the same time, the downside risks to employment have increased in recent months, and the overall risk balance has shifted. Our policy framework requires balancing between the two aspects of our dual mandate. Therefore, we believe it is appropriate to lower the policy rate by 25 basis points at this meeting. With today's rate cut, the Federal Reserve has cumulatively lowered the policy rate by 75 basis points over the past three meetings. Powell stated that this will help gradually bring inflation back down to 2% after the impact of tariffs fades. He mentioned that the adjustments made to the policy stance since September have brought the policy rate into a range of various "neutral rate" estimates, with the median forecast of Federal Open Market Committee members indicating that the appropriate level of the federal funds rate will be 3.4% by the end of 2026 and 3.1% by the end of 2027, which remains unchanged from September Launch of U.S. Treasury Purchases Powell stated that as an independent decision, the Federal Reserve has also decided to initiate purchases of short-term U.S. Treasury securities, with the sole purpose of maintaining an ample supply of reserves over a longer period, thereby ensuring that the Federal Reserve can effectively control policy interest rates. He emphasized that these issues are separate from the monetary policy stance itself and do not represent a change in policy direction. He mentioned that given the continued rise in money market rates relative to the management rates set by the Federal Reserve, as well as other indicators of reserve market conditions, the committee believes that the size of reserves will revert to "ample levels." Therefore, increasing our securities holdings helps ensure that the federal funds rate remains within the target range. This is necessary because as the economy grows, public demand for cash and reserves will also increase. Powell indicated that according to the statement released by the New York Fed, the initial scale of asset purchases will reach $40 billion in the first month and may remain at a high level in the following months to alleviate anticipated short-term money market pressures. After that, the purchase scale is expected to decline, with the specific pace depending on market conditions. Under our execution framework, "ample reserves" means that the federal funds rate and other short-term rates are primarily controlled through our set management rates, rather than relying on daily money market operations. He stated that under this mechanism, the standing repo facility is crucial for ensuring that the federal funds rate remains stable within the target range during times of significant money market pressure. Based on this consideration, the committee has reassessed and adjusted the limits on repo operations to support the implementation of monetary policy and the smooth functioning of the market, and will use these tools when economic conditions are reasonable. Here is the transcript of the Q&A session from the press conference: Q1: The statement today included the phrase "when considering the magnitude and timing of further adjustments," does this mean that the Federal Reserve will remain on hold until clearer signals are seen from employment data or the economy develops along the baseline scenario? Given the upward revision of GDP growth, inflation levels, and relatively stable unemployment rates, this seems to constitute a fairly consistent economic outlook for next year. How has this outlook formed? Is it related to the early development of artificial intelligence and improvements in productivity? What are the main driving factors? Powell: Yes. The adjustments since September have brought our policy rate into a fairly broad estimate range of "neutral rate." As we mentioned in today's statement, whether and how to further adjust in the future will depend on our observations of the latest data and our judgment on the balance of risks to employment and inflation. The new wording emphasizes that we will carefully assess the upcoming data. I would also like to point out that since September, we have cumulatively cut rates by 75 basis points, and since last September, we have cumulatively cut rates by 175 basis points. The current federal funds rate is already within a broad estimate range of neutral rate, which gives us a good condition to be patient and wait for how the economy evolves further. There are multiple factors driving changes in the forecast outcomes. If you look at forecasting institutions outside the Federal Reserve, you can also see that many of them have similarly raised their growth expectations On one hand, consumer spending remains resilient; on the other hand, the construction of data centers related to artificial intelligence and AI investments are supporting corporate fixed asset investment. Overall, whether within the Federal Reserve or in external forecasts, the benchmark expectations for next year are showing a rebound from the currently relatively low growth rate of 1.7%. As I mentioned earlier, the growth forecast for this year in the September SEP was 1.2%, while it is now 1.7%, and the forecast for next year is 2.3%. Part of this change is related to the government shutdown, which can account for about 0.2 percentage points being shifted from this year to next year, so it can also be understood as approximately 1.9% this year and about 2.1% next year. In general, fiscal policy will continue to provide support, and AI-related spending is expected to persist, while consumers are still continuing to spend. Therefore, from the baseline scenario, economic growth next year looks to be robust. Q2: You previously