>> stocks trading in the red, all eyes on fed chair powell at the bottom of the hour, i am pretty good but "bloomberg markets," starts right now. -- i am kriti gupta, "bloomberg markets," starts now. >> it is happening in a complacent type of environment, and a lot of expectations on what chair powell what -- will say at the brookings institution, 30 minutes away from the conversation, a potential grilling from the financial media. we are looking at yields higher by only two basis points, theme

of complacency sticks with us, will it change as we go into the close? and of course as we hear from the head of the federal reserve. the dollar not doing a whole lot at the whim of what is going on with the bond market if you see the yields increase because of hawkish commentary the dollar is likely to follow. he loves look at the gauge is a strength of the global economy but the inflation story as well, brent crude trading $80 a barrel, recovering from the seven days earlier up just shy of 3%. at the end the day comes down to the supply chain issues. it comes down to what could go wrong. the house has voted for a bill to a vote -- avert the potential rail strike, what this does is create to billion-dollar holding of the global all economy, we are slated for the to strike --

we are slated for the strike december 9, this would be significant with how we avert the rail strike. the issue at the court is sick leave. not necessarily the pay or keeping up with time off. it will be sick leave specifically this is a very intensive industry. right now we do not seem to have the momentum or the time for all the unions to ratify. we have only had 8 people talking about ratifying these deals out of the 12 unions. all it takes is one union, no matter how small for it to fall apart. for more explanation and more complex, we are joined in washington to break it down from the washington perspective what are we waiting for and what are the next steps? guest: the votes that are coming and it looks likes there is enough to pass the legislation that would prevent the strike by rail workers. the president has called on

congress to do the senate will take the same measure pretty quickly. president met with bipartisanship yesterday and this momentum for both sides to get this done. the house will next vote on a measure to add 7 days of sick sleep -- sick leave to the legislation. nancy pelosi said she would vote for, and something senator bernie sanders would vote for -- had called for, saying he would not sign if this measure was not added to the tentative agreement. it looks like they will add this legislation to avoid the rail strike. kriti: this is wild, they got a lot of potent -- votes from union members and now they are pushing a deal like this. talk about what happens next in the senate. guest: they will need to get bipartisan support for this to go through.

what you've heard from senate leadership on the republican and democratic side, the number two senator was in washington dc yesterday, this is something no one wants to have to vote for. they do realize this moment, they think the votes will be there. everyone recognizes and realizes the significant damage could cause the economy. you have heard from the likes of senator sanders. this is a thing he cannot give his name to unless there is this sort of edit of the agreement that includes sick sleep -- leave. you heard from individuals like senator marco rubio of florida who is blaming the administration that the rail workers did not sign up for the agreement they touted in september in the rose garden. it looks like there are enough votes to push this through. kriti: we will be tracking here

and in washington as well, we thank you as always for your perspective. apple ceo tim cook is there to meet with top republican lawmakers with people familiar with the matter, the tech company seeking to connect with the gop ahead of the taker of the house -- take over of the house. let's bring in emily. what is the significance of the meeting? guest: tim cook is in town to meet with ohio republican jim jordan, and kathy, both of whom will be heading the gop tech agenda when they retake the house. this is part of a larger charm offensive by tim cook. he has shown he has been good at making close relationships with policymakers that benefit apple. this is him positioning himself before the divided congress. kriti: what does this mean for the antitrust agenda being pushed by lots of democrats? it is not just apple, microsoft,

amazon, elon musk's new acquisition of twitter. what you see there? guest: democrats who are supportive of this antitrust push are hopeful they can get something passed by the end of the year. the gop leadership coming in next year headed by kevin mccarthy of california have made clear they are not supportive of this approach to antitrust. overhauling centuries old statutes, they think is too aggressive and too much government intervention. if it does not happen this year congress will pivot to focus more on conservative bias concerns and potentially some issues around children's privacy online. kriti: we think you as always for your perspective we look forward to having you back. staying to the world of tech in silicon valley, turning to another name making news this morning. doordash slashing its workforce,

