Fed Chair Walsh views rising market interest rates as a signal that financial conditions are already tightening, while reiterating that the 2% inflation target has "no flexibility," announcing a substantial retreat from forward guidance, and urging Wall Street to detach from dependence on central bank statements and "capture real economic signals."
The Fed kept the benchmark interest rate unchanged at 3.5%-3.75% with a 9-3 vote. At the post-FOMC meeting press conference, Fed Chair Walsh stated that the US economy has shown resilience and positive growth trends despite recent shocks, with job growth roughly in sync with labor force growth and little change in the unemployment rate; however, inflation remains "still elevated" relative to the 2% policy target.
On the market's most concerned issue of the interest rate path, Walsh did not provide clear forward guidance. He emphasized that the Fed is intentionally reducing its pre-setting and intervention in markets, hoping to obtain more "direct, unfiltered" information from prices like bonds and exchange rates.
At the same time, he repeatedly reiterated that if inflation remains persistently high over the forecast horizon, interest rate hikes "are likely to be part of the solution."
Walsh also specifically mentioned that AI-related investment is boosting high-tech capital expenditure, but its ultimate impact on productivity, supply capacity, and inflation is still difficult to gauge accurately. This means whether investment and productivity improvements can alleviate price pressures remains a key variable in the Fed's subsequent policy assessments.
Inflation Bottom Line: No "Soft Target," 2% Is the Sole Red Line
Amid over five years of high inflation, the market once speculated the Fed might silently tolerate inflation above 2%. Walsh mercilessly shattered this illusion at the meeting, demonstrating a tough stance on defeating inflation.
Walsh clearly stated:
"There is no soft inflation target, no soft implicit target—not possible under this Committee's tenure. There is only one target, and that is 2%. None of my FOMC colleagues harbor any illusions about this."
He admitted that the patience and impatience experienced by the US has lasted for "63 months (inflation above target)," and the Fed deeply understands that this situation cannot be cured in nine weeks or by a single month of mild price declines.
Faced with the question of what to do if inflation doesn't fall, Walsh gave a direct reply:
"If inflation is too high and not coming down, the best remedy is to raise interest rates."
External Relations and Independence: Maintain Steadfastness, Free from Interference
At the press conference, Walsh repeatedly emphasized that the Fed will not deviate from its duties due to market or external pressure. He said:
"The Federal Reserve will not waver. Our credibility depends on performing our duties and delivering on our responsibilities."
Discussing the complex environment the economy has faced in recent years, Walsh listed pandemic-induced supply chain disruptions, military conflicts, energy supply interruptions, tariff adjustments, and the surge in AI investment as important external shocks affecting the economy.
He stated that the Fed will not ignore these changes but is studying whether these shocks will further diffuse and affect the broader price system.
However, he emphasized that the Fed focuses on how these events transmit to inflation and the economy, not the events themselves; its duty remains to make policy judgments centered on price stability and maximum employment.
AI Capital Expenditure as a Key Economic Variable: Growth Rate Nears 20% Over Past Four Quarters
Regarding macroeconomic hot topics, Walsh highlighted the real impact of the AI boom on the real economy and prices, which is extremely rare in past Fed meetings.
Walsh disclosed a key set of data:
"In the category of high-tech equipment and software related to artificial intelligence, the latest data show a four-quarter growth rate nearing 20%."
Walsh pointed out that the surge in corporate capital expenditure is already pushing up prices for "memory and logic chips and related AI infrastructure." The Fed is trying to judge whether this kind of price increase is merely a sector-specific relative price change or will diffuse to broader inflationary areas.
"We take these shocks seriously. The Fed is studying the extent to which the effects of these shocks are broadening, affecting prices far beyond those directly impacted."
Regarding supply and demand, Walsh believes the Fed has a relatively reasonable understanding of aggregate demand, but there remains significant uncertainty about aggregate supply, productivity, and the structural changes brought by AI investment.
"We are inferring aggregate supply. We are making judgments about productivity. In a sense, there is a race between supply and demand, and the surge in corporate capital expenditure around artificial intelligence makes this calculation more difficult to judge."