described this round of interest rate cuts as a "risk management framework." Are we now in a phase of interest rate cuts based on risk management? In other words, in the face of potentially weak or fluctuating employment data that may be announced next week, has the Federal Reserve already "bought enough insurance" in advance? You have significantly raised the economic growth forecast, but the decline in employment has not been substantial. That is to say, growth is higher, but employment has not shown significant weakness? Powell: Before the January meeting, we will receive a lot of new data, and I believe we will further discuss these issues at that time. All of this data will be incorporated into our policy considerations. However, yes, looking back at the previous situation: we kept the policy interest rate at 5.4% for over a year because inflation was very high, and the unemployment rate and labor market conditions were quite robust. Then, in the summer of 2024, inflation began to decline, and the labor market gradually showed real signs of weakness. Therefore, according to our policy framework, when the risks to the dual mandate become more balanced, we should shift from a previous focus on addressing one of the goals—at that time, inflation—to a more balanced and neutral policy stance. That is exactly what we are doing. We first made several interest rate cuts, then paused for a while to observe the evolution of the economic situation mid-year, and then resumed rate cuts in October, cumulatively lowering by 175 basis points. As I mentioned earlier, we believe our current position allows us to observe how the economy will develop with relative ease. The implication of "higher growth but no significant weakness in employment" typically indicates an increase in productivity. Part of this may be related to artificial intelligence. At the same time, I believe that productivity has already shown a relatively structural upward trend over the past few years. If we understand potential productivity growth as about 2% per year, then the economy can maintain a higher growth rate without needing to significantly increase employment, while household income will rise over time. From this perspective, this is a positive outcome, which is precisely the fundamental meaning reflected in these forecasts. Q3: Today's decision clearly shows significant divergence. Not only did two members formally vote against it, but four other members expressed relatively mild opposition. I would like to know if multiple members have reservations about continuing to cut interest rates, which means that the threshold for further rate cuts in the short term has clearly increased? If the current policy stance is considered "appropriate," what exactly does the committee need to see in order to support another rate cut in January? Powell: Okay. Let me clarify that, as I mentioned earlier, there is indeed some tension between our two goals at the moment. Interestingly, everyone at the FOMC meeting agrees that inflation is still too high, and we want it to continue to decline; at the same time, everyone agrees that there are signs of cooling in the labor market, and there are risks of further weakening in the future. On this point, everyone is completely aligned. The divergence lies in how to weigh these two risks, how each views the outlook, and ultimately which side they believe carries greater risk. When there is such a clear tension between the two parts of our dual mandate, it is not common, and when it does occur, we typically see a situation like the one we are currently experiencing. At the same time, I want to say that the quality of our internal discussions is very high, one of the best I have seen in my 14 years at the Federal Reserve. The discussions are very serious, rational, and respectful. Everyone has strong opinions, but ultimately we need to make a decision. Today we made a decision, with 9 out of 12 members in support, so the support is quite broad. However, this is not the usual situation where everyone is highly aligned on direction and approach; rather, the opinions are more dispersed. I believe this is a result dictated by the current situation itself. As for what we need to see next, I think everyone has their own outlook in mind. But ultimately, after having already cut rates by 75 basis points, the policy impact of those 75 basis points, as I have mentioned multiple times before, is just beginning to gradually manifest. The current policy stance puts us in a position to patiently observe how the economy evolves. We will see quite a bit of data in the coming period. By the way, since we are talking about data, I want to emphasize that we need to be particularly cautious when interpreting certain data, especially household survey data. In some statistics regarding inflation and the labor market, due to the technical reasons of data collection methods, the data may not only be more volatile but may even show bias. This is mainly because some data from October and the first half of November were not collected properly. Therefore, we will indeed receive data in the future, but before the January meeting, we need to interpret this data in a more cautious manner, even with a degree of skepticism. Nevertheless, by January, we will still have quite a bit of December data. So whether it's the CPI or household survey data, we will analyze it very carefully and fully consider the distorting effects that these technical factors may bring. Q4: You just expressed a rather positive attitude towards the divergence in the current complex economic environment. But is there a possibility that as dissent increases, it could