Powell: There will be no interest rate cuts before inflation improves, will not leave the Federal Reserve during the survey period, and will serve as acting chair if necessary (full text attached)

Key points from Powell's press conference: 1. The Federal Reserve will not cut interest rates for now, and the possibility of rate hikes has returned to discussion: The Federal Reserve has maintained the target range for the federal funds rate at 3.5%-3.75%. Powell clearly stated that he would not consider cutting rates until there is further improvement in inflation; meanwhile, the committee has begun discussing whether the next step could be a rate hike, although this is still not the baseline scenario assumed by most officials. 2. Tariffs and energy are creating a "double whammy" on inflation. Powell pointed out that the current process of cooling inflation has clearly slowed down, and short-term inflation expectations have risen again in recent weeks. Price pressures from tariffs are still being transmitted to core inflation, while rising oil prices due to the situation in the Middle East are adding new upward risks, and a significant decline in commodity inflation may have to wait until at least mid-year. 3. The labor market appears stable, but downside risks are accumulating. Powell acknowledged that job growth is at a low level, and the "balance" in the labor market is inherently fragile against the backdrop of slowing labor supply. Meanwhile, energy shocks not only push up prices but may also negatively impact employment and overall economic activity by suppressing consumption, squeezing corporate costs, and disrupting supply chains. 4. The energy crisis continues to escalate, with international oil prices rising sharply. The war in Iran has led to attacks on multiple energy facilities, and the Strait of Hormuz faces threats of blockade, causing market concerns about disruptions in crude oil supply to rapidly intensify, with Brent crude briefly surpassing $107. Powell emphasized that it is still difficult to determine how long this round of shocks will last and how significant the impact will be, but the potential shock to the U.S. and global economy should not be underestimated. 5. AI has not yet significantly driven productivity at the macro level and may actually raise neutral interest rates in the short term. Powell stated that the productivity improvements currently seen cannot be attributed to generative AI, as the relevant effects will take years to confirm. Instead, the current large-scale construction of data centers is driving up demand for goods and services, which may increase inflationary pressures and raise neutral interest rates. 6. Powell confirmed he will not leave the Federal Reserve during the investigation and will continue to serve as "acting chair" if necessary. He stated that there are no plans to resign from his position as a governor until the investigation is completed, the process is transparent, and the conclusions are clear; if a successor has not been confirmed by the end of the chair's term, he will continue to serve as acting chair according to legal provisions until a new chair is officially in place, to ensure the Federal Reserve's operations and independence are not subject to political interference. On Wednesday, March 18, the Federal Reserve announced its interest rate decision, maintaining its stance as expected. Federal Reserve Chairman Powell stated at the press conference that short-term inflation expectations have risen in recent weeks, while most long-term inflation expectations remain aligned with the 2% target. In his opening remarks, Powell indicated that the overall employment situation in the U.S. is stable, the labor market remains robust, and the unemployment rate is at a low level, but inflation is still relatively high. He believes that the current monetary policy stance helps to achieve maximum employment and the 2% inflation target. He noted that the developments in the Middle East carry uncertainties regarding their impact on the U.S. economy Powell said, Current indicators show that economic activity is expanding at a solid pace. Consumer spending remains resilient, and fixed investment continues to grow. In contrast, activity in the housing market remains weak. In the latest Summary of Economic Projections (SEP), the median forecast shows that U.S. GDP is expected to grow by 2.4% this year and 2.3% next year, slightly higher than the forecast from last December. In terms of the labor market, the unemployment rate in February was 4.4%, which has not changed much since last summer. Regarding employment, Powell stated, U.S. job growth has slowed. The pace of job growth over the past year has largely reflected a decline in labor supply growth, which is related to reduced immigration and a decline in labor force participation, while labor demand has also weakened. Other indicators, including job vacancies, layoffs, hiring, and nominal wage growth, have shown little overall change in recent months. In the SEP, the median unemployment rate forecast is 4.4% at the end of this year, with a slight decline thereafter. On inflation, Powell said that U.S. inflation has fallen from its mid-2022 peak, but it remains elevated compared to the 2% target. Data shows that as of February, the overall PCE price index rose 2.8% year-on-year, and core PCE, excluding volatile food and energy prices, rose 3.3%. The higher readings partly reflect inflation in the goods sector being affected by tariffs. He noted that recent inflation expectation indicators have risen in recent weeks, possibly reflecting the impact of oil price disturbances, while long-term inflation expectations remain broadly consistent with the 2% target. The median inflation