He also warned that the AI investment boom does not automatically lower the difficulty of the Fed's policymaking. On one hand, productivity gains and supply expansion may help alleviate inflationary pressures; on the other hand, AI infrastructure construction itself may push up some upstream prices.
Changes in Policy Communication: De-emphasizing Forward Guidance, Demanding Markets "Follow the Data"
Walsh reiterated that the Fed is significantly reducing or even exiting the "forward guidance" commonly used over the past decade or more, no longer attempting to finely tune market expectations through dot plots or verbal reassurance.
Walsh noted that over the past 42 days (between the two meetings), both nominal and real yields across the Treasury yield curve have risen sharply, with gains ranking among the highest decile of the past two decades. He credited this to the Fed's "stepping back":
"Market participants are learning to follow the ball, not the referee, and market prices will continue to respond in the direction and magnitude they deem appropriate. In my view, this is a positive change."
Faced with a reporter's concern about whether the Fed might lose narrative dominance, Walsh seemed "not too worried." He stated bluntly:
"We're trying to step aside... We're interested in the reaction of financial markets."
He believes that in non-crisis mode, the Fed should not tie its own hands but needs to observe the market's direct, unfiltered reaction to developments.
Regarding the decision to keep rates unchanged this time, Walsh refused to define it as a "pause." In his view, if the policy stance is understood merely as whether the federal funds rate changes, it might overlook the adjustments already occurring in financial markets themselves. He said:
"I would not characterize our action today as akin to a pause. I would characterize our action as a rigorous review of the economic situation."
Walsh said that over the past 42 days, between two FOMC meetings, nominal and real interest rates across the entire US Treasury yield curve have risen significantly, with the magnitude of change roughly in the "highest decile or so" over the past two decades.
"Financial market prices did not pause during this intermeeting period; both nominal and real rates rose."
Regarding the implications of the current rise in market interest rates, Walsh did not directly equate it with the Fed having to raise rates, but stated that the signals from the bond market are somewhat consistent with real economic performance.
"Economic output is solid, capital expenditure and productivity are strong, the labor market is robust and stable. The bond market, the Treasury market, seems to be saying the same thing. Even to some extent, we haven't done much in 42 days, but the market has done quite a lot."
Full Text of Fed Chair Walsh's Press Conference
Walsh's Opening Remarks
Good afternoon, everyone. This is my second FOMC meeting as Chair. Time flies. It may be too early to say this has become routine, but our discussions once again reflected a constructive atmosphere. I am truly fortunate to work alongside colleagues who are as capable, mission-focused, and determined to improve the Fed's performance as I am. As you know, the Committee decided, by a 9 to 3 vote, to maintain the target range for the federal funds rate at 3.5% to 3.75%.
The Committee continues its policy of providing ample reserves to the banking system. The economy continues to show notable resilience and positive trends despite recent shocks, displaying solid growth. Job growth is keeping pace with labor force growth, and the unemployment rate has changed little. Inflation remains elevated relative to the Committee's 2% objective.
The Committee is resolute. You've heard this before, but we will achieve price stability. As usual, the policy statement states facts. It avoids forecasts, a choice we believe is particularly prudent in this uncertain period. However, uncertainty does not mean a lack of clarity. For some households, businesses, and market professionals, five years of high inflation have left a stubborn misconception that the Fed's implicit inflation target is somehow above 2%.
Let me reiterate, there is no soft inflation target, no soft implicit target—not possible under this Committee's tenure. There is only one target, and that is 2%. None of my FOMC colleagues harbor any illusions about this. We have turned a new page. We understand that over five years of above-target inflation cannot be cured in nine weeks or by a single month of mild price declines. The Federal Reserve will not waver. Our credibility depends on performing our duties and delivering on our responsibilities. The American people deserve no less, because the nation's prosperity depends on it. For regulars in this press room, today's assessment might sound familiar.
However, there is absolutely no inertia in our discussions, our policy, or our strategy. Two economic developments are worth highlighting. The first is a very notable change since our last meeting 42 days ago. Nominal and real yields across the entire Treasury yield curve have moved significantly higher. In fact, the magnitude of some of the market rate increases during this FOMC intermeeting period is among the most significant of the past two decades, roughly in the highest decile.