negatively impact the Federal Reserve's communication and the information conveyed about future policy paths? Powell: I do not believe we have reached that stage, at least not yet. Again, these discussions are high-quality, thoughtful, and respectful. You will hear some members' viewpoints, and you will also hear many external analysts saying the same thing—under the current circumstances, both positions can actually be justified I can also make arguments for either side. This is itself a very close judgment. We must make a decision. Of course, we always hope that data can provide us with a very clear guide, but in the current situation, there are indeed competing risks. If you look closely at the Economic Forecast Summary, you will find that quite a few participants believe that the unemployment rate faces upward risks, and inflation also faces upward risks. So what should we do? We have only one tool, but we cannot take actions in different directions for two goals at the same time. Thus, the question becomes: What is the pace of action? Which side should we focus on first? And how should we grasp the timing? This is a very challenging situation. And as I mentioned earlier, the position we are in now is a good one to patiently wait and observe how the economy evolves further. Q5: The market has mentioned the situation in the 1990s. At that time, the committee had two instances of three consecutive rate cuts of 25 basis points each, once from 1995 to 1996 and another in 1998. After both rounds, the next move in interest rates was an increase, not a continuation of cuts. Now that the policy rate is closer to neutral levels, can we assume that the next rate adjustment will definitely be downward? Or is it true that from now on, policy risks are genuinely two-way? Powell: I don't think anyone is currently assuming rate hikes as a baseline. I haven't heard that view. What we see now is that some believe policy can pause here, considering the current position is appropriate, just needing to wait and observe; while others believe that another cut is needed this year or next, or even more than one. But when committee members write down their judgments on the policy path and appropriate interest rate levels, they generally focus on a few scenarios: either maintaining the current level, or a slight cut, or a somewhat larger cut. I don't think the mainstream scenario includes rate hikes. Of course, having only two, now three, historical samples cannot be considered a large dataset, but the two instances of "three consecutive cuts" you mentioned in the 1990s indeed exist. Q6: The unemployment rate has been rising very slowly for nearly the past two years, and today's statement no longer uses phrases like "the unemployment rate remains low." In the housing and other interest rate-sensitive sectors, still bearing the impact of tightening policies—even after a cumulative cut of 150 basis points before today—what gives you confidence that the unemployment rate will not continue to rise in 2026? Powell: Our judgment is that after further cutting by 75 basis points, the policy rate has entered a fairly broad and reasonable estimate range for neutral rates. Being in such a position helps stabilize the labor market, or at most, only a slight increase of one or two percentage points, without a significant and more severe downturn. So far, we have not seen any signs of a sharp deterioration. Meanwhile, the current policy stance still cannot be considered loose. We believe that progress has been made this year regarding non-tariff-related inflation. As the effects of tariffs gradually transmit, these impacts will manifest next year As I mentioned earlier, our current position allows us to patiently observe how these changes will ultimately evolve. This is our basic expectation, but the data released next will tell us whether this judgment is correct. Q7: Many people interpreted your statements at the October meeting as suggesting that the Federal Reserve would slow down its pace in the face of unclear circumstances and "fog," meaning that there would be no rate cut this time, but rather wait until January to cut. So why did the committee ultimately choose to act today instead of waiting until January? Powell: Yes, I did say in October that there was no certainty that action would be taken at that time, and that itself is a fact. I also mentioned that there was indeed a possibility of action, which you can interpret that way, but I also cautiously pointed out that others might have different interpretations. So why did we choose to act today? I think there are several main reasons. First, there are ongoing signs of gradual cooling in the labor market. The unemployment rate has risen by 0.3 percentage points from June to September. Since April, non-farm employment has averaged about 40,000 new jobs per month. We believe these figures are overestimated by about 60,000, and after adjustment, it may actually be a decrease of about 20,000 per month. Another point worth emphasizing is that both household surveys and business surveys show that labor supply and demand are both declining. Therefore, I think it can be said that the labor market is still gradually cooling, and it may be slightly more pronounced than we previously expected. In terms of inflation, the data is slightly below previous expectations. I believe there is increasing evidence that the current situation is that service sector inflation is falling while goods inflation is rising; and the rise in goods inflation is almost entirely concentrated in areas with tariffs. This further reinforces the current judgment. So far, this is still more of a judgment framework: that