Transcription
Good afternoon. [clears throat] Uh, my colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people. The US economy expanded at a solid pace last year and is coming into 2026 on a firm footing. While job gains have remained low, the unemployment rate has shown some signs of stabilization and inflation remains somewhat elevated.
In support of our goals today, the Federal Open Market Committee decided to leave our policy rate unchanged. Having lowered our policy rate by 75 basis points over the course of our previous three meetings, we see the current stance of monetary policy as appropriate to promote progress toward both our maximum employment and 2% inflation goals. I will have more to say about monetary policy after briefly reviewing economic developments.
Available indicators suggest that economic activity has been expanding at a solid pace. Consumer spending has been resilient and business fixed investment has continued to expand. In contrast, activity in the housing sector has remained weak. The temporary shutdown of the federal government likely weighed on economic activity last quarter, but these effects should be reversed as the reopening boosts growth this quarter.
In the labor market, indicators suggest that conditions may be stabilizing after a period of gradual softening. The unemployment rate was 4.4% in December and has changed little in recent months. Job gains have remained low. Total non-farm payrolls declined at an average pace of 22,000 per month over the last 3 months. Excluding government employment, private payrolls rose at an average pace of 29,000 per month. A good part of the slowing in the pace of job growth over the past year reflects a decline in the growth of the labor force due to lower immigration and labor force participation. Though labor demand has clearly softened as well. Other indicators including openings, layoffs, hiring, and nominal wage growth show little change in recent months.
Inflation has eased significantly from its highs in mid-2022, but remains somewhat elevated relative to our 2% longer-run goal. Estimates based on the consumer price index indicate that total PCE prices rose 2.9% over the 12 months ending in December and that excluding the volatile food and energy categories, core PCE prices rose 3.0%. These elevated readings largely reflect inflation in the goods sector which has been boosted by the effects of tariffs. In contrast, disinflation appears to be continuing in the services sector. Near-term measures of inflation expectations have declined from last year's peaks as reflected in both market and survey-based measures. Most measures of longer-term expectations remain consistent with our 2% inflation goal.
Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. At today's meeting, the committee decided to maintain the target range for the federal funds rate at 3 1/2 to 3 and 3/4%. Since last September, we've lowered our policy rate 75 basis points or 3/4 of a percentage point, bringing it within a range of plausible estimates of neutral. This normalization of our policy stance should help stabilize the labor market while allowing inflation to resume its downward trend toward 2%. Once the effects of tariff increases have passed through, we are well positioned to determine the extent and timing of additional adjustments to our policy rate based on the incoming data, the evolving outlook, and the balance of risks. Monetary policy is not on a preset course and we will make our decisions on a meeting-by-meeting basis.
To conclude, the Fed has been assigned two goals for monetary policy: maximum employment and stable prices. We remain committed to supporting maximum employment, bringing inflation sustainably to our 2% goal, and keeping longer-term inflation expectations well anchored. Our success in delivering on these goals matters to all Americans. We at the Fed will continue to do our jobs with objectivity, integrity, and a deep commitment to serve the American people. Thank you. I look forward to your questions.
>> Hi, Chris Rugabber at Associated Press. Thank you. Um, I wanted to ask that you know, you attended the Supreme Court uh hearing last week on the Lisa Cook case uh and Treasury Secretary Scott Besson criticized that as political. Can you say why you attended and uh what you would say in response to the secretary's criticism?
>> So let me start with I [clears throat] I don't respond to comments by other officials, whoever they may be. It's just uh not appropriate to do that. I will tell you why I attended. Um, I would say that that case is perhaps the most important legal case in the Fed's 113-year history. And I, as I thought about it, I thought uh it would might be hard to explain why I didn't attend. Uh, in addition, um, Paul Volcker went to a Supreme Court case in I guess 1985 or so. So, it's precedented and, uh, I thought it was an appropriate thing and I did it.
>> Great. And then just quickly follow on uh the job market. Uh, you mentioned last month that the household survey might be distorted. Um, and you also mentioned the potential for uh overcounting jobs uh which would suggest that we're still in a negative hiring pace. Um, so do you see that drop in the unemployment rate as solid and uh I'm just, what's the basis for saying that things have stabilized? Thank you.
