Powell: Another rate cut in December is not a certainty, there are significant divisions within the committee, the job market continues to cool, and there is short-term upward pressure on inflation (full text attached)

Summary of Powell's October Press Conference Key Points:

1. Policy Rate Outlook: Another rate cut by the Federal Reserve in December is not a foregone conclusion. There was significant disagreement today. Some FOMC members believe it is time to pause.

2. Balance Sheet: No decision was made today regarding the composition of the balance sheet. Adjusting the balance sheet is a long-term process and will be gradual. The aim is to shift towards a balance sheet with shorter duration assets.

3. Labor Market: Due to restrictive policy, the labor market continues to cool. There is no evidence that labor market weakness has intensified, and job vacancies indicate the market has remained stable over the past four weeks. Labor supply has dropped dramatically, impacting the labor market. The Fed closely monitors layoff decisions.

4. Inflation: September CPI was milder than expected. Service inflation, excluding the housing market, has shown a one-sided trend. Core PCE excluding tariffs may be at 2.3% or 2.4%. So far, non-tariff inflation has not deviated far from the 2% inflation target. The baseline forecast is that the U.S. will see some additional tariff-driven inflation.

5. Government Shutdown: Private sector data disclosures cannot replace government statistics (such as those from the Bureau of Labor Statistics, BLS). It is conceivable that a Trump administration shutdown would affect the December FOMC monetary policy meeting.

On Wednesday Eastern Time, the Federal Reserve announced at the FOMC monetary policy meeting that it would lower the federal funds rate target range from 4.00%-4.25% to 3.75%-4.00%, and decided to end balance sheet reduction starting December 1. This marks the first consecutive rate cut in two FOMC meetings in a year. Fed Chair Powell stated at the post-meeting press conference that another rate cut in December is not a foregone conclusion.

In his opening remarks, Powell said that despite delays in the release of some important federal government data due to the U.S. government shutdown, the public and private sector data currently available to the Fed indicate that there has been little change in the outlook for employment and inflation since the September meeting.

Labor market conditions appear to be gradually cooling, and inflation remains slightly elevated.

Powell said that existing indicators show economic activity is expanding at a moderate pace. GDP grew by 1.6% in the first half of this year, lower than last year's 2.4%.

Data released before the government shutdown suggest that economic activity may be slightly better than expected, mainly reflecting stronger consumer spending.

Business investment in equipment and intangible assets continues to grow, while housing market activity remains weak. A prolonged federal government shutdown will drag on economic activity, but these effects should reverse after the shutdown ends.

Regarding the labor market, Powell said that as of August, the unemployment rate remained relatively low. Employment growth has slowed significantly since the beginning of the year, much of which may be due to a decline in labor force growth, including reduced immigration and a lower labor participation rate, although labor demand has also clearly weakened.

Although official employment data for September was delayed, existing evidence shows layoffs and hiring remain at low levels; households' perception of job opportunities and businesses' perception of hiring difficulties are both declining.

In this lackluster and slightly weak labor market, downside risks to employment have increased in recent months.

Tariffs Are Driving Up Some Goods Prices, December Rate Cut Not a Foregone Conclusion

On inflation, Powell said inflation has fallen significantly from its mid-2022 highs but remains slightly above the Fed's long-term 2% target. Based on CPI estimates, overall PCE prices rose 2.8% in the 12 months through September; excluding food and energy, core PCE prices also rose 2.8%.

These readings are higher than earlier this year, mainly due to a rebound in goods inflation. In contrast, service sector inflation appears to be continuing to decline. Influenced by tariff news, short-term inflation expectations have generally risen this year, as reflected in both market and survey indicators.

However, after one to two years, most long-term inflation expectation indicators remain consistent with our 2% inflation target.

Powell said higher tariffs are driving up prices in certain categories of goods, thereby pushing up overall inflation.

A reasonable baseline judgment is that these inflationary effects will be relatively short-lived—a one-time upward shift in price levels. But it is also possible that the inflationary impact will be more persistent, which is a risk we need to assess and manage.