is, the main source of current inflation exceeding the target is goods, and more than half of goods inflation comes from tariffs. So the question becomes, what should we expect regarding the impact of tariffs? In this regard, we will observe the broader macroeconomic "heat." Is the economy overheating? Are there obvious supply constraints? What is the wage situation? You also saw the Employment Cost Index (ECI) report today. From these indicators, the current economy does not appear to be the kind that would trigger typical Phillips curve-style inflation in an "overheated economy." Considering these factors comprehensively, we believe this is a point in time where a decision needs to be made. This decision was clearly not unanimous, but overall, it is the judgment made by the committee, and it is also the reason we took action today. Q8: Let me ask another question about reserves. How concerned is the committee about the recent signs of tension in the money market? Powell: I wouldn't say "concerned." The situation is as follows: the contraction of the balance sheet, commonly referred to as QT, has been ongoing, and we have a clear monitoring framework in place. There has been nothing unusual during this period, and the use of overnight repurchase agreements has almost dropped to zero. However, starting in September, the federal funds rate began to move upward within the target range, almost reaching the upper end of the ample reserves range. This in itself is not a problem; it simply tells us that we have entered a state of "tightening reserves." We had long anticipated that this situation would arise, but it came a bit faster than we expected. However, we are fully prepared to take the actions we had previously outlined when necessary, and these actions are the measures we are announcing today. Therefore, we are announcing the restart of asset purchases related to reserve management. This is completely separate from the monetary policy stance itself, and its purpose is solely to maintain sufficient reserves in the system. As for why the scale is so large, the reason is that, looking ahead, the tax deadline on April 15 is approaching. Under our operating framework, even during periods of temporary declines in reserves, it is necessary to ensure that reserves are adequate. The tax deadline is precisely when reserves will experience a noticeable but temporary decline, as a large amount of funds will flow from the banking system to the government. Thus, the seasonal reserve replenishment that will occur in the coming months was already expected, simply because April 15 will inevitably arrive. In addition, there is a long-term, structural growth trend in the balance sheet itself. To keep the relative level of reserves stable in the banking system and the overall economy, this alone requires us to increase reserves by about $20 billion to $25 billion each month. This is just a small part of it. All these factors combined, along with the preemptive replenishment made months ago to smoothly navigate the tax period in mid-April, provide the full context for our current arrangements regarding reserve operations. Q9: This is the last press conference after an FOMC meeting before an important hearing at the Supreme Court next month. Can you talk about how you hope the Supreme Court will rule? Additionally, I would like to know why the Federal Reserve has maintained a relatively restrained attitude on such a critical issue. Powell: I do not wish to discuss this issue here. We are not legal commentators, and this matter is currently in the judicial process. We believe that publicly engaging in related discussions would not be helpful. Q10: Do you think the 1990s can serve as a useful reference model for understanding the current economic situation? Powell: I do not think it can rise to that level of reference. Indeed, in one year—was it 2019 or 2000?—we had three consecutive rate cuts, but the current situation is very unique. At least one thing is clear: this is not the situation of the 1970s. However, we do face tensions between our dual mandate. This situation is unique during my tenure at the Federal Reserve, and it is rarely seen even when looking back at more distant history. In our policy framework, as you know, when such situations arise, we attempt to take a balanced approach between the two objectives. We assess how far they are from their targets and how long it will take to return to target levels. This is largely a subjective judgment, but the message it conveys is that when the risks faced by the two objectives are roughly equivalent and the threats are similar, the policy stance should be as close to neutral as possible. Because if the policy leans towards easing or tightening, it effectively favors one of the objectives Therefore, we have been adjusting our policy stance towards a neutral direction. Now, we are within the neutral range, and I would say we are possibly at the higher end of that range. This is exactly where we currently stand. Just right, we have lowered interest rates three times. We have not made any decisions regarding January yet, but as I mentioned earlier, we believe we are currently in a position where we can be patient and observe economic performance. Q11: The "Economic Forecast Summary" shows that inflation expectations have receded. Do you think the price increases caused by tariffs will gradually transmit over the next three months? Is this a process that lasts about six months before it ends? Will there be a threat to employment during this process? Powell: Regarding the impact of tariffs, it usually goes like this: first, there is the announcement of tariffs, and then