For release on delivery

Noon EDT
October 19, 2023

Opening Remarks

by

Jerome H. Powell

Chair

Board of Governors of the Federal Reserve System

at the

Economic Club of New York Luncheon

New York, New York

October 19, 2023

and the outlook for monetary policy.

Recent Economic Data

Incoming data over recent months show ongoing progress toward both of our dual

mandate goals—maximum employment and stable prices.

Inflation

By the time the Federal Open Market Committee (FOMC) raised rates in March

2022, it was clear that restoring price stability would require both the unwinding of

pandemic-related distortions to supply and demand, and also restrictive monetary policy

to cool strong demand and give supply time to catch up. These forces are now working

together to bring inflation down.

After peaking at 7.1 percent in June 2022, 12-month headline PCE (personal

consumption expenditure) inflation is estimated at 3.5 percent through September. 1 Core

PCE inflation, which omits the volatile food and energy components, provides a better

indicator of where inflation is heading. Twelve-month core PCE inflation peaked at 5.6

percent in February 2022 and is estimated at 3.7 percent through September.

Inflation readings turned lower over the summer, a very favorable development.

The September inflation data continued the downward trend but were somewhat less

encouraging. Shorter-term measures of core inflation over the most recent three and six

months are now running below 3 percent. But these shorter-term measures are often

volatile. In any case, inflation is still too high, and a few months of good data are only

1
Descriptions of PCE inflation include Board staff estimates of the September 2023 values based on
available information, including the September 2023 consumer price index and producer price index data.
The September 2023 PCE inflation data will be published by the Bureau of Economic Analysis on October
27, 2023.
 -2-

the beginning of what it will take to build confidence that inflation is moving down

sustainably toward our goal. We cannot yet know how long these lower readings will

persist, or where inflation will settle over coming quarters. While the path is likely to be

bumpy and take some time, my colleagues and I are united in our commitment to

bringing inflation down sustainably to 2 percent.

The labor market

In the labor market, strong job creation has met a welcome increase in the supply

of workers, due to both higher participation and a rebound of immigration to pre-

pandemic levels. 2 Many indicators suggest that, while conditions remain tight, the labor

market is gradually cooling. Job openings have moved well down from their highs and

are now only modestly above pre-pandemic levels. Quits are back to pre-pandemic

levels, and the same is true of the wage premium earned by those who change jobs. 3

Surveys of workers and employers show a return to pre-pandemic levels of tightness. 4

And indicators of wage growth show a gradual decline toward levels that would be

consistent with 2 percent inflation over time. 5

2
The labor force participation rate has increased by about one-half percentage point since the end of last
year.
3
For example, according to the Atlanta Fed's Wage Growth Tracker, the median wage growth for job
switchers is now only slightly higher than that of job stayers. The size of this gap is now similar to what
was normal pre-pandemic after being elevated in recent years.
4
A measure of job availability drawn from Conference Board data—showing the difference between the
share of consumers saying that jobs are plentiful and the share saying that jobs are hard to get—was
elevated in 2021–22 but is now below its 2019 average. In data from the National Federation of
Independent Businesses, the share of small business owners reporting difficulty filling job openings has
likewise declined considerably in the last two years and is now only slightly above its 2019 average.
5
One recent indicator, average hourly earnings, grew 0.2 percent in September, resulting in an annualized
3-month growth rate of 3.4 percent and a 12-month growth rate of 4.2 percent. By comparison, 12-month
average hourly earnings growth peaked at 5.9 percent in early 2022.
 -3-

Growth

To date, declining inflation has not come at the cost of meaningfully higher

unemployment—a highly welcome development, but a historically unusual one. Healing

of supply chains in conjunction with the rebalancing of demand and supply in the labor

market has allowed disinflation without substantially weaker economic activity. Indeed,

economic growth has consistently surprised to the upside this year, as most recently seen

in the strong retail sales data released earlier this week. Forecasters generally expect

gross domestic product to come in very strong for the third quarter before cooling off in

the fourth quarter and next year. Still, the record suggests that a sustainable return to our

2 percent inflation goal is likely to require a period of below-trend growth and some

further softening in labor market conditions. 6

Geopolitical tensions are highly elevated and pose important risks to global

economic activity. Our institutional role at the Federal Reserve is to monitor these

developments for their economic implications, which remain highly uncertain. Speaking

for myself, I found the attack on Israel horrifying, as is the prospect for more loss of

innocent lives.

Monetary Policy

Turning to monetary policy, the FOMC has tightened policy substantially over the

past 18 months, increasing the federal funds rate by 525 basis points at a historically fast

pace and decreasing our securities holdings by roughly $1 trillion. The stance of policy is

6
For example, the October Blue Chip consensus estimate for annualized real gross domestic product
(GDP) growth in the third quarter is 3.5 percent. Some projections anticipate even stronger growth, such as
GDPNow, which currently anticipates 5.4 percent annualized growth in the third quarter, additional
information is available on the Federal Reserve Bank of Atlanta’s website at
https://www.atlantafed.org/cqer/research/gdpnow. The Bureau of Economic Analysis will release its
advance estimate of third quarter real GDP on October 26.
 -4-

restrictive, meaning that tight policy is putting downward pressure on economic activity

and inflation. Given the fast pace of the tightening, there may still be meaningful

tightening in the pipeline.

My colleagues and I are committed to achieving a stance of policy that is

sufficiently restrictive to bring inflation sustainably down to 2 percent over time, and to

keeping policy restrictive until we are confident that inflation is on a path to that

objective. We are attentive to recent data showing the resilience of economic growth and

demand for labor. Additional evidence of persistently above-trend growth, or that

tightness in the labor market is no longer easing, could put further progress on inflation at

risk and could warrant further tightening of monetary policy.

Along with many other factors, actual and expected changes in the stance of

monetary policy affect broader financial conditions, which in turn affect economic

activity, employment and inflation. Financial conditions have tightened significantly in

recent months, and longer-term bond yields have been an important driving factor in this

tightening. We remain attentive to these developments because persistent changes in

financial conditions can have implications for the path of monetary policy.

Conclusion

My colleagues and I remain resolute in our commitment to returning inflation to 2

percent over time. A range of uncertainties, both old and new, complicate our task of

balancing the risk of tightening monetary policy too much against the risk of tightening

too little. Doing too little could allow above-target inflation to become entrenched and

ultimately require monetary policy to wring more persistent inflation from the economy
 -5-

at a high cost to employment. Doing too much could also do unnecessary harm to the

economy.

Given the uncertainties and risks, and how far we have come, the Committee is

proceeding carefully. We will make decisions about the extent of additional policy

firming and how long policy will remain restrictive based on the totality of the incoming

data, the evolving outlook, and the balance of risks.

Thank you. I look forward to our conversation.