forecast is 2.7% for this year and 2.2% for next year, both slightly higher than the forecasts from last December. Powell said, The situation in the Middle East poses uncertainty for the U.S. economy. In the short term, rising energy prices will push up overall inflation, but the extent and duration of its impact on the economy remain to be seen. In the SEP, FOMC members provided appropriate federal funds rate path forecasts based on their individual assessments of the economic outlook. The median forecast shows an interest rate of 3.4% at the end of this year and 3.1% at the end of next year, essentially unchanged from last December. Powell stated that, as always, these individual forecasts carry uncertainty and do not represent the committee's established plans or decisions. There is no preset path for monetary policy, and the Federal Reserve will make decisions based on data at each meeting. In the subsequent Q&A session, Powell mentioned that a series of prior shocks interrupted the progress the Federal Reserve had made in combating inflation. He emphasized that there will be no rate cuts if inflation does not improve. He indicated that current interest rates are near the threshold between restrictive and non-restrictive, and he believes it is important to maintain a mild degree of rate restrictiveness. The Federal Reserve is in a difficult position and needs to balance various risks. He also mentioned that the possibility of the next action being a rate hike has indeed been mentioned, although most officials do not consider this to be the baseline assumption. **Regarding the highly anticipated question of his future, Powell confirmed that he will not resign during the investigation period. He stated that if his successor has not been confirmed, he will continue to serve as acting chair after his term ends to ensure the independence of the Federal Reserve is not disrupted by political interference ** The following is the Q&A session from Powell's press conference: Q1: There is currently a view that the Federal Reserve will "look through" the rise in oil prices caused by the Middle East conflict. Is this approach appropriate at this point in time? Additionally, to what extent has inflation being above target for about five years influenced the committee's judgment? Powell: First of all, I want to say that we are very aware of the inflation performance over the past few years. A series of shocks have interrupted the progress we had made. The most recent shock came from tariffs, and future inflation will also be affected by some factors. What we are really focused on this year is whether inflation can make progress, particularly the decline in goods inflation. As the one-time impact of tariffs on prices gradually gets absorbed in the system and the economy, we hope to see this progress. This is our primary focus at the moment. In this process, we need to see this progress to confirm that we are indeed making improvements. Because overall, we have not actually made progress. If you look at overall core inflation, it is around 3%. A significant portion of that, about 0.5 to 0.75 percentage points, is caused by tariffs, and we are monitoring whether this part will decline. As for whether to "look through" energy inflation, this question cannot even be discussed until we confirm the aforementioned progress. Of course, based on traditional experience, when facing energy shocks, it is usually chosen to be "ignored." But this always depends on whether inflation expectations remain stable. And the broader context you mentioned—long-term inflation above target—must be taken into account. When it truly comes to deciding whether to "ignore" energy inflation, we will not make hasty decisions, but will handle it cautiously in the context you mentioned. Q2: Regarding the SEP, can you help us understand why, despite the upward adjustment in core inflation and the basic stability of growth and unemployment rate forecasts, most officials still lean towards interest rate cuts? In other words, what is the logical basis for rate cuts? Why is there a need for rate cuts? Powell: There are a total of 19 committee members, which means there are 19 different views and 19 independent forecasts. But if you notice, the median has actually not changed. However, there have indeed been some adjustments, and there has been a noticeable shift towards "reducing the number of rate cuts." For example, four to five committee members adjusted their expectations from two rate cuts to one rate cut. Each person has their own judgment logic and reasons behind it. Overall, the core judgment is that our forecast is for inflation to continue to improve. Although the degree of improvement is not as large as previously expected, there will still be some progress. This progress should begin to manifest around mid-year, mainly reflected in the gradual transmission of the impact of tariffs, leading to a decline in tariff-induced inflation. We should be able to see this. Additionally, it is important to emphasize that the forecast for the path of interest rates is predicated on economic performance. If we do not see this improvement in inflation, then there will be no rate cuts. Q3: The inflation forecast for 2026 has been raised. Is this entirely due to the recent oil price shock, or are there other factors at play? Powell: This is indeed part of the reason. But you know, this will not be the main source of core inflation. The oil price shock will certainly be reflected in the data, and part of it will also enter core inflation. But it's not just this reason. Another factor is that we have not yet seen the kind of improvement in core goods inflation that was previously expected, including tariffs and other related