Wosh: The 2% inflation target remains unwavering, maintaining independence, and focusing on AI transformation (full text attached)

Federal Reserve Chairman Waller views the rise in market interest rates as a signal that financial conditions are tightening, while reiterating that the 2% inflation target "has no room for flexibility," and announcing a substantial exit from forward guidance, calling on Wall Street to move away from dependence on central bank statements to "capture real economic signals."

The Federal Reserve voted 9 to 3 to keep the benchmark interest rate unchanged at 3.5%-3.75%. In a press conference following the FOMC meeting, Chairman Waller stated that the U.S. economy continues to show resilience in the face of recent shocks, with a positive growth trend, employment growth generally in line with labor force growth, and little change in the unemployment rate; however, inflation remains "still elevated" relative to the 2% policy target.

On the issue of the interest rate path, which is of greatest concern to the market, Waller did not provide clear forward guidance. He emphasized that the Federal Reserve intends to reduce its pre-set expectations and interventions in the market, hoping to obtain more "direct, unfiltered" information from prices such as bonds and exchange rates.

At the same time, he repeatedly reiterated that if inflation remains high during the forecast period, raising interest rates "is likely to be part of the solution."

Waller also specifically mentioned that AI-related investments are driving up high-tech capital expenditures, but the ultimate impact on productivity, supply capacity, and inflation is still difficult to assess accurately. This means that whether investment and productivity improvements can alleviate price pressures remains a key variable in the Federal Reserve's subsequent policy assessments.

Inflation Bottom Line: Absolutely No "Soft Target," 2% is the Only Red Line

In the context of more than five years of high inflation, the market once speculated that the Federal Reserve might quietly tolerate inflation above 2%. Waller ruthlessly shattered this illusion at the meeting, demonstrating a tough stance on defeating inflation.

Waller clearly pointed out:

"There is no soft inflation target, no soft implicit target—there is absolutely no possibility of that during 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 U.S. has lasted "63 months (with inflation above target)," and the Federal Reserve understands deeply that this situation cannot be cured in nine weeks or merely by a moderate price decline in a single month.

In response to a question about what to do if inflation does not decrease, Waller gave a direct reply:

"If inflation is too high and does not fall, the best remedy is to raise interest rates."

External Relations and Independence: Maintain Composure, Not Subject to Interference

At the press conference, Waller repeatedly emphasized that the Federal Reserve will not deviate from its responsibilities due to market or external pressure. He stated:

"The Federal Reserve will not waver. Our credibility depends on fulfilling our responsibilities and delivering on our commitments."

When discussing the complex environment the economy has faced in recent years, Waller listed the supply chain tensions caused by the pandemic, military conflicts, energy supply disruptions, tariff adjustments, and the surge in AI investments as significant external shocks affecting the economy.

He stated that the Federal Reserve will not ignore these changes but is studying whether these shocks will further spread and affect a broader price system.

However, he emphasized that the Federal Reserve focuses on how these events transmit to inflation and the economy, not the events themselves, and its responsibility is always to make policy judgments around price stability and full employment.

AI Capital Expenditures Become Key Economic Variable: Growth Rate Close to 20% Over the Past Four Quarters

In terms of macroeconomic hot topics, Waller highlighted the real impact of the AI boom on the real economy and prices, which is extremely rare in past Federal Reserve meetings.

Waller disclosed a set of core data:

"In the categories of high-tech equipment and software related to artificial intelligence, the latest data shows that the growth rate over four quarters is close to 20%."

Waller pointed out that the surge in corporate capital expenditures has been driving up the prices of "memory and logic chips and related AI infrastructure." The Federal Reserve is trying to determine whether this price increase is merely a relative price change within the industry or whether it will spread to broader inflation.

"We take these shocks seriously. The Federal Reserve is studying to what extent the impact of these shocks is expanding and how much impact they have on prices that have not yet been directly affected."

In terms of supply and demand, Waller believes that the Federal Reserve has a relatively reasonable understanding of total demand, but there is still considerable uncertainty regarding total supply, productivity, and the structural changes brought about by AI investments.

"We are inferring total supply. We are making judgments about productivity; in a sense, there is a race between supply and demand, and the surge in corporate capital expenditures around artificial intelligence makes this calculation more difficult to assess."

