Full Transcript of Powell's Speech: Inflation Remains High, Economy Strong, Why Did the Federal Reserve Choose to Wait?

*Compiled by: Jiahua, ChainCatcher*

*On October 29, Beijing time, the Federal Reserve maintained the target range for the federal funds rate at 3.75% to 4.00%. In the subsequent press conference, Waller stated that previous policy measures have begun to take effect, but it is still inconclusive whether the current interest rates are appropriate, and future actions will need to be judged based on new information. He also emphasized that AI investments are similarly affected by interest rates and announced that there will be an FOMC meeting in 2027 dedicated to discussing monetary policy strategy.*

*Below is a Chinese compilation of the main content from this press conference's speech and Q&A. For ease of reading, oral expressions and repetitive content have been moderately streamlined, and it is not a verbatim transcript.*

### Economic Growth Accelerates, Employment Situation is Good

Hello everyone. This morning, the Federal Open Market Committee decided to maintain the target range for the federal funds rate at 3.75% to 4.00% to support the Federal Reserve in fulfilling its dual mandate.

Economic activity is expanding at a strong pace. Despite uncertainties from geopolitical situations and other factors, domestic spending remains resilient. Productivity growth is strong, capital investment is robust, the unemployment rate has not changed much, but inflation remains high.

The committee believes that obtaining more information will help determine the appropriate policy stance to ensure that inflation returns to the 2% target in a timely manner. The committee will achieve price stability.

At each policy meeting, my colleagues and I "look out the window" to observe the actual state of the economy. We call this process "examining reality," with the goal of understanding what is actually happening. This work has not become any easier.

So, what have we observed?

Economic growth has strengthened. The GDP growth rate for the first half of this year has been revised up from an initial estimate of 1.8% to 2.4%. Growth in the third quarter seems to have accelerated further, with consumer spending remaining strong, potentially exceeding 3%, and business investment growth possibly reaching double digits.

The share of capital expenditures in GDP is at a historical high. High-tech investment has led this round of accelerated growth, but growth is also beginning to expand into other investment areas. These trends are worth continued attention.

What about employment?

The unemployment rate is lower than a year ago, and the growth in employment numbers is significantly faster than last year. The four-week moving average of initial jobless claims remains at its lowest level in decades. Therefore, in terms of the employment goal of the Federal Reserve's dual mandate, the current situation is quite good.

However, the American public is still bearing the pressure of inflation. The situation of inflation being above the committee's target has persisted for nearly six years.

Bringing down inflation is our responsibility. This is also why the discussions at the FOMC over the past few days have focused primarily on the responsibility of price stability.

### Financial Conditions Have Tightened, Inflation Remains Too High

Since the policy actions taken in September, we have begun to see some changes in financial and credit conditions. As we expected, some businesses and households are facing tighter financial and credit conditions.

Market participants are also beginning to pay more attention to discernment when allocating capital. Although overall financial conditions have tightened, I neither wish nor can describe them as being in a state of contraction.

Overall, these changes contribute to achieving more sustainable economic growth and price stability.

In the past few days, the committee has had extensive discussions about the changes in the economic and financial environment between this meeting and the last. We discussed geopolitical situations and the rapid changes in the technology sector. We observed that financial markets have experienced periodic fluctuations, and correlations between assets have changed, but we are not surprised by this.

When we broaden our perspective to examine the overall economic and financial conditions, we can see that real economic activity is clearly moving in the right direction. This is good news.

But inflation remains too high.

In recent weeks, energy and related prices have risen again. Our task is to ensure that changes in relative prices in individual sectors do not spread throughout the economy and to ensure that inflation expectations remain anchored as they are now.

Despite these uncertainties, the Federal Reserve's goals are very clear.

Since taking office as chair five months ago, I have had the privilege of working with the policymakers of the FOMC. Their commitment to price stability is clear and steadfast. We have made it clear that we are prepared to act as needed and have demonstrated our willingness to take action.

The information we receive in the coming period will help us determine the appropriate policy stance. Whether the situation improves or worsens, our task is to formulate the correct monetary policy, and that is exactly what we are doing now.

### Adjusting FOMC Meeting Schedule to Allow for Strategic Discussions

To achieve this goal, we have decided to adjust the FOMC meeting schedule starting in the fall of next year.

We believe that holding eight meetings a year is appropriate for the FOMC.

However, in 2027, one of those meetings will be dedicated to discussing broad monetary policy strategy, and it is expected that there will be no votes on the federal funds rate or policy statements issued. The remaining meetings will make monetary policy decisions as usual.