He stated that in the short term, inflation risks are tilted to the upside, while employment risks are tilted to the downside, creating a challenging situation. As downside risks to employment have increased in recent months, the risk balance has shifted.

With today's rate decision, we are in a favorable position to respond promptly to potential economic changes. We will continue to determine the appropriate stance of monetary policy based on the latest data, changes in the economic outlook, and risk balance. We still face two-way risks.

Powell revealed that there were clear differences among committee members regarding what action should be taken in December during this meeting's discussions.

Another rate cut at the December meeting is not a foregone conclusion, far from it. Policy does not have a preset path.

Ending Balance Sheet Reduction Starting December 1

In addition, the FOMC decided to end balance sheet reduction starting December 1. Powell said the Fed's long-standing plan has been to stop balance sheet reduction when reserve levels are slightly above what the Fed considers the "ample reserves" standard. There are now clear signs that the Fed has reached this standard.

Powell said that in the money market, repo rates have risen relative to the Fed's administered rates, with more pronounced pressures on specific dates, and usage of the Standing Repo Facility (SRF) has increased.

In addition, the effective federal funds rate has also started to rise relative to the interest on excess reserves. These situations are consistent with our previous expectations for what would happen as the balance sheet shrinks, and thus support our decision to stop balance sheet reduction today.

During the past three and a half years of balance sheet reduction, the Fed's securities holdings have decreased by $2.2 trillion. As a share of nominal GDP, the balance sheet has fallen from 35% to about 21%.

He stated that starting in December, the Fed will enter the next phase of its normalization plan, maintaining the balance sheet size for a period of time. Meanwhile, as other non-reserve liabilities (such as currency in circulation) continue to grow, reserve balances will continue to gradually decline.

The Fed will continue to allow agency securities (such as MBS) to roll off the balance sheet at maturity and reinvest the proceeds into short-term Treasuries, further shifting the portfolio toward a Treasury-heavy structure. This reinvestment strategy will also help bring the weighted average maturity of our portfolio closer to that of the outstanding Treasury market, further advancing the normalization of the balance sheet structure.

The following is a transcript of the Q&A session at Powell's press conference:

Q1: The market currently almost takes your next meeting's rate cut as a given. Are you uneasy about this market pricing? You and some colleagues last month, and again today, described the decision-making framework as "risk management." How do you judge when you've "bought enough insurance"? Do you need to see an improved outlook to stop? Or will it be like last year, with small adjustments over a longer period, taking it step by step?

Powell: As I just said, whether to cut rates further at the December meeting is not a foregone conclusion. So, I think the market needs to take that into account.

I want to emphasize: there are 19 participants on the committee, all working very hard, and during periods when our two goals are in conflict, there are very strong differences of opinion. As I mentioned, there were clearly different views at today's meeting. The conclusion is: we have not made a decision for December. We will judge based on data, the impact on the outlook, and the risk balance; that's all I can say for now.

My way of thinking is this: for a long time, our risks were clearly skewed toward inflation being too high. But things have changed. Especially after the July meeting, we saw downward revisions to employment growth, and the labor market picture changed, showing that downside risks to employment are greater than we previously thought. This means policy—which we previously kept at what I call a "slightly" restrictive level (others might call it "moderately" restrictive)—needs to move toward neutral over time.

If the risks to both goals are roughly equal, with one calling for rate hikes and the other for cuts, then policy should be roughly neutral to balance the two. In that sense, this is risk management. Today's decision logic is similar. As for the future, it will be another situation.

Q2: You just emphasized that there is no conclusion yet on December's discussion and outcome. What views were there in the meeting? For example, was there discussion about the sharp increase in current AI-related investment, and the issue of stock market gains and increased household wealth driven by the AI concept? Regarding balance sheet reduction, how much of the current money market pressure is due to the Treasury's recent large issuance of short-term debt?