He also warned that the AI investment boom will not automatically reduce the policy challenges for the Federal Reserve. On one hand, improvements in productivity and supply expansion may help alleviate inflationary pressures; on the other hand, the construction of AI infrastructure itself may also push up some upstream prices.

Changes in Policy Communication: Diminishing Forward Guidance, Asking the Market to "Follow the Data"

Waller reiterated that the Federal Reserve is significantly reducing or even exiting the "forward guidance" that has been commonly used for the past decade, no longer attempting to fine-tune market expectations through dot plots or verbal reassurances.

Waller pointed out that in the past 42 days (between two meetings), both nominal and real yields on the Treasury yield curve have risen significantly, with the increase ranking among the highest deciles in the past twenty years. He attributed this to the Federal Reserve's "step back":

"Market participants are learning to follow the ball rather than 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."

In response to a reporter's concern about whether the Federal Reserve would lose its narrative control, Waller appeared "not too worried." He candidly stated:

"We are trying to stay out of it… What we are interested in is the financial market's reaction."

He believes that in a non-crisis mode, the Federal Reserve should not tie its own hands but needs to observe the market's direct, unfiltered response to developments.

Interest Rates Unchanged, but Waller Says "This is Not a Pause"

Regarding the decision to maintain interest rates unchanged, Waller refused to define it as a "pause." In his view, if the policy stance is understood solely in terms of whether the federal funds rate changes, it may overlook the adjustments that have already occurred in the financial markets. He said:

"I would not describe our actions today as similar to a pause. I would describe our actions as a rigorous examination of the economic situation."

Waller stated that over the past 42 days, between the two FOMC meetings, both nominal and real rates across the entire U.S. Treasury yield curve have risen significantly, with the related changes roughly in the "highest decile" over the past twenty years.

"Financial market prices did not pause during this meeting break; both nominal and real rates have risen."

Regarding the implications of the current rise in market interest rates, Waller did not equate it directly with the Federal Reserve needing to raise rates, but indicated that the signals conveyed by the bond market are somewhat consistent with the performance of the real economy.

"Economic output is robust, capital expenditures and productivity are strong, and the labor market is healthy and stable. The bond market, the Treasury market, also seems to be expressing the same thing. Even to some extent, while we did not do much in 42 days, the market did quite a lot."

Full Transcript of Federal Reserve Chairman Waller's Press Conference

Waller's Opening Statement

Hello everyone. This is my second time participating in the Federal Open Market Committee meeting as Chairman, and time has flown by. It may be too early to say this has become the norm, but our discussions once again reflect a constructive atmosphere. I feel truly fortunate to work with such capable, mission-focused colleagues who, like me, are determined to enhance the Federal Reserve's current performance. As you all know, the committee decided by a vote of 9 to 3 to maintain the federal funds rate target range at 3.5% to 3.75%.

The committee continues its policy of providing ample reserves to the banking system. Even in the face of some recent shocks, the economy continues to show significant resilience, with a positive trend and demonstrating robust growth. Employment growth is in sync with labor force growth, and there is little change in the unemployment rate. Inflation levels remain elevated relative to the committee's 2% target.

The committee's stance is firm. You have heard this before, but we will achieve price stability. As always, the policy statement states the facts. The statement avoids predictions, and we believe this choice is particularly prudent in the current uncertain period. However, uncertainty does not mean a lack of clarity. For some households, businesses, and market professionals, five years of high inflation has left an indelible misunderstanding that the Federal Reserve's implicit inflation target is somehow above 2%.

Let me reiterate, there is no soft inflation target, no soft implicit target—there is absolutely no possibility of that during 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 entered a new chapter. We understand that inflation above target for over five years cannot be cured in nine weeks or merely by a moderate price decline in a single month. The Federal Reserve will not waver. Our credibility depends on fulfilling our responsibilities and delivering on our commitments. The American people should expect this, as the nation's prosperity relies on it. For the regulars in the press room, today's assessment may sound somewhat familiar.

However, our discussions, our policies, our strategies are not at all habitual. There are two economic developments worth emphasizing. The first is a very significant change since our last meeting 42 days ago. Both nominal and real yields across the entire Treasury yield curve have risen significantly. In fact, during the two FOMC meetings, some of the increases in market interest rates are among the most significant in the past twenty years, ranking roughly in the highest decile.