factors. In any case, the upward revision of inflation forecasts is indeed related to the situation in the Middle East and changes in oil prices to some extent. At the same time, this also reflects that the progress we see in tariff-related inflation is relatively slow. We still believe that this progress will occur; the question is how long it takes for these effects to fully transmit throughout the economy. This is a process that takes time. Q4: The SEP has not changed. Can you explain the reason again? Is this more because the expected impact of the oil price shock will gradually transmit and fade, or because of concerns that a decline in the stock market will bring about a wealth effect and that rising oil prices will suppress consumption and economic growth, for example, consumers shifting spending from other areas to gasoline? So, is the lack of change in interest rate forecasts because you believe the oil price shock is temporary, or because you think economic growth may begin to slow? Powell: I want to emphasize that no one knows what the outcome will be. The economic impact could be small or it could be very large; we truly do not know. Everyone is just making predictions based on what they think is reasonable, but there is not a strong conviction. As you said, if oil prices remain high for an extended period, that will indeed suppress consumption, disposable income, and overall spending. But we do not know if this situation will occur. It is also possible that the transmission of oil prices to inflation is less than expected. In this SEP, many even mentioned that if there was a time to skip an SEP, this might be an appropriate moment. Because we are indeed uncertain. I wouldn't say that everyone has a clear judgment that this impact will fade quickly or not. You have to write a forecast, but this is just a fill-in based on current information. We also won't argue about how long these impacts will last or how large they will be, because these questions are inherently difficult to judge. Everyone needs to submit their own forecasts. Additionally, if you have already written a forecast, you typically won't easily make a large adjustment to it because the uncertainty is too great. The directional nature of the current shock itself is very unclear. Meanwhile, the fundamentals of the U.S. economy are relatively robust, economic growth remains solid, and the excess inflation mainly comes from goods and tariff factors. In terms of the labor market, the unemployment rate has changed little since last September. With limited growth in both demand and supply, the balance point in the job market still appears to be at a low level. Overall, the U.S. economy is performing quite well. We just truly do not know what impact this shock will ultimately bring. In fact, no one knows Q5: In the past, the Federal Reserve pointed out that rising oil prices would impact consumption, but this effect would be partially offset by increased domestic energy production. Can you discuss this dynamic relationship? In particular, what is the current state of U.S. energy production? Powell: First, the traditional, long-held view is that for energy shocks, one typically chooses to "look through." As I mentioned earlier, this premise is that inflation expectations remain stable, among other factors. The term "offsets" is correct. The U.S. is now a net exporter of energy. The negative impact of rising oil prices on employment and economic spending will be partially offset by increased profits for oil companies and more drilling activities. However, if you ask oil companies whether they will increase drilling, they usually want to see sustained increases in oil prices compared to pre-war levels, and they need to believe that this increase will last for a considerable time. They will not immediately start large-scale drilling just because oil prices have just surpassed $70 per barrel. They will make a more rational judgment that oil prices will remain at a higher level for a longer period. Moreover, this increase needs to be at a "significantly higher" level. If this level is not reached, the changes will not be substantial; but if it does occur, there will still be some increase over time. Overall, the net effect of this oil price shock will still exert some downward pressure on consumption and employment, while of course also putting upward pressure on inflation. Q6: If the Federal Reserve chooses to "look past" inflation caused by tariffs while inflation itself continues to exceed the target, and on the other hand, ignores the oil price shock, how concerned are you that this will undermine external confidence in the Federal Reserve's commitment to the 2% inflation target and its credibility? Powell: We must conduct thorough analysis and carefully consider these issues. Of course, this has always been on everyone's mind. We are very aware of historical experience. You cannot overreact to this, but you must also make the best judgment possible based on the facts. I do not believe we will allow this issue to have an undue influence on decision-making. More consideration is that this is already the fifth year. We have experienced tariff shocks, pandemic shocks, and now we are facing an energy shock of a certain scale and duration. As for how large this shock will ultimately be and how long it will last, we actually do not know yet. The problem is that this is a series of recurring shocks. You would worry that these recurring events could trouble inflation expectations. So we are very attentive to this. We are firmly committed to taking all necessary measures to ensure that inflation expectations remain anchored at 2%. I think this is very important, extremely important. Q7: If housing services inflation