Powell: I wouldn't say these factors play a role in all members' assessments of the economic outlook, nor would I say it's a primary factor in anyone's judgment.

Let me explain: the current situation is that inflation risks are tilted upward, while employment risks are tilted downward. We have only one tool (interest rates), and we can't "precisely accommodate" both risks in opposite directions at the same time. So you can't solve both simultaneously.

In addition, members have different forecasts for the outlook; some expect inflation or employment to improve faster or slower; everyone has different risk preferences, some worry more about inflation overshooting, others about insufficient employment. Combining these leads to differences.

You can sense these differences from the latest Summary of Economic Projections (SCP) and public speeches between meetings; there are many diverse views, and these were reflected as clear differences at today's meeting. I mentioned this in my remarks.

This is also why I emphasize that we have not made a decision for December. I've often said the Fed doesn't make decisions in advance, and today I want to add: the market should not take a December rate cut as a given—the reality is quite the opposite.

Regarding balance sheet reduction, we've observed repo rates and the federal funds rate rising, which is exactly the signal we expected to see before and after reaching the "ample reserves" standard. We've said before that when we feel reserve levels are slightly above "ample," we'll stop reducing the balance sheet. After that, as other non-reserve liabilities grow (such as currency in circulation), reserve balances will continue to decline.

In recent times, money market conditions have gradually tightened. Especially in the past three weeks or so, the degree of tension has increased significantly, so we judged that the conditions for stopping balance sheet reduction have been met.

In addition, the current pace of balance sheet reduction is already very slow, and our balance sheet size has shrunk by about half. Further reduction is not very meaningful, as reserves themselves will continue to decline.

Therefore, the committee supports announcing today that balance sheet reduction will stop starting December 1. The December 1 date gives the market some time to adjust.

Q3: One of your main reasons for cutting rates now is concern about downside risks in the labor market. But if those risks ultimately do not materialize and the labor market remains stable or even improves slightly, will you reassess how low rates need to go? At that point, will you become more concerned about inflation and the "second-round effects" of tariffs? If the government shutdown lasts longer and key economic data are missing, will it be harder to judge the labor market due to lack of data, thus affecting the December policy decision?

Powell: In principle, if the data show the labor market strengthening, or at least stabilizing, that will certainly affect our future policy judgments.

We will continue to receive some data, such as state-level initial jobless claims, which currently still show the labor market holding steady. We will also see job vacancy data, various surveys, and the Beige Book.

At present, we have not seen initial claims rise or job vacancies fall significantly, which suggests the labor market may continue to cool very slowly, but not beyond that. This gives us some confidence.

(Despite the government shutdown), we will still get some data on the labor market, inflation, and economic activity, as well as information from the Beige Book. Although the details may not be sufficient, if there is a significant change in the economy, I think we can still sense it from these data.

As for how it will affect December, it's hard to judge at this point—there are still six weeks until the meeting. If there is high uncertainty, that itself may be a reason to support more cautious action. But we need to wait and see how things develop.

Q4: Was this decision a "barely passed" one, or was there fierce tug-of-war over the direction?

Powell: The "tug-of-war" I mentioned refers to the outlook for December, not this decision itself. There were two dissenting votes in today's vote: one wanted a 50 basis point cut, one wanted no cut. The decision for a 25 basis point cut was strongly supported.

The "clear differences" mainly concern the future path: what to do next. Some members noted the recent strengthening of economic activity, and many forecasting agencies are raising their growth forecasts for this year and next, some quite significantly.

At the same time, we see the labor market, and I don't want to say it's completely stable, but there has been no significant deterioration; it may continue to cool very slowly. Different members have different expectations for the economic outlook and different risk preferences. You can sense the committee's internal differences from their recent speeches, which is why I emphasize that no decision has been made for December.

Q5: Now that you've stopped balance sheet reduction, will you have to resume asset purchases next year? Otherwise, the balance sheet as a share of GDP will continue to fall, which would be further tightening?