But if the committee did not change the policy rate, what happened during the meeting? The market's attention has focused on real data and real economic developments. Prices have reacted in real-time to incoming information, and the reduction in forward guidance may be one factor. Market participants are learning to follow the ball rather than 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, central banks do not always have to be the center of attention. I understand the committee's desire for rolling forecasts and commentary, but for us, we need to observe the market's direct, unfiltered response to developments. Of course, I want to emphasize that the committee's decisions are crucial. When necessary and appropriate, we will act without hesitation.

The second economic development—one I mentioned at this month's congressional oversight hearing but is worth repeating—is the strong growth of corporate investment, which is the most significant feature of the economy. The surge in high-tech capital expenditures is noteworthy. However, this does not necessarily make the Federal Reserve's role easier. In the categories of high-tech equipment and software related to artificial intelligence, the latest data shows that the growth rate over four quarters is close to 20%. This helps maintain the healthy momentum of manufacturing output. More broadly, capital expenditures are laying the groundwork for future growth. Nevertheless, the exact timing and magnitude of the supply-side impacts remain difficult to predict.

The FOMC meeting produces policy decisions, but it is equally important to have candid discussions about the most significant big questions. This is also a priority in the Federal Reserve's new chapter. In our meetings, intense discussions focused on four issues, which I will list one by one.

First, we discussed extensively the impact of high inflation over the past five years on the current policy situation. To borrow an old saying, has the past really passed?

Second, my colleagues and I considered the economic shocks in recent years: supply chain tensions caused by the pandemic, military conflicts, energy supply disruptions, significant increases in tariff rates, and yes, the surge in AI-related investments. These shocks come from different sources; do they also have different impacts on output and employment?

Third, we discussed the issue of price increases related to these shocks. For example, the surge in corporate capital expenditures is driving up the prices of memory and logic chips and related AI infrastructure. Do these changes indicate broader inflation dynamics? Or are we only paying attention to them because we are in the spotlight?

Finally, we discussed monetary policy tools and strategies. If, as the Federal Reserve has long held, interest rate policy should be its primary monetary policy tool, then how much accommodation have we gained from the balance sheet to achieve price stability? Our work at the Federal Reserve is progressing. We are asking the right questions. At this critical time, we are acutely aware of the importance of getting the right answers. Of course, you all came with your own questions.

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Q&A Session

Questioner 1: Let's start the questions now. We'll begin with Steve. Thank you for answering our questions, Mr. Chairman. Okay. You have been in office for a few months or nine weeks, however long it has been, observing the market operating without forward guidance. I wonder if you could tell us what information you are getting from the market about where policy should be?

Waller: Yes, so I would formally say it has been 8 weeks and 4 days, but I am not counting the market's conveyed information. The information the market conveys is… Steve, what I have really been trying to do, and I think you and your colleagues understand, is to obtain unfiltered information from the market, to get direct information that allows buyers and sellers to transact on Treasury prices, the value of the dollar in foreign exchange, and then we judge for ourselves what that means for our responsibilities. How are we doing on inflation? How are we doing on employment?

We are trying not to interfere with that market signal, which is also part of the reason we have been more restrained in our wording and have stepped back from forward guidance. So they are reacting to events, and I would say that in the 42 days since we last met, the reactions have been much more direct. This is a good thing. As I mentioned in my prepared remarks, we have seen significant tightening in both nominal and real rates. We are observing it. We are trying to stay out of it, because many of you may be interested in our reaction function, while we are interested in the financial market's reaction.

Questioner 1: I understand, Mr. Chairman. I would like to follow up and ask, if the market is talking to you, what are you hearing them say? If real rates are higher, does that imply the federal funds rate should be raised? Yes. So, um… Sorry, that's your question.

Waller: So, interpreting the market is not easy. We central bank officials, like market professionals, feel that these factors are over-determined. But let me make some speculations first. As we stated in the FOMC statement released at 2 PM, economic output is robust, capital expenditures and productivity are strong, and the labor market is healthy and stable. The bond market, the Treasury market, seems to be expressing the same thing. If I were to try to break down the signals from the Treasury market, I cannot 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 did not do much in 42 days, the market did quite a lot.

