저자: 제롬파월 · 외국인
요약 보기
파월 의장은 하버드 강연에서 2008년·2020년 QE가 시장 기능 회복에 효과적이었고 거시적 효과는 불확실하다고 설명했다. 2024년 연준 목표 근접 후 관세와 중동 에너지 충격으로 인플레가 재부상했으며 정책은 관망 상태라고 밝혔다. 재정적자 경로는 지속 불가능하다고 경고했고, 금융 안정은 규제 축소 속에서도 자본 강화로 유지된다고 평가했다. 특정 자산 가격이나 단기 금리 방향에 대한 구체적 예측은 없었다.
다듬은 글
Chair Powell's path to the pinnacle of economic policy was not paved with mathematical modeling in an economics doctoral program, but rather with a deep study of institutions and laws. Raised in Washington, D.C., he attended Princeton University, where he earned a Bachelor of Arts in Politics in 1975.
He then attended Georgetown University Law Center. While earning his law degree, he also served as editor-in-chief of the Georgetown Law Journal, one of the world's most influential and prestigious legal publications. He then started a career of extraordinary impact and breadth. He distinguished himself first in the private sector, working in investment banking and private equity, notably as a partner at the Carlyle Group, while repeatedly answering the call for public service.
He served with distinction as Assistant Secretary and then Under Secretary of the Treasury under President George H.W. Bush. In 2012, he returned to public service as a member of the Federal Reserve Board of Governors. His nomination to serve as Chair in 2018 by President Donald Trump and then his re-nomination service Chair by President Joe Biden in 2021 stand as testaments to his bipartisanship.
Chair Powell approaches economic stewardship with a philosophy grounded in empirical evidence, institutional humility, collaboration, and public service. Like the greatest Fed Chairs in our history, Paul Volcker, Ben Bernanke, Chair Powell advances the interests of our nation and not his own, sometimes at great personal cost.
We are immensely privileged to have him share his insights today. Please join me in warmly welcoming the chair of the Board of Governors of the Federal Reserve System, Jerome Powell. Thank you. Thank you. That's very nice. So, I'd like to start at the beginning of your career. You studied politics and then law and then eventually pivoted from that to public service.
Were you thinking about public service and economic policy making at the start or did all of that come as a surprise later and how did you decide to make the pivot when you were in the middle of your career? Let me start by saying, David, thank you so much for having me and thank you to all of you for being here today.
It's great to be here. I've been looking forward to this. Yeah, so I did I took a macro and micro my freshman year and it wasn't as interesting interesting to me at that age than some other things. So, I wound up majoring in politics, actually specializing in Africa. It's fair to say that my freshman major was acoustic guitar.
My parents gave me a Martin D-35 for high school graduation. They must have regretted that because that's what I was really working on mostly. But, I did finally figure out what I wanted to do and I when I graduated from college, I really had no plan, but I did have one thought and that is to have a career in the private sector, but also to do public service intermittently.
And I was thinking about people like George Shultz who was a uh famous who did many economic jobs and and others who had who had done those sorts of things. And I I grew up in Washington D.C. My parents were not My My dad had fought in the in World War II and he had been a U.S. attorney, but they weren't people who were terribly plugged in politically.
I was very interested though in those years in public policy and in trying to create a life that was partly private sector and partly public sector and amazingly enough that's kind of what happened. Right. So, now jumping right to the present, we talk about the Fed as a unitary entity, but of course the Fed is led by the Federal Open Market Committee.
There are 12 voting members. You, despite being chair, only have one vote. And in normal times, there's a lot of consensus. Everyone's in agreement. Lately, there's been some disagreement. There's been votes to keep interest rates the same, but some members of the FOMC have decided instead to vote to decrease interest rates.
How does the disagreement on the FOMC make your job harder as you describe the path of economic policy going forward? You know, I don't think of it as making my job harder. Uh I I think it's and I've found throughout my career that um when you have a really difficult problem, it helps to hear from all sides.
And in a way I For example, when I was a private equity investor and I was looking at at at at at supporting a transaction that I wanted to do, I really wanted to hear from the smartest people tell me why it's a bad deal. Tell me now before we do it. And I I just think you you you don't really know how much you believe in something until you've had somebody really try to take it apart.
So, I I welcome that at the FOMC and at the Fed generally. Um and I think it helps us make better decisions. The Fed has had a tradition of of of governors not dissenting, but that's really not typical of other major central banks where there's more descending or I mean they're different. Depends on the central bank.
And I I To me, what matters is is it a dissent thoughtful? Is it helpful? Does it help Does it express a point of view? Can Can you stand behind it and say, "Yeah, that's that's very thoughtful." And that that kind of a thing is not is not bad. And it doesn't hurt with communications, you know, I I think a situation like the present situation where you know, there's uh there's sort of downside risk to the labor market which suggests keep rates low, but there's upside risk to inflation which suggests maybe don't keep rates low.
