Remarks from Chair Jerome H. Powell at the Macroeconomics and Monetary Policy Conference

Mary C. Daly:

Good morning everyone. I really want to start by just saying welcome back to the Yellen Conference Center. For some reason, I always like having the Macroeconomics and Monetary Policy Conference in this place, and she has been an esteemed servant of central banks for a long time and now the Treasury secretary, but it’s really great to be here. And next year, we’re going to be able to bring you through the front door, so don’t forget to come next year because we’ll actually use our front doors.

Now, the Macroeconomics and Monetary Policy Conference is one of the bank’s longest standing research events. The conference began in 1976 as an episodic topic driven conference where we would focus on things that would allow researchers and policymakers to really talk to each other on foundational topics that were key to macroeconomics and monetary policy, as the title would suggest. But since that time, it’s become an annual event and it’s helped us navigate through six recessions, high and low inflation, 9-11, a financial crisis, slow growth, and most recently, a pandemic.

Now, I attribute its durability to a very simple fact. Research makes policy better, and policy challenges spur better and more relevant research. And that virtuous cycle and exchange of ideas ensures that our knowledge keeps pace with the economy we have, and that we’re constantly learning and expanding our minds to prepare and work on the economy we want.

Now, today’s conference continues that tradition. We will hear about and discuss research on sustainable price stability, inflation, the labor market, and Federal Reserve communications and policy implementation, one of my favorites actually. And of course, we will hear from the chair of the Fed, Jerome Powell. And these discussions and all of the conversations we have here today among us will help us continue the great tradition of ensuring that policymakers and researchers exchange ideas, debate vigorously, and learn from each other, and that is the way we can collectively contribute to creating a sustainable economy that benefits all.

Now, as you can imagine, conferences like this don’t make themselves, and so before I go further, I’d like to just acknowledge the people who put this year’s conference together, Andrew Forrester, Huiyu Li, and Fernanda Nechio. And I also want to thank the glue of this conference, Margaret Cliver, and all of the support teams who continue to make this event and all the other ones like it a great success.

But without further ado, I’m going to get to what you all are waiting for, which is to introduce the chair of the Fed, my colleague, friend, and someone who has really helped us navigate through completely challenging times.

Chair Powell has a quite distinguished career of public service. It spans four presidential administrations, which in and of itself is a remarkable accomplishment. In the early 1990s, he served as Assistant Secretary and Under Secretary of the U.S. Department of the Treasury. He returned to public service in 2012 when he was nominated to the Federal Reserve Board as a governor. He was first appointed chair of the Federal Reserve in 2018 and reappointed for a second term in 2022. In all of the roles he’s had in public service, he has been a steadfast steward of the U.S. economy, always considering what’s best for the most people and what has the most durable lifespan, building something that lasts.

In these roles, he is also held to a simple thing that we want to ensure that we’re always bringing ourselves back to what matters, the people of the economy and the commitments we make. I think these qualities have helped him lead the unprecedented powerful actions the Federal Reserve took to support the economy through the pandemic and ensure we had full access to credit that could help with navigating through that challenging time, and then allowed him to lead us through one of the most aggressive interest rate campaigns in history to bring down the high inflation that came after the pandemic.

In all of those journeys, the simple truth was that Chair Powell focused on one thing, how do we do the work we have to do with as little hardship on the people of the economy as possible? Again, building something that was meant to last.

But his special talent, and you’ll hear this today, is his ability to speak plainly about complicated and complex topics. And this has been an especially important attribute in the past few years when so many households and businesses, families across America have been struggling to manage high inflation, rising interest rates, and fears of recession. That’s a lot of instability. And hearing from the chair on a regular basis and in plain English has conveyed transparency, agility, and most importantly, resolute commitment to keep working until the job is well and truly done.

Now, personally, I know the Chair, Jay, to be a voracious learner, ever curious, never satisfied, and then coupling that with something else that is rarely seen together, and that is to be a listener, equally able to digest and utilize cutting edge research, market inputs, and what the lived experiences are of families and businesses, and he takes all of that together to craft the best policy he possibly can to meet our given goals. Always and ever in service to the American people. So leading that discussion with Chair Powell will be Kai Ryssdal. Now, you all know Kai from his voice on Marketplace and for the way he unpacks economic finance and policy news all of the day into something that is more than just the ticker stream or a thread on Twitter, or I guess called X. He also makes it fun, which is often much needed at the end of the day.