But if the Committee didn't change the policy rate, what happened during the intermeeting period? Market attention focused on real data and real economic developments. Prices reacted in real-time to incoming information, and the reduction in forward guidance may be a factor. Market participants are learning to follow the ball, not the referee, and market prices will continue to respond in the direction and magnitude they deem appropriate.
In my view, this is a positive change. And this is just the beginning. After all, the central bank need not always, nor everywhere, be the center of attention. I understand the desire for rolling forecasts and commentary, but for our part, we need to observe the market's direct, unfiltered reaction to developments. Of course, I want to emphasize that this Committee's decisions are critical. We will not hesitate to act when necessary and appropriate.
The second economic development—I mentioned it at this month's congressional oversight hearing but it's worth repeating—the most notable feature of the economy is the strong growth in business investment. The surge in high-tech capital expenditure is striking. But this doesn't necessarily make the Fed's job easier. In the category of high-tech equipment and software related to artificial intelligence, the latest data show a four-quarter growth rate nearing 20%. This is helping sustain healthy momentum in manufacturing output. More broadly, capital expenditure is laying the foundation for future growth. Nonetheless, the precise timing and magnitude of the impact on the supply side remain difficult to predict.
FOMC meetings produce policy decisions, but equally important is candid discussion of the most significant big-picture issues. This is also a priority in this new chapter for the Fed. In our meeting, vigorous discussion centered on four questions, which I will list one by one.
First, we discussed extensively the impact of the past five years of high inflation on the current policy situation. To paraphrase an old saying, is the past really past?
Second, my colleagues and I considered the economic shocks of recent years: pandemic-induced supply chain disruptions, military conflict, energy supply interruptions, significant tariff rate increases, and yes, the surge in AI-related investment. Do these shocks, stemming from different sources, also have different impacts on output and employment?
Third, we discussed the issue of price increases associated with these shocks. For example, the surge in corporate capital expenditure is pushing up prices for memory and logic chips and related AI infrastructure. Do these changes signal broader inflationary dynamics? Or are we just paying attention because they are in the spotlight?
Finally, we discussed monetary policy tools and strategy. If, as the Fed has long held, interest rate policy should be its primary monetary policy tool, then how much accommodation are we getting from our balance sheet to achieve price stability? Our work at the Fed is progressing. We are asking the right questions. In this critical period, we know the importance of getting the right answers. Of course, you've all come with your own questions.
Q&A Session
Questioner 1: So let's start with the questions now. Starting with Steve. Thank you for taking our questions, Mr. Chairman. Okay. You've been in office for a few months or nine weeks, however long, observing the markets operate without forward guidance. I'm wondering if you can tell me, what information are you getting from the markets about where policy should be?
Walsh: Yes, so officially, it's 8 weeks and 4 days, but I'm not tallying the messages from the markets. The message from the markets is... Steve, what I've really been trying to do, and I think you and your colleagues understand, is to obtain unfiltered information from the markets, to get direct information, letting buyers and sellers transact on Treasury prices, the foreign exchange value of the dollar, and then we ourselves judge, what does that mean for our responsibilities? How are we doing on inflation? How are we doing on employment?
We're trying not to interfere with that market signal, which is partly why our wording is more restrained, stepping back from forward guidance. So they are reacting to events, and I'd say, much more directly over the past 42 days since we last met. That's a good thing. As I mentioned in my prepared remarks, we've seen not just nominal rates but real rates tighten significantly. We're watching it. We're trying to step aside, because many of you might be interested in our reaction function, whereas we are interested in the reaction of financial markets.
Questioner 1: I understand, Mr. Chairman. I want to follow up. If the market is talking to you, what do you hear them saying? If real rates are higher, does that suggest the federal funds rate should be raised? Yes. So, in... sorry, that's your question.
Walsh: So, interpreting the markets is not easy. We central bankers, like market professionals, might find these factors overdetermined. But let me speculate a bit. First, as we said in the FOMC statement released at 2 p.m., economic output is solid, capital expenditure and productivity are strong, the labor market is robust and stable. The bond market, the Treasury market, seems to be saying the same thing. If I were to try to decompose the Treasury market signal, I couldn't do it perfectly. But the bond market is saying many of the same things, which is why we see both nominal and real rates tightening, even though to some extent, we haven't done much in 42 days, but the market has done quite a lot.