I anticipate that there will be two meetings in 2028 specifically for strategic discussions, with the other six meetings focused on policy formulation.

Why make such adjustments? In my view, the reasons are straightforward.

Formulating the correct policy requires us to assess short-term changes in a timely and regular rhythm based on a full understanding of the information. But equally important is that, as a diverse collective of viewpoints, we must allow time and space for strategic discussions, rethinking major issues, looking at longer time horizons, and focusing on more fundamental questions, which I refer to as "to the left of the decimal point."

I believe that the setting of the meeting schedule and agenda is far more than just an administrative arrangement. It is an institutional choice that will affect the nature and quality of our discussions and ultimately influence the level of our decision-making.

This is another adjustment aimed at bringing the implementation of monetary policy back on track.

Thank you all for listening this afternoon. I will now turn the time over to you, and I welcome your questions.

### Press Q&A

#### Why was there no rate hike this time?

**New York Times Reporter:** The process of inflation returning to the 2% target has made almost no progress. As you mentioned in your opening remarks, the labor market remains stable. Most of your colleagues seem to agree on a rate hike in December, so why not raise rates today?

**Waller:** That's a good question. I read your reports from the past day or two, so I must admit I somewhat anticipated this question.

As I mentioned in my prepared remarks, the information we receive in the coming period will help us judge where policy should be positioned. But I guess you want more explanation, so I will try to elaborate.

Ensuring price stability and lowering inflation does not depend on a fixed date on the calendar, nor does it depend on any isolated data point. If it were just about these two things, the job would be much easier, and we would not have experienced nearly six years of inflation consistently above target.

So, what is key? It is to ensure that the target is clear and that we have a monetary policy strategy in place. This may sound different from the approaches taken over the past few years to you and others.

Let me take a step back to explain. In the roughly five months since I arrived here, we have launched what I call a new monetary policy "prescription."

What does this prescription include?

First, one of the first things my colleagues and I did after taking office was to reinforce our commitment to the 2% inflation target. We made it clear that this target is our responsibility, and we take on the responsibility of achieving it. If anyone thinks we are tolerating an inflation target between 2% and 3%, I must correct that view.

Second, we take responsibility and no longer get bogged down or blame others.

Third, we have clarified our policy framework to you and the world. I introduced this framework at Jackson Hole, and it has been part of the discussions over the past few days. Many of my colleagues also agree with this framework: how we understand the role of monetary policy, through which channels policies are transmitted, and how we will achieve our goals.

Next, we will regularly examine reality. This is very useful. But we are not just discussing; we will also take action. Therefore, at the last meeting, which was in September, we took action to withdraw some of the accommodation.

So what signs can help us judge the effectiveness of this new strategy? According to various indicators, including swap prices, inflation compensation is moving in the right direction.

Inflation expectations are also doing so. The current world is quite unsettled. Without the actions of the Federal Reserve, expectations might move in the wrong direction. But in reality, they are also moving in the right direction. I am encouraged by these signs.

The upcoming period will provide rich information; many things are happening in the world. My colleagues and I hope to closely observe.

I believe we can use this information to determine how to advance the policy mix that began five months ago to achieve price stability. I am encouraged by the progress we have made in a short time.

But if the core of your question is that we have not yet fulfilled our commitment and have not achieved price stability, then you are right. We are still working towards that.

#### Is it possible that the current interest rates are already at an appropriate level?

**Reporter:** The statement indicates that obtaining more information will help the committee determine the appropriate policy stance to ensure inflation returns to the 2% target in a timely manner. Does this mean that the current level of the federal funds rate may already be appropriate?

**Waller:** We still need to determine the appropriate policy approach.

If you had been sitting next to me in the past few days listening to the discussions in the meeting room, you would find that the judgment of the vast majority of my colleagues is that our monetary policy prescription has begun to have some effects, but we have not yet reached a definitive conclusion.

If we had reached a clear conclusion on how to implement the next steps for monetary policy, we would have made a formal announcement today.

The decision we made was, as I mentioned in response to Colby’s question, to first assess our current position, examine what we have observed, and judge whether the information in the coming period will help us more clearly determine the appropriate policy approach.

My judgment, as well as that of the vast majority of my colleagues, is that the information coming up will provide such assistance.

#### Public Communication of Committee Members and Disclosure of Strategic Meeting Information

**Reporter:** Before the meeting, several governors and committee members publicly expressed a desire to spend more time observing. Did you participate in discussions with them regarding this information? Additionally, how will the Federal Reserve disclose the content of meetings that do not issue policy statements?