What’s remarkable about Kai is if you think about his thing, he didn’t start in broadcasting. He was actually in the Navy, then in the foreign service, and finally an intern at KQED where he launched what is now his career. Kai has this point at the end of Marketplace where he says, “Let’s do the numbers.” It actually is a very brief segment of the entire program. It’s what we expect of him, to do the numbers. But as you’ll hear today in the conversation, what he’s really after is to know, why are things happening and who is being affected?

So with that, gentlemen, I would ask you to come to the stage for what I expect to be a very important conversation. Thank you.

Jerome Powell:

Thanks, Mary.

Kai Ryssdal:

All right. There’s the news. Fed chair falls off stage.

Jerome Powell:

Fed chair doesn’t fall off stage.

Kai Ryssdal:

That’s right. Keeps his footing.

Good morning. And good morning, Chair Powell.

Jerome Powell:

Good morning.

Kai Ryssdal:

Thank you for taking the time. We have, give or take, 45 minutes, so I’m going to jump right in with the data of the morning. PCE came out this morning. You had it yesterday, 2.8% at the core. Here’s my question: You saw it yesterday. What was your first thought?

Jerome Powell:

My first thought of the report that came out this morning is pretty much in line with our expectations. So core PCE, as you mentioned, is at 2.8% on a 12 month basis. Headline is at 2.5%. That’s what we were expecting, and it’s good to see something coming in line with expectations.

Kai Ryssdal:

So as you and your colleagues at Fed and at the regional banks have been saying, “We want more data, more good data.” Is this that? Is this in that bucket?

Jerome Powell:

Well, let’s take a step back. Over the course of the second half of last year, we got what I would definitely consider good data over the course of seven months. And then in January of this year, we got a very high reading, much higher reading on inflation. So February is lower, but it’s not as low as most of the good readings we got in the second half of last year, but it’s definitely more along the lines of what we want to see. So what we’ve said is that we don’t see it as likely to be appropriate that we would begin to reduce interest rates until the Federal Open Market Committee is confident that inflation is moving down to 2% on a sustained basis. And what do we need to get that confidence? It’s just more good inflation readings like the ones we were getting last year.

Kai Ryssdal:

With all possible respect, you all, all of you, have been saying the same thing for now six months, right? “We want more good data.” What do you suppose it does to the listening public and to the professionals who are listening to this when you keep saying the same thing?

Jerome Powell:

We’re steady. Our hand is a steady hand in this. We’ve been saying all through last year and this year that we’re making progress. We’ve noted that progress. We haven’t overreacted to it. We didn’t overreact to the good data we had in the second half of last year. You heard us saying that this is good, but we need to see more, and you won’t hear us overreacting to these two months that are higher. The reason that’s important is that the decision to begin to reduce rates is a very, very important one because the risks are two-sided. If we reduce rates too soon, there’s a chance that inflation would pop back and we’d have to come back in, and that would be very disruptive. That would not be a good thing for the economy. There’s also a risk that we would wait too long and in that case, it could be unnecessary unneeded damage to the economy and perhaps the labor market.

Kai Ryssdal:

Why would it be terrible if you reduce interest rates by 25 basis points, a quarter percentage point, and then the data changes and you have to change your mind? Why is that terrible?

Jerome Powell:

It wouldn’t need to be terrible. And you’re right, we always have to be humble that we actually… The outlook is always much more uncertain than most people think, including us. The economy can and often has recently performed in unexpected ways. So we’re ready for that, and if that’s what happens, that’s what we’ll do. But it’s important to get this right. The other thing, though, is with the economy, growth is strong right now. The labor market is strong right now, and inflation has been coming down. We can and we will be careful about this decision because we can be.

Kai Ryssdal:

Say more about, “Because you can be.” You got nothing but time, basically. Is that what—

Jerome Powell:

No, the economy is strong. We see very strong growth. We had growth for last year over 3%. Many forecasters see growth coming down to around 2% this year. That’s roughly what the first quarter looks like. That means that we don’t need to be in a hurry to cut. It means we can wait and become more confident that, in fact, inflation is coming down to 2% on a sustainable basis.