Powell: Your understanding is correct. Starting December 1, we will freeze the balance sheet size. As agency mortgage-backed securities (MBS) mature, we will reinvest the proceeds into short-term T-bills, which will increase the share of Treasuries in the balance sheet and shorten its duration.

With the balance sheet size frozen, non-reserve liabilities (such as currency in circulation) will continue to grow naturally, so reserve balances will continue to decline, and reserves are the part we need to keep at "ample" levels. This continued decline in reserves will last for a while, but not too long.

Eventually, at some point, we will need to allow reserve balances to gradually increase again to match the expansion of the banking system and the economy, so at some stage in the future, reserves will be increased again.

In addition, although we did not make a decision on this today, we did discuss the balance sheet structure. Currently, our asset duration is significantly longer than the average duration of Treasuries in the market, and we hope to gradually shorten the duration so that the balance sheet structure is closer to the duration distribution of the Treasury market. This process will be very slow and take a long time, and will not cause significant market volatility, but that is the direction of future adjustments.

Q6: How do officials interpret the latest CPI report? Some components were below expectations, but core inflation remains at 3%. What new insights do you have about inflation drivers from the current data? Also, do you think the Fed is more likely to make a mistake on employment or inflation? What measures can you take to address stubborn service sector inflation, especially if labor supply may be constrained?

Powell: Regarding the September CPI report, we have not yet received the subsequent PPI data, which is very important for estimating the PCE inflation we focus on. Even so, we can roughly assess its direction, and there may be minor revisions after the PPI comes out.

Overall, the inflation data was slightly softer than expected. We usually look at inflation in three parts:

First, goods prices are rising, mainly driven by tariffs. Compared to the long-term trend of mild goods deflation in the past, tariff-driven goods price increases are now pushing up overall inflation.

Second, housing services inflation is falling and is expected to continue to fall. If you remember a year or two ago, everyone thought it would fall, but it didn't happen for a long time. Now it has been falling for a while, and we expect it to continue.

Third, services inflation excluding housing (i.e., core services) has been basically flat over the past few months. A significant portion of this is "non-market services," whose price changes do not well reflect how tight the economy is, so their signal value is limited.

In summary, there are a few points:

First, if you exclude the impact of tariffs, current inflation is actually not far from our 2% target. Different estimates vary slightly, but if core PCE is 2.8%, excluding tariffs it's about 2.3% to 2.4%, which is not far from the target.

Second, tariff-driven inflation should be one-off in the baseline scenario, although it may continue to push up inflation in the short term. But one thing we've been very focused on this year is ensuring it doesn't turn into persistent inflation, and carefully assessing which channels could turn a "one-off" into "stubborn inflation."

One possibility is an extremely tight labor market, but we don't see that now; another is rising inflation expectations, but we don't see that either. So we remain highly vigilant, rather than assuming tariff inflation is necessarily one-off. We fully understand this is a risk that needs close monitoring and eventual management.

In service sector inflation, the part that hasn't fallen as we would like is mainly "non-market services" within "core services excluding housing." We expect this part to gradually decline; it largely reflects "mark-to-market rather than actual payment" income in financial services, which is related to stock market gains.

In addition, I think current policy remains "modestly restrictive," which should help the economy gradually cool, and is one reason the labor market is cooling very slowly. Slightly restrictive monetary policy itself helps gradually bring down service inflation.

I want to emphasize that we are fully committed to bringing inflation back to 2%. You can see from long-term inflation expectations and market pricing that the policy commitment remains highly credible, and there should be no doubt about our ultimate achievement of the target.

Q7: There is currently a large-scale construction boom in AI infrastructure. Does this investment boom mean that rates are not actually that tight? If you cut rates further now, could it boost investment and even create asset bubbles? How does the Fed view this? You mentioned that even without government data, there are still some data to monitor inflation and growth trends. We know more about employment, but in the absence of official data, what indicators will you rely on to track inflation?