You've got tension between the two objectives. And I think to try to expect unanimity at a time like that where it's really quite historically challenging, it would almost be misleading to be really confident in in which way that should go. In fact, it's been said that uh uh confidence is what you feel before you really understand the problem.
Okay. Let's turn to the Fed's balance sheet. In 2008-2009, that great financial crisis, there was a massive expansion in the Fed's balance sheet. And then again in 2020 under your leadership, there was a second vast expansion in the Fed's balance sheet to address these two economic and financial crises.
The balance sheet has since come down a bit, but it still sits at over $6 trillion. So, So, I'd like to hear your views on how efficacious this vast bond buying program has been both in the 2008 and then again in the 2020 episode. And also hear your reaction to the critics who say that the Fed has become too big a player in the bond market.
The Fed has become too influential. There's been a muddying of as according to the critics of monetary policy and fiscal policy. Do they have a point or are they wrong? So, I think the place to start with that is to the the the problem that people were struggling with from about 2008 to 2022, let's say, in central banking everywhere in the world with is once you cut interest rates to zero, do you have anything else you can do?
Let's say you cut interest rates to zero and the economy is still clearly not not flourishing and it wants more it wants more support. So, do you just say, "Well, we're done. We're we're out we're out of uh of ideas here." And there were two ideas that that that were followed in the global financial crisis, one of which was to buy assets, longer-term assets, and what you're doing there is you're buying longer-term government-guaranteed securities, which would hold down longer-term rates, and that should stimulate the economy.
There were also forward guidance, which would tend to hold down forward rates as well, or just rates generally. So, we did those two things rather than do nothing. And I think in the first instance, they were both both efforts were successful at restoring market function and at restoring financial stability at the beginning of the of the global financial crisis and the pandemic, we had massive problems of market function.
They were solved. I think the question, getting to your question, David, of the macroeconomic effects is a much more uh much less certain question. I don't think there is an accepted answer, but but I would just say there's an oceanic quantity of of research on this and overall it tends to find that that buying long-term assets does does lower interest rates and does provide some support for economic activity.
Um and I I guess I'd be in the camp of thinking that there's some something in that. Uh but it's hard to quantify it and I think, you know, there are different different people have different views on how much those those effects could be. The other side of it is it it you know, QE is thought by the critics to to risk all kinds of other things.
So, for example, you could buy too much uh of the Treasury market and it would stop functioning well. We have not seen that here. At the very beginning uh there was a thought that it would be inflationary. We have not seen that. Or that it would that it would threaten financial stability or even create inequality.
So, we haven't really seen the the downside risks. Um at the same time, I'll last thing I'll say is I remember um before I took over as chair thinking I I'll I'll almost certainly never have to do quantitative easing. So, what's what's that expression? Man plans and God laughs? Something like that. So, it's just, you know, the the the pandemic came around and and uh we needed to do a lot of asset purchases in a big hurry and we did.
So far, no no uh Treasury Department has ever said, "Stop doing that. You're supporting the economy too much." Maybe that'll happen someday, but hasn't happened yet. So, let's talk about the dynamics of inflation since the spike in 2022. Inflation has been coming down since then, but it still hasn't reached its 2% target.
Some have argued that that last mile is extremely difficult and to obtain that, we will need a recession. Others have argued that you've gotten us very close and you'll get us the rest of the way. Um are you concerned about the time duration of the path from the high inflation of 2022 back to target?
It's taken time. We're not there yet. Is that a destination we'll reach or are you concerned that the last mile will prove very difficult? So, we will reach uh the FOMC is and will continue to be committed to getting inflation back to 2% on a sustained basis. That's that's the place to start. Um so, I feel like we had we had pretty much gotten there at the end of 2024 um uh against the uh predictions of almost the entire economics profession, um, when we raised rates a lot and very quickly in 2022, um, 100% essentially of economists were forecasting a, uh, recession.
We didn't have one. Actually, we had 23 and 24 were both very strong years as the supply side healed and as, uh, our our, uh, higher rates had some effect on inflation. So, it it it By by 2024 you had the economy growing at 2 and 1/2% you had inflation in in the two plus a few tenths on a 12-month basis by the end of the year.
And, um, you had the employment market, you still had the labor market at at essentially full employment. So, I would call that a soft landing. We had it there. Then, since then, we've we've had to face a much smaller source of inflation, which is the the tariff inflation is is visible and we think it's really just a one-time price increase.
That's been our thinking since the beginning. Right now, we think it's adding somewhere between a half and a full percentage point to inflation, but that's that's a much smaller thing than than we saw during the the pandemic inflation. And, um, you know, and of course, now we're facing events in the Middle East, which will certainly affect, uh, gas prices and and, uh, we're we're we feel like our policy's in a in a good place for us to wait and see how that turns out.