it takes some time for that to be reflected in prices because goods need to be transported from other regions. In other words, it often takes a considerable amount of time for the full impact of a single tariff to be realized. But once its impact is truly reflected, the key question is: is this a one-time price increase, or will it continue to push inflation higher? We will comprehensively observe all announcements related to tariffs. Overall, each tariff corresponds to a time window for "full transmission." Assuming no new tariffs are announced—of course, we do not know if that will be the case, but let's assume no new tariffs—then commodity inflation is expected to peak around the first quarter of next year. We cannot predict this very precisely; no one can do that, but it can be roughly considered to reach a peak around the first quarter of next year. From now until then, the upward movement of commodity inflation should not be too large, possibly only a few tenths of a percentage point, or even lower. We do not have a very precise judgment on this. After that, if no new tariffs are introduced, the tariff impact on commodity prices will take about nine months to fully digest—this nine months is also just an estimate—so in the second half of next year, you should see this part of inflation start to recede. Q12: The media has recently publicly discussed the possibility of a new Federal Reserve Chair. Will this interfere with your current work or change your current judgment? Powell: No. Q13: Since you began lowering interest rates in September 2024, the yield on 10-year U.S. Treasury bonds has risen by 50 basis points, and the yield curve has generally continued to steepen. In the absence of new data, why do you believe that continuing to lower interest rates now can lower those long-term rates that have the greatest impact on the economy? Powell: Our focus is on the real economy. When long-term Treasury yields fluctuate, the key is to look at why they are moving up or down. If we look at inflation compensation, which is the breakeven inflation rate, this is one component that affects long-term rates. Currently, these indicators are at very comfortable levels. Especially after short-term effects fade, the breakeven inflation rate is at a very low level, consistent with the long-term 2% inflation target Therefore, the current rise in interest rates does not reflect market concerns about long-term inflation or similar factors. I will frequently monitor these indicators, and survey data is the same; all surveys show that the public understands our commitment to the 2% inflation target and believes we will return to this target. So, why are interest rates rising? There must be other factors at play, likely expectations of higher economic growth or similar reasons. This is an important component of the current situation. You also saw a significant rise in interest rates at the end of last year, which was not directly caused by our policies but driven by other developmental factors. Q14: You just mentioned that the public believes you will bring inflation back to 2%. But for most Americans, high prices and inflation remain their top concerns. Can you explain to them why you are now focusing more on what seems to be a relatively stable labor market for most, rather than the inflation issue they care about most? Powell: As you know, we have a very extensive network of connections in the U.S. economy, and through the 12 regional Federal Reserve Banks, the information we receive is almost unparalleled. We have clearly heard the public's feelings about the cost of living, which is indeed very high. However, a large part of this is not coming from the current inflation rate but is rooted in the price levels solidified during the high inflation periods of 2022 and 2023, which are the high costs that have already been "embedded" and are the reality people are currently feeling. Therefore, the most important thing we can do is to restore inflation to the 2% target level, and our policies are aimed in that direction. At the same time, we hope the economy remains strong, allowing real wages to continue to grow, and ensuring people have jobs and income. In the future, there needs to be a period where real wages are significantly positive, meaning nominal wage growth must consistently exceed the inflation rate for people to truly begin to feel better about the issue of "affordability." Thus, we are working to achieve these two goals: on one hand, controlling inflation, and on the other hand, supporting the labor market and wage growth, so that people can earn enough income and feel that the economic situation is improving. Q15: This is already your third rate cut this year, while inflation remains around 3%. So, is the message you want to convey that at this stage, as long as the public understands you will ultimately bring inflation back to 2%, you are okay with inflation temporarily remaining at the current level? Because inflation seems relatively stable at this level. Powell: Everyone should understand, and survey data shows they do understand, that we are firmly committed to the 2% inflation target, and we will certainly achieve the 2% inflation target. However, the current situation is indeed very complex and exceptionally difficult. On one hand, the labor market is under pressure, and job growth may have actually turned negative. At the same time, labor supply has also clearly decreased, so the unemployment rate has not seen a significant rise. This is a labor market with considerable downside risks, and people care deeply about this. It relates to their jobs and their ability to find work when laid off or just