>> So, yeah, really two questions. One is, so we're we're getting through the the distortions in the data from the shutdown. What however big they were in November, they're smaller in December. So we're getting to a place where they're no longer material. They're still there, but it's a tweak here and there. Um, the reason why we why we changed the uh statement, let me pull it out. Um, uh, was was simply uh, it's it used to say that judges that downside risks to employment rose in recent months. So we saw, you know, data coming in which suggests some signs of stabilization. I wouldn't go too far with that, but some signs of stabilization. There are also some signs of continued cooling and uh, so we thought that was no longer an accurate description of the data. In addition, the outlook for economic activity has improved, clearly improved since the last meeting and that should matter for for labor demand and for employment over time. So for those two reasons, we thought we would take that language out of the statement.
>> Nick Tro, the Wall Street Journal. Uh, Chair Pal, you've generally avoided engaging with political controversies directly and the video statement on January 11th was a departure. What made this different and are you concerned it could draw the institution further into political debates?
>> So, today on uh uh I'm simply going to refer you to the statement that I made on January 11. I'm not going to expand on it or repeat it. So, uh, I'm just not going to. This is really about the press conference and and, uh, the economy and what we did today, but and some ancillary areas, but I'm not going to be getting into that.
>> Can you say whether the Fed has responded to the subpoenas?
>> I have nothing for you on that today.
>> Mike, Michael McKe from Bloomberg Radio TV. Have you made a decision and whether you would remain as a governor of the Federal Reserve? And if so, would you tell us what it is? And if not, when might we anticipate a decision?
>> Uh, no. And uh I really, once again, have nothing for you on that today either.
>> Uh, why, why would you uh want to leave at all under the circumstances?
>> Again, I >> [laughter] >> uh I don't want to get into that. That's not something I'm. There's a time and place for these questions and and uh, but not, not something I'm going to be getting into today. Thank you.
>> Thank you. Um, Claire Jones, Financial Times. Thanks a lot for for taking my questions. Um, in another one that might, you know, [gasps] >> lead to a similar answer, um, [clears throat] we've seen quite big movements in the dollar over recent days. What do you think is driving the US currency lower? And have you been at all concerned just by the extent of the volatility we've seen this week? Thank you.
>> So, Claire, as you probably know, you know, we we don't comment on the dollar, really. The administration, especially the Treasury Department, has the job of oversight over over the the currency and so and exchange rates and all that. We don't comment on that. It's not our, not our role. Um, so I have nothing for you.
>> But I mean, what's your view on the market movements? I mean, what do you think is behind them? Is it asset managers diversifying? Is it >>
>> Yeah, I just don't, you know, we don't we don't talk about the dollar. We don't talk about what moves it around. Um, I just, it's just not appropriate for us to do so. Really, the Treasury Department has that. It's their their role, their bailiwick, and and we stay off it. We do monetary policy and some other things, but we don't we don't comment on the dollar. Sorry.
>> Neil.
>> Uh, hi Chair Pal, Neil Irwin with Axios. Um, obviously no FOMC in this meeting, but in light of the slight firming up of the language around growth in the labor market in the statement, should we assume that the timeline for any further rate cuts is pushed back compared to what people might have thought in December?
>> Well, first of all, if if you look at the incoming data since the last meeting, um, clear improvement in the outlook for growth. The the data have come in and sentiment, the the Beige Book, everything comes in suggesting that this year starts off on a on a solid footing for for growth. Uh, inflation performed about as expected and as I mentioned, some of the labor market data came in suggesting, you know, we're evidence of stabilization. So, it's overall a stronger forecast, really, if that's your question. Um, I'm not sure I answered your question.
>> Uh, but but in terms of uh timing or pacing of any additional easing.
>> So, we we haven't made um, you know, what what we what we'd say about this was that after this meeting, after the three recent rate cuts, we're well positioned to address the risks that we face on both sides of our dual mandate and we'll continue to make our decisions meeting by meeting uh based on the incoming data, the implications for and the outlook and the balance of risks. Haven't made any decisions about future meetings, but, you know, the economy is growing at a solid pace. The unemployment rate has been broadly stable and inflation remains somewhat elevated. So, we'll be looking to our goal variables and letting the data light the way for us.
>> Steve >> Steve [clears throat] Leeman, CNBC, and sticking with questions you might answer. Thank you. Um, uh, you had previously, I believe, described the current policy rate being at the higher end of neutral. And if you look at the longer run, the SEP and the longer run rate, 16 of 19 officials are actually below there on their long run. Is the Fed still in a process of bringing it down towards a middle range of neutral? And what would it take to get there?
