Jan 28 - Federal Reserve Chair Jerome Powell spent 45 minutes answering reporters following the central bank’s choice to maintain current short-term borrowing costs despite notable pressure from the White House to reduce them. In the briefing he walked through the rationale behind the decision and addressed questions on the economic outlook, the Fed’s independence, legal matters involving a governor, and market signals such as the price of gold.
Overview of risk assessment
Powell opened by characterizing how the balance of risks has shifted since the Fed’s last meeting. He said, "The upside risks to inflation and the downside risks to employment have diminished. But they still exist. So there’s still some tension between the mandates. Are they fully in balance? Hard to say, hard to say. And, again, we think our policy is in a good place ... I just would say that I’m not making a judgment about how one of them is more at risk than the other, just that the risks to both of them have diminished."
That assessment framed the Fed’s decision-making: diminished but not eliminated risks leave room for maintaining the current policy stance rather than pivoting immediately.
Growth outlook and drivers
On the trajectory for economic activity, Powell said the outlook has clearly improved since the previous meeting. He remarked, "The outlook for economic activity has improved, clearly improved since the last meeting, and that should matter for labor demand and for employment over time...You’ve got strong consumption that’s been happening before -- financial conditions have been supportive, but before the fiscal effects really are shown. So essentially, the economy has once again surprised us with its strength, not for the first time. Consumer spending, although it’s not even across income categories, consumer spending overall: numbers are good. And we’re benefiting from the AI buildout of data centers. That’s another thing we’re benefiting from. But the economy overall: growth is on a solid footing, and it’s not just those things."
Powell pointed to consumption and investment related to AI infrastructure as contributors to the unexpectedly solid expansion, while noting that the benefits of fiscal policy had not yet fully materialized in the data.
Labor market: stabilization amid unusual dynamics
On jobs, Powell described a mixed picture with some signs of stabilization but also evidence of continued cooling. "We saw data coming in which suggests some signs of stabilization. I wouldn’t go too far with that, but some signs of stabilization -- and also some signs of continued cooling....Part of the payroll jobs softening is that both the supply and demand for labor have come down; growth in those two has come down. So that makes it a difficult time to read the labor market....Imagine they both (labor supply and labor demand) came down a lot to the point where there is no job growth. Is that full employment? In a sense, it is. If demand and supply are in balance, you know, you could say that’s full employment. But at the same time, do we really feel like that’s a maximum employment economy? You know, it’s a challenging, it’s a very challenging and quite unusual situation."
His remarks underscore uncertainty in interpreting labor-market indicators when both hiring demand and worker availability are shifting concurrently.
Inflation and affordability
Powell reiterated the Fed’s focus on price stability and on hearing concerns about affordability from businesses and households. He said, "We have a vast network through the Reserve Banks and also through the Board of Governors where we talk to small and large businesses and households, and so we do hear a lot about affordability, and we take that very seriously. And we take it to heart because our job is, one of our jobs is price stability. And so, the best thing we can do for people who are feeling that squeeze is to keep inflation under control and, frankly, to finish the job of getting inflation back down to 2%."
That reaffirmed the Fed’s target and the rationale for continuing to prioritize inflation control as a path to relieve affordability pressures.
Legal and oversight issues
Asked about his attendance at significant legal proceedings involving a Fed governor, Powell addressed the question succinctly: "That case is perhaps the most important legal case in the Fed’s 113-year history. And as I thought about it, I thought it might be hard to explain why I didn’t attend. In addition, Paul Volcker went to a Supreme Court case famously, and I guess in 1985 or so. So it’s precedented, and I thought it was an appropriate thing, and I did it."
When asked about a Department of Justice probe or his own future at the Fed after his term as chair ends, Powell declined to provide comment: "I have nothing for you on that today."
Markets, the dollar and gold
On questions about currency moves, Powell was brief: "We don’t comment on the dollar." Regarding the record price of gold and whether asset-price shifts convey a macroeconomic message, he said, "We don’t take much message macroeconomically. The argument can be made ... that we’re losing credibility or something. It’s simply not the case. If you look at where inflation expectations are, our credibility is right where it needs to be. So we look at those things. We don’t get spun up over particular asset price changes, although we do monitor them, of course."
This briefing consolidated the Fed’s stance: with diminished but persisting risks to inflation and employment, the central bank held policy steady while monitoring incoming data across demand, labor supply, inflation expectations and asset prices.