Kai Ryssdal:

So this is kind of a subjective question, but then why then do you think people are screaming, not for your heads but close, but for you to cut interest rates so much?

Jerome Powell:

Well, I mean, I would say we’ve divided our critics into equal sized piles at this point. There’s plenty of people who think that we shouldn’t be cutting now, but the point is this: We haven’t reduced interest rates. What we’ve said is we want to be more confident before we take that step. I actually think monetary policy is well placed to react to a range of different paths for the data, and that’s really what you want. You want to be in a position where you can react not just to the base case, but if you get a case where inflation progress slows or where the economy weakens, you’re also in a position to react to that, and we are.

Kai Ryssdal:

When you sit around the table at the Fed or on your Zooms or however you’re doing it now, do you have conversations about how your desire to be more confident is received by, yes, the markets and analysts, fine, but everybody else?

Jerome Powell:

Yeah, the answer is yes, of course, but the main focus is on getting it right. Getting it right is the most important thing by orders of magnitude. If you get it right, then everything else falls into place. I mean, you’re talking about market reaction and things like that. We look at that, of course, but ultimately, monetary policy works with a lag and you want to make the right decisions, and you want the committee to be in a place so that if things work out differently than the base case, you’re not out of position. As I said, I think we’re in position now where we can handle whatever case comes.

Kai Ryssdal:

Can we talk briefly about that first cut, which you mentioned, right? That’s going to be significant. It came up at your last press conference after the meeting. How important is unanimity to you on that?

Jerome Powell:

I don’t know any Fed chairs who were hoping for dissent. It’s not something you want, but at the same time, the way I think about it is this. I talk to all the people on the committee before each meeting in depth and you listen to people, you hear them, you try to get in their thinking and understand it and you try to incorporate that to the maximum extent you can in the decision in the way we talk about it. If you do that, people generally feel consulted. They feel that their views are being considered and reflected and they may choose to dissent. That happens all the time. It’s not a problem when people dissent, it happens and life goes on.

Kai Ryssdal:

Do you literally go knock on their doors or call them on the phone? You call Mary or whoever?

Jerome Powell:

Yes. I have scheduled calls with every voter and non-voter on the FOMC before every meeting and not infrequently I’ll have another round of calls before that and not infrequently I will have just calls, I just talk to various people on the committee during that six or seven week inter-meeting period.

Kai Ryssdal:

Let’s talk about the Fed as an institution then for a second, since we’re talking about the people and how it all happens. It is, some may argue, one of the significant economic institutions in this government that actually works, right? Congress is a whole different deal, the president’s concentrating on his re-election campaign. The Fed as an institution works and you said to Scott Pelley, I think, on 60 Minutes, integrity is all we have. How mindful are you of the Fed’s credibility at a time which is precarious for you?

Jerome Powell:

The Fed to me is a very important American institution that serves all Americans on a non-political basis. What people can expect from us is that we will do our work with painstaking care, we’ll understand the theory, we’ll understand the data, we’ll think about the outlook and we’ll make our decisions based on that and on nothing else. We will not be making decisions particularly about political calendars or anything like that. We don’t always get it right, no one does, but that’s what we’ll do. Integrity is everything, ultimately in life integrity is everything, but for us integrity is everything because even when we don’t get it exactly right, people have to believe and it’s true that we are doing the absolute best we can in a very transparent way based on the data, based on our understanding of the economy and the outlook for the economy. It’s tremendously important that people understand that about the Fed and that we’re working to serve all Americans, not any particular set of Americans or political parties or leaders.

Kai Ryssdal:

You’ve talked previously about humility. You’ve said the word humble already this morning once. I was talking to Neel Kashkari at the Minneapolis Fed the other day and he said, this economy’s really tough to diagnose, so it’s hard for us to know what’s going on. Talk to me about humility in the face of and we were talking about this backstage, about an economy that is still really, really hard to figure out what’s going on.

Jerome Powell:

Economic forecasters are a humble lot generally with much to be humble about.

Kai Ryssdal:

That’s funny. That’s not my experience with economic forecasters.

