Jerome Powell LIVE: US Federal Reserve chair delivers remarks

Summary

Highlights

• Powell emphasizes keeping long-term inflation expectations well-anchored despite current economic challenges. 🎯
• The Fed closely monitors tariffs' impact on inflation and growth, presenting challenges in policy-making. ⚖️
• Powell reassures that while volatility is present, financial markets are orderly and functioning as expected. 📈
• Emerging technologies like AI could significantly impact the economy, with uncertain effects on employment and productivity. 🤖
• Federal Reserve independence is crucial, and Powell stresses it remains free from political pressures in its decision-making. 🛡️

Key Takeaways

• Jerome Powell discusses the dual mandate of the Federal Reserve: maximum employment and stable prices.
• Despite economic uncertainties, Powell asserts the U.S. economy remains strong, with a robust labor market. 💪
• Inflation has decreased but remains slightly above the Fed's 2% target. 📉
• Tariff changes and their potential impacts on inflation and growth are a major concern for the Fed. 📊
• Powell emphasizes the significant role of uncertainty in policy-making, affecting investments and economic decisions. 🤔

Overview

Chapters

• 00:00 - 02:00: Introduction and Opening Remarks The chapter titled 'Introduction and Opening Remarks' begins with a welcome and an introduction to the Economic Club of Chicago program. The greeting is extended by Deborah Cafero, past chair of the club, who warmly welcomes everyone to the event, highlighting the large turnout.
• 02:00 - 03:00: Introduction of Dr. Ragu Rajan The opening of the chapter highlights the significance and timeliness of the event, referencing the audience both in person and virtually. It introduces the featured speaker, Jerome Powell, Chair of the Federal Reserve System, emphasizing the special nature of the day.
• 03:00 - 05:00: Introduction of Jerome Powell The chapter introduces Jerome Powell, providing the context of a live broadcast event where attendees are asked to remain seated and quiet to benefit fully from Chair Powell's remarks. The introduction is made by Austin Goolsbee, President and CEO of the Federal Reserve Bank of Chicago, who is described as a renowned economist and fellow ECC member.
• 05:00 - 06:00: Jerome Powell's Opening Remarks The chapter titled "Jerome Powell's Opening Remarks" does not contain any meaningful content in the transcript provided. It only includes music notations and lacks substantive dialogue or information pertinent to the chapter's title.
• 06:00 - 09:00: US Economy Overview Chapter 1: US Economy Overview Summary: In this chapter, the focus is on Dr. Ragu Rajan, a distinguished professor at the University of Chicago Booth School of Business. Dr. Rajan is renowned for his expertise in banking, corporate finance, and economic development. He is an acclaimed author, having won numerous awards including the Fiser Black Prize, awarded to the top financial researcher under the age of 40. The chapter likely discusses his contributions and insights into the US economy, leveraging his deep knowledge and research in these fields.
• 09:00 - 13:00: Inflation and Policy Changes The chapter opens with an introduction to a renowned economist, who has held significant positions such as the 23rd governor of the Reserve Bank of India and chief economist at the International Monetary Fund. A member of the group of 30, he is recognized for his contributions to the Financial Times and his extensive discussions on economic and financial topics, setting the stage for his insights on inflation and policy changes.
• 13:00 - 20:00: Labor Market and Immigration The chapter titled 'Labor Market and Immigration' features a speech by Jerome Powell, the 16th chair of the Board of Governors of the Federal Reserve System. Powell, as the head of the US Central Bank, plays a key role in shaping the country's monetary policy, overseeing significant financial institutions, and ensuring economic and financial stability. The transcript begins with an introduction to Powell's position and responsibilities.
• 20:00 - 25:00: Uncertainty and Investment The chapter discusses the tenure and challenges faced by Chair Powell of the Federal Reserve.
• 25:00 - 34:00: Financial Markets and Fed's Role This chapter discusses the pivotal role of financial markets in the economy and explores the influence and responsibilities of the Federal Reserve (Fed), particularly during recent challenging times such as the pandemic, inflation struggles, and bank instability. It highlights the leadership qualities of Chair Powell, describing his tenure as a steady and great one due to his adept handling of various crises. Prior to his role at the Fed, Powell's career included being a visiting scholar at a bipartisan policy center in Washington, D.C., and serving at the Treasury Department under President George H.W. Bush.
• 34:00 - 37:00: International Dollar-based System The chapter discusses Chair Powell's extensive career, touching on his public service in the financial sector and various board memberships. It highlights his roles outside public service, such as being a lawyer, investment banker, and partner at the Carile Group. Powell also served on corporate, charitable, and educational institution boards, including the Bendum Center for Finance at Princeton and the Nature Conservancy in DC and Maryland, emphasizing his roots as a DC native.
• 37:00 - 41:00: US Fiscal Situation The chapter discusses the US fiscal situation. The content appears to introduce an individual with notable academic credentials from prestigious universities, including a BA in politics from Princeton and a law degree from Georgetown University, where they served as editor of the Georgetown Law Journal. This individual, Chairman Jerome Pal, is being welcomed to the Economic Club of Chicago.
• 41:00 - 46:00: US Financial Sector Stability The chapter begins with a speaker expressing gratitude for being back in Chicago and acknowledging a kind introduction from Austin, setting the stage for a discussion with Professor Rajan Ragu. The speaker intends to first provide an overview of the economic outlook and monetary policy, emphasizing the Federal Reserve's focus areas.