ed ludlow has the story. you have been all over this idea if this is a peeling back of the hiring we saw two years ago or a canary in the coal line -- coal mine. what did they tell you? >> they are cutting the workforce around 6%, or 1250 workers it according to sources of seen in a memo. they are acknowledging macro headwinds. this is a company coming out the pandemic continues to grow. they had good bookings and topline growth in the third quarter. look at what the ceo is talking about and they are worrying that the expenses related to the growth of the staff and the pandemic period will outgrowth revenue. operating expenses was 2 billion, the recent revenue was 1.7 billion.

this is a comfy that has fared better in recent quarters. kriti: headlines out of better as well, -- out of meta as well, scaling back its new york offices, in a cost-cutting pivot. when will it scale to the rest of the sectors? guest: every day there is a new headline to a cut of expenses, this is a real estate where they are giving up 200,000 square feet, they have not renewed the lease on two specific parts of the set up was due to expire in 2024. this is part of a broader initiative, there are 11,000 or so jobs being cut. this is broad-based, look at the names on your screen. the hardware name hp, cutting up to 6000 jobs the next three years. why?

a slowdown in consumer demand for electronics. you see them -- firms be proactive, reducing headcount across the sector. kriti: we talked about the headcount, we talked about the office and the real estate pivot as well. when do we see this turning around? i put this in the context, amazon issuing a five-part, $7 billion a bond issuance on a time where a lot of the tech companies are sitting on a lot of cash. how do you square the two? guest: it is interesting, a lot of the market participants, sing the mega tax -- mega caps, more broadly tech is more susceptible to broader macroeconomic headwinds. there is evidence of slightly different things in the slightly

different things. software has evidence of slowdown in corporate spending. in hardware there is consumer-electronics weakness that is linked directly to inflation. we are having a covering, but a muted recovery. it is not quite yet if a recession we are waiting for has been priced into the valuation of stocks at least for the first half of 2023. kriti: certainly a demand story coming saw that with crowd strike, ed ludlow all over that story. thank you so much. we have some breaking news the u.s. houses passing the bill to avert the strike by freight rail workers. one of the issues was sick pay, they do not have time to ratify a new deal. the measure will go to the senate next. as anne-marie explained, it depends on the bipartisan support we will keep you apprised of all the headlines. let's head to the first word news. >> sticking with the house

today, house democrats elected represented hakeem jeffries to be the first black leader to lead in congress. republicans in control the house jeffries will carry the title of minority leader when congress returns in january. the u.s. senate passed a bill that enshrined federal protection for same-sex marriages. the vote 61-36 with 12 republicans joining the democrat majority. democrats raise concerns that the supreme court could overturn a ruling that established rights of same-sex marriage. is going to the house. >> french president emmanuel macron is in the u.s. for the first white house state visit in more than three years. hosted by president biden it will be celebrating the oldest u.s. alliance, preceded by u.s. lawmakers and nasa. he is unhappy with u.s. over several trade and defense issues. mortgages in the u.s. fell to

the lowest level in more than two months, extending a recent decline that provides some relief to a weakened housing market. the rate on a 30 year fixed mortgage fell 18 basis points to just under 6.5%. nato secretary issued a warning on repeating stakes country had made with russia when it comes to china. speaking to bloomberg on sidelines of a nato summit, to limit over dependent -- dependence on commodities from authoritarian regimes. >> trade is good for them, it is good for us. we cannot just make decisions based on commercial considerations. we are seeing that with gas from russia does not a commercial decision. it has dire consequences for our security, over dependency makes us vulnerable. guest: he described china's

behavior towards taiwan is aggressive, coercive, threatening, there is no reason for that in any conflict over taiwan would be no one's interest. global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i'm john hyland, this is bloomberg. ♪