Great. So, let me turn to the current crisis in the Middle East and the effect on energy prices. Indeed, this classroom is familiar with that question from the last problem set where we asked, "How would you advise the Fed to respond to the rising price of oil?" And we teach that when there's a demand shock, that's a pretty natural set of recommendations that emerge for the Fed, but when there's a supply shock, like this energy price shock, there's trade-offs that the Fed has to juggle.
How do you make those trade-offs in general and how do you make those trade-offs in this particular instance? And can you help everyone with their piece of maybe they should tell me. Um sure. So, it's it's you start with what you said. Um you know, our tools work on demand. Higher rates will tend to moderate demand.
Lower rates will tend to stimulate demand. And when you have a supply shock, we our our tool doesn't have meaningful shorter-term effects on supply. So, uh so, when you have a supply shock, the the first question is do you respond to it? And the the classic question has been around energy, uh just in general, not really speaking about the current situation, although I'll get to that, I guess.
But, uh you know, energy shocks have tended to come and go pretty quickly. Monetary policy works with long and variable lags, famously. And so, by the time the effects of a of a tightening in monetary policy take effect, uh you know, the the the oil price shock is probably long gone, and you're you know, you're you're weighing on the economy at a time when it's not appropriate.
So, the tendency is to look through any kind of a supply shock. But, a critical, essential aspect of that is you have to have to carefully monitor inflation expectations because you can have a series of these supply shocks, and that can lead, you know, the public generally, businesses, price setters, households, leave them to start expecting higher inflation over time.
Why wouldn't they? At the end of a certain number of years, the inflation is now just a just higher. That can happen. So, you you monitor that very, very carefully. Also, in the current situation, you have to be mindful of the whole broader context. And the broader context is we're still, you know, we've been coming down close to 2% post-pandemic, but we've never actually, you know, gotten right and stayed at 2%.
So, it's been a while. Um uh and we're we're very mindful of that fact. Inflation expectations do appear to be well anchored beyond the the short term, but nonetheless, it's something as we we will eventually maybe face the question of what to do here. We're not really facing it yet because we don't know what the what the economic effects will be, but we'll certainly be mindful of that broader context when we make that decision.
Great. So, you've been a powerful and vigorous defender of the independence of the Fed with respect to monetary policy. You've also been collaborative with administrations with respect to financial regulation. So, under President Biden, you worked for or you collaborated in a program of increasing regulation.
Under President Trump, you've worked together to reduce regulation. So, on the one hand, we've got an independent Fed with respect to monetary policy, and on the other hand, we have a collaborative Fed with respect to financial regulation. I don't think there's a tension there, but can you explain to us the two different approaches and how you understand them?
Yes, so um start with monetary policy. You know, I think there's um pretty broad consensus in both political parties on both sides of Capitol Hill, and our oversight, by the way, is is Congress, not the administration. But pretty broad uh agreement that on monetary policy, the Fed needs to be fully politically independent, not reactive to political uh things at all.
We just need to do our job and stick to our knitting. Regulation is a little bit different, especially since Dodd-Frank, where the Dodd-Frank Act created something called the Vice Chair for Supervision, who has a specific statutory assignment, which is to oversee all of supervision, and also set the agenda for regulation.
So, the Vice Chair for Supervision, if if she wants to propose a change in, uh for example, the the Basel III Accords as implemented in the United States, she has to bring that to the Board of Governors, which is the seven governors, uh and vote for it. But she has full control over over supervision.
So, as chair, you know, the the whole the whole idea is to is to be non-political and not, you know, never working for or against any political party or individual or never even considering things like that. So, I think the way the law works is the chair should allow the vice chair for supervision to carry out the the role that Congress has assigned to that person by statute.
And that's what that is. So, you'll see and you know, the the two parties really have a big difference on regulation now. So, I like to think that the chair should always be someone who is working to without regard to political and should be therefore a person who can be reappointed by either side. It's always been the case.
It's been, you know, Ben Bernanke was reappointed. I was reappointed. And I think it's it's it's a good test of the Fed's non-partisanship that that your appeal is really bipartisan. I think that's that's a critical thing. So, if you're going to if I were to try to impose my personal views on regulation, that would that really wouldn't work.
So, I think there's there's I don't want to say deference, but there's we any chair needs to let the vice chair for supervision take the lead on those issues and then I'm another voter is what I am. Great. So, let's talk about Dodd-Frank and the reforms to the financial system. 2008 was a terrible crisis and there were many efforts made in the years afterwards to tighten the bolts and create a safer financial system less prone to these kinds of cataclysmic events.
But today we look out of the world and we see lots of threats both inside the formal banking system that you regulate and in the non-bank financial system which is lightly or not at all regulated. So, I I wanted to have your thoughts on whether we're in a position of relative safety after all the Dodd-Frank and other reforms following the 2008 financial crisis or whether the new threats actually have brought us to another period of concern and just to illustrate with a couple examples inside the banking system, there's commercial real estate that has fallen in value.