• 46:00 - 53:00: Technological Change and Cryptocurrencies This chapter discusses the dual mandate goals assigned to Congress, focusing on maximum employment and stable prices. Despite facing heightened uncertainty and downside risks, the US economy maintains a strong position. The labor market is close to maximum employment, and although inflation has reduced significantly, it remains slightly above the 2% target. The chapter also mentions the anticipation of the initial GDP reading for the first quarter.
• 53:00 - 56:00: AI and Its Impact on Economy The chapter discusses the impact of artificial intelligence on the economy, focusing on recent data that indicates slowed economic growth in the first quarter of the year compared to the previous year's solid pace. Despite strong motor vehicle sales, overall consumer spending has only grown modestly. Additionally, strong imports during the first quarter, driven by businesses' attempts to preempt potential tariffs, are expected to negatively affect GDP growth. Surveys of households and businesses indicate a significant decline in sentiment and increased uncertainty about future economic conditions.
• 56:00 - 63:00: Role and Thoughts of Federal Reserve Chair The chapter titled 'Role and Thoughts of Federal Reserve Chair' outlines the current economic outlook, which is heavily influenced by trade policy concerns. External forecasts are being revised downward, indicating slowed yet still positive growth. The chapter emphasizes the Federal Reserve's vigilant monitoring of incoming economic data as households and businesses adjust to these changes. It specifically highlights the labor market, noting a growth of an average of 150,000 non-farm payroll jobs per month in the first quarter of the year.
• 63:00 - 73:00: Fed Independence and Legislative Influence The chapter discusses the current state of economic growth, noting a slowdown compared to the previous year. Despite the slowdown, low layoff rates and slower labor force growth have contributed to maintaining a low and stable unemployment rate. The ratio of job openings to unemployed individuals remains slightly above one, close to its level before the pandemic. Additionally, wage growth, although moderate, continues to exceed the rate of inflation. The overall assessment is that the labor market appears stable.
• 73:00 - 81:00: Personal Insights and Closing This chapter highlights that the economy is stable and not contributing significantly to inflation. Inflation has notably decreased from the mid-2022 pandemic highs. This reduction has been achieved without a considerable rise in unemployment, a common consequence in attempts to decrease high inflation. The chapter notes that progress on reducing inflation is ongoing, albeit slowly, with recent data affirming this trend.

Jerome Powell LIVE: US Federal Reserve chair delivers remarks Transcription

• 00:00 - 00:30 everyone once again please welcome past chair of the club Deborah Cafero Thank you Greetings I want to warmly welcome you to today's Economic Club of Chicago program The overflow group that we have here in
• 00:30 - 01:00 the room in Chicago and the countless others joining us virtually from around the country are a testament to the importance and the timeliness of today's topics and speaker Today we have the great privilege of hearing from the Honorable Jerome Powell chair of the board of governors of the Federal Reserve System Today's a little special So out of respect for our speakers and because
• 01:00 - 01:30 we're broadcasting this program live I would ask that you please remain seated and quiet during the program so that we all can gain the full benefit of Chair Powell's remarks And now it's my pleasure to welcome my friend Austin Goulsby the president and CEO of the Federal Reserve Bank of Chicago a renowned economist and our fellow ECC member Austin take it
• 01:30 - 02:00 away [Music] [Music]
• 02:00 - 02:30 the University of Chicago Booth School of Business Dr Ragu Rajan the Katherine Dusk Miller Distinguished Service Professor Um he is a world expert on banking corporate finance economic development author of numerous award-winning books was himself as a scholar winner of the Fiser Black Prize which goes to the greatest financial researcher under age 40 He's since over
• 02:30 - 03:00 age 40 but he was the inaugural winner He is a member of the group of 30 and he was the 23rd governor of the Reserve Bank of India and before that chief economist and director of research at the International Monetary Fund You probably know him as a regular contributor to the Financial Times He speaks extensively on economic and financial issues Please give a warm welcome to Professor
• 03:00 - 03:30 Rajan And then our featured speaker will be Jerome Powell the 16th chair of the board of governors of the Federal Reserve system As head of the US Central Bank as you know Chair Powell plays a crucial role in the country's monetary policy oversees major financial institutions and maintains economic and financial stability in this country He was first appointed as a board member of
• 03:30 - 04:00 the Fed by President Obama in 2012 He was subsequently elevated to chair of the Fed by President Trump in 2018 and then renominated to his post by President Biden in 2021 He has been he has the respect of members of both parties and I believe that no one as Fed chair has ever had to deal with more and varied challenging issues than Chair Powell has had to deal
• 04:00 - 04:30 with From the pandemic to fighting inflation to bank runs and on and on Um he his leadership at the Fed has been a steady hand and one of the all-time greats Before coming to the Fed Chair Powell was a visiting scholar at the bipartisan policy center in Washington DC He first entered public service at the Treasury Department under President George HW Bush with responsibility for
• 04:30 - 05:00 financial institutions the Treasury debt market related areas Outside of public service Chair Powell has worked as a lawyer an investment banker and been a partner at the Carile Group In addition to his service on corporate boards he served on boards of charitable and educational institutions including the Bendum Center for Finance at Princeton and the Nature Conservancy of Washington DC and Maryland He is a DC native
• 05:00 - 05:30 received a BA in politics from Princeton and a law degree from Georgetown University where he was editor of the Georgetown Law Journal Please welcome to the Economic Club of Chicago again Chair Jerome Pal
• 05:30 - 06:00 Thank you and good afternoon It's great to be back in Chicago Um and thanks for that kind introduction Austin Um so I'm I'm looking forward to our conversation my conversation with uh Professor Rajan Ragu But first I'll briefly discuss the outlook for the economy and monetary policy So at the Fed we are always focused on