Jerome Powell:

The pandemic era has of course been full of surprises. If you go back to the beginning, I think almost all of mainstream macro analysts thought that this was different and that because of the obvious supply side problems, the collapse of supply chains and things like that, there was a group who didn’t diagnose it that way, but if that’s the case, then we thought that our very dynamic economy would recover pretty quickly, that people would go back to work, kids would go back to school and the economy would be fine and there wouldn’t be much of a need for us to intervene except during that early period to get the economy, keep it from collapsing during the actual acute phase of the pandemic. That didn’t happen. Inflation came up, stayed up and it took a long time to heal and then it didn’t really heal. The supply side didn’t really heal in 2022 and we were thinking, well, maybe it’s not going to heal and then it did.

The labor force participation, workers came back into the labor force in 2023 and also the supply chains healed in 2023, so right about the time we were thinking maybe this isn’t going to happen, it really happened a lot in 2023 which is part of the story of why the economy did so well last year, was supply side healing. It’s been surprising over and over again, so I think we have to be unusually humble about our ability to foresee the future and be ready for different plausible outcomes.

Kai Ryssdal:

I’ve told you this story, I think last time you and I spoke, about a conversation I had with then-civilian Yellen and it was between her time as chair and Treasury secretary and I asked her why the Fed hadn’t been able to get inflation up to where she wanted it to be, where the committee wanted it to be and she literally looked at me and went, I don’t know. I guess my question is, would it be a bad thing for you to say, we don’t know, we’re doing the best we can.

Jerome Powell:

We say that all the time in one way or another. I’ll give you an example. We have, as I mentioned, high inflation in January, somewhat less high inflation in February and we’ve been saying that we expect inflation to move down to 2%, but on a path that is sometimes bumpy. The question then is, are those just bumps or are they something more than bumps? Is progress on inflation to slow for more than two months? That’s a question and honestly, we’re just going to have to let the data tell us that. There isn’t anybody who knows. Our position is, we don’t know. We tell you what we will do if inflation does come down and that’s sort of the base case. That is what we expect. We expect inflation to come down on a sometimes bumpy path to 2%, but if that doesn’t happen, then obviously our rate policy will be different. For example, we can hold rates where they are for longer and that’s what we would do, of course, if inflation doesn’t come down, if we don’t see the progress we’re looking at. We kind of say that all the time.

Kai Ryssdal:

Consensus now is rates are going to be higher for longer. They may or may not come down this year depending on what the data says. Do you think this economy is ready for a 4.5ish percent inflationary economy, right? Not inflation 4%, but your rates at 4.6, which is where your projection is at?

Jerome Powell:

We’ve had our policy rated 5.3%, which is the highest rate in more than two decades, for some time and all through the course of 2023 we saw very strong growth. That’s partly because this has happened in a context of supply-side healing, which makes its own growth, when potential output goes up. We don’t really know where rates are going to go back to when this whole thing is over, for many years. If you go back to before the global financial crisis, it wasn’t unusual to see the longer term rates in the fours and so are we going to go back to, whereas in the time between the global financial crisis and the pandemic rates went lower and lower and lower and it wasn’t unusual to see, in other countries, long-term rates below zero, even Europe. They never went that low in the United States, but they went very low.

Are they going to go back up to those higher levels of the pre-global financial crisis? We really don’t know. We think that the factors that led rates that really came down over a 40 year period, mostly related to big slow-moving things like demographics, aging population, which saves more and productivity, low productivity and things like that. Those things don’t jump around. They’re sort of slow moving objects, but the truth is we don’t know. My own expectation is I don’t think rates will go back down to the very, very low levels they were at before the pandemic, but where they will turn out to settle out, it’s hard to say. This economy doesn’t feel like it’s suffering from the current level of rates, although if you look at things like inflation sensitive spending, then those parts of the economy are really feeling the high rates.

Kai Ryssdal:

Not to pick at a scab, but what I hear you saying is, while inflation may or may not have been transitory, rates are not actually going to be transitory. They’re going to be higher for a while and people just need to get used to that.

Jerome Powell:

That might be the case. I don’t think late rates will go back to the very historically low levels that they were at before the pandemic hit. I do think rates will come down from or likely to be lower than they are, at least short-term rates are lower than they are right now, but I mean we’re going to have to let the data tell us the answer to that.