Questioner 2: Claire Jones, Financial Times. It seems you got the family debate you wanted at this meeting. We saw it; we saw three dissenting votes. Can you describe the arguments made by those dissenters? And please tell us why you were not swayed by them at this stage. Thank you. So, I guess I shouldn't give you their best arguments. I'll give you some other ones.

Waller: You're right. I asked for a good family debate, and I got it. That is the purpose; that is the design feature. I came to this meeting, and even this press conference, buoyed by the experiences of the past two days. Most of our discussions focused on the big questions that are crucial for the implementation of monetary policy. We did not shy away from them. We are not afraid of them. The interactions among my colleagues were much more extensive. This was a real family debate. My point, which you have heard before, is that this is a better way to formulate the right policy. This is our North Star.

So, I heard a lot of consensus. We have the power, tools, and authority to achieve price stability. There is no retreat from our responsibilities. The decisions made in the room received overwhelming support. But Claire, I also want to leave you with another impression. That discussion had no inertia. It was a positive, vigorous discussion about all the things we can do and might want to do in the future. You accurately described the divergence of opinion on a decision today. I think that does not fully capture the essence of the discussion. The road to central bank heaven requires us to fulfill our mission. Today, that means achieving price stability. I will not measure that road by 42 days or any specific meeting. I am more convinced after that meeting that this is the right team to defeat high inflation.

Do you think the lack of action in July was largely due to the mild CPI data in June? In two words, not much. Not much. I would like to believe that the committee agrees with my view that the historic issue of data dependence lies in the data and the dependence itself. We are not relying on any single data point as a cover, excuse, or validation. What I care about, and what I believe the committee cares about, is the trend of the data. Of course, we have received some encouraging inflation data.

I think at the meeting 42 days ago, I said something like "63 months of inflation above target." However, I did not say 64 months. The final calculation may be very close. So we will focus on inflation data for a while. But I also do not want to leave you with the wrong impression that we are holding our breath waiting. I have convened a working group to re-examine the private and public data we use for decision-making. That working group is underway. I will communicate with them again in the coming weeks, but I will not say we are overly reliant on any single data point, including the one that surprised some people a few weeks ago.

Questioner 3: Chairman Waller, thank you. I am Neil Irwin from Axios, and I appreciate you answering our questions. So the federal funds rate is now about 75 basis points lower than the two-year Treasury yield. This suggests the market believes you will ultimately have to tighten, about 100 basis points lower than most Taylor rule estimates. You are achieving your employment mission. Inflation remains high. Why shouldn't rates be higher now?

Waller: Neil, your question contains a lot. So the current rates are higher than they were 42 days ago. The market has made a judgment because we have partially stepped back from trying to influence those market judgments, and nominal rates across the entire Treasury yield curve have risen. This does not mean we accept their directives, but we are observing them. So, to say the market has not reacted because we did not act today is a misunderstanding.

The market is reacting in real-time. In the coming period, we have important decisions to make regarding the policy rate. During this time, I believe the market also has many decisions to make. Let me see if I can say it this way: the importance of monetary policy is not just in what we say, and not even just in what we do. The importance of monetary policy lies in how it affects the real economy, and the prices we see in the financial markets are one of many pathways. We will continue to pay attention to this market information and observe its response to incoming events, which will help us make decisions when we meet in seven or eight weeks.

How would you describe the situation among you and the other eight members who wanted to keep rates unchanged during the family debate in the past few days? Was it a firm belief, or was it a state of being on edge? Is maintaining versus tightening a close decision?

Waller: Well, I think, you know, the vote was 9 to 3. From my perspective, the broader discussions over the past few days, on the four difficult questions I initially raised about what is really happening in the economy, whether there are shocks, our tools and capabilities, and the impact on prices and output, showed a lot of consensus.

I heard a lot of common ground on the issues. Are there different emphases in the answers? Of course. So will people draw different conclusions? Absolutely. But my own judgment is that this is a time for vigilant thinking, not vigilant waiting. I believe the scoring on that vote was consistent.

Questioner 4: Thank you. Colby Smith, New York Times. You mentioned that examining the Federal Reserve's policy tools is part of a three-pronged strategy to address inflation. So I am curious about how you view the effectiveness of these tools.