• 06:00 - 06:30 the dual mandate goals that Congress has given us maximum employment and stable prices Despite heightened uncertainty and downside risks the US economy is still in a solid position The labor market is at or near maximum employment Inflation has come down a great deal but is still running a bit above our 2% objective Turning briefly to the incoming data we'll get the initial reading on first quarter GDP in a couple of weeks The
• 06:30 - 07:00 data we have enhanced so far suggests that growth has slowed in the first quarter uh of this year from last year's solid pace despite strong motor vehicle sales Overall consumer spending appears to have grown modestly In addition strong imports during the first quarter reflecting it reflecting attempts by businesses to get ahead of potential tariffs are expected to weigh on GDP growth Surveys of households and businesses report a sharp decline in sentiment and elevated uncertainty about
• 07:00 - 07:30 the outlook largely reflecting trade policy concerns Outside forecasts for the full year are coming down and for the most part point to continued slowing but still positive growth We are closely tracking incoming data as households and businesses continue continue to digest these developments in the labor market During the first three months of this year non-farm payrolls grew at by an average of 150,000 jobs per month While job
• 07:30 - 08:00 growth has slowed relative to last year the combination of low layoffs and lower labor force growth has kept the unemployment rate in a low and stable range Meanwhile the ratio of job openings to unemployed job seekers has remained just above one near its preandemic level Wage growth has continued to moderate while still outpacing inflation Overall the labor market appear appears
• 08:00 - 08:30 to be in solid condition and broadly in balance and is not a significant source of inflationary pressure As for our price stability mandate inflation has significantly eased from its pandemic highs of mid 2022 without the kind of painful rise in unemployment that has frequently accompanied efforts to bring down high inflation Progress on inflation continues at a gradual pace and recent readings remain
• 08:30 - 09:00 above our 2% objective Estimates based on the most recent data from last week show that total headline PCE prices rose 2.3% over the 12 months ending in March and that excluding the volatile food and energy categories core prices rose 2.6% Looking ahead looking forward the new administration is in the process of implementing a sub substantial policy changes in four distinct areas Trade
• 09:00 - 09:30 immigration fiscal policy and regulation These policies are still evolving and their effects on the economy remain highly uncertain As we learn more we will continue to update our assessment The level of tariff increases announced so far is significantly larger than anticipated and the same is likely to be true of the economic effects which will include higher inflation and slower growth Both survey and market-based
• 09:30 - 10:00 measures of near-term inflation expectations have moved up significantly with survey participants pointing to tariffs Survey measures of longerterm inflation expectations for the most part appear to remain well anchored as well Market-based break evens continue to run close to 2% So as we gain a better understanding of the policy changes we'll have a better sense of the implications for the economy and hence for monetary policy Tariffs are highly likely to
• 10:00 - 10:30 generate at least a temporary rise in inflation The inflationary effects could also be more persistent Avoiding that outcome will depend on the size of the effects on how long it takes for them to pass through fully to prices and ultimately on keeping longerterm inflation expectations well anchored Our obligation is to keep longerterm inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an
• 10:30 - 11:00 ongoing inflation problem As we act to meet that obligation we will balance our maximum employment and price stability mandates keeping in mind that without price stability we cannot achieve the long periods of strong labor market conditions that benefit all Americans We may find ourselves in the challenging scenario in which our dual mandate goals are in tension If that were to occur we would consider how far the economy is from each goal and the
• 11:00 - 11:30 potentially different time horizons over which those respective gaps would be anticipated to close As that great Chicago Ferris Buer once noted life moves pretty fast For the time being we are well positioned to wait for greater clarity before considering any adjustments to our policy stance We continue to analyze the incoming data the evolving outlook
• 11:30 - 12:00 and the balance of risks We understand that elevated levels of unemployment or inflation can be damaging and painful for communities families and businesses We will continue to do everything we can to achieve our maximum employment and price stability goals Thank you and I look forward to our discussion [Applause]
• 12:00 - 12:30 Thank you very much Chair P uh for those remarks I look forward to your elaborating on them in the course of the next 40 minutes or so I understand last time you were here Melody Hopson interviewed you Well I'm a po poor substitute but I'll try and compensate in the quality of the questions Um as you repeatedly emphasize communication and transparency are very important for the Fed Um I would like to get more uh
• 12:30 - 13:00 from you on some of what you just said As a former central banker the only uh sort of caution I've been given by the economic club is to not lapse into central bank speak So I'll try my best not to do that Um let me start by saying you've guided the Fed through some really difficult events including the pandemic the dash for cash in March 2020 the great inflation the banking crisis
• 13:00 - 13:30 centered around Silicon Valley Bank and then over the course of the last year we've seen a growing possibility of a Fed engineered soft landing And now it seems like everything has changed In the course of a couple of months JP Morgan has shifted to estimating the probability of a recession this year at around 60% What do you think about all this well um first of all thank you for for
• 13:30 - 14:00 being here today It's it's a pleasure to be here with you Actually the speech I the appearance I did here was my very first appearance as chair seven and a half years ago So it it's great to be back And I would agree with you that it's been an eventful seven years Um putting it putting it mildly I keep waiting for the 3 months of calm you know that never comes But to your question um I guess to set the stage let's look back at 2024 2024 was a year where the economy grew 2.4% Unemployment
• 14:00 - 14:30 remained in the low fours close to mainstream estimates of maximum employment and inflation came down and was running at the end of the year around 2 and a.5% That's the economy that we had and I I won't uh decide how to characterize that but that was that's that's where things were Where we are now again to your question is um the administration is as I mentioned in my remarks is implementing significant policy changes and particularly trade now is the focus and the effects of that