Kai Ryssdal:

I want to go to the labor market for a minute. Something you said at your last press conference sort of caught a lot of people’s ears and that was when you said, we are very attentive to both sides of the mandate, which is to say full employment and stable prices. People picked up on that because you had been very keyed in on the price stability aspect and I guess I wonder now why you’re becoming more aware or publicly saying you are more aware, of unemployment.

Jerome Powell:

I’ll tell you why. We have two mandates, as you know, maximum employment and price stability. When one of those mandates is far from its goal and the other one isn’t, you focus on the one that’s far from its goal and that’s actually in our document that codifies the way our framework. That was the case from late 2021 until inflation started coming down and so we focused very hard on inflation and you heard us talking about inflation, but headline inflation just a year ago was 5.2% on a 12 month basis. Now it’s 2.5% and core I think has come down from 4.8 to 2.8, So you’ve seen really significant progress. Just as a natural thing then, the work’s not done. Our goal is 2%, but as that happens, the risks to the two goals come into better balance. They’re coming into better balance and that means we are a dual mandate bank under law. That means that now that thing we were doing, we were just thinking about inflation, that’s no longer appropriate.

We’re thinking about both. We’re thinking about the risks to both now and we should be, that’s our job under the law. We are very committed to getting inflation down to 2%. Having it down to 2% is critical if we’re going to have the kind of long expansions that really benefit all Americans in the workplace. At the same time, if we were to see unexpected weakness in the labor market, then that’s something that we would be looking at carefully and could draw a response as well.

Kai Ryssdal:

A policy response, clearly.

Jerome Powell:

Yes.

Kai Ryssdal:

What’s the monster under your bed? What keeps you up at night? Other than inflation, you don’t get to say inflation.

Jerome Powell:

Inflation.

Kai Ryssdal:

No, you can’t do that.

Jerome Powell:

I would say this. We’re at a place where the economy’s strong, without question. The labor market’s in a good place. We’ve got unemployment under 4% for more than two years now, for the longest time in 50 years and we’ve had progress on inflation. We want to use our tools in a way that keeps the strength in the economy and in the labor market, but allows for further progress in inflation. That’s our focus. We clearly have a chance at that outcome and we’re all very, very focused on doing everything we can to deliver that outcome. It would be a great outcome for the American people and it would be testimony to how unusual the circumstances are.

Kai Ryssdal:

Soft landing, transitory, words that I imagine you don’t let be said in your presence very much. Here’s another one that hasn’t been said at a press conference that you’ve had since December, recession. Do you think a recession’s off the table?

Jerome Powell:

So there’s always an sort of unconditional probability of a recession in the next year, if you look through history. It’s not possible to rule a recession out for a long period of time.

Kai Ryssdal:

Granted, but you know what I meant, right?

Jerome Powell:

Yeah, no, the real question is, is the possibility of a recession elevated at the current time and I would say no. I don’t see forecasters disagreeing with that. Growth is strong, as I mentioned. The economy’s in a good place and there’s no reason to think the economy is in a recession or is at the edge of one, but humility.

Kai Ryssdal:

Understood. Last time you were on the Hill, somebody asked you whether you were going to come out and declare victory. You were going to say, yeah, we did it, we’re done and you said, absolutely not. That’s not what we do. Will you not, at some point though, when you get inflation to 2% say, inflation’s at 2%, we’ve done our job, things are stable and life is good?

Jerome Powell:

I don’t want to speculate about that. We’ll jinx it. I’m such superstitious person, but look, we’ll always tell you what we’re seeing in the economy and if we get to that place, that’d be great. That’d be a great outcome for the public, that’s the main thing.

Kai Ryssdal:

We talked very briefly backstage about after the Fed, what you’re going to do, because you have two years left, give or take. As we sit here in the Yellen Conference Center at the San Francisco Fed, where do you think the Powell Conference Center is going to be? And what do you think your legacy is going to be? First line of your New York Times [inaudible 00:28:26]?

Jerome Powell:

I’ll tell you the thing that I care about the most, and that is the Federal Reserve is an institution, as I mentioned, is an incredibly important American institution, especially right now because we are that place, we aspire to be that place that transcends politics, divisive politics. And I think, in a way, we are helping hold this thing together by doing what we do the way we do it. And I feel accountable and responsible for the institution and delivering it to the next generation of leaders and people in a way that it can still serve the American public the way the Fed does.