kriti: this is bloomberg markets i am kriti group that, let's go to some that caught my eye. people are talking about the bouquets case for the equity market. there is plenty of doom and gloom. i want to put their -- put out some perspective. you see the blue line is the terminal rate expectation starts to stall out. that is the reason you start to see the bounds. the idea that the stock market is pricing in the p policy rate of five or -- peak policy rate of five or 5.2%. as they revise you can see a reversal that and vice versa. still ahead we are counting down to chair powell's speech, he could be a game changer for the equity market. will he provide clues to win the

federal reserve stops raising rates? is all about the timeline we have recovered, stick with us, that is next. this is bloomberg. ♪

kriti: this is "bloomberg markets," i am kriti, the longest expansion of market -- of the market on record, has left people wondering when will have another expansion. he weighs in -- she ways and. >> we are underweight equities, we remain underweight equities at this juncture. what is more important is when we become more constructive. we expect the more constructive at some point in 2023. having the mechanism of when to do positive is important. macro scarring as a result of

central bank over tiring and understanding what extent the -- over tightening, and understanding to what extent -- overweight positive will not be the prelude of a decades long bull market we have seen in the past. we believe it be a lot more volatile and a lot more choppy. kriti: she does not seem convinced at all that this is a stock market bowl run -- bull run will look like the last 10 years. the game changer is what fed chair jay powell will speak of an next 10 minutes. investors looking at when rate hikes will slow and if -- if rate hikes will slow and when. what is the game changer here? it feels like the fed has bank the same drum for a year now, what can you say that is new? -- he say that his new?

>> there are a few bits of cautiously positive news. inflation is passed the peak. the jolt data today shows a little the heat coming out of u.s. labor markets. of course, having dashed into restrictive territory over the last few meetings. the fed now has interest rates closer to where ultimately it thinks they need to be. my expectation is that powell will use his remarks this afternoon to pretty much consolidate the market expectation. trailed by other fed speakers that there will be a downshift in the pace of hikes in the december meeting. coming down from 75 basis point cadence to a 50 basis point cadence. in the same breath i think you will reinforce the message that the fed's job is not done, rates have higher to rise in 2023, and

they are determined to keep them at and elevated -- an elevated level until they are back to a 2% target. kriti: hold that thought, i want to bring in another guest. sonya, want to get your take as well. i asked tom what could be the game changer what chairman powell will say in nine minutes. what do you think? guest: i would say for me i would be looking for any commentary on the recent easing of conditions --. the fed understands very well the need to start slowing down the pace of hikes. the degree to which financial conditions ease while inflation is elevated is a concern for them. kriti: that brings me to the question, what will actually change? we anticipate loosening of the market. we anticipate a housing market that will come crashing down at some point. maybe 2023, maybe beyond.

what is the biggest turnaround story when we see inflation decelerate? >> we are seeing, as we expected, it deceleration in goods and inflation. the question remains about vestigial services inflation, that is the labor market. there is still an outside risk for inflation from services. labor cost in the service sector remains quite high. there is still some risk of a wage price spiral developing and becoming entrenched. kriti: you mentioned the services inflation, tom, talk about the goods inflation. from a corporate investment case, what we see over the past weekend in china. you have a major expertise in this. walk us through if that should factor into the fed decision as it hits the bottom line of the biggest companies in the world, apple and tesla for example.

guest: i think absolute what is happening in china will factor into the fed decision-making. the challenge, of course, anticipating what is going to happen in china has seldom been more difficult. the government has made some initial steps to ease covid zero restrictions. those were cheered by the market. it immediately she -- triggered a big rise in infections. a fear that they'll be followed by a big rise in deaths. controls reimposed, then of course public frustration bubbling over and protesters hitting the streets. i think it is safe to say by the end of 2023, china will be in a more more open place than it is right now when it comes to controlling the covid virus. whether those moves start pretty quickly, or as more likely in

our view around the second quarter of 2023. it is pretty hard to calibrate that judgment. the fed, the markets, and everyone else will pay close attention to china. predicting the next year is tough to do. kriti: you see some wall street banks predict more rate hikes not just of the spring of 2023, perhaps out into may come as that's nothing bloomberg economic shares? guest: the view from the u.s. team is that the fed has a fair amount still to do. we are looking at a terminal rate of 5%. that means 50 basis point in december, and still some work to do into 2023. kriti: sonja, we are waiting comments. from chairman powell in just a few minutes if you were in the room what would you ask him? >> i would ask him about the outlook for inflation into the second half of 2023.