• 14:30 - 15:00 are likely to move us away from our our goals So um unemployment is likely to go up as the economy slows in all likelihood and inflation is likely to go up as tariffs find their way and some part of those tariffs come to the um come to be paid by the by the by the public So that's the strong likelihood and you know my hope is that we'll we'll we'll get through this and get back We're always going to be aiming for maximum employment and price stability That's what we do I do think we'll be moving away from those goals probably for the balance of this year and then or
• 15:00 - 15:30 at least not making any progress and then we'll resume that progress as we can Let's uh talk a little more about tariffs I mean you recognize that some of the effects of the tariffs will be oneoff transitory but you also have said that perhaps they will give room for a number of firms to raise prices You mentioned dryers when washing machine uh prices went up because of tariffs dryer prices also went up in tandem even those
• 15:30 - 16:00 even though they weren't tariffed What's your sense about the effects of tariffs on inflation what would make them more persistent and uh what would uh you know make them have effects on growth so in a kind of a simple starting point is a a one tariff comes in that gets passed along in prices and raises inflation but it's just a one-time thing So the price level goes up and that's it But that's
• 16:00 - 16:30 and that can happen in some circumstances but it depends on a number of things which we don't know yet And I would point to a couple of them or three of them actually One is just the size of the effects And as I mentioned the um the tariffs are are larger than than forecasters had expected certainly larger than we expected even in our upside case We looked at a range of cases So that's one The second one is how long does it take for the tariffs to have their effects on inflation To the extent it takes longer and longer that that that raises the risks that the
• 16:30 - 17:00 public will begin to experience higher inflation They'll come to expect it and companies will come to expect it So that risks higher inflation Uh and the third is just what I mentioned in my speech which is my remarks which is got to keep inflation expectations well anchored So if we have those those three things under control that that's what it will take and indeed our role is to make sure that a one that this this will be a one-time increase in prices and not
• 17:00 - 17:30 something that turns into an ongoing inflation process That's that's a big part of our job What about the effects of tariffs on quantities uh you know with the level of tariffs that for example have been currently applied on China there's a fear that the supply chain may may get disrupted that firms may not be able to import uh their relevant stuff from China given the level of prices If it turns into a supply shock would the Fed's response be
• 17:30 - 18:00 different than if it was primarily something which affected just prices so I actually had dinner at the Chicago Fed last night and with a number of directors of various parts of the Chicago Fed and many of them are uh CEOs of significant companies and and they um this uncertainty that they're feeling and and the issue with imported components to their products is is just a huge issue But with
• 18:00 - 18:30 um you if you look back at the at the pandemic if you remember there was a short shortage of semiconductors and that led to a shortage of cars at a time of extremely high car demand and it was a prolonged shortage because production couldn't keep up and that led to an extended peri one of the things that led to an extended period of inflation So when you think about supply disruptions that is the kind of thing that can be that can take time to resolve and that can lead uh what would have been a
• 18:30 - 19:00 one-time inflation shock to be extended perhaps more persistent and we would worry about that In this case you can look at the car companies which their supply chains are likely seem to be on track to be disrupted significantly and you would worry that that process will take some years and that the inflationary process might be extended So these are all of this is highly uncertain We're just we're thinking now really before the tariffs have their effects as how they might affect the economy and that's that's why we're
• 19:00 - 19:30 we're we're waiting really to see what the policies ultimately are and then we can make a better assessment of what the economic effects will be Um let's move to immigration You you talked about the labor markets being in reasonable uh equilibrium right now Of course what we've seen over the last few months uh the last uh months of the previous administration continuing into this administration is immigration has fallen off considerably What's your sense on how
• 19:30 - 20:00 that will affect the labor market so what part of why growth was so strong in the last couple of years was just very high levels of immigration and and those people went to work the the economy hired them You know there was a lot of demand we were still working off the labor shortage What's happened since um the prior administration changed their policy as you mentioned uh immigration has fallen very sharply and therefore work work the growth of workers has really stopped It's really
• 20:00 - 20:30 stagnant but at the same time demand has also fallen and so it demand for workers So payroll job creation has also fallen and they've kind of fallen in tandem which is why the unemployment rate has been pretty stable for about a year So uh in a way demand and and coincidentally perhaps to some extent uh demand and supply for workers has fallen in terms of so in terms of the effect on the labor market Um right now we're we're still at full employment uh and um
• 20:30 - 21:00 labor force participation is still strong Wages have moved back down to levels that that are now pretty sustainable given an assumption about productivity So the labor market's in a really good place longer term you know the uh the effects of immigration are not thought to matter much for inflation The effects on demand and supply will more or less uh cancel each other out So we wouldn't expect there to be a big uh impact on inflation Um you've uh seen in recent uh
• 21:00 - 21:30 recent weeks substantial talk about layoffs in government as well as freezes in research establishments and universities in in in jobs um how soon and how big will this be in its impact on labor markets so it's it's too soon to say but what I can say is um of course the people being laid off in government this is highly significant to them We don't know how big that's going to be Um right now it's not big enough to affect a workforce of 170 million