>> So, I the count I did was that four of the 19 were at or above that. Maybe I missed by one. I thought I thought it was four. Um, but and if you look at the um the dealer survey, it was 10 out of 58 where we're at or above. So, you're right. It's it's it's the high higher end of the range. What we say is it's it's within the range of plausible estimates. This is this is the higher end of that range, but it's in so for some people they think it's it's neutral. I think and many of my colleagues think it's hard to look at the incoming data and say that policy is significantly restrictive at this time. May be it may be sort of loosely neutral or it may be somewhat restrictive. You know, it's in the eye of the beholder and of course no one knows with any precision. Um, so is that you had a follow up?
>> I get what you're saying, but um are some officials have described the Fed being in a a mode of bringing it down eventually over time. Are you still in that mode or is this a place to hang out?
>> Yeah. No, I I I would say uh if you look at the SEP from from December, you most people had additional normalization, but at the same time, we've done a lot of the process of normalizing. A good piece of it is done with 75 basis points and before that 100. It's 175 basis points we've cut since we began cutting in September of 2024. So, you've moved now to, you know, 3 point Fed funds is running just a little below 3.65%. Um, so you've moved a good way and we think we're well positioned here to watch how the economy performs, look at the data. We're not making decisions about future meetings, but we we do think we're well positioned after those three cuts to to let the data speak to us.
>> Thank you, Chair Pal. Marquee from Bloomberg News. Uh, to what extent did the did the committee discuss the possibility of cutting at this meeting or in March? and how are you all thinking about the conditions that would merit another rate cut? Is there broad agreement on the on the committee about what it would take?
>> So, there was broad support on the committee for holding today, broad, I would say, including among non-voters. So that's where that was. Of course, some people did want to cut and and and dissented, but committee pretty broadly for for for holding today. Um, we're not trying to articulate, you know, a test for for when to next cut or whether to cut at the next meeting. Um, you know, what we're saying is we're well positioned uh as we make decisions meeting by meeting, looking at the incoming data, evolving outlook and all that. And um, you know, we're in a position where um, you know, we have to we still have some tension between employment and inflation, but it's less than it was. I think that the upside risks to inflation and the downside risks to risks have probably both diminished a bit. So, u, you know, we'll be looking at that. It's about how you weigh uh the risks to the two goals and and and how big those and quantify them. And so, there are different views on the committee and, you know, we'll find our way forward as the data evolve.
>> Edward, >> thank you. Uh, thank you, Mr. Chairman. Edward Lawrence from uh Fox Business. Has the effects of tariffs um already moved through the economy on prices?
>> A lot of it has. So, basically uh there are many different estimates and and they're all highly uncertain. But most of the overrun uh in goods prices is from tariffs. And that's actually good news because if it weren't from tariffs, it might mean it's from demand. And and, you know, that's that's a harder problem to solve. We we do think tariffs are likely to move through and be a one-time price increase. So most of the overshoot, if you if you were to take that out, you'd get, and you would, I mean inflation, core PCE inflation is running just a bit above 2% ex the effects of tariffs on goods. And the other good news is if you look away from goods and look at services, you do see ongoing disinflation in in all the categories of services. So that's a healthy development. So that's what's going on. The expectation is that we will see uh the effects of um of tariffs flowing through goods prices peaking and then starting to come down, assuming there are no new major tariff increases that that are begun. Uh, and that's what we expect to see over the course of this year. If if we see that, if the if we see that, that would be something that tells us uh that we can we can loosen policy. Also, if we see something that suggests that the labor market is not stabilizing, that in fact it's the downside risks reemerge or or the data just get worse, we'd have to look at both of those. We have a two-sided mandate.
>> Oh, if I could, um, if President Trump does [clears throat] pick a new Fed chairman before May, um, what does that look like? How would you work with that person? And what does that transition period look like?
>> I don't have anything for you on that. I, you know, it will depend on on Congress's actions and things I I can't speculate on.
>> Howard >> Howard Schne with Reuters. Thank you for uh taking our questions. Um, given the changes in the statement and all you've said so far, is it is it fair to describe uh risks to your to both sides of the mandate as roughly balanced right now? And is the next move necessarily down?