Questioner 2: Claire Jones, Financial Times. You seem to have gotten the family argument you wanted at this meeting. We saw it, we saw three dissents. Can you describe the arguments put forth by those dissenters? And tell us why you were not persuaded by them at this stage. Thank you. So, I suppose I shouldn't give you their best arguments. I'll give you some others.
Walsh: You're right. I asked for a good family argument, and I got it. That's the purpose, that's a design feature. I come to this meeting, even this press conference, encouraged by the experience of the past two days. Much of our discussion focused on those big-picture questions critical to monetary policy implementation. We didn't shy away from them. We're not afraid of them. There was much more interaction among my colleagues. It was a real family argument. My view, you've heard it before, is that this is a better way to formulate sound policy. That is our North Star.
So, I heard a lot of consensus. We have the power, the tools, and the authority to achieve price stability. No stepping back from our responsibility. In the room, the decision we made had overwhelming support. But Claire, I also want to leave you with another impression. That discussion had no inertia whatsoever. It was an active, vigorous discussion about all the things we can and may want to do going forward. You accurately described a split on a decision today. I think that doesn't quite capture the full essence of the discussion. The road to central bank heaven requires us to fulfill our mandate. Today, that means achieving price stability. I won't measure that road in 42 days or by any single meeting. I left that meeting more confident that this is the right team to defeat high inflation.
To what extent did the decision for no action in July relate to the mild June CPI data? In two words, not much. Not much. I'd like to believe the Committee shares my view that the historical problem with data dependence lies with both the data and the dependence. We are not relying on any single data point as cover, excuse, or validation. What I care about, and what I think the Committee cares about, is the trend of the data. Sure, we got some encouraging inflation data.
I think at the meeting 42 days ago, I said something like "63 months of inflation above target." I didn't say 64 months. The final count might be close. So we'll be watching inflation data over time. But I also don't want to leave you with the wrong impression that we're holding our breath. I have convened a working group to re-examine the private and public data we use for decision-making. That group is working. I will meet with them again in the coming weeks, but I wouldn't say we're over-reliant on any single data point, including the one that surprised some people a few weeks ago.
Questioner 3: Chairman Walsh, thank you. Neil Irwin from Axios, thanks for taking our questions. So the federal funds rate is now about 75 basis points below the two-year Treasury yield. That suggests the market thinks you will ultimately have to tighten, and it's about 100 basis points lower than most Taylor rule estimates. You're achieving your employment mandate. Inflation is elevated. Why shouldn't rates be higher now?
Walsh: Neil, your question packs a lot. So rates are higher now than they were 42 days ago. The market made a judgment because we partially stepped back from trying to influence those market judgments, and nominal rates rose across the Treasury yield curve. That doesn't mean we take their instructions, but we are watching them. So, to say the market didn't react because we didn't act today is a misunderstanding.
The market reacts in real-time. Over time, we have important decisions to make regarding the policy rate. In the meantime, I think the market has many decisions to make as well. Let me see if I can put it this way: Monetary policy's importance lies not just in what we say, nor even just in what we do. Monetary policy's importance lies in how it affects the real economy, and the prices we see in financial markets are one of many channels. We will continue to watch these market messages, observe its reaction to incoming events, and that will help us make decisions when we meet in seven or eight weeks.
How would you characterize the family argument over the past few days between you and the other eight members who favored holding rates steady? Was it a firm conviction, or a hair-trigger situation? Was the hold versus hike a close call?
Walsh: Well, I think, you know, the vote was 9 to 3. The broader discussion I heard over the past few days, around the four difficult questions I initially posed about what's really happening in the economy, whether there are shocks, our tools and capabilities, impacts on prices and output, showed a lot of consensus.
I heard a lot of common ground on the questions. Were there differences in emphasis on the answers? Sure. So do people reach different conclusions? Absolutely. But my own judgment is that this is a period of vigilant thinking, not vigilant waiting. I think the score on that vote is consistent with that.
Questioner 4: Thank you. Colby Smith, New York Times. You mentioned reviewing the Fed's policy tools as one component of a three-pronged strategy to tackle inflation. So I'm curious how you view the effectiveness of these tools.