**Waller:** I generally do not wish to make exceptions to answer the second question to avoid everyone doing the same. However, this procedural question can be considered an exception, and I will try to answer it.

The first question involves my colleagues. I have 18 quite independent colleagues. If you were in the meeting room over the past few days, you would believe that.

There is a way to test their independence. I don’t know if you’ve heard me say this, but I do not submit dot plot forecasts and do not intend to in the future, but all 18 of them will submit.

If anyone thinks I am an all-knowing person who can arrange for everyone to convey information outward, that is not the FOMC I understand. These are serious, prudent, and responsible individuals, and we have had serious and thorough discussions.

Regarding that procedural question, I expect that for the strategic meeting in 2027 and the two strategic meetings in 2028, there will be no policy decisions made, nor will there be policy statements issued.

As for what may be released at that time, there is currently no clear answer, and more information will come later.

The new meeting format was a decision made recently. We have had several thorough discussions about how to arrange these meetings. There is still some time before next fall, and as details become clearer, we will introduce them to everyone.

#### The Federal Reserve's Mission and Price Stability

**Reporter:** You mentioned in September that the Federal Reserve plays a role in maintaining the current economic progress in the United States and the opportunities that arise from it. Do you see this as a mission? How are you prepared to fulfill it?

**Waller:** Our mission is mandated by Congress: to achieve price stability and maximum employment in the context of financial stability.

Congress has also assigned us some other tasks, including work on regulation and payment systems, but I think you are asking about monetary policy.

In the current environment, what is the most important thing to fulfill this mission based on the realities we observe? It is to ensure price stability.

I think I mentioned in a previous press conference that if you want to cause the greatest harm to the least affluent in society, you just need to let the inflation that has been above, and often significantly above, the Federal Reserve's target for the past six years continue.

Therefore, ensuring price stability is the most important thing we can do based on the current situation, and it is what we are prepared to do.

You may have heard me say: We will achieve price stability, with no "ifs" and no "buts." This commitment has not changed.

#### Progress of Working Groups and AI Hearings

**Reporter:** I would like to ask about the working groups. When can we expect to see the reports? Can you provide any insights in advance regarding AI, data, or balance sheets?

**Waller:** All five working groups are working hard to advance their tasks. I have not yet seen anything that could be called a final report, but I will be regularly updated on their progress.

I have been deeply impressed by the rigor of these discussions and their serious approach to the tasks.

I initially posed some questions, hoping they would answer them through the reports. They not only want to answer these questions but have also raised a series of questions that may involve the research scope of other working groups. I am encouraged by the work they are undertaking.

As I mentioned earlier, I set a deadline for them by the end of the year. I believe that some, but not all, working groups may submit their reports on time.

Submitting the reports is just the beginning. Next, we need to carefully study and digest these findings. This serious research will drive us to rethink issues such as productivity and employment, inflation frameworks, which data are most helpful in fulfilling our responsibilities, and how we view balance sheets.

These are significant research investments, and I believe they will play a role in future policy phases. Given that my colleagues and I need to fully digest these perspectives, they are unlikely to directly influence policy-making at this stage.

However, I can announce a small detail. I previously revealed at the IMF meeting, although it left some colleagues here a bit frustrated.

On November 16, the Productivity and Employment Working Group will hold a field hearing, inviting parties with strong views on related issues to participate.

What are the short-term, medium-term, and long-term impacts of this round of changes on the economy and employment? Will productivity improvements come quickly, or will it be a slow process? I personally hope to refine my judgment further through this.

This working group has decided to hear from more people during the research process. I plan to attend and may say a few words at the beginning of the meeting.

I expect the meeting to last 3 to 4 hours and to be quite professional. I do not know how appealing this content will be for your reporting, but for me, the main purpose is to listen and examine the current reality.

How do experts in various fields view these issues? What do they mean for the dual mandate I just mentioned? Will achieving price stability become easier or more difficult in the coming years? What are their medium- and long-term impacts on employment, and what will the short-term effects be?

We will primarily explore these questions in an open format on November 16. I look forward to seeing everyone then.

#### How to Respond to Trump's Criticism of Federal Reserve Colleagues?

**Newsmax Reporter:** You mentioned "examining reality." Since "reality" is not present today, I have to ask you.

You just said that your colleagues are serious, prudent, and committed to achieving price stability. But President Trump stated during an Oval Office event on October 7, "Kevin is great, but he is just one vote on this board. There are quite a few people appointed by Obama and Biden, and a few by me. In my view, this board wants to see the country perform poorly."