• 21:30 - 22:00 people materially Um in terms of uh the of the cutbacks in funding and for science and things like that um we do see in areas in particularly in cities that have a lot of universities and research hospitals and research institutions we're really hearing significant uh layoffs and you know significant impacts on on employment I don't know how much that will total up to And of course in addition cutting back on scientific research may have
• 22:00 - 22:30 implications for economic growth for productivity for health for all kinds of things but those are very difficult to estimate in real time Now given that uh we're talking about the future you may be confronted in the notsodistant future with both higher levels of unemployment as well as potentially higher inflation And of course uh the policies that each one requires could be different You talked a little bit uh at the podium about how
• 22:30 - 23:00 the Fed would see these two and how it would address it Just giving you a chance again to elaborate on that Right So um most of the time uh when the economy is weak inflation is low and unemployment is high and both of those call for uh lower interest rates to support activity and vice versa So most of the time the two goals are not intention and they're not really intention now The labor market is still strong but the you know the shock that
• 23:00 - 23:30 we're experiencing the impulses we're searing fe feeling are for higher unemployment and higher inflation And you know our our tool only does one of those two things at the same time So it's a difficult place for central banks you know to be in uh in terms of what to do And so we you know the best we can do is we actually have a little provision in our in our consensus statement which is the thing that we we vote on to embody how we approach these questions What we say is we will look at how far
• 23:30 - 24:00 each of the two how far the economy is from each of those two goals and then we'll ask uh might there be different paces at which they would approach those goals We'll look at those things and think about them and we'll make will no doubt be a very difficult judgment Again we're not we're not experiencing that now but we could well be in that situation as I mentioned in my remarks Um just want to pick up on a word that is often used today uncertainty Um as a
• 24:00 - 24:30 respondent to a Dallas Fed survey said I've never felt more uncertainty about my business in my entire 40 plus years career The worry today is not just about immediate policy uncertainty but an entire change in the US's economic philosophy not just policy uncertainty so to speak but structural uncertainty You know one of the effects as as you've pointed out of higher levels of uncertainty is that firms postpone investment Uh for instance even after the tariffs stabilize firms that
• 24:30 - 25:00 contemplate reshoring production facilities will hesitate not knowing if the tariffs will be reversed in the future maybe by the next administration How do you take such longer term uncertainty into account in your policies um it's so let me just uh agree that we're what comes back very strongly and you'll you'll you'll everyone will understand this u these are very
• 25:00 - 25:30 fundamental pol changes in you know longheld in some cases policies in the United States and there's not any real experience I mean the the smooth holy tariffs were actually not this large and they were 95 years ago so there isn't a modern experience of how to think about this and businesses and households are are saying in surveys that they they experiencing incredibly high uncertainty There's a lot of research some of it from the Fed showing that that does lead
• 25:30 - 26:00 uh to businesses and households stepping back from decisions which of course makes makes common sense Um and you know you hope that that's something that you go through a phase and then you then you know what the things become more certain and and therefore uh you know people can resume normal economic activities given their understanding of what is the new normal I mean your question really is what if the if the uncertainty remains high I think that's a difficult environment I think you know I think people's expected rates of return would
• 26:00 - 26:30 have to be higher I think um people would be it would that would weigh on to me investment just in general if if if the United States were to become jurisdiction where risks are just structurally higher going forward that would that would make us less less attractive as a jurisdiction I don't we don't we don't know that at this point but I think that would be the effect Well let me turn to financial markets Uh we've seen some volatility um especially stock vol stock market volatility I mean
• 26:30 - 27:00 the levels of the VIX are up uh to the levels they were in in the early days of the pandemic coming off somewhat now Um some people believe the Fed will intervene if the stock market plummets the so-called Fed put Are they correct i'm going to say no with an explanation So what what I think is going on in markets is
• 27:00 - 27:30 um markets are processing uh what's going on and you know it it's really the policies particularly the trade policy and and really the question is where's that going to come in where's that going to land and we don't know that yet and until we know that you can't really make informed assessments that would still be highly uncertain once you know what the policies are it'll still be highly uncertain the economic effects will be So markets are struggling with a lot of uncertainty and that means volatility But having said
• 27:30 - 28:00 that markets are functioning you know conditional on being in such a challenging situation markets are doing what they're supposed to do They're they're orderly and they're functioning just about as you would expect them to function So we've we've seen volatility also in the bond market and uh at a time when usually there's a traditional there's a flight to safety we saw yields on the German bond and the Japanese government bond come down but we saw yields on US
• 28:00 - 28:30 treasuries go up What do you attribute this to so I I would just say the same thing I I I think it's very hard to know in real time I've had a lot of experience with with significant moves for example in the bond market where there's a narrative that people land on and then two months later you look back and go that was completely wrong So I think it's very premature to say exactly what's going on Clearly there's some delevering going on uh among hedge funds on in levered trades and things like
• 28:30 - 29:00 that It's also again it's the markets processing historically unique developments and with with great uncertainty and I think you'll see you'll probably see continued volatility But I I I wouldn't I don't I wouldn't um try to be definitive about exactly what's causing that I will just say markets are orderly and and they're functioning kind of as you would expect them to in this time of high uncertainty So uh the Fed in its last meeting slowed the pace of shrinking of its balance