Walsh: If inflation is too high and not coming down, the best remedy is to raise interest rates. So, that's what the discussion over the past two days was about: If inflation remains persistently high over the forecast horizon, interest rates are likely to be part of the solution.
But I wouldn't say this is isolated. I was trying to describe in my remarks today a point I made to the oversight committee a few weeks ago. I think there's a misconception among some, including some in financial markets, households, and businesses. They think central bankers like me, we say the inflation target is 2%, but perhaps we're more tolerant of a slightly higher inflation target. In economics, we call this "revealed preference." So, is there reason for people to think their inflation target is a bit higher?
What I heard over the past two days, what I've heard over the past eight and a half weeks is: No. We will achieve the 2% inflation target, that is the Committee's definition of price stability. Therefore, one way to ensure we meet the target without the tools you mentioned is to ensure expectations are anchored around the right number. I think we've made some progress on that. I'm not saying we're done. It's worth reiterating. Ultimately, Colby, we're in the performance business. People will judge us by our performance, and that's what we intend to do. Clarifying inflation target expectations is part of that, and ensuring we signal we are accountable for it, not blaming others, is another part.
Questioner 4: And our policy tools, as you mentioned, are the third, equally important part. Given the statement again notes that much of above-target inflation has been due to supply shocks, does that weaken the effect of rate hikes? First, on the premise of your question.
Walsh: It's as if you were listening to our discussions over the past day and a half. A large part of our focus has been trying to understand and identify underlying inflationary dynamics within the shocks.
We take these shocks seriously. There have been a series of shocks affecting this economy, and we're not turning a blind eye, saying they don't matter, but trying to understand the extent to which the effects of these shocks are broadening, affecting prices far beyond those directly impacted. Our goal is to achieve broad-based growth and more limited, controlled inflation.
I first acknowledge that shocks make policy work harder in this period, but this is also one of the main questions we ask ourselves, and people in the room have different views on it. I think over the coming months, we'll refine that view and make better judgments. We'll also let market prices help inform us.
Questioner 5: Thank you, Mr. Chairman. Edward Lawrence from Fox Business. I want to drill down a bit more. Specifically, in your view, what was the rationale for pausing (hiking) today? So, I wouldn't characterize our action today as akin to a pause. I would characterize our action as a rigorous review of the economic situation. I would characterize our action as a review of the major puzzles, and describe it as a view of our own homework, with a view to solving these problems over time. If you insist on describing this as a pause, I'd say financial market prices would take the opposite view. Financial market prices did not pause during this intermeeting period. They reacted in one direction to inflation data, in another direction to strong economic growth, and both nominal and real rates rose. Did the Fed change the policy rate today?
Walsh: No, but I think that's the beginning of the story, not the end. If I may, I did want to ask, not about forward guidance, but looking ahead. Traditionally, Fed chairs have used the Jackson Hole symposium to reset monetary policy. How are you thinking about the speech you will give in August? I see it as a blank slate for now.
I haven't begun discussions with the excellent team here about the content of that document. I think your description of history is correct, at least from my first tenure at the Fed to recent times. It's often been a kind of tone-setting speech, mostly about what's to come in the fall. I haven't made any judgments on that yet, but those judgments will have to be made. If possible, in the mountain air of Jackson, Wyoming.
I also want to frame the big questions. There's a tendency, especially as meetings and press conferences multiply, to become shortsighted, fixated on whether you hiked a quarter point, did that.
Ultimately, whether we achieve price stability depends on some decisions we make over six, seven, or eight-week cycles. But they are more significant. What are the big questions? What is really happening with productivity? What is really happening with demographics? What is really happening with the global economy amidst shocks? I haven't decided if this will be a big-picture speech or a more traditional setup for all our actions from September to December.
I'll tell you another thing I'm going to do before Jackson Hole. I'm going to communicate with those working groups. My first principle in setting up working groups is to find the world's best subject matter experts, put them together, especially with people who might disagree. Over the coming weeks, I'll be checking back in. I gave them time to seriously think about their agendas, debates, timelines, and when they'll be ready. I'll do a bit of that follow-up, which may more or less influence what I say in Jackson.