Waller: If inflation is too high and does not fall, the best remedy is to raise interest rates. So, that has been the discussion over the past two days: if inflation remains high during the forecast period, interest rates are likely to be part of the solution.

But I would not say this is isolated. I am trying to describe a point I made to the oversight committee a few weeks ago in my remarks today. I think some people have misunderstandings, including some in the financial markets, some households, and businesses. They think that central bank officials like me say we have a 2% inflation target, but perhaps we are more tolerant of slightly higher inflation targets. In economics, we call this "explicit preference." So, do people have reason to believe their inflation target is a bit higher?

What I have heard over the past two days, what I have heard over the past eight and a half weeks is: no. We will achieve the 2% inflation target, which is the committee's definition of price stability. Therefore, one way to ensure we achieve our target without the tools you mentioned is to ensure expectations are centered around the right number. I believe we have made some progress in this regard. I am not saying we are done. It is worth reiterating. Ultimately, Colby, the business we are in is performance. People will judge us based on our performance, and that is what we intend to do. Clarifying inflation target expectations is part of that, and ensuring we show we are accountable for it, rather than blaming others, is another part.

Questioner 4: And our policy tools, like you mentioned, are the third equally important part. Given that the statement again mentions that a significant portion of the inflation overshoot is caused by supply shocks, does this weaken the effectiveness of rate hikes? First, starting with the premise of your question.

Waller: It is as if you have been listening to our discussions over the past day and a half; a large part of our focus has been trying to understand and identify the potential inflation dynamics in the shocks.

We take these shocks seriously. A series of shocks have been affecting this economy, and we are not ignoring them, saying they are not important, but rather trying to understand the extent to which the impacts of these shocks are expanding and how much they affect prices that have not yet been directly impacted. Our goal is to achieve broad-based growth with more limited, more controlled inflation.

I first acknowledge that the shocks make policy work during this period more challenging, but that is also one of the main questions we ask ourselves, and people in the room have different views on this. I believe that in the coming months, we will refine this perspective and make better judgments. We will also let market prices help provide information.

Questioner 5: Thank you, Mr. Chairman. Edward Lawrence from Fox Business. I want to delve deeper into this. Specifically, in your view, what is the rationale for pausing (rate hikes) today? So, I would not describe our actions today as similar to a pause. I would describe our actions as a rigorous examination of the economic situation. I would describe our actions as a review of significant challenges and as a reflection on our own homework in hopes of addressing these issues in the future. If you had to describe this as a pause, I would say financial market prices would hold the opposite view. Financial market prices did not pause during this meeting break. They reacted in one direction to inflation data and in another direction to strong economic growth, with both nominal and real rates rising. Did the Federal Reserve change the policy rate today?

Waller: No, but I think that is the beginning of the story, not the end. If I may, I do want to ask, not about forward guidance, but looking ahead. Traditionally, the Federal Reserve Chair uses the Jackson Hole summit to reset monetary policy. How do you view the speech you will give in August? I now view it as a blank slate.

I have not yet begun discussions with the excellent team here about the content of that document. I think your description of history is correct, at least from the time I first served at the Federal Reserve to the recent period. It tends to be a speech that sets the tone, mostly about what will happen in the fall. I have not made any judgments about that yet, but those judgments must be made. If possible, in the high mountain air of Jackson, Wyoming.

I also want to frame the big questions. There is a tendency, especially as meetings and press conferences increase, to become shortsighted, getting caught up in whether you raised by a quarter point, did that.

Ultimately, whether we achieve price stability depends on some decisions we make over a six, seven, or eight-week cycle. But they are more important. What are the big questions? What has happened to productivity? What has happened to demographics? What has happened to the global economy in the shocks? I have not decided whether this will be a big-picture speech or a more traditional setup for all actions we will take from September to December.

I will tell you another thing I want to do before Jackson Hole. I am communicating with those working groups. The first principle of establishing working groups is to find the best subject matter experts in the world and bring them together, especially to have them interact with those who may hold differing opinions. In the coming weeks, I will conduct follow-ups. I have given them time to seriously consider their agenda, debates, timelines, and when they can be ready. I will do some follow-ups like that, which may or may not influence what I say in Jackson.