• 29:00 - 29:30 sheet Uh was this driven by uncertainty about how much reserves and liquidity the market needed and you wanted to take a little more time to find that out and flip side you said the market was orderly What if uh market disruptions uh emerge would the Fed intervene so the um we we think that reserves are still abundant So we don't think we're we're close to the point particularly close to
• 29:30 - 30:00 the point where we would stop But we were facing a situation in which uh for other reasons there were going to be big flows uh into and out of reserves as the it's it had to do with the debt ceiling and and uh the Treasury general account For those of you who are Treasury market people that'll make sense But we we while that those big flows are happening for over a period of six months we would actually be shielded from being able to see evidence that we were or were not getting close to the level of of less
• 30:00 - 30:30 abundant reserves And so we decided to slow the pace We thought about pausing and instead we we debated It was one of these great debates that we have at the FOMC We decided to slow the pace instead And people really came to see the merits of that because you know the slower we go the less the the the smaller the balance sheet can get without disruptions and we you know we want that process to continue and now it's at quite a slow pace So we think that's a really good thing So that means it can go on for a longer amount of time and
• 30:30 - 31:00 we'll be able to reach kind of uh very carefully what we think is the right level of reserves Still still um plenty of reserves What about the international dollar-based system uh with all these disruptions uh do you stand ready to supply dollars to central banks as you've done in the past when there's been a global shortage of dollars sure Absolutely we do Just just for everyone's knowledge we have standing dollar swap lines with five large
• 31:00 - 31:30 central banks and they they go to um the jurisdictions where there are big overseas dollar funding markets and in fact those are those are overseas markets where for example a European or Asian institution is buying an assetbacked security that is backed by loans to American consumers So in effect these are loans to American consumers and we support that We want to make sure that that dollars are available They need dollar funding to hold those dollar
• 31:30 - 32:00 assets So way the way it works is when needed we lend to the central bank in dollars and they pay us back in dollars They then pay in their in their currency They lend on they lend on in dollars and so we take no credit risk or anything like that and it supports dollar funding markets Dollar funding markets are very sensitive during times of crisis and it's very helpful The reason we do it is it's really good for us consumers So we'll continue to do that just as as part of the dollar being a reserve currency the reserve currency most
• 32:00 - 32:30 important and um we will do that You mentioned amongst the uh issues you were focused on was uh the US fiscal situation Well clearly US sovereign debt continues to rise and um what what are your thoughts on the longerterm implications for interest rates and economic stability how much further can we go in terms of national debt before we cross a line that might be
• 32:30 - 33:00 unsustainable in the long term so the US is on US federal debt is on an unsustainable path It's not at an unsustainable level and no one really knows how much further we can go Other countries over time have gone much farther but we're now um you know we're running very large deficits at full employment and uh this is a situation that we we very much need to address Sooner or later we'll have to and and sooner is better than later In terms of if if I can save from my time working on
• 33:00 - 33:30 these issues it's not the Fed's issue but the if you look at a pie chart of of federal spending the biggest parts and the parts that are growing are Medicare Medicaid Social Security and now interest payments Um and so that's really where where the work has to be has to be done And those those are issues that can only be touched on a bipartisan basis you know neither party can figure out what to do without both parties being at the table So that's
• 33:30 - 34:00 that's critical All of domestic discretionary spending which is essentially where a 100% of the conversation is is small as a percentage of of federal spending and is declining as a it's already declining as as a a percentage of federal spending So when when people are focusing on cutting domestic spending they're not actually working on the problem domestic discretionary spending is already going down I just I like to make that point because so much of the dialogue that the politicians offer is about discre
• 34:00 - 34:30 domestic discretionary spending which is not the issue Well let let's turn to stability and regulation Um turning to the US financial sector uh we still have some concerns about uh distressed commercial real estate loans on bank balance sheets uh whether they've been fully dealt with so far There's some sense that they haven't Add to that the very rapid growth in various forms of private
• 34:30 - 35:00 credit over the last uh last few years which arguably haven't been tested by full-blown recession How would you put the resilience of our financial institutions at this point and their ability to weather potentially uncertain times so I I think our our banking system is well capitalized with liquidity and is is quite resilient right now to the kinds of shocks that it may face I I do believe that in terms of the commercial real estate there are um and this this has been the case really
• 35:00 - 35:30 we've been working on this for four or five years now There are some banks it's mostly medium and smallsiz banks who have elevated concentrations of commercial real estate some of it troubled and we've been working to make sure that those banks have a plan have capital and can absorb the losses that they're doing So and that's been that's been going on for some time It the very largest banks don't tend to have high concentrations So this is a problem that we have known would take years to work through but we're really well into the
• 35:30 - 36:00 process of working through it In terms of non-bank the non-bank financial sector it's grown enormously the provision of credit by non-banks uh has grown just really fast Most of it has been funded though with a private equity-like structure where where it's limited partners who are signed up for 10 years to a to a general partner to invest that money They're not depositors who can run You know your your money's committed and that's so that funding model is is kind of runproof That's that isn't uh some law of nature though So