continues to exceed expectations, and not just commodity inflation, while, as you said, the overall economic performance remains good, what gives you confidence that inflation can return to target levels in the coming years? Powell: Well, I would say that the current level of interest rates can be understood as being at the "higher end of the neutral rate range," or it can be understood as "slightly restrictive," or even "moderately restrictive." But no one can be very certain. Overall, it is in a critical position—between "restrictive" and "non-restrictive." It is important to remember that the expected decline in inflation largely comes from the gradual fading of tariff impacts. After the implementation of tariffs, prices are pushed up to some extent, and these price increases are partially borne by consumers in a one-time manner. We are waiting for this process to complete. This process takes 8 months, 9 months, 10 months, or even 11 months, possibly close to a year, to fully transmit through the economy. We are waiting for the tariff impacts implemented from mid to late last year to gradually transmit. This way, commodity inflation will return to levels closer to historical norms. For many years, commodity inflation has actually been negative; in the year before the tariffs were implemented, it was around zero; and now it is about 2%. So currently, commodity inflation is around 2%. This inflation does not come from the traditional Phillips curve mechanism, nor is it purely driven by tightening policies. It is more of a process of a one-time shock gradually fading. Of course, we also believe it is important to keep policies at a "slightly tight" or near this level. But we cannot overly tighten, as there are downside risks in the labor market. We are now balancing between two goals: on one hand, the labor market faces downside risks, which usually means interest rates should be lowered; on the other hand, inflation risks are skewed upward, which means interest rates should not be lowered. This is a relatively difficult situation. We believe the current policy framework requires a balance between these two risks. And our current position is roughly in the "slightly tight" critical range, which we believe is an appropriate position. Q8: Regarding housing, some people feel that inflation has not significantly decreased over the past year. If wages and the labor market have become more relaxed, why hasn't housing inflation slowed down accordingly? Powell: This is a good question and indeed somewhat frustrating. Non-housing services inflation has basically been flat over the past year, maintaining at roughly the same level. We originally expected it to decline, but it has been affected by a series of idiosyncratic factors. Meanwhile, this was supposed to be an area where we would see improvement. As you mentioned, the labor market is clearly no longer the main source of inflationary pressure. This should have had an impact on non-housing services inflation, but we have not yet seen progress in this area. For this year, our expectation is that housing services inflation can continue to improve; at the same time, as the tariff impacts gradually fade, commodity inflation can decline; additionally, non-housing services inflation should also provide some downward assistance. This is the situation we hope to see. As for why we did not see much progress last year, this is indeed a question worth pondering. Q9: In December last year, we saw employment data revised down to a decrease of 17,000, and subsequent revisions for January and February also showed a decline in employment. From the current perspective, is employment more concerning than inflation? The overall PCE has already declined Powell: I wouldn't put it that way. I don't think it's possible to clearly say which aspect of the risk is greater. You can see that the unemployment rate is stable. Over the past year, due to factors such as immigration policy, there has been a significant decline in both labor supply and demand. In this context, it is more meaningful to look at some ratio indicators rather than just the number of new jobs. For example, the unemployment rate has remained stable since September of last year. From an inflation perspective, core inflation is currently around 3.0%, and overall inflation is about 2.8%. This means we have been significantly above the 2% target for some time, approximately 0.7 to 1 percentage point higher. This is indeed a problem, and we need to bring inflation down below 2% and focus on that goal. Although we are currently facing a new round of inflationary pressure from energy, it's hard for me to say which aspect of the risk is clearly greater. Q10: What happens if a new Federal Reserve Chair is not confirmed before May 15? Will you continue to serve? Powell: If my successor is not confirmed before my term as Chair ends, I will continue to serve as "Chair pro tem" until the new Chair is confirmed. This is mandated by law. In similar situations in the past (including myself), we have handled it this way, and we will do the same this time. Additionally, since this issue has been raised, I will also respond regarding the investigation. I have no intention of leaving the Board until the investigation is fully completed, the process is transparent, and the conclusions are clear. On this point, I suggest you refer to the statements previously issued by the Federal Reserve, which you should have all seen. I have no further comments. As for whether I will continue to serve as a Board member after my term as Chair ends and the investigation concludes, I have not made a decision yet. I will make this decision based on what is most beneficial for the institution and the public we serve. I guess you