Powell: You're right, there is a lot of data center construction and related investment across the U.S. and globally. Large U.S. companies are investing heavily in studying how AI will affect their businesses, and AI will be based on and run in these data centers, so it's very important.

But I don't think this type of data center investment is particularly sensitive to interest rates. It's more based on a long-term judgment—that this is an area where future investment will be huge and can boost productivity. As for the ultimate effect of these investments, we don't know, but compared to other industries, I think their sensitivity to rates is not high.

(Regarding economic data), we look at many sources, but it's important to emphasize that these data cannot replace official government data. For example, PriceStats and Adobe provide online price data; for wages, we look at ADP data; for spending—we have various alternative data as well.

In addition, the Beige Book will also provide information and will be released as usual in this cycle. These data cannot replace government data, but they give us a general sense of the situation. If there are major changes in the economy, I think we can pick up signals from these data. But during periods when official data are missing, we really can't make very detailed, granular judgments as usual.

Q8: I'd like you to elaborate on your earlier point: that the lack of data due to a government shutdown would make December action more difficult and even make you more cautious. If you have to rely more on private data of lower quality than official data, or on your own surveys and the Beige Book, are you worried about ending up making policy decisions based on "fragmentary anecdotes"?

Powell: This is a temporary situation. Our job is to collect all the data and information we can find and assess it carefully. We will do that; that's our duty.

You asked whether the shutdown would affect the December decision? I'm not saying it definitely will, but it is possible. In other words, if you're driving in heavy fog, you slow down. Whether that will happen, I can't say now, but it's entirely possible.

If the data resume publication, that's great; but if data are still missing, then taking more cautious action may be the reasonable choice. I'm not making a commitment, just saying: there is indeed a possibility—that when visibility is poor, you choose to "go slower."

Q9: We've recently seen large companies like Amazon announce layoffs. Have these signs entered your discussions today? The tension between the labor market and economic growth seems to be starting to tilt against employment. Second, concerns about the "K-shaped economy"—for example, signs that health insurance costs for low-income families may rise sharply—are these also considered in policy?

Powell: We are monitoring these situations very closely.

First, on layoffs, you're right, quite a few companies have announced hiring freezes or even layoffs. Many companies mention AI and the changes it brings. We are very concerned about this because it could indeed affect employment growth. However, we have not yet seen this reflected in initial jobless claims data—which is not surprising, as data usually lag for a while, but we will monitor it very closely.

As for the "K-shaped economy," it's similar. If you listen to corporate earnings calls, especially those targeting the consumer market, many are saying the same thing: the economy is diverging, low-income groups are under pressure, cutting spending, and turning to cheaper goods; while high-income and high-wealth groups' spending remains strong. We've collected a lot of anecdotal information on this.

We believe this phenomenon is real.

Q10: You said "a further rate cut in December is not a foregone conclusion, far from it." If the reason for not cutting in December is not due to missing data, what other factors might make you unwilling to cut? In other words, if it's not due to lack of data, what are the concerns? Since you said the committee's differences are mainly about the future rate path, do these differences come more from concerns about inflation, employment, or deeper policy philosophy?

Powell: From the committee's perspective, we've cut rates by a total of 150 basis points this year, and the current rate range is 3%-4%, while many estimates of the neutral rate are also in the 3%-4% range. The current rate is roughly near neutral and above the median estimate of committee members.

Of course, some members think the neutral rate is higher, and these views can be discussed, as the neutral rate itself cannot be directly observed.

For some members, now may be the time to pause and observe—to see if there really is downside risk to employment, and to see if the recent pickup in economic growth is real and sustainable.

Usually, the labor market reflects the true momentum of the economy better than spending data. But this time, signs of employment slowing make interpretation more complicated. In the past two meetings, we've cut rates by an additional 50 basis points, and some members think we should "pause for now"; others want to continue cutting. That's why I say there are clear differences.