Do you agree with these comments?

**Waller:** Thank you for your question. I will not respond to quotes from other public officials.

What I can tell you is my actual experience here over the past five months. We just went through a vigorous "family debate," but it was a serious and prudent discussion.

I believe we made the right policy decisions appropriate for the current moment. I feel honored to work here and to chair this collective.

#### Is There a "Soft Inflation Target"?

**Reporter:** The economy is strong, and inflation is significantly above 2%. You said inflation expectations are changing in the right direction, but surveys show that households expect inflation to remain above the Federal Reserve's target, and not just in the short term.

I have not heard a clear explanation for today's decision to maintain interest rates and wait for more data. Are you concerned that households may no longer believe the Federal Reserve can bring down inflation quickly enough and view this pause as a signal that the central bank actually has a "soft inflation target"?

**Waller:** I can tell you clearly that there is no such thing as a "soft inflation target," nor are there any implied alternative targets.

Our goal is price stability, which is a 2% inflation rate measured by the Personal Consumption Expenditures (PCE) price index.

The inflation impact on consumers you mentioned has accumulated over the past six years. But I also want to say that consumers will observe reality as well. They will go to gas stations and see prices rising.

I will not deny that oil prices have risen, nor will I say that they do not feel this when they fill up. Therefore, short-term inflation expectations have risen because consumers, like us, are also making judgments based on the realities.

But looking at the longer term, observing most, though not all, indicators, you will see that households, businesses, and financial markets still have the confidence they should have in the central bank's ability to achieve price stability.

#### What Changes Have Occurred in the Correlation Between Oil Prices and Market Interest Rates?

**Fox Business Reporter:** Do you believe there is a direct connection between oil prices and current inflation in the United States? If so, how quickly might inflation respond or fall after a decline in oil prices?

**Waller:** I do not want to discuss hypothetical scenarios, but we can look at what has actually happened in reality.

Oil prices have generally risen this year. Previously, there was a relatively stable and quite strong correlation between oil prices and interest rates. This refers not to the policy rates we control but to market-determined rates.

However, recently, this relationship has changed.

We have seen that oil prices continue to rise, primarily influenced by geopolitical events, and the crack spread between crude oil and refined products remains high. But at the same time, market interest rates have turned downward.

I am not making a Wall Street market commentary; I am just describing the facts observed over the past few months.

If oil prices fall again, possibly also due to geopolitical events, we need to study: What does this mean for the Federal Reserve's dual mandate? What impact does it have on financial market prices? How should we respond?

But this remains a hypothesis. In reality, looking at financial market prices, crude oil futures prices have risen in recent weeks, and we cannot ignore that.

#### Is AI Investment Insensitive to Interest Rates?

**Financial Times Reporter:** A significant portion of current economic growth in the United States, as well as some inflation, comes from the AI boom. There is much discussion in the market about whether this sector is as sensitive to interest rates as housing and other industries. Given the importance of AI investment in the current economic environment, do interest rates need to rise more?

**Waller:** There has been a notion, which may have appeared in previous press conferences, that even if the Federal Reserve raises interest rates or discusses raising rates, it will not affect AI because investors have very different return expectations in this area.

I have always been skeptical of this view.

Interest rates permeate every corner of the economy, directly or indirectly affecting almost everything.

What have we seen since early September, both within and outside the tech sector? Interest rates have had an impact. Market participants have begun to choose investment projects more cautiously, with credit spreads on some assets widening and others jumping.

Financial conditions have tightened, although not significantly.

Therefore, to the core of your question, whether interest rates are important for new technologies and this investment boom, my answer is: Yes, they are important. I do not believe these areas can operate independently of the overall economy and the influence of interest rates.

Second, attributing all economic strength to this wave of new technology is a convenient explanation. But if we look at the data, including data since the last meeting, we can see that strong capital spending performance is no longer limited to a few sectors.

#### Forward Guidance and the Next Policy Meeting

**Reporter:** Some committee members seem inclined to continue raising rates in December. Do you agree with this assessment? Before the next meeting, can you provide clearer guidance on subsequent interest rate actions and what new information will influence your decisions?

**Waller:** I think the colleagues' quiet period will end at some point on Friday or over the weekend, and they may be willing to discuss this issue with you.

Unless there is an emergency or crisis, I do not support providing forward guidance.

The reason for this caveat is that during the darkest days of the 2008 financial crisis, such guidance was indeed very helpful. At that time, we also partially drew on related research, including studies and thoughts from a scholar who recently won the Nobel Prize.