entering the labor market, which is crucial for the general public As for inflation, we are currently clearly aware that it is still, to some extent, merely a "judgment framework." If we exclude tariff factors, the inflation level is actually just above 2%, which means that the main source of current inflation exceeding the target is indeed tariffs. In the current situation, we believe that tariffs are more likely to reflect a one-time price increase. Our responsibility is to ensure that it is indeed just a round of one-time price adjustments and does not evolve into persistent inflation, and we will fulfill this responsibility well. However, there is indeed a very difficult balancing act at the moment. There are risks on both the employment and inflation fronts, and there is no policy path that is completely risk-free. If it were just an inflation issue, while the labor market remains very strong, then interest rates should have been higher, just like in the previous year or so. At that time, we hardly had to worry about employment because when inflation was very high, the unemployment rate was also very low, and there was a severe labor shortage, allowing us to focus all our energy on suppressing inflation. But now the situation is different. Both targets currently face risks. I believe we are doing our utmost to serve the public. People care about their jobs as well as the cost of living and affordability. The most important thing we can do is to ensure that while supporting economic activity, inflation can ultimately stabilize back to around 2% after the inflationary impact of tariffs gradually dissipates. Q16: You have been mentioning that employment growth could be negative. Why do you think the employment growth situation is worse than what some official data shows? In other words, following your earlier comments about employment growth, why do you believe the actual situation is much weaker than what the official data indicates? Powell: This question is not new, and I don't think there is any controversy about it. Real-time estimates of employment growth are inherently very difficult. You can't survey everyone every day or night. There is currently a systemic overestimation issue, which we have known for a long time. Relevant data is revised twice a year. During the last revision, we originally expected the adjustment to be between 800,000 and 900,000—I don't remember the exact number now, but the result was indeed roughly that—so we believe this overestimation has continued to the present. Therefore, we think there is still an overestimation in the non-farm payroll data, and it will be corrected later. I don't have a specific month in mind for when that adjustment will occur. I believe most forecasters actually understand this point. We estimate the overestimation to be about 60,000 per month. That is to say, if the official data shows an increase of 40,000 per month, the actual figure could be a decrease of 20,000. Of course, this estimate itself could also have an error of one or two thousand up or down. But in any case, employment growth itself reflects labor demand. Meanwhile, there has also been a noticeable decline in labor supply. If we are in a situation where labor is hardly growing anymore, then even if job openings do not increase much, it may still maintain full employment. Some people believe that this may be the state we are currently in But if job creation really turns negative, I think we need to closely monitor this situation and ensure that our policies do not exert additional downward pressure on job growth at this time. Q17: When discussing labor supply, we also see large U.S. employers like Amazon mentioning that artificial intelligence is leading to layoffs. To what extent have you incorporated the AI factor into your analysis of the current weakening job market? Powell: This is part of the overall story, but it cannot yet be said that it has fully become the mainstream narrative, nor can we even determine whether it will become the mainstream narrative in the future. However, you cannot ignore those large layoff announcements, as well as some companies publicly stating that they will not be hiring for quite a long time, explicitly mentioning that this is due to artificial intelligence. These situations are indeed occurring. But at the same time, people are not applying for unemployment insurance in large numbers. The current reemployment rate, which is the speed of finding new jobs, is very low. If there were indeed large-scale layoffs, you would expect the number of people continuously claiming unemployment benefits to rise, and the number of new applicants to increase, but in reality, these indicators have not changed significantly. This is indeed somewhat thought-provoking. From a longer-term perspective, the real question is what will happen next, which we do not yet know. Historically, during significant technological transformations, we have seen certain jobs eliminated, while new jobs also emerge. From centuries of historical experience, the ultimate result is often increased productivity, the emergence of new jobs, and overall, there are still enough job opportunities, with people's incomes also rising. Whether this time will be different still needs time to observe. Every time a wave of technology emerges, people worry: will this lead to mass unemployment, and what can they do? But historically, it has ultimately resulted in more jobs, higher productivity, and higher incomes. As for how this time will develop, we can only continue to observe. But at least at the current stage, this impact is still early and has not yet been significantly reflected in layoff