Every committee member is committed to doing the right thing to achieve our policy goals. Part of the differences come from different economic forecasts, but a large part also comes from different risk preferences—which is normal for every Fed.

Different people have different risk tolerances, which naturally leads to different views. You should have sensed this from recent public speeches by committee members.

Now, we've cut rates twice in a row, and are about 150 basis points closer to "neutral." There are more and more voices saying we should at least "wait a cycle and see," observe before deciding. It's that simple and transparent.

You've already seen this divergence in the September economic projections (SEP) and members' public speeches. I can also tell you these views will be reflected in the meeting minutes. What I'm saying now is what actually happened at today's meeting.

Q11: How would you explain the current labor market weakness? What effect will this rate cut have on improving employment prospects?

Powell: I think there are two main reasons for labor market weakness.

First, labor supply has dropped sharply, including two aspects: a decline in labor force participation (which has cyclical factors), and reduced immigration—a major policy change that began under the previous administration and accelerated under the current one. So a large part of the reason is supply-side. In addition, labor demand has also declined.

The drop in unemployment means the decline in labor demand is slightly greater than the decline in supply. Overall, the current situation is mainly due to supply-side changes, which is a judgment I and many others agree with.

So, what can the Fed's tools do? Our tools mainly affect demand.

In the current situation, if you adjust for employment (considering possible "overestimation of job gains" in the statistics), net new jobs are basically close to zero. If zero net new jobs persist for a long time, it's hard to call it "maximum sustainable employment," it's an unhealthy "balance."

Therefore, I and many committee members believe that in the past two meetings, supporting demand by cutting rates was appropriate. We've done that, and rates are now clearly less tight than before (though I wouldn't say they're accommodative), which should help prevent further deterioration in the labor market. But the situation is still quite complex.

Some believe the current problem is mainly supply-side, so monetary policy has limited effect; but others—including myself—think demand still plays a role, so when we see risks, we should use policy tools to support employment.

Q12: You also mentioned that tariffs have brought a "one-off price increase." Will American consumers continue to feel tariff-driven price increases this year?

Powell: Our baseline expectation is that tariffs will continue to push up inflation for a while, as it takes time for tariffs to pass through the production chain to consumers.

The effects of tariffs implemented in recent months are now being felt. New tariffs took effect in February, March, April, and May, and these effects will last for a while, possibly until next spring.

The magnitude of these effects is not large, probably pushing up inflation by 0.1 to 0.3 percentage points. Once all tariffs are in place, they will no longer add to inflation, but will cause a one-time upward shift in price levels; after that, inflation will fall back to the level excluding tariffs, and inflation excluding tariffs is currently not far from 2%.

But consumers don't care about this technical explanation; what they see is that prices are much higher than before. What really makes the public dissatisfied with inflation is the sharp price increases in 2021, 2022, and 2023. Even if the rate of increase slows now, prices are still much higher than three years ago, and people still feel the pressure. As real incomes rise, the situation will gradually improve, but it will take time.

Q13: Are you concerned about current stock market valuations being too high? You must know that rate cuts push up asset prices. So how do you balance "rate cuts to support employment" with "stimulating AI investment and even causing more layoffs"? Thousands of AI-related layoffs have been announced in recent weeks.

Powell: We don't focus on any particular asset price and say "that's unreasonable." That's not the Fed's job. We care about whether the financial system as a whole is sound and able to withstand shocks.

Currently, bank capital is adequate; although low-income households are under pressure, overall household balance sheets remain relatively healthy and debt levels are manageable. Lower-end consumption has indeed slowed, but overall the situation is not particularly worrying.

Again, asset prices are determined by the market, not the Fed.

I don't think rates are the key factor driving data center investment. Companies are building data centers because they believe these investments have very good economic returns and high discounted cash flow value. This is not something that "25 basis points" can decide.

The Fed's job is to use its tools to support employment and maintain price stability. Rate cuts will marginally support demand and thus employment, which is why we do it.