Questioner 6: Wall Street Journal, Nick. Chairman Walsh, I'd like to follow up on Colby's question about policy transmission. You've said there's no cruel choice between stabilizing prices and maximum employment. Rate hikes lower inflation by cooling demand. That's typically thought to show up in the labor market. If that's not the channel you're relying on...
Walsh: What is it? Yes. Well, let me go back to first principles, Nick. I don't believe any part of our mandate is inherently at odds with the other. I don't believe price stability and maximum employment are an either-or proposition. Some policymakers in past generations thought there was a strict trade-off. That's not my judgment.
In fact, my judgment is that if we achieve our mandate, we will satisfy both simultaneously. We will have price stability and maximum employment. In fact, if you want to do the most damage to the labor market, you'd have a period of high and volatile inflation that leaves employers and businesses bewildered. So I believe both parts of our mandate are equally important. There is no legislative stepchild here.
I talk most about price stability because, as a nation, as policymakers, we've done reasonably well on maximum employment overall, but we've done much worse on prices. That's why we describe it as "elevated," and that's also the main content of our discussion when we talk about monetary policy transmission mechanisms. I think different tools work through different transmission channels. Interest rates work through lending channels, credit channels, perhaps also confidence channels and exchange rate channels. The balance sheet may work through other channels like signaling and portfolio balance. We take all these tools into account when making policy. But to imply that we will somehow...
finely tune aggregate demand to catch up with supply, that's not my mental model. I don't think we're good at fine-tuning. We try to roughly balance aggregate supply and demand. But really, as we sit here today at this press conference, I think we have a reasonable idea of what aggregate demand looks like in this economy. We're inferring aggregate supply. We're making judgments about productivity. In a sense, there's a race between supply and demand, and the surge in corporate capital expenditure around AI makes that calculation harder to judge. But over time, we will work to make that judgment.
Questioner 6: If I may ask, where exactly was the dissent today? About inflation forecasts? Or more about risks, strategy?
Walsh: Yes, so I'll let the dissenters speak for themselves. In my listening over the past two days, there was overwhelming consensus on objectives, authority, and commitment. I didn't hear anyone stepping back. The judgment on how best to achieve price stability is probably the question we're trying to answer. What's the best move? What's the best strategy? What's the best way to get there? The second question asked is, when do we need to make those tougher decisions? When do we need to make those calls? As I said to one of your colleagues, I take comfort that the market during the intermeeting period wasn't reacting to us. They weren't reacting to dot plots or speeches. They seemed to be reacting more to real-time events than ever before. So they themselves are gauging how restrictive the Treasury curve should be. I think that's a healthy development. We don't endorse any particular market move, but I'd also say we watch them with keen interest.
Questioner 7: Janelle Marty from Bloomberg, following up on that. There's been more uncertainty in the market about what the Fed would do at this meeting. To some extent, you might think that's exactly what you wanted to see. But my question is, is there a scenario where, if the market prices in something contrary to your intentions with higher certainty, you wouldn't want to surprise them?
Walsh: What do you see as the associated risk? Yes, that's a good question. Surprise is not the objective function. Surprise is not the problem we're solving. We have a clear North Star. The problem we're solving is how to make the best decisions. Almost everything else should serve that goal. By not feeding the market, not pre-announcing our decisions, not giving hints and inclinations, my colleagues and I have found during the intermeeting period that we get views from very sophisticated economists within financial markets, not just repeating or echoing what we told them. They give us their own judgment, imperfect as it may be. So surprise is not the objective. But at the same time, I would say, we didn't come to this meeting feeling constrained by all the options before us.
Questioner 7: So, some of your peers continue to discuss how they view policy decisions. If you don't provide your reaction function or your thought process, how worried are you that you're losing control of the narrative? So, not too worried. That's the short answer to that question.
Walsh: When some Fed watchers say, we don't want your forecasts, we don't want your dot plots, we just want your reaction function. Part of me thinks, what they really want is your forecasts. What they really want is your dot plots on the reaction function.
Let me correct what might be a perceived or real external issue. Any central banker, especially with the labor market roughly in equilibrium, when he or she sees underlying inflation moving higher, is more inclined to tighten policy. Similarly, when you've achieved the other part of the mandate and see underlying inflation moving lower, you're more inclined to ease.