may continue to pursue this topic, but I won't comment further on it. Q11: Some people are comparing the current situation to history, such as past oil price shocks. So, can the Federal Reserve's response to growth risks be compared to historical experiences? To what extent do you agree with this comparison? In what ways is the current situation different? Powell: It's hard to draw conclusions before seeing the actual situation. In some cases, such comparisons may be appropriate. For example, if we indeed see the kind of inflation decline progress I just mentioned due to tariff factors, then the situation may be different. But overall, it's hard to generalize. This will largely depend on the scale and duration of the price impacts. At the same time, it will also depend significantly on the changes we see in inflation expectations. Q12: One more question regarding the earlier mentioned Bureau of Labor Statistics (BLS) report. From your predictions today and your earlier comments on the unemployment rate, it seems that your assessment of the labor market is largely still based on changes on the supply side and has not significantly changed due to the negative employment data in February Is this understanding accurate? Additionally, did anyone in the meeting hold a different view, believing that the employment report for February is concerning? Powell: I think we need to look at the data for January and February together. In a sense, the data for January was a positive surprise, while the data for February was a negative surprise. When you combine the two, it results in a roughly neutral outcome. At the same time, you need to consider some factors, such as strikes and weather. These factors account for about 80,000 of the negative impact in the February employment data. Setting these factors aside, from a more macro perspective, you will find that many indicators show a certain stability in the labor market. However, a significant portion of the committee is indeed concerned about one issue, which is that the level of employment growth is very low. If you look at the employment growth trend over the past six months and adjust for what our staff believes is "statistical overcounting," then the net employment growth in the private sector is almost zero. To some extent, this is precisely the state that the current economy needs, as labor supply has hardly grown. This is a situation that has never occurred in U.S. history. Therefore, you will see a kind of "zero employment growth equilibrium." In a sense, this is a balance. But frankly, this balance carries certain downside risks and is not a particularly reassuring state. We are indeed paying attention to this and understand this logic. Everyone understands this arithmetic relationship. You could say the "break-even point" is roughly zero. Even so, this is still a situation we are closely monitoring and are somewhat concerned about. From another perspective, this can also be understood as a result of policy choices, mainly the impact of changes in immigration policy, which is the biggest factor. However, in any case, this is an issue we will continue to monitor closely. Q13: In recent years, the U.S. economy has experienced a series of supply shocks, including the pandemic, tariffs, and two oil price shocks. Do you think this is "bad luck," or has something changed in the world that makes supply shocks more frequent? In this case, does the central bank need to treat supply shocks as a more common issue to address? Powell: We have gone through a long period where we mainly faced demand shocks. In the past four to five years, we have indeed accumulated a lot of experience in dealing with supply shocks. Supply shocks are much more complex. They immediately create a tension between our two goals in the "dual mandate." As for whether the world has changed— the pandemic was a one-time event, right? This energy supply shock is also a one-time event. I don't think it is due to some broader trend. The oil price shock triggered by Ukraine is essentially the result of military action. I am not sure whether the world has really changed in a way that will lead to more supply shocks in the future. Indeed, many people have written papers and given speeches trying to prove this point But one thing is a fact: in the past five years, we have experienced more supply shocks than in many previous years. Q14: Last year, you mentioned that the Federal Reserve was evaluating its communication strategy, including the SEP, as part of the assessment of the policy framework. What progress has been made on this matter? If given the opportunity, what changes would you make to the communication approach? Powell: There hasn't been much progress on this issue, actually. I can explain the reasons. We have seriously evaluated multiple aspects of the SEP and the overall communication approach. However, no single proposal has gained broad support within the committee. In terms of communication strategy, you should not make changes without broad support from the committee. Therefore, we have not made substantial adjustments in this area. I personally hoped to push for some changes, but those ideas did not receive sufficient broad support. We have completed adjustments to the policy framework itself, which is the most critical thing. So ultimately, we did not advance changes in communication. Frankly, I hoped to make some adjustments at that time, but it did not happen. Perhaps the next chair will revisit this issue, and I believe they will. Q15: Some committee members hope to include "two-sided guidance" in the policy guidance. Was this discussed in today's meeting? Given the rising inflation expectations, how much support is there for this "two-sided policy