i think we will see some helpful based effects for inflation in addition to goods. as i mentioned the stickiness of services inflation. especially if we, as the fed hopes we get declines in job openings but not a lot of layoffs. i want to hear more about how the fed forecasts both the consensus view within the committee and the risks around that view. kriti: something we will keep an on, we still have the lot a different game changers come a lot of data come payroll at the end of this week. sonja and tom, true experts on the subject. let's get a quick check of the markets. as we wait the markets and the q&a that follows, the s&p 500 not doing a whole lot of anything. down .2%, the nasdaq is in the green up .3%, you are seeing a defensive bid at play.

10-year yield 378, coming up fed chair powell speaking a few minutes, will bring you live as soon as it begins. this is bloomberg. ♪ hi, i'm jason and i've lost 202 pounds on golo. so the first time i ever seen a golo advertisement,

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>> special coverage today of fed chairman jerome powell set to speak in a few minutes in washington at the brookings institution. scarlet: welcome to our audiences. we are waiting for jay powell to begin speaking. one year ago today he stopped describing it as transitory. romaine: our own man in washington right now with the readout is michael mckee. michael: it is a simple message. jay powell some i get up in one sentence and prepared remarks. we have more ground to cover. reiterating they will raise interest rates higher than

previously forecast. wage growth and job growth are not slowing enough to bring inflation down to 2%. he says they don't know how high they have to go. that depends on the data. once they get there, they will stay there. "history strongly cautions against loosening policy. we will stay the course until the job is done." he goes on to once again say given the lagged effects, they want to slow the pace of rate increases so we can gauge the effect on the economy and a rather broad end. that could happen as soon the december meeting. scarlet: looking at a market reaction where s&p 500 is moving higher. now into the green now. what do you think investors want to hear that they got from today's comments, or the headlines? michael: i don't think they got anything new. they got a reiteration -- romaine: jerome powell now

speaking. >> for the benefit of the american people. that report must begin by acknowledging the reality inflation remains far too high. my colleagues and i are acutely aware high inflation is imposing significant hardship, straining budgets and shrinking with paychex will buy. this is painful for those least able to meet the higher cost of essentials like food, housing and transportation. price stability is the responsibility of the federal reserve and serves as the bedrock of our economy. without price stability the economy does not work for anyone, in particular without price stability we will not achieve a sustained period of strong labor market conditions that benefit all. we currently estimate 12 months pce inflation through october ran at 6.0%. while the october inflation data received so far showed a welcomed surprise to the

downside, these are a single-month's data that follows upside surprises over the previous two months. as figure one makes clear, down months have often been followed by renewed increases. it will take substantially more evidence to give comfort that inflation is actually declining, and by any standard inflation remains far too high. for purposes of this discussion i focus on core pce inflation, that omits food and energy components that have lowered recently but can be quite volatile. our inflation goal is for total inflation as food and energy prices matter a great deal for household budgets. core inflation often gives a more adequate -- accurate indicator. 12 month core pce inflation stands at 5.0% and our october estimate, approximately where it stood last december when policy tightening was in its early stages. over 2022, core inflation rose a

few tens above 5% -- tenths above 5% and below but mainly was sideways. when will inflation come down? i can answer this question by pointing to the inflation forecast. private forecasters or purses up and step brothers show a significant decline over the next year. forecasts have been predicting just such a decline for more than a year while inflation has moved stubbornly sideways. the truth is the path ahead for inflation remains highly uncertain. for now, let's put aside the forecast and look instead to the macroeconomic conditions we think we need to see to bring inflation down to 2% over time. for starters, we need to raise interest rates to a level sufficiently restrictive to return inflation to 2%. there is considerable uncertainty about what rate will be sufficient, although there is no doubt we made substantial progress raising our target