Questioner 6: Nick from The Wall Street Journal. Chairman Waller, I want to follow up on Colby's question about policy transmission. You have said there is no cruel choice between stabilizing prices and full employment. Rate hikes reduce inflation by cooling demand. It is generally believed this will manifest in the labor market. If this is not the channel you rely on…

Waller: What is? Yes. So let me return to the basic principles, Nick. I do not believe any part of our mission is typically at odds with another part. I do not believe price stability and full employment are a either-or proposition. Some decision-makers over the past few generations have believed there is a strict trade-off. That is not my judgment.

In fact, my judgment is that if we achieve our mission, we will satisfy both aspects simultaneously. We will have price stability and full employment. In fact, if you want to cause the most harm to the labor market, you would go through a period of high inflation and volatility that leaves employers and businesses bewildered. So I believe both parts of our mission are equally important. There are no legislative orphans here.

I talk most about price stability because we, as a nation, as decision-makers, are doing quite well on full employment overall, but we are doing much worse on prices. That is why we describe it as "elevated," and it is also the main content of our discussions about the transmission mechanism of monetary policy. I believe different tools work through different transmission mechanisms. Interest rates work through loan channels, credit channels, perhaps confidence channels, and foreign exchange channels. The balance sheet may work through signaling and asset portfolio balancing and other channels. We take all these tools into account when formulating policy. But if it implies that we will…

Fine-tune total demand to catch up with supply, that is not my mindset. I believe we are not good at fine-tuning. We try to keep total supply and demand roughly balanced. But really, when we sit here today at this press conference, I believe we have a reasonable understanding of what total demand looks like in this economy. We are inferring total supply. We are making judgments about productivity. In a sense, there is a race between supply and demand, and the surge in corporate capital expenditures around artificial intelligence makes this calculation more difficult to assess. But in the coming period, we will strive to make that judgment.

Questioner 6: If I may ask, where exactly are the divergences today? Is it about inflation forecasts? Or more about risks and strategies?

Waller: Yes, so I will let the dissenters speak for themselves. In my sense over the past two days, there is overwhelming consensus on targets, powers, and commitments. I did not hear anyone retreating. The judgment on how best to achieve price stability may be the question we are trying to answer. What is the best move? What is the best strategy? What is the best way to achieve it? The second question being asked is, when do we need to make those tougher decisions? When do we need to make those decisions? As I said to one of your colleagues, I am comforted by the fact that the market is not reacting to us during the meeting break. They are not reacting to the dot plot or speeches. They seem to be reacting more than ever to real-time events. So they are measuring for themselves how restrictive the Treasury curve should be. I think this is a beneficial development. We do not endorse any specific market trend, but I will also say that we are observing them with great interest.

Questioner 7: Janelle Marty from Bloomberg, following up on that question. There is more uncertainty in the market about what action the Federal Reserve will take at this meeting. To some extent, you might think that is exactly what you want to see. But my question is, is there a situation where if the market prices something contrary to your intentions with greater certainty, you would not want to surprise them?

Waller: What is the risk related to that you see? Yes, that is a good question. Surprises are not the objective function. Surprises are not the problem we are trying to solve. We have a clear North Star. What we are trying to solve is how to make the best decisions. Almost everything else should serve that goal. By not feeding the market, not previewing our decisions, not giving hints and leanings, my colleagues and I have found during the meeting break that we are getting views from very accomplished economists within the financial markets, not just repeating or echoing what we say to them. They are giving us their own judgments, though imperfect. So surprises are not the goal. But at the same time, I want to say that we do not feel bound by all the options available to us in this meeting.

Questioner 7: So, some of your colleagues are continuing to discuss how they view policy decisions. If you do not provide your reaction function or your way of thinking, how concerned are you that you are losing narrative control? So, not too worried. That is a short answer to that question.

Waller: When some who focus on the Federal Reserve say, we do not want your predictions, we do not want your dot plot, we just want your reaction function. A part of me thinks, what we really want is your predictions. What we really want is your dot plot on the reaction function.

Let me correct a possible external issue that may or may not exist. Any central bank official, especially one whose labor market is roughly in equilibrium, when he or she sees potential inflation rising, is more inclined to tighten policy. Similarly, when you achieve the other side of your mission and see potential inflation declining, you are more inclined to loosen policy.