warning"? Powell: This issue was indeed mentioned today. The possibility that "the next policy step may be an interest rate hike" was discussed in this meeting, as it was in the last meeting. However, the vast majority of participants do not consider this their base case. We do not rule out any options. Your description is accurate— as reflected in the minutes, several committee members expressed similar views, and such discussions have indeed taken place. Q16: Besides oil prices, many other commodities have been affected by this trade shock, and supply chains are becoming disrupted. How concerned are you that this could become an inflation issue beyond just oil prices? In this case, considering the limitations of monetary policy, does the Federal Reserve have the ability or will to take measures to respond? Powell: You can indeed be concerned about other commodities, as well as the various transmission channels of energy in manufacturing. But the fact is, these situations are completely beyond our control. Like others, we can only wait for developments. The key is how long the current situation will last and what impact it will have on prices, as well as how consumers will react. These are all things we need to observe. I won't speculate too much on this. Besides observing and waiting, we actually don't have much we can do. Q17: You just mentioned that changes in long-term inflation expectations relate to the public's confidence in inflation returning to the 2% target. Some colleagues have also pointed out that the divergence in inflation expectations among households, the service industry, and businesses is widening, which may indicate that inflation expectations are not as stable as in the past. I would like to ask if this was discussed in this meeting? How does the committee view the current stage of inflation expectations and the risks brought by rising oil prices? Powell: At this meeting, many people mentioned, and the staff also reported, that short-term inflation expectations have clearly risen, and we are quite clear about the reasons behind this. As for long-term inflation expectations, you can always find some indicators or specific segments that seem somewhat concerning. However, overall, most of the indicators we have observed during this period—including market indicators, public surveys, and professional forecasts—show that long-term inflation expectations remain quite stable, essentially staying in line with the 2% target. This situation still holds. There wasn't much discussion on this point during the meeting. But I think everyone agrees that we will closely monitor these indicators, especially as the price increases caused by conflicts gradually transmit. Q18: Before this meeting, did the committee discuss the risk of "economic growth slowing while inflation remains high"? Currently, it seems that most committee members do not reflect a significant slowdown in their forecasts. So, at this stage, is there any discussion about "stagflation risk"? Powell: Some committee members have raised their growth forecasts by about 0.1 percentage points. This may reflect an increased confidence in productivity. Regarding stagflation risk, there is indeed tension between the two goals: on one hand, there is an upward risk to inflation, and on the other hand, there is a downward risk to employment. This places us in a rather unique environment. However, when we use the term "stagflation," I must point out that it was originally a term used to describe the 1970s. At that time, the unemployment rate was in double digits, and inflation was also very high, with the "misery index" remaining elevated. That is not the case now. The current unemployment rate is very close to the long-term normal level, while inflation is about 1 percentage point above the target. I don't think it's appropriate to describe the current situation as "stagflation." I would reserve the term "stagflation" for more severe circumstances. What we are facing now is a certain tension between the two goals. We are working hard to balance in this environment. It is indeed a difficult situation, but it cannot be compared to the 1970s. Personally, I would reserve the term "stagflation" for that period, though that is just my opinion. Q19: Trump stated that once the war is over, prices will drop rapidly. Do you agree with this statement? From the perspective of American households, they have been bearing high prices for years, and now gasoline prices have risen by nearly $1 per gallon. How concerned are you that low-income families will find it harder to bear these price increases? Meanwhile, some are also preparing for rising food prices. Powell: I have not made a prediction on this statement. We do not know how significant these impacts will be. Of course, people are already feeling the rise in gasoline prices, which has increased by nearly $1 per gallon. We hope this situation does not last too long. There is no doubt that people will feel this pressure. But I do not want to speculate on what specific impacts this will bring. Frankly, if I were to speculate, it would be as if I already knew what would happen. We need to observe how things develop. That's all I have to say Q20: I would like to ask, in preparation for the next meeting, how will the developments of the Middle East war during this period affect your decision-making? If oil prices remain above $100 per barrel before the next meeting, will this change your current policy stance? Under what circumstances would you take action? Are you currently planning to remain inactive indefinitely? Powell: We must wait and see. As we have consistently said, we will have more information before the next meeting, and that is usually the case. This time, we will have a lot