That affects both the banking system and non-financial non-banking financial institutions. We have the private credit market and a very active debate about its health. We have concerns about cybersecurity and the age of AI. Do you worry that another financial crisis looms out there? Of course, there's always a possibility, but is it something that's a issue of high alert or do you feel that we are putting all the pieces in the right places?
You know, after the global financial crisis, we actually started a new division called the division of financial stability and their job is to be you know, sort of the the watchers of all financial stability issues all the time. So, we don't we're not The old system was a crisis arrives, we get the team together and we battle the crisis.
This is much more of an ongoing monitoring thing with a framework that can be checked. So, I would say after the global financial crisis which happened when you all were extremely young we with between Dodd-Frank and the Basel agreements, we pretty dramatically raised the amount of capital and liquidity that that the largest firms and and other banks banks have and I think that's been a good thing.
I think they're also much sort of more transparent and more aware of their risks and that kind of thing. So, I think we've significantly hardened the system against the kinds of things that happened in the global financial crisis where you had a lot of credit losses really around mortgages. And that's So, that kind of a situation we've got well-capitalized uh large banks.
Um but that's just one part of the financial system. The capital markets, the US has by far the largest capital market sector relative to the banking sector. The other countries still have a much bigger banking sector relative to their capital markets. And you know, that's going to be less well regulated and that's that's a good thing.
You want it to be the place where you know, where you know, where biotech companies can do IPOs and they may or may not succeed, but they can get capital out of that market and you know, you're taking of risk, but great things happen because people put money into biotech. So we've done some hardening of that, but we shouldn't be trying to regulate risk out of existence.
But so I think we did fix some of the things that broke in the global financial crisis and the pandemic we did address. The real thing though is the economy means sorry, the financial sector is just always evolving rapidly and I think you vigilance is what you need. You just need to always know that there's another thing coming.
And so I think in particular we've had all kinds of financial crises, but we've never really had a successful cyber attack on a large financial utility, let's say or financial institution and that would be quite a different thing. You know, if people are going to lose money in a certain part of the economy, we have a hugely resilient economy financial system now.
It's more Let me say this, it's more about resilience than it is about avoiding crises. One of our former people used to say that we're in the levy building business, not the hurricane prevention business, right? So they're going to be hurricanes and they're going to come and you just have to assume you won't know what direction or what the nature of it will be.
So you want highly resilient financial system and and we we do have that, but again, nobody nobody nobody who's in that business will ever will ever give you a green light. You mentioned private credit. So, private credit is something that you're as it you guys are probably following. Um it's a relatively small part of of a very large asset pool.
We're watching it super carefully as everyone is. We're talking to the people in the industry and investors and everything. I think we understand it. We're monitoring it. We're looking for things that might lead to greater contagion or greater losses or connections to the banking system. And you know, we're going to do that.
You're again, you're not going to hear people say, oh, there's no problem here because that's a jinx. Um but nonetheless, it's something that we're following very carefully. What is one of your biggest regrets in your time as Fed chair? And on the other hand, what is something that you're very proud of?
You know, on on regrets, I I don't allow myself the luxury of that. I I think it's really important that that in my job, I'm focused on the windshield and not not the rearview mirror. And so, I don't I'm tempted to say, regrets I've had a few. But then again, not so many or whatever the line is from that Frank Sinatra song.
So, uh I just think you I I'll have plenty of time to for that after I after I'm out of this role, but uh honestly, you just have to keep looking at the next thing. You can't be berating yourself for the mistakes that you made. You You're going to make mistakes and you're going to learn from them. Take it from an expert.
Uh I've made plenty. But um I don't I don't focus on regrets and things like that. You know, my overall in terms of what I'm proud of, I'm more than happy to talk about that. Um Let's go for it. Yeah, let's go let's go deep there. Uh So, um I Basically, I'll just say it's an incredible honor to do public service as many of you will find out at some point in your life, I always wanted to to do some of it.
I saw these people around Washington who were well-known public servants like George Shultz. I would have think that that looks like a really interesting thing to do. It's It's different, you know, in the private sector. It's I love my private sector my years in the private sector, but there really is a feeling of what you're doing is help hope ideally helpful helping all Americans and that kind of thing.
It's a great honor to serve the public and particularly in a job like this. So, that is my the main thing I'm proud of is, you know, 14 years at the Fed and 8 and 1/2 of them as chair. I'm I'll be I'll always be proud of that. And I'm very grateful to you for your service to our country. Thank you. So, if you were willing to share publicly some advice that you would give to the next Fed chair, we'd love to hear it.
So, one thing you will learn when you when your children are grown up and and they have their own children is uh is uh never volunteer advice. Only give advice when asked. So, when I I would not I will not uh I would only give advice if asked and I would do it privately. But, I'll just say in general a couple things about about the Fed.
It is very, very important to stick to your knitting and to stick to the things uh that were actually assigned. And there's there's always a temptation to want to move into other areas. And I I think we you know, we have very powerful tools. They're supposed to be for maximum employment and price stability and financial stability.