data. Q18: Given the diversity of views within the policy committee, why is there such a clear divergence of opinions between local Federal Reserve presidents and board members? Powell: The situation is not so starkly opposed. In fact, the views within these two categories of members are also very diverse. There are indeed some differences, but I want to emphasize that within both groups, there are people standing on different positions. I would not overinterpret this identity distinction. Q19: In the context of your upward revision of economic growth expectations, if the Supreme Court ultimately overturns the tariffs currently under discussion, what impact would that have on economic growth and inflation? Powell: I really cannot provide an answer. It will depend on many factors that are currently unclear, so I cannot provide meaningful judgment on this issue. Q20: Many high-income families are seeing their wealth continuously boosted by rising asset prices due to holding stocks and other assets; however, families with less wealth have been more constrained by the "price level" itself during the price increases over the past approximately five years, rather than the current inflation rate, and are still troubled by the accumulated high prices. In this context, how long can the so-called "K-shaped economy" last? How does the Federal Reserve view the risks posed by this structural divergence in the future? Powell: We frequently study this issue through various contact networks and household asset-liability data. If you listen to the earnings calls of consumer goods companies targeting low-income and middle-low-income groups, you'll find that they are all saying the same thing: consumers are tightening their belts, starting to switch to cheaper products, and reducing purchases; these signs are very evident. At the same time, it is also clear that asset prices for real estate, stocks, and other assets are at relatively high levels, and these assets are mostly held by individuals with higher income and wealth levels. As for how long this situation can last, I find it difficult to provide a definitive answer. The reality is that most consumption indeed comes from those with greater purchasing power. For example, the top third of income earners account for a consumption share far exceeding one-third. So, this is indeed a good question about "how sustainable this structure really is." The best thing we can do is to maintain price stability while sustaining a strong labor market. For example, during the ultra-long expansion that ended before the pandemic, we experienced about 10 years and 8 months of expansion, the longest on record. In the last two years, the largest wage increases were directed towards the bottom quarter of the income distribution, which is the middle and low-income groups. From a social perspective, maintaining a strong labor market over the long term is very beneficial for these low-income families, and this is the state we hope to return to. But to achieve this, we must ensure both price stability and full employment or maximum employment. Q21: You just mentioned that the overall real estate market is still relatively weak. Given that interest rates have been cut multiple times, is there a chance in the future to make housing more affordable and allow more people to share in this wealth accumulation? The median age of first-time homebuyers is now 40, which has reached a historic high. Powell: Yes, the housing market is facing some very severe challenges. I do not believe that a further 25 basis point cut in the federal funds rate will bring about much direct change for ordinary homebuyers. Currently, there is a shortage of housing supply, and many families are still holding onto ultra-low-rate mortgages locked in during the pandemic, repeatedly refinancing to keep rates very low. For them, the cost of moving or changing homes may be very high, so they are unlikely to act easily. It may take a long time for this situation to change. Additionally, the number of new homes built in the U.S. has been insufficient for many years, and many studies suggest that we are generally lacking various types of housing. Therefore, the housing issue will persist in the future. As for tools, the main actions the Federal Reserve can take are to raise or lower interest rates, but we do not have direct tools to address the long-term housing shortage or structural housing shortage issues. Q22: You just mentioned that service sector inflation is at a relatively low level, and goods inflation seems to be nearing its peak. You also mentioned today's wage report, which shows that wage growth is slowing. In your view, where are the inflation risks? It seems that inflation is cooling, and at the same time, job recruitment may even turn to negative growth. In such an environment, why haven't we heard more discussions about further rate cuts? Powell: I believe the inflation risks are actually quite clear. As I just mentioned, the part of inflation that is currently above target mainly comes from the goods sector. We think, we estimate, and most committee members also expect that this round of inflation is more like a one-time price increase, which will then recede. But the question is, we have just gone through a period where the persistence of inflation far exceeded almost everyone's expectations. So, will this happen again? That in itself is a risk. The risk lies in the inflation brought about by tariffs, which may ultimately prove to be more persistent than we currently anticipate. For example, some companies are still holding back from fully passing on tariff costs to consumers. If this pass-through continues and