range for the federal funds rate by 375 basis points since march. as our last post meeting stephen indicate, ongoing increases will be appropriate. it seems likely the rates will be higher than thought at the september meeting and the summer economic projections. i will return to policy at the end of my comments. for now i will say we have more ground to cover. we are tightening the policy to slow growth in aggregate demand. slowing demand growth should allow supplied to catch up with demand and restore the balance that will yield stable prices over time. restoring that balance will likely require a sustained period of below trend growth. last year, the ongoing reopening of the economy boosted real gdp growth to a strong 5.7%. this year, gdp was roughly flat through the first three quarters. indicators point to modest

growth this quarter, which seems likely to bring the year-end with a modest growth overall. several factors contributed to this slowing growth, including the waning effects of reopening and a pandemic fiscal support, the war in ukraine, and are policy actions which tighten financial conditions and are affecting economic activity, particularly in interest-sensitive sectors like housing. we can say demand growth has slowed and we expect the growth will need to remain at a slower pace for a sustained period. despite the title policy and slower growth over the past year we have not seen clear progress on slowing inflation. to assess what it will take to get inflation down, it is useful to break it into three component categories. co good inflation,re and core services other than housing. core goes inflation moved down

from high levels of the course of 2022, while housing services inflation rose rapidly. inflation has fluctuated but shown no clear trend. i will discuss each of these items in turn. early in the pandemic, goods prices begin rising as abnormally strong demand was met by pandemic hampered supply. reports from businesses and many indicators suggest supply chain issues are now easing. both fuel and non-fuel import prices have fallen in recent months and indicators of prices paid by manufacturers have moved down. well 12 months core goods inflation remains elevated at 4.6%, it has fallen nearly three percentage points from earlier this year. it is far too early to declare goods inflation vanquished. but if current trends continue, goods prices should begin to exert downward pressure on overall inflation in the coming months.

housing services inflation measures the rise in the price of all rents and the rise in the rental equivalent cost of owner-occupied housing. unlike good inflation, housing services inflation continued to rise and now stands at 7.1% over the past 12 months. housing inflation tends to lag other prices around inflation turning points because of the slow rate at which the stock or rental lease terms over. the market rate on new leases is a timely indicator of her overall housing will go over the next year or so. measures of twelve-month inflation and new leases rose to nearly 20% during the pandemic but have been falling sharply since midyear. as figure three shows, overall housing services inflation has continued to rise as existing leases turn over and jump in price to catch up with a higher level of rents for new leases. this is likely to continue well

into next year. as long as new lease inflation keeps falling we would excite housing services inflation to begin falling sometime next year. indeed, a decline in this inflation underlies most forecasts of declining inflation. we come to core services other than housing. this covers a wide range of services, from health care and education to haircuts and hospitality. this is the largest of our three categories, constituting where than half the core pce index. thus this may be the most important category for understanding the evolution of core inflation. because wages make of the largest cost in delivering these services, the labor market holds the key to understanding inflation in this category. in the labor market demand for workers far exceeds the supply of available workers. nominal wages have been growing at a pace well above what would be consistent with 2% inflation

over time. thus another condition we are looking for is the restoration of balance between supply and demand in the labor force -- the labor market. signs of elevated labor market tightness emerged suddenly in mid-2021. the unappointed rate at the time was much higher than the 3.5% that have prevailed without major signs of tightness before the pandemic. implement -- employment was millions below is level. looking back we can see the significant and persistent labor supply shortfall opened up during the pandemic. a shortfall that appears unlikely to fully close anytime soon. comparing the current labor force with the congressional budget office's pre-pandemic forecast of growth reveals a current labor for shortfall of 3.5 million people. this shortfall reflects both lower than expected population growth and the lower labor force purchase a patient rate. participation dropped sharply at