There There's always a time when an administration looks and says, "It would be It would be good to use that tool for something else. What if we were just to like and call that like that's part of the mandate." Happens all the time and we just have to be in a situation where we're we're not trying to be Again, we're not trying to work against any any politician or any any administration, but we have to be careful to stick to what we're doing.
The The thing is I'll just note that you know, the Fed's not a perfect institution. Don't don't look for perfection. What we do is very challenging and highly uncertain. But it's it's a great American institution and and I'm very proud to work with the people I work with. They're extraordinary right across the board, an incredible group of people, and I'll just close by saying it's very hard to build great democratic institutions and and much easier to to bring them down.
So, though you were uncomfortable giving unsolicited advice to your successor, um I know that the students in this room would love to hear your advice. They've asked me for my advice and asked me what you would what you would advise them. So, they're entering into an uncertain time, an economy where new job formation um is lower for many reasons.
Um in particular, jobs that were plentiful a couple of years ago for students coming out of college are no longer so, and AI sits as this remarkable technological transformation that is both promising and existentially threatening. So, if you're advising the 600 students that sit here today, what would you suggest they think about as they embark on both academic and then ultimately professional careers?
Let me let me start by saying that I'm well aware and my colleagues too are well aware of the current situation um for students coming out. It's a time of very low job creation. Um and also you have AI going on. You've got the effects uh on job creation of significant changes in immigration policy, which have brought down both demand and supply of workers.
The unemployment rate is really low, but that doesn't help you uh if you're coming into that kind of market. So, it's it's a time when um your your the business I mean the there's a business cycle, right? And you're coming out of in the business cycle at a time when getting hired is a little bit challenging.
There's also probably something more longer term, more secular, that's happening and around technology and AI. So, you're it's yes, it is a challenging time. But, I'll say a couple things. One just is that the US economy, compared to other major open economies and big market-based economies around the world, is just incredibly dynamic and productive.
Since World War II, US um compared to other again large mature economies, our productivity has grown at like twice the speed for example in Europe. And higher productivity is the way, you know, compensation and earnings can grow over time. So, it's an incredibly flexible and dynamic economy. It reinvents itself.
Technology always comes from the United States. So, just be optimistic about the medium and longer term. I'm very optimistic about the medium and longer term. Um And the other thing is my observation is that the you know, these these large language models make people much more productive. I feel like it's making me more productive because I can I can learn things really quickly.
Um And you know, and I talked to, you know, my son and others who are out there in the world. And I think if you use it well, it's making you more productive. So, I think you're you're in a situation where you need to invest the time to really master the use of these new technologies. And And uh that should stand you in good stead.
I I But, there's there's no denying it's a it's a challenging time to enter the labor market. But, it may take some patience and all that. But, in the longer term, this economy is going to give you great opportunities. And just be be a little optimistic about that. So, when you talk about the longer term, are you talking about 10 years, 20 years, 40 years?
Are you worried that they'll be wind at our back as we use these tools over the next decade, but at some horizon, let's say 40 years, there'll be substitution rather than complementarity? You know, it's it's so hard to say. I mean, a a lot of people you talk to business people are are talking about you know, the sort of the next few years being big years for um AI to come in, but they're mostly talking about existing, you know, middle market, sorry, middle management back office jobs and things like that.
I don't think they're they're it shouldn't have those kinds of effects on people who can use AI well and that kind of I don't know, but so certainly the next few years look like whatever the effects are, those will start to feel them because major US companies, and we talk to a lot of of those people who who run those companies, and you know, they're all looking at what they can do.
And the the truth is they can take out a lot of jobs that can be automated by a very smart large language model. They just can and they will because if because their competitors are doing it and they they can't afford to have higher costs than their competitors. What's that going to mean for you? It may not mean that much.
It depends on what you're going to wind up doing. You know, you may stay in school a little bit and you may do something that that is it's going to create new jobs, too, over time. And again, it makes people more productive. I did talk to a CEO in tech world who said the marginal benefit of a new employee in this world is actually very high.
Now, that's not that's not what you hear all the time. So, um I don't know. I mean, when, you know, if you if you look back through history, uh to generalize, tech this has been going on for a couple hundred years. This, you know, since the loom was invented, right? And it put all the people who were doing weaving out of business.
But, so in all cases, it has wound up raising productivity and raising living standards as long as as long as the society keeps producing people who can who can who have the skills and aptitudes to benefit from that technology. Um so, that will be the case here. But you're right, there there can be a period during which it's challenging and and this may be one of those, but nonetheless, I would just say it's out there and it it's it's out there to to be done and I I would be medium and longer term very optimistic about about this economy compared to any other economy.
Perfect. Thank you so much. We're now going to open it up to your questions. So, um I think I've got Jason and David in the in the well and I've got two microphones in the balcony. Why don't we start with um Jason, do you have a question? I have a question. Okay, great. Fantastic. We're going to let Jason ask the first question.