>> I'd say that the the upside again, the upside risks to inflation and the downside risks to risks to employment have diminished, but there they still exist. So, there's still some tension between the mandates.
>> Are they fully in balance?
>> Uh, hard to say. Hard to say. And, you know, we we again, we think our policy is in a good place. Um, I've just discussed reasons why we might change our policy and, you know, we'll just have to see how the data lead us.
>> I'm wondering you you a minute ago you said you felt expectations were consistent with your with your mandate that the two and the 10-year break evens have moved quite notably in the last uh couple of weeks I believe. Uh, is there any concern on that front?
>> I mean, the I I recently looked at at all all of the both survey and market-based short-term inflation expectations have come way down. You know, they they were in a good place at the beginning of last year. They spiked around Liberation Day and now they fully retraced in the last few months. So, that's very comforting. And the longer term inflation expectations have remained in places that are, you know, very consistent with 2% inflation over time. So expectations are have been solid and they they reflect, you know, confidence in in the return to 2% inflation.
>> Andrew, [clears throat] >> apologies if this is a little bit repetitive, but in the past you've said that the reason you cut rates was that the risk to the labor market was greater than the risk to the inflation side. Is that still true?
>> You know, we haven't made You're right. We we uh we saw the labor market weakening and we acted and I think that's the appropriate thing to do. We have, you know, we will always act to to address what we see as uh the economy moving away from our goals. Uh, risks to both of the variables are a little less. I think that the upside risk to inflation again a little bit less and the downside risk to employment a little less. Um, I just would say that I I'm not making a judgment about how, you know, one of them is more at risk than the other, just that the risks to both of them have have diminished.
>> Okay. Thanks. Um, BIS wrote a paper last summer which concluded that global investors were hedging their dollar exposures in ways that previously they they hadn't because of policy uncertainty. Do you agree with BIS?
>> We really don't see much at all about that. that whole that whole story. There's just not a lot of data that that suggests that there's much to that.
>> Thanks, Anna.
>> Anna Swanson with the New York Times. Um, can you talk more about what you would need to see in the labor market to conclude it's time to resume easing? Do you need to see further deterioration in the labor market or would it be enough for inflation to soften?
>> So, we'll always be looking at both things and so there could be combinations, infinite numbers of combinations that would cause us to want to move. Certainly a weakening labor market would be an argument for loosening. But what's happening with inflation? If inflation were at the same time getting worse, you know, you just you just have a very difficult situation there. So we'll be looking at both. Clearly a weakening labor market calls for cutting. A stronger labor market says that that the rate rates are in a good place. We'll have to be making similar judgments too on inflation though.
>> And if inflation does pick back up and the labor market doesn't show further signs of deterioration, is it there a chance that you could raise rates rather than simply remaining on hold? What would you need to see to consider hiking?
>> We don't we don't take things off the table, but it isn't anybody's base case right now, anybody's base case that the next move will be a rate hike. But, you know, ultimately we'll do we'll do what we think is the right thing. But that's that's not where people's expectations are right now. Victoria.
>> Hi, Victoria Guido with Politico. Um, I I wanted to ask, you've talked in the past about concerns about the US fiscal trajectory, and we've seen in the Japanese bond market a lot of turmoil recently, uh, in part due to concerns over their their fiscal and and long-term economic outlook. So, do you worry that the US could at some point find itself in a situ similar situation to Japan, whether for fiscal or demographic reasons?
>> you know, over time, you've seen that US rates have remained pretty they haven't moved a lot really for a while, but they haven't moved a lot uh because of what's been happening in Japan. Um, so it's more of an overtime thing. The US federal budget deficit is, you know, uncontroversially on an unsustainable path. The level of debt is not unsustainable. It's very much sustainable, but the path is unsustainable. And the sooner we work on it, the better. But um, you know, right now the we're running a very large deficit at essentially full employment and um, so the fiscal picture needs to be addressed and it's not really being addressed. So uh, that's important. I I I'm not in any way connecting it to some sort of near-term market event, but u ultimately it's something we'll have to deal with and that, you know, in the end in the endgame that's that's where you wind up is in some kind of a difficult thing. But that's that's not where we are. It's not what Japan is either. But u it's certainly not where we are right now.
>> Does it reduce the effect of your rate cuts that longer term rates have overall not really budged that much?