of new information. There are still six full weeks until the next meeting. The developments in the Middle East will have a very significant impact on economic performance and changes in economic outlook. This is a key factor. By then, we will have a clearer picture. But at the moment, I do not know how it will affect our judgment; I truly do not know. We have indeed discussed some different scenarios in the meeting, but I do not intend to elaborate on that here. The uncertainty in this regard is very high. I want to emphasize that we do not know what the outcome will be right now. We should not assume that things will develop in one direction or another. We can only wait and see. Q21: Does this mean that you do not know how the situation itself will develop, or that even if the situation remains unchanged, the economy may still remain resilient? Powell: That is indeed the case. The U.S. economy has... faced many challenges, but overall performance has remained strong. If you look back at 2022 and 2023, when we raised interest rates significantly, nearly 100% of economists predicted a recession, but that did not happen. In fact, 2023 has been a very strong year. So, after experiencing so many significant changes, the overall performance of the U.S. economy has been quite good. It is indeed surprising to see this. I do not know what will happen during the time between the next meeting, nor do I know how the situation in the Middle East will develop. I do not want to make any guesses. Q22: What makes you think that the price increases related to tariffs are just a one-time effect? I think we haven't seen you since the Supreme Court made a ruling on tariffs. No one really knows how much impact the overturning of tariffs will have. What makes you think that tariffs are just a one-time price effect? Powell: I would not use the word "certain" to describe my view. I am not certain; I have uncertainties. If you look at it fundamentally, tariffs are a one-time increase in the price of certain goods, right? Inflation refers to prices that continue to rise this year, next year, and the year after. That is inflation. It is not a one-time price increase. There is a significant difference between the two, but the public often does not pay attention to this. That is the key distinction. Theoretically, tariffs should have a one-time impact. Unless they lead people to start expecting more tariffs next year and more tariffs the year after, they should be a typical one-time shock. Traditionally, people would also apply the same logic to rising energy prices Generally speaking, prices will rise and then fall back. By the time monetary policy begins to take effect, this round of shocks has often already ended. So I don't have a high level of confidence in this. I believe the theory holds. But as always, how long it takes for this impact to transmit throughout the economy is very uncertain. We saw this after the pandemic. Inflation did indeed fall back, largely due to the reasons we initially judged, but it took two years longer than we expected. Therefore, we must remain humble about how long it takes for the effects of tariffs to fully transmit to the economy. Our current approach is that our staff has been conducting relevant research, which is actually quite interesting. Initially, it could only be based on estimates due to insufficient historical experience. As historical observations on how tariffs transmit into prices continue to accumulate, a clearer path has now formed. For most tariffs, we can say that our confidence in the idea that "inflation caused by tariffs will gradually fall back" has slightly increased. Note that it is inflation falling back, not prices falling back. In other words, prices will not continue to rise. We expect to see this becoming increasingly evident around mid-year. You are correct that after the Supreme Court ruling, there was indeed a noticeable decrease in tariff levels. However, the government has indicated that it will gradually raise the tariff levels back to their original levels. Therefore, our assumption is that they will restore tariffs over time. This is how we currently make our judgments. Q23: You just mentioned the limitations of the SEP, and I would like to add a question, especially before the transition period. For the public, is it still valuable to understand the thoughts of other Federal Reserve officials—especially those who will remain in office for the rest of this year and into the future? Additionally, will this in some way constrain your successor? For example, if the entire committee expresses their views, will this in some way "lock in" their policy path for this year? Powell: No, absolutely not. Everyone in the SEP can completely adjust their "dot plot" at any time. These predictions have no binding force. They are merely individual judgments at a certain point in time, and this judgment can change with events, sometimes even very quickly. It never "locks" anyone in. Everyone is also quite willing to be proven right or wrong, regardless of the direction. So I think we should continue to publish this content. As I mentioned earlier, this stage is indeed quite difficult. During the pandemic, it seems we had one meeting where we did not publish the SEP. But we actually do not want to do that because it is indeed difficult, but we should still insist on publishing. However, I must also say that the uncertainty of this prediction is higher than usual. These predictions should be viewed with caution and not over-interpreted. Q24: You just mentioned that you are very aware of the history of inflation being persistently above target. This seems to also reflect the feelings of the general public. Considering that consumers are an important