the onset of the pandemic because of many factors, including sickness, caregiving and fear of infection. many forecasters expected participation would move back up fairly quickly as the pandemic faded. for workers in their prime working years it mostly has. overall participation remains well below pre-pandemic trends. some of the participation gap reflects workers still out of the labor force because they are sick with covid-19 or continue to suffer lingering symptoms from previous covid infections, or long covid. recent research finds participation gap is now due to excess retirement. retirements in excess of what would have been expected from population aging alone. these excess retirements might now account for more than 2 million of the 3.5 million person shortfall in the labor force. what explains these excess retirements? health issues have played a role as covid has posed a

particularly large threat to the lives and health of the elderly. in addition, many older workers lost their jobs in the early stages of the pandemic when layoffs were historically high. the cost of finding new employment may have appeared particularly large for these workers given disruptions to the work environment and health concerns. gains in the stock market and rising house prices in the first two years of the pandemic contributed to an increase in wealth that likely facilitated early retirement for some people. the data do not suggest excess retirements are likely to unwind because of retirees returning to the labor force. older workers are still retiring at higher rates. retirees do not appear to be returning to the labor force in sufficient numbers to meaningfully reduce the total number of access retirees. so, the second factor contriving to labor supply shortfall is slower growth in the working age population. the combination of a plunge in

the surge in deaths during the pandemic probably accounts for 1.5 million missing workers. policies to support labor supply are not the domain of the fed. our tools work principally on demand. without advocating any particular policy, i will say policy to support they were forced participation could over time bring benefits to the workers who join the labor force and support overall economic growth. for the near term the moderation of labor demand growth is required to restore balance. currently the end of limit rate is at 3.7%, near the 50-year low and job openings exceed workers by 4 million. that's 1.7 job openings for every person looking for work. we have seen only tentative signs of a moderation and labor demand.

with slower gdp growth this year job gains have stepped down for more than 450,000 per month over the first seven months of the year to about 290,000 per month over the past three months. this job growth remains far in excess of the pace needed to accommodate population growth over time, about 100,000 per month by many estimates. opening set followed by a million and a half this year but remain higher than any time before the pandemic. wage growth shows only tentative signs of returning to balance. some measures of wage growth have come down recently but the supplies are modest relative to earlier increases and still leave wage growth well above levels consistent with 2% inflation over time. to be clear, strong wage growth is a good thing. for wage growth to be sustainable and needs to be consistent with 2% inflation. so, let's sum up this review of economic conditions we think we need to see to bring inflation

down to 2%. growth and economic activity has slowed to well below its trend and this needs to be sustained. bottlenecks and goods production are easing and goods price inflation appears to be easing as well. this must continue. housing services inflation will probably keep rising well into next year. if inflation on new leases continues to fall, we will likely see housing services inflation began to fall later next year. the labor market, which is especially important for inflation and core services and housing, accounting for more than half of the category. it shows only tentative signs of rebalancing and wage growth remains well above levels consistent with 2% inflation over time. despite some promising developments, we have a long way to go in restoring price stability. returning to monetary policy, my fomc colleagues and i are committed to restoring price stability. after our november meeting, we noted we anticipated ongoing

rate increases will be appropriate in order to achieve a policy stance restrictive to move flechette down to 2% over time. monetary policy affects the economy and inflation with uncertain lags, in the full effects of rf a tightening so far are yet to be felt. it makes sense to moderate the pace of our rate increases as we approach the level of restraint sufficient to bring inflation down. the time for moderating the pace of rate increases may come as soon as the december meeting. given our progress in tightening policy, the tightening is far less significant than the questions of how much further we will need to raise rates to control inflation and the length of time necessary to hold policy at a restrictive level. it is liely -- history cautions strongly against prematurely loosening policy. i will close by saying we will stay the course until the job is