occurs in stages, it could lead to inflationary pressures lasting longer. Another possibility, which I believe is much less likely to occur, is that the labor market tightens again or the overall economy becomes overheated, leading to more traditional inflation. I do not think this scenario is particularly likely to happen. But as I said, within the committee, everyone’s basic judgment of the current situation is actually very close; the divergence lies in how to view the risks. Indeed, some committee members place more emphasis on inflation risks, and this viewpoint cannot be easily dismissed, nor would I dismiss it. But ultimately, we must make trade-offs, and that is precisely the judgment we have made this time. Q23: Do you believe that the U.S. is experiencing a positive productivity shock, whether from artificial intelligence or other factors such as policy? To what extent is the upward revision of GDP growth expectations in the Economic Forecast Summary driven by this factor? Does this mean that the neutral interest rate level will rise, and therefore the current appropriate policy interest rate level should also be higher? Powell: Yes. I never thought I would see productivity maintaining rapid growth for five or six consecutive years. The current level of productivity is indeed higher, significantly higher, and this trend had already begun before artificial intelligence was widely attributed to it. At the same time, if you look at what artificial intelligence can do—if you have used it in your personal life, I think many of us have—you can intuitively feel its potential to enhance productivity. I believe it can indeed make those who use it more efficient. Of course, this may also mean that some people need to seek new job positions. Thus, artificial intelligence may enhance productivity on one hand, while also impacting society and the labor market on the other, and these are not directly addressable with the tools we currently have. But it is certain that we are indeed seeing higher levels of productivity. It may be too early to assert that this is the result of generative artificial intelligence, but I cannot rule out that possibility. Additionally, the pandemic may have prompted companies to adopt more automation, using computers and technology to replace some manual labor, which would also increase output per hour, thereby boosting productivity. Under the same conditions, yes, the neutral interest rate level will rise. But in reality, not all conditions are the same. There are many factors simultaneously acting in different directions, affecting the level of the neutral interest rate. However, this viewpoint does exist and is indeed one that comes up in committee discussions Q24: From today, you have only three meetings left as the Chairman of the Federal Reserve. Since you took office, you have experienced multiple rounds of trade wars, the COVID-19 pandemic, and the subsequent period of high inflation. I know your term as chairman ends in May, but I want to ask if you have thought about what you hope your "historical positioning" or "political legacy" will be? Have you considered further, or can you reveal more about whether you plan to continue serving on the Federal Reserve Board after your term as chairman ends? Powell: My "legacy"? My thoughts are actually quite simple: what I really want to do is to hand over this job to the next chairman with the economy in a very good state. I hope inflation is controlled and falls back to 2%; I hope the labor market remains strong. That is the goal I want to achieve. All my efforts are aimed at bringing the economy to this position. It has always been this way. As for grander things, I actually don't have time to think about them. I hope to have many years in the future to think about these slowly, but there is already enough on my plate right now. All my current energy is focused on the remaining term as chairman. There is no new information I can share with you at this time. Q25: Although the price levels of many goods and services remain high, with the federal funds rate lowered, savings rates—or more accurately, deposit and investment yields—seem to have peaked; meanwhile, key borrowing rates remain at high levels. Given that many American households still face pressures such as insufficient savings and high energy costs, is this situation merely a "collateral damage" or "unintended consequence" of policy implementation, as the tools of the Federal Reserve cannot directly address the funding constraints at the household level? Powell: I do not believe this is "collateral damage" of our policy. In the long term, everything we do is aimed at achieving price stability and maximum employment, both of which are of extremely important value to all those we serve. When we raise interest rates to curb inflation, it indeed works by slowing down the economy. But now, we have lowered the policy rate to a level that is no longer obviously restrictive. I believe the current policy stance is roughly in a neutral range. This is exactly the state we are trying to achieve, and I hope the public can understand this. I think what people are really feeling right now is the pressure brought about by rising price levels. This is not a phenomenon unique to the United States, but a global wave of inflation. In comparison, the performance of the United States is much better, clearly outperforming other countries, and economic growth is also stronger. We have a very outstanding economy, with people being innovative and very hardworking. Therefore, for everyone engaged in economic policy work, it is a very fortunate thing to be able to work within the U.S. economic system