• 36:00 - 36:30 and you do start to see shorter term funding creeping in To your point though Ragu the um the the this very fast growing and now quite large private credit part of the part of the economy has not really been through a significant credit event or significant of it's really grown since the pandemic And so just for that reason and for how fast it's growing we we have a close eye on it It doesn't have the same kind of credential regulation though that uh that the banking system has So we're
• 36:30 - 37:00 watching it carefully and you know as I mentioned it's it's a more stable funding source to extend its institutional investors signed up for a long period but we're watching carefully right wearing my uh banking research hat actually banks are also involved in funding these institutions in a big way um we do know the administration wants to relax regulations in many areas one of which may well be banking um what can you tell us about the Basel 3 endgame so
• 37:00 - 37:30 to speak which is you know at this point primarily focused on additional capital for the large banks The the Fed view and my view is that we should proceed to complete the Basel 3 uh accord and and uh we would have to do that and would look forward to doing that with the in conjunction with the FDIC and the OC But our view is and I think the the bank's view as well is we should complete that You need international minimum standards That's
• 37:30 - 38:00 that's kind of a common good and you know we're not bound by them Uh really uh nothing the United States has plenty of input into what into in what those accords contain So our view is strongly that we should complete those and we could do it I think relatively quickly we're we're not so very far away from uh from what would be a good I think outcome Well let me move to something which is more u sort of u uh about technological
• 38:00 - 38:30 change and new new kinds of instruments cryptocurrencies um how do you see um the potential for more favorable regulations coming on them and potential risks from from that for the system you know so we went through a wave of um failures and fraud and things like that were the headlines for a couple of years And um I think what you what you see now is um and during that period by the way we were
• 38:30 - 39:00 trying to work we worked with Congress to try to get a a framework a legal framework for stable coins which would have been a nice place to start We were not successful I think that the climate is changing and you're you're moving into sort of more mainstreaming of of uh of that whole sector So Congress is again looking at at both both the Senate and the House are looking at a framework a legal framework for stable coins You know depending on what's in it that's a good idea We need that There isn't one now And stable coins are a product that
• 39:00 - 39:30 a digital product that could actually have fairly wide appeal and should contain consumer protections of of the typical sorts and transparency and that's what the Senate and the House are working on So that's a positive thing I also think some of the um you know we took a pretty conservative and other other bank regulators took an even more conservative perspective on on how on the guidance and rules we imposed on banks I think there'll be some loosening of that and I think we'll try to do it in a way that that preserves safety and soundness but that you know permits and
• 39:30 - 40:00 fosters appropriate um appropriate u innovation but that that does so in a way that again doesn't doesn't put consumers at risk in ways they don't understand or or make banks less safe and sound you you have a policy review underway Um now surveys uh recently tell us there seems to be a distinction between a rise in the level of prices uh which is what the public seems to worry a lot about
• 40:00 - 40:30 and the rate of increase in prices which certainly uh they worry about in passing but the Fed worries much more about that is the rate of inflation Um so even though we're coming down to 2% People remember that over the last few years it's been over 20% increase in prices So as you start thinking about the policy review is there any thought
• 40:30 - 41:00 about how you might want to address this uh sort of challenge that it's the path of prices as much as the rate of change which matters first of all you're I think you're right and I think the public is right What you know when when we say inflation is back down to 2% 2 and a half% uh and we think that's a good thing It is a good thing But if you're you know if you're paying 20% more than you were paying in in 2021 that doesn't help you much You
• 41:00 - 41:30 still paying a lot more than you used to be paying for the necessities of life So it's just another way of saying people hate inflation and it's easy to understand why You know what we all we can really control is uh a world in which the in the world we we were living in prices don't go down in the aggregate except in extreme times that we don't want to court So I don't think we could we couldn't have a framework where we're going to bring prices down by 10% or something that
• 41:30 - 42:00 that's not something we'll be looking at you know we're essentially looking at the best way to foster 2% inflation over time And you know the things we did back in uh the changes we made in 2020 were were really innovations around what to do when you're stuck near zero Now we're well above zero And it you know it may be that we we still need to have in our framework a way to deal with that but perhaps the the main case is not one
• 42:00 - 42:30 where you're dealing with the effective lower bound And that would be a framework that looks a lot more like the one that we had before 2020 Now one one of the tools you brought in to deal with the zero lower bound was quantitative easing but you've also used quantitative easing to fix disruptions in the financial markets Are you going to be more specific about what your objective is with quantitative easing as you go through this review so in in the
• 42:30 - 43:00 beginning it's it almost it's typically we're using it for financial market function That's that that was the case with the uh with the global financial crisis and with the pandemic Um and we you know we did we did try to explain ourselves through the pandemic uh and our explanations did change but I think it's fair it's fair to say we might have done a better job of uh of being clear about why we were doing and that's that's something that we're we're aware of and looking at Um I mean no uh
• 43:00 - 43:30 discussion is complete without talking about AI Yeah uh with AI coming fast and furious It could affect uh productivity it could affect employment there are some people who say we will see for the first time technological unemployment in a serious way with AI What what are your thoughts about it and how will it impact the Fed going forward so like everyone who's been exposed to what it's capable of it's just it's beyond um I mean I