driving force of overall economic activity, is this affecting their mindset? Powell: I'm not quite sure what the reasons behind this are. But I can talk about what we've seen from the surveys. People have indeed experienced significant price increases. And it's not just in the United States; it's a global phenomenon. Countries around the world have basically experienced similar inflation rises after the pandemic. For about the past three years, real wages have actually been increasing everywhere. But people still don't really "feel better." We believe it will take a few more years of sustained real income growth for people to feel more confident again. You're right; when you talk to ordinary people, they do feel a lot of pressure. There are still some areas where prices are rising, such as insurance, and various insurance costs are becoming increasingly expensive. This is actually digesting the lagging effects of previous inflation, and such prices often take time to fully reflect. We take this very seriously. We will never ignore this feeling. From people's real-life experiences, this is very real. For us, this actually makes us even more determined (if we could be more determined) to bring inflation steadily back down to the target level of 2%. Q25: What role does the independence of the Federal Reserve play in the issue of affordability? Powell: Independence allows us to fulfill our responsibilities. Stabilizing prices is half of our mission, and the other half is achieving maximum employment. Having this independence is crucial so that we can take the necessary measures to maintain price stability. This is also a widely accepted standard practice. I believe this point has broad support, especially in Congress—our oversight body is in Congress. Whether in the House of Representatives or the Senate, whether Democrat or Republican, there is support for this. Q26: To what extent do oil prices and broader inflation need to rise and for how long before the committee considers raising interest rates? Additionally, diesel prices are rising faster than gasoline prices. How concerned are you that this will further push up inflation? How concerned are you that this will raise the costs of food and other goods that rely on transportation? Powell: For the first question, I won't provide specific scenarios or standards. We are prepared to take action when necessary. But I don't want to assume what specific conditions would trigger that. As for the issue of diesel prices, diesel prices are important because they relate to transportation, including the transport of oil and various other goods. And it can also impact many areas through derivatives. It will have a significant impact on overall inflation (headline inflation), and this impact may gradually transmit to core inflation. These effects are substantial. We are closely monitoring this. Currently, we are still in the early stages of this process. You can't yet determine how large its impact will be or how long it will last. It may not have a particularly large impact on the U.S. economy. We need to continue observing. Q27: Looking slightly into the future, I've noticed changes in the long-term forecasts in the SEP. Growth expectations have been raised from 1.8% to 2%, and the expectations for the long-term federal funds rate have also increased Is this due to the productivity boost brought by AI? Or are there other reasons? Powell: This is mainly due to productivity factors. About four or five years ago, we began to see a significant increase in productivity. But this is not because of generative AI. We will need many more years to truly understand the reasons behind this change. It may be related to the adjustments made by businesses and individuals during the pandemic to save costs and improve efficiency, or it could be linked to the severe labor shortages at that time, which forced companies to enhance productivity. I believe that economic forecasts are generally skeptical about "high productivity periods" because such situations are very rare and often later revised. For many people, including myself, it was never imagined that we would see so many years of sustained high productivity, and that it would be considered to continue. Moreover, we have not really seen the impact of generative AI yet. This factor could certainly lead to further productivity improvements in the future. So the current situation is quite unusual. And the increase in productivity is a key factor driving long-term income growth. Therefore, this is a very positive phenomenon. Q28: There is a common view in the market that if productivity increases (for example, from AI), it may ultimately lower the long-term level of interest rates. Do you agree with this view? Or do you think interest rate trends should not be understood this way? Powell: We need to be cautious about this, especially when discussing generative AI. It is important to remember that in the short term, what is actually happening is that we are massively building data centers everywhere. This will create demand pressure for various goods and services needed to construct these facilities. Marginally, this could actually push inflation higher. At the same time, this could also raise neutral interest rates. So in the short term, this is not a factor that will immediately lead to lower interest rates or lower inflation. But in the long term, it is certainly possible. If it indeed enhances potential output—which is the effect of productivity—then it could have such an impact. However, I believe this is essentially a question that needs to be validated by data. The key is whether demand growth is faster than supply or slower than supply. We cannot determine this in advance. We can only wait and see