But in normal times, especially when the real economy is so strong, I do not agree with this practice and do not support it.

I also do not support pre-judging the outcomes of meetings. Many things can happen, so I will not provide you with personal speculation on how this collective will act when it meets in six weeks.

My judgment is that we may learn a lot of information during this time. As I mentioned in response to Colby’s question, we will be in a better position to make the right policy decisions and determine the appropriate policy stance.

#### When Might Balance Sheet Research Be Submitted to the FOMC?

**Korea Economic Daily Reporter:** You have mentioned the possibility of the Federal Reserve further reducing its balance sheet multiple times. If this plan is advanced in the future, how can we avoid disturbing the holdings of U.S. Treasury securities by foreign official institutions and the overseas dollar financing markets in places like Korea and Japan?

**Waller:** Thank you for your question.

First, my level of concern for the Korean economy may be higher than you think. Many of the key inputs required for this wave of new technology investment come from Japan and Korea, with some also coming from Singapore.

Therefore, I pay special attention to the Korean economy, as it usually tells me which products are arriving in the U.S. by plane and ship.

I have known the new Bank of Korea governor for about 20 years. He is talented and a friend of mine. I am glad to see him in this position.

We met about 20 years ago during what later became known as the global financial crisis. I remember we had an in-depth discussion about using the balance sheet in emergencies.

Currently, balance sheet issues are still entirely under the study of the relevant working groups. I will also stay informed about their progress, as they are advancing their work and comparing their best ideas.

I believe their conclusions and recommendations may be submitted to the FOMC in early Q1 next year, but do not take this timeline as a firm commitment.

If we decide to adjust the balance sheet, we will also do so after carefully studying their proposals and recommendations.

I believe this work is unlikely to have a substantial impact on the current policy phase. However, it is a question worth exploring in depth, and I look forward to clarifying it with the help of the external working group.

#### Will the September policy actions have the expected impact on financial markets?

**Reporter:** I would like to follow up on your answer regarding AI investment. As the AI investment boom increasingly relies on external financing, does this mean that overall demand will be more sensitive to interest rates than in the past?

Another related question is whether the effects you observed after withdrawing some easing last month were largely in line with expectations?

**Waller:** These are two questions, and there are no procedural issues this time that can be considered exceptions. I will answer the second question.

About six weeks ago, when we withdrew some easing, we could not fully anticipate how the financial markets would react.

But overall, the changes in financial markets and overall financial conditions have largely met my expectations.

#### Does strong growth indicate an overheating economy, with demand pushing up inflation?

**Reuters Reporter:** Then let me follow up on the first question you just asked.

Many of your colleagues have indicated that the AI investment boom is adding a strong demand factor to inflation, shifting inflationary pressures from supply factors that may fade over time to demand factors.

How much of the current inflation do you think comes from demand? To what extent will this demand be influenced by Federal Reserve policy?

**Waller:** Good follow-up, well done.

I want to say that the most basic principle in economics is the intersection of supply and demand, but our measurement of the scale and shape of the aggregate demand curve is not perfect.

Overall, the views I have heard in the meeting room over the past few days align with my own: the economy is strong. I did not shy away from this point in my opening remarks.

We have revised our economic growth forecasts for the first three quarters of this year upward, and the economy is moving in the right direction.

But is the economy overheating, growing too strongly? That is not the judgment of most of my colleagues.

Part of the reason is that we can never accurately know what the potential growth rate is. My judgment is that productivity has indeed improved, although we cannot measure it precisely.

I believe that most of the progress in productivity improvement occurred before the current discussion of the superintelligence boom. Over the past couple of years, economic productivity has been increasing, although the relevant measurements are not perfect.

Therefore, faster economic growth does not directly lead me to conclude that growth itself is pushing up inflation and increasing the difficulty of our work. But we will continue to study these issues.

In my view, our goal is not to artificially hinder the economy's operation or cause people to lose their jobs. You have heard me say before that I do not believe we must do that.

The main channel through which policy works is the tightening of financial conditions. Financial conditions have tightened slightly since the last meeting.

This does not make us uneasy; rather, it indicates that policy is working. I believe we can achieve price stability while allowing economic growth to be more sustainable.

#### Will the Federal Reserve participate in the hearing involving Cook?

**Politico Reporter:** A hearing regarding Lisa Cook's status and related allegations will be held next week. Will you or the Federal Reserve participate in these proceedings?

**Waller:** To my knowledge, no. Thank you, everyone.