Uh-oh. Um so, Chair Powell, when you're making decisions at the Fed, I'm curious, how much are you relying on very specific economic models? The Fed has its own big fancy model, FRB/US. How much are you relying on information you get from talking to people out in the real world, to businesses, your own intuition and experience?
What What do you bring together as a way of thinking about these decisions with a role of economics but everything else that feeds into it? So, it's really all it's really all of the above. We have to start with the perimeter, you know, we have the Reserve Banks are in touch. They're in all 50 states, right?
12 12 Reserve Banks and they bring summaries of these extensive conversations they have with the public sector, the private sector, universities, health care, everything in their district and we see all of that in the Beige Book and in the meetings. We get all of that. We also look at several models.
It's never just the FRB/US model. It's many many different models and we look at different alternative simulations. You look at all of that and then we look at where our policy stance is and we look out the window and we say, "Does it look like our policy stance is affecting the economy in a way that moves us closer to our goal variables or keeps us at our goal variables?" You do all of that.
We also talk to each other. You know, I talk to the other 18 participants on the FOMC a couple of times each cycle and people have different thoughts and ways of thinking about things. Talk to the senior staff. You know, they've been doing this longer than any of us. Um so, all of those things go into it.
I wouldn't say, you know, I mean so, a good analogy is uh when I was in the private equity business, we had really good models of companies and my my big boss said, "We we want to have the best model in the industry, but if you think that model is going to make the decision for you, you're in the wrong business." So, the models are just illustrative.
We we cannot model of the US economy with the kind of precision that that we will never be able to probably. It's like modeling the weather. You can't predict it 2 months away. So, but that's so it's all of those things, Jason. Thank you. Okay. So, David, why don't you pick the first hand and then Jason, you'll get the second hand.
And then we'll go to the balcony. So, looking for someone upstairs. Hi, uh my name is Fabio. I'm a first year studying economics and government. Um I'm really interested in kind of decision making in the in the Fed. How do you work with situations where like the the decision might be very tight and like sometimes there's like expectations of like the um interest rates increasing or it might be very tight in those very tight decisions.
Like how do you make end up making the decision? So, remember I'm one of 12 voters. Uh so, I I this is an FOMC cycle is about 7 weeks between meetings. We have eight of them a year. So, uh and I would say sort of 3 weeks before the meeting, by then I have to have a pretty good sense of what I think we need to do.
And staff will already have been working on if we're doing anything in particular. We always have like a special topic. So, a lot of work is going on. So, I I I almost need to make a decision about the probable thing we're going to do. And then I have to talk to everybody a couple of times because I got to get people to vote for this.
So, I've got a a lot of it is finding out where the sentiment of the committee is. I've been working with these people for many years. So, most of the time I I kind of know how they'll approach a problem. Um and uh that's that's how it works. So, it's a lot of talking and listening and understanding.
Um I I think an underrated skill is in um listening to people. Listening is you know, if you if you listen to people and you hear them and you can make their argument and they they understand that you're actually listening to them and not just you know, communicating at them. For most of the people most of the time, that's going to be enough.
And by the way, that's true on Capitol Hill. That's true It was true when I was a governor. If I felt I mean, I always felt like Ben Bernanke or Janet were listening to me and if that way if they can engage with the problem the points I was making, then I felt like I could support what they wanted me to support.
So, it's a lot of that though. I mean, it's it's a lot of committee management. That's the big part of it is to is to have active dialogues going with all of the FOMC participants. And by the way, also with all the senior staff who've been doing this a very long time and they you know, they bring in many cases, they bring you know, history going back many years.
For example, in in the public communications that we make, you know, somebody who's been doing that for 30 years will tell you don't use that word even though that word might make sense in another context. Okay. Over here. Uh good morning, Mr. Powell. Um I wanted to ask you a bit more about um private credit markets and particularly rising defaults among non-bank lenders like Blue Owl Capital.
Um so, I wanted to ask to what extent could stress in these private credit markets spill over into the traditional banking system? So, that that's the question we ask ourselves quite a bit and you know, as I as I mentioned, we're we're watching very carefully. Of course, you read you what you can read in public, we're also getting the backstory from the people who run these uh organizations and from all the banks, the supervisors are well aware of of what the banks' exposure is and what it's not.
And um you know, I'm reluctant to say anything that suggests that we're dismissive of the risk, but we're looking for connections to the banking system and things that might, you know, result in contagion. We don't see those right now. We What we see is uh uh you know, a correction going on and um and uh certainly there'll be people losing money and things like that, but it doesn't it doesn't seem to have the the makings of a of a broader systemic event.
But again, we never, you know, we never give a a a clean bill of health. We just keep watching for that. We don't we don't see those characteristics though right now. Let's go to the balcony and remember to share your name when you begin your question. Great. What's over here? Um hi, my name is Cody.