>> I I wouldn't say that. You know the thing is um I mean technically higher longer-term rates means less accommodated financial conditions. But remember many many things move longer term rates. It's not and it's not mostly what happens on the short end. there can be effects of longer-term rates from our moving our policy around but, you know, it's much more, you know, assessments of the fiscal path and fiscal policies and and risks and things like that that move the tenure around. You can you can look back at and find periods where we've been very actively moving the the policy rate and over the course of a year and over the course of that year the tenure is exactly where it started. So, it's not there's not a tight link between, you know, 10-year rates and and the overnight rate.
>> Elizabeth, thanks so much. Elizabeth Schelsey with ABC News. Republican Senator Tom Tillis, who sits on the Senate Banking Committee, said he will block any Fed nominee, including the chair, until this investigation into you is resolved. Do you support this move by the Senator, and what conversations have you had with the Senator?
>> I I've got nothing for you on that. More broadly, what would happen to American households if the Federal Reserve loses its ability to operate independent from politics?
>> So, really the the point of of independence is not to protect policymakers or anything like that. It just is that every advanced economy democracy in the world has come around to this common practice. It's just an institutional arrangement that is that has served the people well and that is to to have a separation between uh to not have direct elected official control over the setting of monetary policy and the reason is that monetary policy can be used, you know, through an election cycle to to affect the economy in a way that will be politically worthwhile. So this isn't I'm not talking about the US context, this is every advanced economy democracy of any size. So, it's a it's a good practice. It's pretty much everywhere among among countries that look at all like the United States. And I think if you lose that um, it's first of all, it would be hard to restore the credibility of the institution. If people lose their faith that we're we're making decisions, you know, only on the basis of our of our assessment of what's best for for everyone for the for the wide public rather than trying to benefit one group or another. If if you lose that, it's going to be hard to retain it. And we we haven't lost it. I I don't believe we will. I certainly hope we won't. But it's very important. And the reason it's important is that it's enabled central banks generally, not to be perfect, but to serve the public well.
>> You're confident it can maintain that independence at this point.
>> Yes. I mean, I'm strongly committed to that and so are my colleagues.
>> Archie. Archie Hall from The Economist on that sort of stabilization of the labor market question. How much do you see the weakening we saw over the past six months year as a kind of data mirage around immigration and the government shutdown and so on that's now resolved or how much have we seen a kind of real underlying firming up in the state of the labor market do you think?
>> Well, part of it is to your point, part of it just is that that uh labor supply, growth in labor supply has come to essentially a halt from a fairly fast uh uh clip of growth over the last couple of years driven by immigration and then that the halt being driven by a very sudden stop in immigration. So many outcomes were possible with that. Um, you know, supply came way down. It turns out that demand for labor also came down a very similar amount, maybe just a little bit more, which is why the unemployment rate has gone up. So I don't know whether that's a coincidence or not, but that's that's what's happened with with that part. But if you look at other um uh things like for example the just to pick a couple um the Conference Board's measure of job availability that came out I don't know was it yesterday or today but uh, you know, it shows ser it's a survey showing that that workers feel like job availability is it's a very low reading, just one reading, but it's an indication of softening uh people part-time for economic reasons uh which is a category within the broader U6 category measure um has moved up significantly. So there there are lots of I could go on and on. There are lots of little places that suggest that the labor market has softened. Uh, but part of but you're right, part of payroll jobs softening is that both the supply and demand for labor has has come down. Growth in those two have both have come down. So that that makes it a difficult time to read the labor market. Um, you know, so imagine they both came down a lot to the point where there is no job growth. Is that full employment? In a sense, it is. If if demand and supply are in um, are are in balance, you know, that you could say that's full employment. At the same time, does it do we really feel like that's that's a maximum employment economy? Uh, you know, it's a challenging it's very challenging and quite unusual situation.
>> Thanks. And and one more on growth and the kind of strong growth outlook you're strengthening growth outlook you're now seeing. How much of that is the fiscal stimulus we're seeing from the beautiful bill, the tax cuts and and all of that?