That is my reaction function, and I doubt that will stop people from continuing to inquire more because the fact is, for a long time, in many countries after the 2008 crisis, we have been in crisis mode. We have deliberately provided a lot of information, trying to provide a lot of assurances, trying to accurately tell people what we are going to do, providing clear forward guidance, as if we were tying our own hands.

In crisis mode, in my view, this is very prudent policy. But under more benign conditions, I think it is worth re-examining. But the market and market participants and reporters have learned to digest all this information. So I take seriously that withdrawing forward guidance requires some transition. Reform is not easy. But our general judgment will help us make better decisions to fulfill our mission.

Questioner 8: Thank you. When you talk about the 2% inflation target, what measure are you relying on?

Waller: Yes, so I will give two answers. First, let me give the formal standard answer. The Federal Reserve releases a statement on its objectives and strategies every January. In that strategy document, I believe the date is this January, it describes using the personal consumption expenditures inflation measure as the target function. There it is. I have enough of my… so that is our number. We stick to it.

Who knows what we will say about strategy after next January. I suspect the working group may have supplements. But I want to say that 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 how those measures align with our targets, we may make them no longer good measures or good targets.

Overall, if you stand in front of me and say, I fully adhere to the strategy document, we will achieve 2% inflation, not a bit more. But to achieve that, I am watching a broader range of inflation data than just personal consumption expenditures. So, without fully laying it all out.

I am trying, like my colleagues, to understand the broad, universal price changes occurring in the economy. This is not a perfect science. I may have said 42 days ago that I have a working group responsible for this, but we have a data project that is trying to see if we can separate signal from noise. So if you hear a message from me, yes, I care about what the personal consumption expenditures data is, I care about the contributions of CPI and all other indicators, but my view is broader than this, even though the mission is quite narrow.

Questioner 9: Michael Mckee from Bloomberg Television. I am a bit puzzled by some of the things you said today; perhaps you can help clarify. You repeatedly said your job is to lower prices, stabilize prices, achieve your goals, and you will achieve your goals. The market says you are not there yet because they have raised rates, but what you talked about today is merely talking about it. And committee members before you have not been silent about it either. So I think the American people might ask, what are you waiting for?

Waller: So, believe it or not, today's press conference is not all I have done today. Over the past two days, two weeks, we have spent a lot of time examining our monetary policy strategy, assessing our tools. Deeply thinking about the sources of data we have and want to have. We have also deeply considered what will happen in the near future. Among these questions, which will be answered more clearly, of course not with certainty.

So the decision we made today, the discussions we had in that room, are the furthest thing from inertia I can imagine, making a point estimate between two choices at a specific moment. You heard the results. But I will tell you that this discussion was much more intense, and our thinking about how to best achieve that goal is progressing. In the coming months, I expect there will be more significant progress.

If you were to… if I were to steal a follow-up question. Yes, I will not let you… if you do not mind me stealing a follow-up question, well, how does the outside world view what you are doing? I will reiterate that what we are doing is not just about what we say, and not just about what we do. We are about performance. So if I look at the Treasury curve, if I look at the dollar, if I look at many things within the financial markets, I think they broadly say that this committee does indeed have accountability, has the credibility to achieve it, and they believe, like I do, that we will do it. But I do not want to leave you with the wrong impression. We do not have a magic wand. This is not something we can accomplish in days or weeks, but we will fulfill the responsibilities Congress has given us, and today's meeting and the preparations for today's meeting are important steps toward that goal.

Questioner 9: I also want to follow up on the working group question. What review did you do of the people you appointed to the working group, especially considering Mark Anderson's $25 million political donations over the past year to support candidates opposing stricter AI regulation? How can the public be assured that the committee he co-chairs will provide an independent assessment of the economic impact of AI, rather than…

Waller: … aligning with the interests of the AI industry. Yes, so I selected 15 outstanding subject matter experts to tackle the five most important questions, and if we get the right answers, we will do better. If we get them wrong, we will be in trouble.

What I can assure you and your audience is that we are the decision-makers. The Chair of the Federal Reserve Board, the board members, and the FOMC members. We will be the consumers of the output from these five different committees. The judgments we make will reference these external groups, but they will not be determined by them.