Kai Ryssdal:

I wasn’t actually going to go to politics this morning because you have a well practiced answer to that question, but I feel like I have to, now that you brought it up twice. It is possible that the Fed is, likely even, that the Fed is going to become more politicized this year. And the first time you and I spoke in 2018, you were in the crosshairs of the president and the administration. And I asked you about it, and you said, “You know what? Control the controllable. Can’t do anything about it.” So the question is not, what are you going to do about the politics of it? The question is, what is your fear for the economy if the Fed becomes politicized?

Jerome Powell:

It just wouldn’t… We wouldn’t be the Fed. But the good news is we are the Fed.

Kai Ryssdal:

Well, no, no, no, no. That’s not answering the question.

Jerome Powell:

No. A central bank that is excessively responsive to… You have to look at other countries, basically. And what you see is there’s no credibility. Credibility on inflation and on sticking to your knitting is everything. Because if people believe that you will accomplish your goals and that you won’t deviate from them for reasons like that, then it’ll be easier to do so. Markets will react appropriately, and in people’s thinking, inflation should be around 2%. And if they think that way, then it probably will be around 2%.

If you look at other… I think of more emerging countries where they have weaker independence or a lack of independence, it’s hard to have price stability or maximum employment. So, that’s what would happen if that were to happen. But I’ll insist upon saying that’s not the world we live in.

Kai Ryssdal:

Fair enough. One more question along those lines, and then I’ll leave it be. You don’t comment on fiscal policy. This is not a question about fiscal policy, it’s a question about what the Fed will do if our current fiscal path, which many have called unsustainable, including Chair Yellen when she was chair in the interregnum. What do you do if our fiscal path continues? What does the Fed have to think about?

Jerome Powell:

We’re always going to do what we need to do with our policy tools to achieve the goals Congress has assigned to us. And that means maximum employment and price stability. We’re not going to be thinking, “Gee, we shouldn’t raise rates for fiscal reasons.” We’re never doing that. We’re always going to use our tools, and we’re always going to assume that the fiscal authorities can run their side of it and can get it under control. I mean, I think it’s what I said, and what Ben Bernanke said, and what Janet said, and I’m sure Alan Greenspan said before him, is we’re not on a sustainable fiscal path, that’s an uncontroversial statement. And the sooner we get on that path, the better, back on that path.

Kai Ryssdal:

A word here about the balance sheet, you said you were going to slow the runoff and keep an eye on things and how they go. Does it suggest a worry about the economy that you’re going to slow the runoff of the balance sheet?

Jerome Powell:

Not at all. The thing about the balance sheet is we want to be highly transparent and predictable. It’s not the main story about monetary policy, the main story is interest rates. What happens is when we get into a very difficult situation, like the pandemic or the global financial crisis, we buy treasuries to lower interest rates and to support the economy. And then, we’re left with a bigger balance sheet and we start to then, when the time is right, let it runoff and shrink back to where it needs to be. So, that’s what we’re doing. And what we said was, at a certain point, we would slow the pace. And the reason is it’s moving down quickly. We’ve decreased the size of the securities portfolio by a trillion and a half dollars over the course of the last while, year and a half, not even year and a half.

And so, we’ve said that we would slow the pace. And what we’re trying to do there is try to actually get further without being disruptive. The last tightening cycle for the balance sheet ended when we suddenly found ourselves that we’d gone too far and it was very disruptive to markets, and we had to buy treasuries to create more reserves in the economy. We tried to learn from our first experience with shrinking the balance sheet, and this time we said we would slow at a certain point. We’re going to get to the same point or even lower than we would’ve, and it’s not at all, in any way related to a concern about the economy. It’s our plan.

Kai Ryssdal:

On that word, transparency, which you’ve mentioned a couple of times, and on your policy and your predecessor’s policy and those of the committee and the board of Governors of transparency and giving forward guidance and letting everybody know what you’re thinking and what your plan is, why?

Jerome Powell:

The old school was tell them nothing, be mysterious about it. And then, a bunch of scholars 40 years ago, people like Alan Blinder and others, thought about it and said, “If the public understood your reaction function, the way you would react to different kinds of data, then that’ll make your job easier, because markets will… They’ll go, ‘I see. The data came in…’” Let’s say that some data comes in, data comes in hot, the Fed will do X. So, we’ll react that way. So in effect, the markets and the public will understand what you’re doing is a good thing. And that was very novel.