Of course, whether it's 25 or 50 basis points, it won't have a decisive effect immediately, but lower rates will support demand and hiring over time. Meanwhile, we must proceed cautiously, as we are very aware that inflation remains uncertain, so the rate cut path has always been "small steps."

Q14: Regarding AI, a significant part of current economic growth seems to come from AI investment. If tech investment suddenly contracts, are you worried about the impact on the overall economy? Do other industries have enough resilience to support it? Especially, do you think any lessons can be learned from the 1990s (the internet bubble period) to deal with the current situation?

Powell: This time is different. The high-valued tech companies now are truly profitable, with business models and profits to support them. If you look back at the "internet bubble" of the 1990s, many were just concepts, not mature companies—it was clearly a bubble. (I'm not naming names) But now these companies are profitable and have mature business models, so the nature is completely different.

Currently, equipment investment and investments related to data centers and AI are one of the main drivers of economic growth.

Meanwhile, consumer spending is much larger than AI investment and has been stronger than many pessimistic forecasts this year. Consumers are still spending, perhaps mainly from high-income groups, but spending remains strong, and consumption's weight in the economy is much greater than AI-related investment.

In terms of growth contribution, AI is an important factor, but consumption drives the economy more.

The main reason for the current labor market slowdown is a sharp drop in labor supply, mainly due to reduced immigration and a lower labor participation rate. This means less demand for new jobs, as there aren't enough new workers entering the market to absorb.

In other words, there just aren't that many new job seekers.

In addition, labor demand is also falling. The decline in labor participation rate this time reflects weak demand more than just trend factors. So we do see the labor market weakening.

Economic growth is also slowing. Last year's growth was 2.4%, and we expect 1.6% this year. Without the impact of the government shutdown, it could have been a few basis points higher. There will be a rebound after the shutdown ends, but overall, the economy is still growing moderately.

Q15: I'd like you to elaborate on how you think about monetary policy in the absence of data. Does this "data drought" make you more inclined to stick to the original path, or more cautious due to uncertainty?

Powell: We'll only know what to do when we actually face this situation—if it really happens. There may be two directions for interpreting this situation.

As I've mentioned several times before, if we really can't get enough information and can't judge clearly, and the economy still looks solid, stable, and hasn't changed significantly, some will argue: in poor visibility, you should slow down. I don't know how persuasive that view will be at the time, but someone will definitely advocate it.

Of course, others will argue the opposite: since nothing seems to have changed, just stick to the original plan. But the problem is, you may not really know if things have changed.

I don't know if we'll actually encounter this situation. I hope not, and hope data will return to normal by the December meeting, but regardless, we have to do our job.

Q16: A few years ago you said the overall capital level of the financial system was about right. Now the Fed is advancing a revision plan involving additional capital requirements for global systemically important banks (G-SIBs). Has this changed your view on capital levels? Do you plan to significantly lower capital levels in the system?

Powell: Discussions are ongoing among regulators, and I don't want to comment ahead of time on the outcome. I still think, as I said in 2020, that the system's capital level was about right at that time. Since then, capital levels have risen further through various mechanisms.

I look forward to these discussions continuing. The discussions are still at an early stage and there is no complete plan yet, so I don't have much to add for now.

Q17: Is labor market weakness accelerating? If rate cuts cannot effectively ease further employment slowdown, which groups face the greatest risk? When deciding on rate cuts, do you consider low-income groups more, or those who may lose jobs due to automation? Is there a particular group you are especially concerned about?

Powell: We have not seen signs of the kind of "accelerating labor market weakness" you mentioned. Admittedly, we haven't received the September nonfarm payroll report, but we look at initial jobless claims, which remain stable. You can also look at the data—there have been no signs of deterioration in the past four weeks. Looking at job vacancy data from Indeed, it's also stable, with no sign of any part of the labor market or economy deteriorating significantly.

But as I mentioned, you will see some large companies announcing layoffs or saying they won't expand headcount in the coming years. They may adjust their workforce structure, but don't need a larger workforce.