• 43:30 - 44:00 started about thinking about it as like a a better version of Google but it's not It's like a better version of a person you know uh I mean it can do amazing things And so the question is it all through the 250 years of technological innovation technology evolves and people worry that it's going to replace human labor and people will be unemployed And that hasn't been the case What or it may be the case in the short run but in the long run what it's done is raise human productivity and therefore living
• 44:00 - 44:30 standards So is this going to be the case where it eliminates more jobs than it than it than it creates and we just don't know Uh I mean you come back in 20 years will will it be the case that just people are much more productive in their work because of AI or will it be the case that AI has just replaced a lot of people and I I think it's very hard to to say but it it truly is remarkable in what it's capable of And it's um you know we we just we had a we had a
• 44:30 - 45:00 demonstration by a a Wharton professor recently and he was he speak you speak to it like it's a person and it kind of responds like a person and and the things that it can do are are are really amazing Uh so and by the way this is early days You know they're talking about even the next couple of years will bring more dramatic breakthroughs So I think it's it's one of the two or three things most likely to bring dramatic change to the economy all around the world in the next 20 years And I'd say very hard to say how it shakes
• 45:00 - 45:30 out Let me turn to your job Um an important man once said of your job "It's the greatest job in government You show up to office once a month and you say let's see flip a coin." And then everybody talks about you like you're a god What is it that you normally do every day in the [Laughter] office is it fulfilling and dare I say
• 45:30 - 46:00 enjoyable and do you really feel like a god so I I would agree I think it's I think it's the best job in government It would agree I and I I really do enjoy it Yes Uh I love the job It's a great honor to serve It's quite humbling because you know everybody makes mistakes It's just the the economy is just not very predictable Um so all of that is true and I you know I do what everybody expects me to do I read we do a little
• 46:00 - 46:30 more reading though as part of our uh daily my colleagues and I do part of our daily regime than than a typical executive would do In terms of being a god I would say that we are we are blessed with a a large number of uh amply compensated critics who who would kind of tend to undercut that So we don't we don't feel like a god So so let me go to the more mundane in
• 46:30 - 47:00 that office U what do you what do you what are the key indicators you look for what what are the sources of data that you you go to as you try and make up your mind so you know I'd say start with labor You know there there's more labor market data and more and better reliable labor market data than probably anywhere else And uh it's just a lot of data And you know it's it's new jobs it's payroll it's it's wages it's participation you can break all of those
• 47:00 - 47:30 down in different categories It's it's a million different things So there's a lot of labor market data It's a great field if you're going into economics because there's just so much to do So and then we look at the inflation data Also I you know I keep track of of global developments pretty carefully and I talk to my global counterparts pretty regularly just to stay aware of what's going on Um financial markets are really important and you know you can and and lately something that's that we've we're paying close attention to as you would expect what's going on around the world
• 47:30 - 48:00 in currency markets in fixed income markets in equity markets all of that For me though my my background was more in the private sector and and you know as an investor and for for a significant part of my career and I I have to talk to outsiders about what they're seeing and what they're dealing with for it to really kind of fit together for me I you know I can look at only so much data and you know but to really get the story and the narrative it's it's more talking to outsiders and and you know anecdotal
• 48:00 - 48:30 data does help things kind of fit together for me I would say yeah you told us about speaking with business people last night and getting a sense of what was going on in the Midwest Um let me turn to Fed independence You've reiterated that you intend to st stay in office until the end of your term and that certainly reassured many in financial markets What are the levers the government or the legislature have to pressure the Fed and should one worry
• 48:30 - 49:00 about threats to the Fed's independence once you're gone so our independence is a matter of law Um Congress has in in our statute we're not removable except for cause We serve very long terms seemingly endless terms Um so it's we're protect protected in the law So you know Congress could change that law but there's I don't think there's any danger of that Fed independence has pretty broad support uh across both political parties and in in
• 49:00 - 49:30 both sides of the hill So I think that's not a problem Um there's a Supreme Court case people will have read probably in today's journal that at which the Supreme Court may decide whether independent agencies generally whether they're authorizing laws can contain a provision that prevents the president to fire from firing members of a commission other than for cause and that's that's that's a case that people are talking about a lot I don't think that that decision will apply to the Fed
• 49:30 - 50:00 but I don't know But it's it's a situation that we're monitoring carefully Generally speaking Fed independence is is very widely understood and supported in Washington in Congress where it really matters And uh you know the the point is we can make our decisions and we will only make our decisions based on our best thinking best based on our best analysis of the data about what what is the way to serve our to achieve our dual mandate goals as we can to best serve the American people That's the only thing we're ever going
• 50:00 - 50:30 to do We're never going to be influenced by any political pressure People can say whatever they want That's fine That's not a problem But we will do what we do uh strictly without consideration of political or any other extraneous factors Well I have time for one more question Um um I'm not going to ask that
• 50:30 - 51:00 question The question I want to ask is is a more personal one Uh what is it that you like to do most at home after an exhausting day flipping coins in the office you know I I play my uh one of my guitars I uh I do Zoom calls with my uh my kids and my grandkids And I go to the gym a lot too just to stay in shape We need you healthy We need you healthy
• 51:00 - 51:30 Thank you very much Chair Powell Thank you and keep joining