The idea behind establishing working groups is to select talented, deeply knowledgeable individuals, and those who have differing views within each committee, so that they can also have family debates.

This is not outsourced to unknown, unvetted individuals. This is to test whether new ideas can catalyze broader, better-informed discussions in the room. I am very confident we will achieve this.

I am impressed with the qualifications of these 15 individuals. Full disclosure, I have known almost all of them for a long time, and I believe they will provide their best insights on this issue. But ultimately, these are decisions we will make, and we are accountable for the mission entrusted to us by our oversight committee and Congress.

Questioner 10: Hello, Anne Sophia from Reuters. It is great to see you again. So I also need a bit of help. You have repeatedly said you have zero tolerance for inflation, yet we have seen inflation above target for five years, including since you took office. Of course, you do not have a magic wand, but you have not taken action. You also slightly hinted at your reaction function. You said if potential inflation rises, you would tend to think tightening might be needed. Aside from the recent inflation data, that is what we have been seeing. So can you explain what you mean by zero tolerance for inflation and what you plan to do? Of course. So, I hear from households and businesses more broadly that they are impatient, wanting action to be taken quickly. This is not an excuse. This is a fact. This FOMC, this board has been operating for eight and a half weeks. The patience and impatience felt by households and businesses have lasted for 63 months. We are in office. We will achieve our goals. We are laser-focused on ensuring we can do so. But to suggest we can do this with a magic wand, I want to dispel that notion for you and everyone.

But the discussions over the past two days have made me more confident than I was eight and a half weeks ago. This team at the FOMC, the support we receive from board members, and the new challenges we need to address. As we tackle these issues and become wiser on them, we will achieve our mission. You do not have to take my word for it. If you look broadly at market prices, they are certainly not saying everything is clear, but they are working in concert to keep us alert, and they have tightened financial conditions during this meeting break, which gives us…

Questioner 10: … that gives us some comfort that we have the ability and means to achieve our goals. So, your interpretation, or I guess your trust in your ability to make judgments about the market and then derive signals from that judgment, how does that affect your decision-making and thinking as you enter the September meeting, where the market sees the likelihood of a rate hike as close to 100% (as they do now)? So we will not be…

Waller: … constrained by market prices; we will not be bound by them, nor will we mimic market behavior, but I think it is useful and understandable that the market can be a very good source of information, not a decisive source, not a perfect source. But if we are trying to achieve a soft landing and 2% inflation, we are using a very useful source of information, yet muddied by giving our own forecasts and providing rolling commentary.

I can assure you that we will have less information, less ability to successfully land and achieve price stability. We are just trying to ensure that source of information is as direct and unfiltered as possible. This does not exclude data sources, opinions, and other surveys. But if you hear from me that we want to ensure we obtain better sources of information, I believe we are doing that in a relatively short time.

Questioner 11: We will ask Brian Chung to ask the last question. Hello, Chairman Waller. Brian Chung from NBC News. You have said that when there is news to be released, you would be willing to hold a press conference. So today, with rates unchanged and no forward guidance for ordinary households, I want to ask, what is the news today?

Waller: So, obviously, I held a press conference, which is the news. Let me see if I can clarify this. From now until the end of the year, my predecessors and the Federal Reserve have committed to this year's press conferences. I have committed to this year's press conferences, which may be news for those present, but nothing particularly interesting.

For your viewers and readers at home, I can assure you that the Federal Reserve is paying attention to this matter, and this Federal Reserve Chairman feels better about the board and committee's ability to achieve our goals than I did on my first day in office. And I was already quite confident when I came in. I am encouraged by the welcome I have received. Undoubtedly, in some of your comments today, you will talk about a divided Federal Reserve. Well, that is not what I have felt over the past few days and the days before.

What I feel is a group of professionals, each with different perspectives, views, and judgments, but eager to roll up their sleeves for family debates, eager to reform the way the Federal Reserve formulates policy, filled with enthusiasm, open-mindedness, and curiosity. So we have… a better chance to fulfill the mission entrusted to us by Congress. So I want to leave you with the optimism of a new central bank president, that we are as committed as ever to achieving our goals and assure you that we will do so. Thank you all very much.