It's not yet apparent in the overall data, but net new jobs are very low, and the proportion of unemployed people finding new jobs is also low. Meanwhile, the unemployment rate remains low—4.3% is still a low level.

Our tools cannot provide targeted support for any particular group or income level. But I do believe that when the labor market is strong, ordinary people benefit the most.

We saw this during the long recovery after the global financial crisis. If the labor market is strong, low-income groups benefit the most. In the past two or three years, low-income groups saw the greatest income improvements, with positive demographic and employment trends at the time.

We're not in that stage now. A stronger labor market is the most important thing we can do for the public. That's half of our responsibility. Maintaining price stability is the other half. Inflation hurts those on fixed incomes the most, so we must balance both.

Q18: The terms of the 12 regional Fed presidents will expire at the end of February next year. Can you disclose the timetable for the Board's review of these reappointments? Will we see all reappointed, or might there be changes? The last three FOMC meetings have all seen dissenting votes in different directions on rate decisions. Do you feel pressure when chairing these meetings? What does this divergence mean to you?

Powell: The relevant procedures will be carried out according to the law. By law, regional Fed presidents must be reviewed for reappointment every five years. This process is underway, and we will complete it in a timely manner. That's all I can say for now.

(As for dissenting votes in opposite directions), I don't see it that way, nor would I say it puts pressure on me. We have to face the situation at hand, which is indeed very challenging: the unemployment rate is at 4.3%, economic growth is close to 2%, and the overall situation is not bad. But from a policy perspective, we face both upside risks to inflation and downside risks to employment.

For the Fed, this is very difficult, because one risk points to rate cuts, the other to hikes, and we can't satisfy both at the same time, so we have to strike a balance in the middle.

In this environment, it's natural to see differences among members, including on what action to take and the pace of action. This is entirely understandable. Committee members are extremely serious and hardworking, and want to make the best decisions for the American people, but have different judgments about "what is the right thing to do."

It's an honor to work with such dedicated people. I don't think it's unfair or frustrating. It's just a period when we have to make tough adjustments in real time. I think the actions we've taken this year are correct and prudent. We can't ignore inflation, nor pretend it doesn't exist.

At the same time, since April, the risk of "persistently high inflation" has clearly decreased. If it is appropriate to cut rates again in the future, we will do so.

Ultimately, we hope that when this cycle ends, the labor market will remain robust and inflation will fall to 3% and further toward 2%. We are doing our utmost to achieve this in a very complex environment.

Q19: Both regional and large banks have seen loan losses and delinquencies. As Jamie Dimon said, "If you see one cockroach, there may be more." How do you view these loan losses? Do they pose a risk to the economy? Is this a warning sign?

Powell: We are monitoring credit conditions very closely. You're right, we've seen subprime defaults rise for some time. Recently, some subprime auto lenders have suffered significant losses, some of which are reflected on bank balance sheets. We are watching this closely.

But for now, I don't think this is a broader debt risk issue. It doesn't seem to be spreading widely among financial institutions. But we will continue to monitor closely to ensure that's the case.

Q20: The economy now shows "binary divergence": high-asset groups are still spending, while low-income groups are cutting back. How much of current consumption resilience depends on a strong stock market? Has the stock market propped up the economy to some extent?

Powell: The stock market does play a role, but remember: the more wealth you have, the lower the marginal effect of additional wealth on consumption. Once wealth reaches a certain level, the marginal propensity to consume drops sharply.

Therefore, a stock market decline does affect consumption, but unless the market falls very sharply, it won't cause a dramatic drop in consumption.

Low-income and low-asset groups have a much higher marginal propensity to consume, and any extra income or wealth they get is more likely to be spent directly, but they don't have much stock market wealth.

So, the stock market is indeed one factor supporting consumption now. If the stock market sees a major correction, you will see some weakening in consumption, but you shouldn't think that every dollar the market falls means a dollar less in consumption; that's not the case.