That's my reaction function, and I suspect that won't stop people from probing for more, because the truth is, for a long time, in many countries post the 2008 crisis, we were in crisis mode. We deliberately provided lots of information, tried to give lots of assurance, tried to tell people exactly what we were going to do, provided clear forward guidance, as if we were tying our own hands.
In crisis mode, that seems like very prudent policy to me. But under more benign conditions, I think it's worth re-examining. But markets, market participants, and journalists have learned to digest all this information. So I take seriously that withdrawing forward guidance requires some transition. Reform is not easy. But our collective judgment will help us make better decisions, thereby fulfilling our mandate.
Questioner 8: Thank you. When you talk about the 2% inflation target, which measure are you relying on?
Walsh: Yes, so I'll give two answers. First, let me give the formal, standard answer. The Fed issues a Statement on Longer-Run Goals and Monetary Policy Strategy every January. In that strategy document, I believe dated January this year, it describes targeting the PCE inflation measure. It's there. I have it sufficiently... So that's our number. We stick to it.
Who knows what we'll say about strategy after next January. I suspect the working groups might have inputs. But I'd say, some version of the Lucas critique, some version of Goodhart's law, should remind us that when we talk about inflation or other measures and describe these measures meeting our target, we might make them no longer good measures or good targets.
Broadly speaking, if you stand before me and say, I adhere strictly to the strategy document, we will achieve 2% inflation, not a whit more or less. But to achieve that, I am looking at broader inflation data than just PCE. So, without fully showing my cards.
I'm trying, like my colleagues, to understand the broad, generalized price changes happening in the economy. It's not a perfect science. I might have said 42 days ago, I have a working group on this, but we have a data project, trying to see if we can separate signal from noise. So if you hear one message from me, yes, I care what the PCE data is, I care what CPI and all other indicators contribute, but my field of vision is broader than that, even if the mandate is quite narrow.
Questioner 9: Michael McKee from Bloomberg Television. I'm a bit stuck on something you said today, perhaps you could help clarify. You said over and over that your job is to lower prices, stabilize prices, achieve your target, and you will achieve your target. The market says you're not there yet because they have raised rates, but what you talked about today is just talking about it. And Committee members before you were not without talking either. So I think the American people might ask, what are you waiting for?
Walsh: So, believe it or not, this press conference today is not all I did today. Over the past two days, two weeks, we spent a lot of time reviewing our monetary policy strategy, assessing our tools. Thinking deeply about the data sources we have and wish we had. Also thinking deeply about what, over time, which of these questions will be answered more clearly, certainly not with certainty.
So the decision we made today, the discussions we had in that room, are as far from inertia as I can imagine, making a point estimate at a specific moment between two choices. You heard the result. But I tell you, that discussion was much more vigorous, and our thinking on how best to achieve that goal is advancing. Over the next few months, I expect more significant progress.
If you're going to... if I may steal a follow-up question. Yes, I won't let you... if you don't mind me stealing a follow-up, okay, how does the outside world view what you're doing? I'll reiterate again, what we do is not just about what we say, nor just about what we do. We're in the performance business. So if I look at the Treasury curve, if I look at the dollar, if I look at many things within financial markets, I think what they're broadly saying is, this Committee does have commitment, credibility to achieve it, they believe like I do, we'll get it done. But I don't want to give you the wrong impression. We don't have a magic wand. This isn't something we can do in days or weeks, but we will achieve the responsibility Congress gave us, and today's meeting and the preparation for it is a significant step toward that goal.
Questioner 9: I also wanted to follow up on the working groups. What vetting did you do of the people you appointed to the working groups, particularly given that Marc Andreessen has provided $25 million in massive political donations over the past year to support candidates opposing stricter AI regulation? How can the public be confident that the committee he co-chairs will provide an independent assessment of AI's economic impact, rather than...
Walsh: ...aligned with the interests of the AI industry. Yes, so I selected 15 outstanding subject matter experts to tackle five of the most important questions where, if we get the right answers, we'll do better. If we get them wrong, we'll have trouble.
The reassurance I can give you and your listeners is, we are the policymakers. The Fed Board Chair, Board members, and FOMC members. We will be the consumers of the output from the five different committees. Our judgments will be informed by these external groups, but never determined by them.