Thank you so much for being here, Mr. Powell. My question is about whether international relations has um impact on your decision-making. I know you mentioned that, you know, the Fed's job is to do exactly what's best objectively for the American economy, but I'm wondering, you know, if you're competing with, you know, let's say China or other powerful countries, whether or not you would kind of, you know, cut interest rates or do something like that to stimulate the economy to kind of get ahead of other countries.
No, it doesn't. You know, we're we're always asking the question as you suggest, you know, what We serve the American public always in all of our decisions and what is best for them. How do we achieve maximum employment and price stability on a sustainable basis? That's That's what we're always asking.
We do, you know, meet with, you know, in in Basel the central banks all meet without the finance ministries and we can talk privately about what's going on in global financial It is a global economy. We all know each other and and frankly and many of us have regular communications going on just privately, you know, or you know, by telephone, email, and text and things like that.
But we're never we're never looking to to get on the on the turf of you know, the national security people or the or the you know, the State Department or you know, things like that. We're not looking looking at things that way. We're looking at our goals. That would be, I think, a classic case of mission creep if we were to say, "Hey, let's let's let's let's deviate from just chasing these two goals and let's do something for a third purpose." That would almost by definition make us less effective at the things we're supposed to be doing.
So, we try to stick to that. Okay, great. David, you're next. Good morning. My name is Jenny and thank you so much for coming. We're all very honored that you took the time to come. Um So, last lecture we learned about soft landings and about how it's definitely much more ideal than hard landings, but in the US history we've had far more hard landings than soft landings.
And we were just talking about how it's really important that you are monitoring expected inflation. Um and I think a lot of that just built comes down to the trust between the public and the central bank. And the central bank is known to be much more technocratic, but I think especially with like the rise of populism and previous events, there seems to be a lot of uh impact of like political tensions between or or cooperation between the Fed chair position and the administration.
And I wanted to ask you, how do you still keep the public's trust this way? Um by sticking to our jobs and doing them well. Ultimately, we if we deliver the maximum employment and price stability or at at least are seen to be doing everything we possibly can as we meet various shocks and you know, multiple supply shocks in recent years, the public keeps its faith in us.
And if you look, you know, we look at things like longer term inflation expectations and you'll you'll see that they they've remained pretty well anchored right through all of this. You know, so if you if you really think inflation's going to be higher, you can make some money betting against that, but people don't do that.
You know, the people who are putting their money to work in the financial markets, not to give too much credit to that, but that's but that's it. If we stick to our knitting and we do our jobs, we stay out of politics, stay out of stay out of the hot political issues of the day and just do your job and keep your head down.
I think you know, I see this through the the my dealings with elected people. You know, if they get the sense that you're you're you're not there to deliver talking points, you're there to listen to them and you and you you're really somebody who is committed to doing your job and sticking just to that job and that's all you want and you're not going to get into politics, that's that's what we need to do.
And I think generally um I think we are accepted in that spirit in Washington and I think I think generally around the country as well. Jason. Remember to tell us your name. Thank you, Chair Powell, for being here. My name is Jake. Uh as you know, your term ends in May and a potential successor, Kevin Warsh, has indicated a desire to cut rates if he fills the role of chair.
What is your effect What is your take on the effect that a cut would have on the flexibility of the Fed to maintain well to remain well positioned to maintain both sides of its dual mandate, particularly given the fact that inflation has remained elevated above the Fed's 2% target for several years now and progress is further halted by the oil shock and tariffs especially?
Jake. Um that's that's not something I'm going to I'm going to uh going to swing at that pitch. Is that a Red Sox jersey by the way? I called on him. Yeah, okay. Okay. I know this must be Red Sox country. So, we're going to go to the balcony next. Hi, my name is Amon Candace though. So, earlier you said that you don't know how much you believe in something until someone tries to take it apart.
So, my question was what's the thing you currently believe about the economy that you're least confident? Interesting question. Um I can't I I'm not going to give you a a particular individual thing at the moment, but I I will say that um I I I would say this and and I of course this is self-serving to an extent, but having worked in the private economy for most of my career, I I don't have any predisposition to believe that models can really capture it um because so much of it is animal spirits as Keynes called it uh and also it's just it's again, I go back to the weather.
Will we ever be able to predict the weather with any precision three three months ahead other than the seasons? So, In economy no one has been able to really successfully predict the economy. So, I I think the temptation is always to um to place too much uh sort of stock in uh you know, in models or in one particular outlook.
The The other thing is another thing that which is a big takeaway is you know about fat tails, right? So, famously the financial it's there's a normal distribution and the tails are what they are. It's not a normal distribution. The tails are fat and however fat you think they are, they're fatter than that.
The The possibility for the economy is at any given time is so much so so much broader. For example, the pandemic inflation. We'd spent 15 years with the inflation below target. And that was at a time of QE and lots of financial fiscal stimulus and that kind of thing. We had inflation below target and people pretty much the profession had the the big problem the whole profession was trying to solve was how do we get inflation up to 2%?