>> So, you're seeing it already. You don't have much of the fiscal I think the outlook, you're right, it's it's financial conditions and it's u it's fiscal policy for 26. Um, but you've got strong consumption that's been happening before financial conditions have been supportive, but before the fiscal uh uh effects really are shown. So essentially the economy has once again surprised us with its strength, not for the first time. Uh, you know, consumer spending although it's, you know, it's uneven across income categories, but consumer spending overall numbers are good and um, we're benefiting from the, you know, from the AI buildout of data centers. That's that's another thing we're benefiting from. But economy overall growth is growth is um, is on a solid footing it looks like. And and it's not just those things. It's it's just the consumers the consumer is filling out, you know, surveys that sound really negative and then spending. So, there's been a disconnect for some time between downbeat surveys and, you know, reasonably good spending data. [clears throat]
>> Thanks, Chair Pal. Christine Romans from NBC News. You talked about how consumer spending is uneven. The president calls inflation defeated and solved. The FOMC says it's a somewhat elevated inflation, but you talked about those customer survey or those some consumer sentiment surveys and public opinion polls that show that most families say the cost of living is still issue number one. What is the conversation around the table with your colleagues about how wealthier consumers seem to be driving so much of the economy and why so many families still feel like they just can't make ends meet after 5 years of rising prices? What is that discussion like?
>> So, a couple things. One, there's something something to it in in that we know that um higher income households that tend to own real estate and tend to own stocks, you know, securities and those assets have been going up in value and and, you know, increases in wealth do support spending over time. So, and that's that's clearly a part of the story. We also know that for some time now, for, you know, a year or more, we've been hearing from u retailers, for example, that serve lower income customers, whether it be food or the big box stores or any, they're saying the same thing, which is our consumers are looking to economize. They're they're trading down from brands and they're buying less and changing their buying habits and that kind of thing. So we're seeing that and that that's that is a reality of what we're seeing. They're still consuming, but but um, they're they're feeling it in a different way. I would say more broadly on affordability. We we, you know, we have a vast network uh through the Reserve Banks and also through the Board of Governors where we talk to small and large businesses and and households. And so we do hear a lot about affordability and we take we take that very seriously and we take it to heart because, you know, our job is one of our jobs is price stability and so, you know, the the best thing we can do for for people who are feeling that squeeze is to keep inflation under control and, you know, frankly to finish the job of getting inflation back down to 2%.
>> You mentioned the AI buildout as being [clears throat] positive for economic growth this year. I wonder as you look at the weakest year last year for job creation of a non-recession year since like 2003, are you concerned about AI maybe supplanting more entry-level work and entry-level jobs and how does that play into your what you're watching about the labor market?
>> You know, so everyone of course is watching AI and the deployment and, you know, trying to understand exactly what's happening. Um, and there's a wide range of possibilities. It's it's hard to say. We're and of course anyone who uses it is amazed at at what it can accomplish, right? So, uh, every every technological wave will will eliminate some jobs and and create other jobs. And it's always been the case if you look back wave after wave after wave. There will be some disruption, but ultimately technology uh increases productivity which is the basis for rising wages. And it may not all happen immediately, but over time it's what it's what enables incomes to rise over time is rising productivity. So will and we always ask, well, this this is going to be different, you know, is is it going to be different and we we don't know um and we may in any case see in the short term uh jobs that are being eliminated by the capabilities of AI, we may see that um, we just don't know what the overall effect is going to be. So how to think about it in ter in macroeconomic terms, it's very hard. You know, we we can look at the aggregate data uh, we can we can analyze for example, the that there is some connection it appears between the um low hiring rate for recent college grads uh and AI, but it's not that the the main or only driver um, you hear large companies though saying many of them saying that they either won't be hiring for some time or that they're hiring less or that people often they they tend to refer to AI uh when they when they do that. So, we're all watching and learning and it could could certainly have pretty significant effects on the economy, the workforce, and our society. Um, we don't really have the tools to address the concerns that may arise, but we have a lot of people who who focus on analyzing it and try to try to understand what the macroeconomic implications are, which which is our job.
>> [clears throat] >> Beggy.
>> Thank you, Chair Powell. Beggy from AFP News Agency. Um, you mentioned earlier that on inflation, the broad expectation was for a one-time price increase and then for inflation to come down and I was wondering, you know, is your expectation still for inflation to start cooling in the second half of 2026? And, you know, if you could elaborate how far we are from target currently. Thank you.