done. thank you. [applause] >> thank you very much, chair powell. you spared me asking me to ask about picking between 50 and 75. i want to talk about wages and inflation. so, as you said, wages are rising faster than is consistent with 2% inflation rate, assuming reasonable productivity. you said in november wages are not the principal cause of prices going up. for many workers real wages have been falling lately. isn't there room for wages to rise a bit faster so workers can make up lost ground? what level is consistent with two percent inflation target? chair powell: so, i guess i

would start by saying the inflation that we saw at the beginning of this episode back in march of 2021 was not related to wages at all. it was related to tightness in the goods market due to supply chain issues. over time though inflation has spread broadly through the economy. while i would still say the inflation we are seeing now is not principally related to wages, we think wage increases are probably going to be important part of the story going forward as a relates to that third category of core services ask housing. -- x housing. is an important thing going forward. in the service sector where wages and benefits are by far the largest cost wages need to go up. we want wages to go up strongly. they have got to go up at a level that is consistent with 2% inflation over time, making

basic assumptions about productivity. if you look at the principal wage measures we look at, i would say you are 1.5% or 2% of of that with current wage increases. particularly the employment -- employee compensation index and the average hourly earnings. it's about 1.5% higher making various adjustments for productivity phenomenal wages. as we look at -- for nominal wages. as we look at the data, you see the labor market with 1.7 job openings for every unemployed worker. everyone looking for a job. the so-called jobs workers gap is about 4 million. if you look at all the available jobs including people not working at people in the labor

force who are looking for a job, there's a 4 million shortfall. we think there is a job for moderating demand and getting the labor force back into balance. >> you don't think there is the possibility we could have a period of catch up of wage increases above the sustainable level and businesses with relatively fat profit margins can absorb some of that without passing through? chair powell: that's the question of the workers share profits. it is not really related to this. people's wages are being eaten up by inflation. what you want to do is have inflation stable and that have a very strong labor market where the biggest wage gains are going to the people at the bottom end of the spectrum. we had that at the end of the long expansion that ended with the pandemic. for most workers the increases are being eaten up by inflation. that is not true at the bottom

end where wage increases are higher than inflation. that's a good thing. if you want sustainable, strong labor market we are real wages are going up right across the weight spectrum, especially for people at the lower end, you have to have price stability. we can't get back to that place we were for the two years before the pandemic it without that. >> when you look at today's jobs data, which measures the vacancies and quit rates, did you find that encouraging? chair powell: more or less in line with expectations. >> going the right direction though. chair powell: i guess job openings came down by several hundred thousand to where they are now. that's a positive thing. the relationship between job openings and unemployment is a very fraught one. job openings now compared unemployment are near their all-time high levels.

it's been our view there's a possibility that in this highly unusual situation in the labor market, labor market could come back into balance to some extent through decline in job openings. there's been a typical relationship between increased employment and declining job openings. our thinking has been in many labor economists share this that you can get a decline in job openings that would not produce the same increase -- a small increase in on a climate that is typically the case looking back because of the outsized level of job openings. we have seen that so far. it is way too early to say. >> traditionally the fed looked at the unappointed rate as a measure of labor market tightness. we have seen recently that may be misleading unemployment -- may be misleading. the unappointed rate is low. vacancies are coming down. to the extent the fed relies on the phillips curve relationship, going forward is the natural

rate of unemployment useless? how will the fed -- what phasers will the fed used to judge the labor market as we look to policy in the coming years? chair powell: the way we think about it, the standard way is that is the gap between the actual on a plumbing rate at the natural rate of an implement that matters. the issue -- it is not the framework does not make sense. the issue is the natural rate of unemployment is very hard to identify with certainty, even in normal times.. when there is a violent disruption in the labor market, it can move substantially. that happened at the beginning of the pandemic. he had the labor market very much disrupted. we assumed the natural rate had moved up, meaning for any level of unemployment the labor market is tighter. we knew that. what was different was that you had to look at things like job openings and quits and