That was really the problem. And then then along comes the pandemic inflation and bang you suddenly you have a 40-year high inflation. So, it's hard to keep your mind open to just how broad the possibilities are. Okay. Take down here. Yes. Hi, my name is Robert. Thank you so much for being here. I'm a first year studying econ, math, and philosophy.
Um So, many economists that I've listened to uh at least retroactively say that what we really needed uh during the COVID pandemic was around $3 trillion and the government printed you know, something along $6 trillion more than that. Uh and so inflation uh rose, but that money is still out there. So, if rates come down, you know, obviously you took initiative and you raised them very significantly.
If rates get lowered again to let's say 2 or so percent, uh do you think that the price spikes have already played out or do you think that all that extra money being out there will, you know, on top of, you know, instability, uh and geopolitically, uh do you think that's going to uh push us back into an inflationary spiral?
Uh and then also I was wondering, uh for your next press conference, are you going to start it with good afternoon or hello everyone? Let's talk about that later. I might. So, um Sorry, the first question was, um the was the expansion of the money supply. Yeah, no, so I I think monetary quantity is a very challenging way to try to think about inflation and the economy.
There was a time when the profession thought that, you know, monetary quantities and inflation were tightly linked. And of course, in an abstract way or in a a simple model, it makes sense if you if you don't increase the amount of goods and you double the amount of money, then the price has to go up.
But that there has been relatively little correlation. And, you know, my story of the pandemic inflation would not be about monetary quantities mainly. I'm not saying it might not have played a role. Um it was more you did have a lot of stimulus, particularly in the United States, uh at the same time we were looking at at at the possibility of a another great depression.
We didn't know whether there would ever be a vaccine. We didn't know what this was going to be, how many millions of people was the was the disease going to kill. So, we literally, for the first time, probably ever, we're looking at a you know, little alternative simulations that are a great depression lasting many years.
So, we did a lot of stimulus. And then, when the global economy reopened after shutting down, you had this burst of demand, red-hot demand, and constrained supply still. So, automobiles is a great example. Everybody wanted a car because they didn't want to take public transportation, and they'd all moved to the suburbs and out of the city.
So, I need a car. And yet, you couldn't make cars because you couldn't get the semiconductors. So, you're you're looking at a vertical supply curve. So, a little bit of demand drove prices up a lot. Um then, of course, we took the view, my colleagues and I did, that a vertical supply curve works both ways.
If if a little bit of a little bit of demand can bring that price right down. And also, it won't be vertical forever. It'll it'll start that you you'll get supply side healing. You got those two things. It's it was always both supply and demand for me. And you got inflation coming down very sharply in '23 and '24.
We got close to to the end of your question. We got pretty close to 2% in um by the end of '24. Now, we're dealing We were just dealing with the you know, the the the the effect of tariffs, which have largely fallen here in the US and not abroad. Um they've been less than expected because the the other side, the um uh others didn't retaliate.
And also, because what was implemented was less than what had been announced. Nonetheless, that's that was the piece. We were we were at about 3% inflation and somewhere between 0.5 and 0.8 of that is from is from tariffs. So, we're getting We've been pretty close to 2% all this time. Now, we have another supply shock coming.
You know, it's it's one of those uh times where you get a series of supply shocks. First, the pandemic. Then, the much smaller one from tariffs. And then, we're getting now an energy shock. No one knows how big it will be. We it's way too early to know. As I mentioned, we do think our policy's in a good place for us to wait and see.
Okay. So, one last question. Hi, Mr. Powell. I'm Lola. And I was wondering at what point does the size of the US's debt break the point of natural systems repayment? And if that's something you're worried about now, or something you think our generation should look out for? Um I don't think we know uh what that number is or sort of ratio of debt to GDP where it would be a problem.
There are of course, Japan being a great example, there are countries that have much higher um, levels of sovereign debt to their GDP than we do. What's clear is that our debt is growing much faster. The federal government debt is growing substantially faster than our economy. And that ratio is going up and you know, in the long run that's kind of the definition of unsustainable.
The level of the debt is not unsustainable, but the path is not sustainable. And so it's it's really important that we get back to we don't have to pay the debt down, we just need to to to have, you know, primary balance and and begin to have the economy actually growing better, growing more quickly than the economy.
It will it will not end well if we don't do something fairly soon. This is not the Fed's job, of course, and I pretty much limit myself to those high level points which which essentially everyone ignores. So, we're going to thank Chair Powell, but let me just describe the sequence of events that now follows.
So, first we'll thank Chair Powell, then anyone who wants to is welcome to join us on the stage and we'll take a group photo with Chair Powell. Um, because of a tight schedule, there can't be any selfies because if there's one selfie, there's 600 selfies. Right. So, you'll need to um, make do with one photograph of the entire class with our esteemed guest.
But before we uh, do that, please join me in warmly thanking Chair Powell. Oh, come up on stage.
Comments 0