>> So, how far we are from target is um as I mentioned in my opening remarks, we're we had 3% 3.0% core PCE inflation over the 12 months ending in December. And that's pretty much what we had the year before. So, on net no progress, but the story behind that is is modestly positive in that most of the overshoot was in goods prices, which we think is related to tariffs and ultimately we think those will not result in inflation as opposed to a one-time price increase. Okay. So that's that's where where it is in terms of if you asked um so that no one thinks they they will uh, you know, ex ante understand really clearly precisely when this will happen, but there's an expectation that sometime in the middle quarters of the year we'll see um tariff inflation topping out. So what we do is we when when a tariff is put in place, we track the effect of those tariffs over a six, seven, eight, nine month period and you can see and then you can see for that tariff how long it takes to reach a place where it's it's affected the price level and that's it. So we're getting better at that and and our estimate is that it'll be sometime in the middle of the year, but I wouldn't look for great precision in that, but, you know, we'll be able to see whether things are moving in that direction. I think, you know, we'll be able to see.
>> Richard Escobido.
>> Thanks Chair Pal. I'm Richard Escobido with CBS News. Um, I want to look outside the US about what's happening outside our shores and how it impacts the US. Um, Canada's prime minister said last week that there's been a rupture in the global order and I wonder how you're thinking about geopolitical risk as it relates to the US economy.
>> So I I can't I can't comment on on that speech or statement or anything like that. You know, geopolitical risk for us is a lot of it is around um energy, oil, and so far we haven't, you know, with all for all the turmoil, we really oil prices are have come down as you know, and and so we don't really see much, you know, longer than that uh it's trade and, you know, the the trade uh the economy, our economy has has pulled through pretty well, you'd have to say, given the very significant changes in trade policy, the US economy has has pushed right through. Partly that is that the the the way that what was implemented was significantly less than what what was announced at the beginning. In addition, other countries didn't retaliate. And in addition, a good part of it hasn't been passed through to consumers yet. It's being it's being taken by companies that stand between the consumer and the and the exporter. So that's where that is.
>> Jennifer,
>> thank you. your pal Jennifer Shawn Burgerer with Yahoo Finance with third quarter GDP growing at 4.4% and the fourth quarter expected to have a five handle on it uh as to what the Atlanta Fed is predicting at a time when you had a government shutdown and we thought that was going to shave off some growth. You've also got the fiscal tailwinds you've talked about big tax refunds coming potential tariff dividend. How could you cut rates and not spur inflation in that environment?
>> Well, um, we didn't cut rates today. Uh, but, um, you know, it would dep it depends on how fast potential output is growing, right? I'm just ask ask in principle. I'm not, you know, I'm not saying this is what's happening, but you know, there's growth and there's how fast the potential is growing. And at a time of of um, you know, high productivity growth, potential output is rising. So it really matters whe whether um potential output is growing as fast as actual output and and it would matter over time. The numbers you cite were for quarters and quarterly GDP is you need to look at 12 months because quarterly GDP can be very lumpy. You know, GDP was negative in the first quarter last year. So the overall over the year the numbers were nothing like that. You know, it was more in the mid-twos for the year. And how do you explain the divide right now between strong economic growth and the job market? Is it productivity that's filling the gap? And is productivity being driven by AI at this point?
>> So, we there has been you're right, there has been a divide of solid growth but what look like a weakening labor market and that can be explained by um by rising productivity. But um I would say we we do see signs of um certainly of the of the unemployment rate stabilizing. So it may be we're seeing the beginning of the resolution of those two things. Also, as you probably know, the the lore is that when GDP and the labor market get into an argument, in the end, uh labor market is more the labor market data is more reliable. GDP data is is very hard to to collect and understand. But nonetheless, I think we we may be seeing that that tension resolving a little bit. Too soon to say with any uh confidence though.
>> Matt Egan.
>> Matt Eaggan with CNN. Chair Powell. After today, you have two meetings left as Fed chair. You've obviously experienced a lot during your time as Fed chair, served under multiple presidents. I'm wondering what advice you have for whoever your successor might be.