reservation wages and wages overall to tell you the natural rate of an implement moved up quite a lot. i don't think it is a problem with the framework. it is a fact that it is very hard to pin down where the natural rate of unemployment might be when there is this massive disruption in the labor market going on. >> do you think the job vacancies will be a lasting measure of labor market tightness at the fed? chair powell: yes. people will tend to look at it. >> when you tell chair powell: in this particular situation we think it's important and we will find out empirically whether that was true for the reasons i explained. we can see a big decline in job openings and less then you would expect in the increase of an employment. this was a unique -- in 70

different ways this series of events was different. so much of the inflammation was due to the supply-side constraints, which is not a feature of the u.s. economy for a long time. >> vice chair brainard said the other day in a speech that she raised the question if a long-term change in the economy like labor supply, deglobalization, climate change could reduce elasticity of supply. chair powell: that's a great set of questions we have all been thinking about a lot. the speech was really terrific on that. so, the question is, is the new normal going to be different? you don't need to worry about

that, it will sort itself out. supply shock from oil prices or whatever. are we going into a situation like the 1970's where there was ongoing repeat shocks which would tend to put more overpressure. inflation over time? we don't really know. that's a great question. i guess the real question is, what are the implications? we still have a 2% inflation target and have to use our tools to achieve it. it is very hard to know the answers. we tend to assume things will go back to the way they were naturally. that does not seem to be happening so far. >> you mentioned in your remarks that forecasts of inflation have not only those at the board of governors but the private sector as well have been lousy. inflation is not behaved the weather forecasters said. i wonder how you think about using forecast of inflation in

making policy. if your staff can't tell you with some degree of confidence what inflation is going to be 6, 12, 18, 24 months out, how do you think about that and decide when to make policy decisions? chair powell: it is very difficult to forecast inflation now. one of the reasons is the situation is so different from the normal one. a lot of this, the difficulty is the supply-side constraints. we had no experience in forecasting that. this was a case of first impressions. that was very difficult. nonetheless we do make forecast and will continue to make forecasts. the way i try to get around that in my remarks was to say let's put the forecast aside for a second and try to identify the macroeconomic conditions we think we need to see that would put downward pressure on inflation. that is a way to think about it. we will continue to make forecasts.

we have to be humble and skeptical for some time. that calls for a lot of risk management. the other difficulty is monetary policy works with long and variable lags. inflation is at the end of the train. if you are waiting for actual evidence of inflation is coming down, it is very difficult not to over tighten. we have a risk management balance to strike. we think slowing down at this point is a good way to balance the risks on the pace of rate hikes. >> it's still a problem. you cannot use inflation rates to set policy to set policy not sure what it to mollison -- tomorrow's rate is, it is secondary to conditions you think are generating more inflation? i'm agreeing it's a difficult situation -- chair powell: i'm agreeing it's

a difficult situation. very few have gotten it right. i think we will look at various things. we will look at our forecasts, the actual data. i gave you the three pieces and the elements of those three pieces of core inflation we are looking at. we will look at these macroeconomic conditions. we will try to identify a level of policy that is sufficiently restrictive to bring inflation down. you can't identify that with great precision but we will look at the changes in financial conditions and the effects those financial condition changes are having on the real economy. we will make a judgment. it will have to be a judgment as to what that is. >> you have talked freely about the need to have policy be restrictive. that often is used as the definition of restrictive is above some neutral rate of

interest. the one that will prevail when all is calm. you give the speech at jackson hole pointing out how identifying the actual rate of an employment, the interest, the problem is that we don't know what they are. how will you know when policy is restrictive? how do you think with the neutral rate is under the current conditions? chair powell: there is not any perfect summary statistic. i think the way we generally think about it is, we make policy changes and they affect financial conditions. actually it works the other way around. tightening is an expectation now, so they tighten. we monitor the tightening of financial conditions. we look at the history of financial conditions and ask how tight our financial conditions are. we look at the effect they're having on the real economy, particularly now with interest-sensitive spending and other things as conditions tighten.