My philosophy in setting up working groups is to select brilliant, deeply expert people, with disagreement of views within each committee so they can also have a family argument.
This is not outsourcing to unknown, unvetted people. It's to test whether new ideas can catalyze broader, better, more informed discussion in the room. I'm very confident we will achieve that.
I'm impressed by the qualifications of these 15 individuals. Full disclosure, I've known almost all of them for a long time, and I believe they will give their best thinking on this issue. But ultimately, these are decisions we will make, accountable to our oversight committees and Congress for the mandate given to us.
Questioner 10: Hello, Anne Sophia from Reuters. Nice to see you again. So I need a little help too. You've repeatedly said you have zero tolerance for inflation, yet we've seen inflation above target for five years continuously, including since you took office. Of course, you don't have a magic wand, but you haven't taken action. You also just hinted at your reaction function. You said if underlying inflation rises, you'd be inclined to think tightening might be needed. That's what we've been seeing all along, besides the recent inflation data. So can you explain what you mean by zero tolerance for inflation, and what you intend to do about it? Of course. So, I hear from you.
Walsh: I hear more broadly from households and businesses impatience, just get on with it. That's not an excuse. It's a fact. This FOMC, this Board has been in operation for eight and a half weeks. The patience, impatience felt by households and businesses has lasted 63 months. We are in office. We will achieve the goal. We are laser-focused on ensuring we can do it. But to suggest we can do it with a magic wand, I want to disabuse you and everyone of that notion.
But the discussions over the past two days give me more confidence than eight and a half weeks ago. This team we have at the FOMC, the support we get from Board staff, and the new puzzles we're posing, we need to solve these. As we solve them, become wiser on these issues, we will achieve the mandate. You don't have to take my word for it. If you look broadly at market prices, they certainly aren't saying everything is clear, but they are working in concert, keeping us on our toes, and they tightened financial conditions during this intermeeting period, which gives us...
Questioner 10: ...which gives us some comfort that we have the capacity and means to achieve the goal. So, your interpretation, or I guess, your trust in the market's ability to make judgments and then you glean signals from those judgments, how does that affect your thinking and decision-making heading into the September meeting, where the market sees near 100% chance of a hike (as they do now)? So, we won't be...
Walsh: ...constrained by market prices, we won't be constrained, nor will we mimic market behavior, but I think it's useful and understood, markets can be a very good source of information, not a definitive source, not a perfect source. But if we're trying to engineer a soft landing and achieve 2% inflation, we take a very useful source of information and muddy it by giving our own forecasts, providing rolling commentary.
I can assure you, we'd have less information, less ability to land successfully and achieve price stability. We're just trying to ensure that source of information is as direct and unfiltered as possible. That doesn't preclude data sources, opinions, and other surveys. But if you hear from me, we want to ensure we get better sources of information. I think in a relatively short time, we are doing that.
Questioner 11: Let's have Brian Chung ask the final question. Hello, Chairman Walsh. Brian Chung from NBC News. You've said you'd be willing to hold press conferences when there's news to announce. So today, rates unchanged, no forward guidance for the average household. I want to ask, what's the news today?
Walsh: So, obviously, my holding a press conference is news. Let me see if I can clarify that. From now until year-end, my predecessors and the Fed committed to press conferences this year. I've committed to press conferences this year, which might be news to those here, of no particular interest.
To your viewers and readers at home, the reassurance I can provide is that the Fed is on the case, this Fed Chair feels better about the Board's and Committee's ability to achieve the target than I did on my first day in office. And I came in fairly confident. I'm encouraged by the welcome I've received. No doubt, in some of your commentary today, you'll talk about a divided Fed. Well, that's not what I felt over the past few days and earlier.
What I felt was a group of professionals with different perspectives, viewpoints, and judgments, but eager to roll up their sleeves for a family argument, eager to reform how the Fed makes policy, with passion, open-mindedness, and curiosity. So we have... a better chance to achieve the mandate Congress gave us. So I want to leave you with a new central banker's optimism that we are as committed as ever to achieving our goals, and give you the assurance that we will do it. Thank you all very much.