>> Honestly, I'd say a couple of things. One is um, you know, stay out of elected politics. Don't get pulled into elected politics. Don't do it. And that's that's another thing. Another is um that, you know, our window into democratic accountability is Congress and it's not a passive burden for us to go to Congress and talk to people. It's an affirmative regular obligation. If you want democratic legitimacy, you earn it by your interactions with the our elected overseers. And so it's something you need to work hard at. and I I have worked hard at it. So, um and the last thing is, you know, it's easy to it's easy to criticize government institutions in so many ways. I will tell whoever it is, you're about to meet the most qualified group of people you you not only have ever worked with, you will ever work with. And when you meet Fed staff, and not everybody's perfect, but but there isn't a better cadre of professionals more dedicated to the public well-being than work at the Fed. Thanks for that answer. U, if I may follow up, as I'm sure you've noticed, gold and silver prices have experienced historic gains of late. And I'm [snorts] wondering how much attention, if any, you pay to those moves and and what message you may take from these uh significant price increases we've seen for precious metals.
>> Don't don't take much message macroeconomically. Um, the argument can be made it's, you know, that we're losing credibility or something. It's simply not the case. If you look 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 we don't get spun up over particular asset price changes, although we do we do monitor them, of course.
>> Nicole, for the last question,
>> hi Nicole, good barren. Some prominent critics have charged that the Fed's economic models are are somewhat back upward-looking um but should be more forward-looking incorporating things like productivity increases from AI. How do you incorporate current and future developments into your analysis and decision-m and do you have a an answer to those critics?
>> Yeah. So, by and large those criticisms as somebody on the inside, they just don't make sense. And I'll tell you why. Every FOMC participant writes down a forecast every quarter, right? The Summary of Economic Projections and that's the basis for how we think about the economy. So, and the the other thing is, you know, uh what an what an economic model can do is it can grind up all the data for the last number of years, 50 years, let's say, and it can it can identify what are the relationships between variables A, B, C, D, and all that kind of thing. and it can tell you if you change one of those variables, this is what should happen in the macroeconomy. That's just the way it works. However, the structure of the macroeconomy is constantly changing. For example, we hadn't had a pandemic in a 100 years. It wasn't in the model and we knew it from the very beginning. It was not in the model. A trade war of this scope, we'd never had that in, you know, in a hundred years. And and so there's great uncertainty at at uh at different points. Um, another thing I'll say is, uh, you know, when it comes to, uh, you know, technological developments that raise potential output, some kind of technological renovation, you know, revolution like like happened in the '90s here and like maybe happening now with AI, we're all over that. And, you know, we everyone studies those periods and, you know, we're very clear-eyed about the possibility that this higher productivity may persist um, and also that it may not. You know, we we we're not no one's sitting here unaware of the possibility of higher productivity. We've been talking about it for three years. It it long predates the current situation. It's been going on for five or six years. We've had productivity higher. We've been talking about it that whole time. So, it's very much on our minds and we we are well well aware that higher productivity means higher potential output and it it changes the way you think about potentially inflation, growth, labor market and all those things. That's all in our models. I mean, if it's just question using better models, bring them on. You know, where are they? We'll take them. But I think, you know, [snorts] we we certainly are in contact with anybody who does economic modeling and and we're always looking to do better at that. But that's that's how I think about that.
>> And just [clears throat] a quick follow-up, we've been talking a lot about tariffs and passing through and we've been talking a lot about them for the past few months. You know, the trade landscape is still in a constant state of flux. uh announcements, threats, negotiations, they're all frequently changing. So, I'm wondering how you actually track these, how what data channels are most critical to follow this in real time.
>> Trade.
>> Yeah, the impact of tariffs and how they're changing.
>> Yeah, I I think our staff has done a really nice job on that and and they've kind of put it together in real time. So, as I mentioned, a tariff gets put in place. You can pretty much track its effects on pricing and on everything and and so you build up build a model up from all of the all of the tariffs. At the beginning, it was very much of a forecast. Now, it's it's every every cycle that goes by, it becomes more informed by actual data. And, you know, we were we our forecasts were not far off. Um, what changed was as I think I said earlier, what changed was what was implemented was smaller than what was announced. In addition, we didn't see retaliation internationally and I think people did generally expect that because we saw that in the past and that really mattered too. And then the other thing is that pass-through didn't know how fast that was going to be to consumers. Didn't know how much exporters would take, how much it companies in the middle would take, and how much the consumer would take. And it turns out it's a lot of companies in the middle who, by the way, are pretty strongly committed to passing the rest of it through, which is one of the reasons why we need to keep our eye on inflation and not declare victory prematurely.
>> Thank you.
>> We're done.
>> We're done.
>> Okay. Thank you very much.