So, the path went from tell them nothing, the Fed didn’t even announce what it did at an FOMC meeting until 1994, the first post-meeting statement saying, “Hey, we raised rates” Or, “We didn’t.” Was 1994. So from there, you have a straight line, really, of increasing transparency to the point where you are now where you see a lot of transparency. Some people say it’s too much, but that’s the idea. And I think you’ve gotten to a place where we try to be so clear in what we’re doing that the public will understand what we’re doing and why, and that that actually helps our policy be more effective.

Kai Ryssdal:

Humor me. What happens if in… Well, everybody’s anticipating a cut in June. But what happens if you guys, out of nowhere, came out and at 11 o’clock Pacific time, I know it’s different for all of you in different time zones. The statement came out and said, “We cut 25 basis points today.” Without having given anybody a heads-up. What do you think happens?

Jerome Powell:

Nothing good. I mean, I think we would—

Kai Ryssdal:

Seriously?

Jerome Powell:

Well, what would happen—

Kai Ryssdal:

Everybody goes, “Yay. Rate cut.”

Jerome Powell:

No, no, no. But we would… Look, we are careful, thoughtful, we’re steady hand. If we did things like that, it would be very much not the way we do business.

Kai Ryssdal:

No, it wouldn’t, but play it out for me. What do you suppose happens? Seriously, humor me.

Jerome Powell:

I think if we did something like that, markets would say, “We thought we understood the Fed. We’ve spent years…” Someone would go on TV and say, “I’ve spent 30 years watching the Fed, and I don’t understand this at all. Why they do it?” In other words, doing an off-cycle rate cut at a time like that, it’s just something that would never happen. I mean, if there were a reason. When the pandemic hit—

Kai Ryssdal:

Those we all know about.

Jerome Powell:

We did two off-cycle meetings in one cycle, and then we canceled the actual meeting.

Kai Ryssdal:

And look what happened then.

Jerome Powell:

Well, that was—

Kai Ryssdal:

We had a pandemic.

Jerome Powell:

That was what needed to happen. That was what needed to happen.

Kai Ryssdal:

Do you worry that the Fed gets covered too much, especially now when we’re all trying to parse your every word, gets covered too much like a horse race? There’s a little bit of, who’s in front? Polls say this. What are they going to do?

Yeah. I do worry about that. I think the things that really matter for our economy over the long term are not the Fed’s interest rate decisions, which really have no impact over the things that matter on the longer run.

Kai Ryssdal:

Say that again. Seriously, say it for the cameras.

Jerome Powell:

Okay. The things that matter for the United States economy over the medium and longer term are not the decision the Fed makes. The Fed tries to guide the economy to maximum employment and price stability through a business cycle and can react. We do critical things during crises. We’re very, very important in crises. But things that add to the productive capacity of the United States, things that give people more skills so they can contribute more to the economy, things that increase productivity so that an hour’s work is worth more output.

That’s the evolution of technology. It’s also the skills that people have. Those things, investing in those things, that’s what drives the longer run growth and the longer run economic well-being of our citizens, not the things that the Fed does. What we do is very important in maintaining stability and smoothing out the business cycle, and also crisis response. But we don’t work on those really, far more important, longer run issues.

Kai Ryssdal:

Apologies to those of you on the live stream who are going to hear this later on the radio. Is Professor Swanson in the room? Sir, I’m sorry, I’m going to steal your thunder. There’s a panel coming up this afternoon, sir, at 1:25. The title of which is, Speeches by the Fed Chair Are More Important Than FOMC Announcements: An Improved High-Frequency Measure of U.S. Monetary Policy Shocks, by Professor Swanson at the University of California, Irvine and some others. Agree or disagree?

Jerome Powell:

Pass. I look forward to. I saw that on the agenda, I look forward to. I’m not going to come in here and embarrass you by being here, but I will read the paper.

Kai Ryssdal:

But to that general point, do you get too much press?

Jerome Powell:

It’s not for me to say, but I do think—

Kai Ryssdal:

It is for you to say. It’s literally for you to say.

Jerome Powell:

I do. I absolutely think there’s too much focus. If you think about the things that are really important in the economy, things like trade and what we should be doing, some of the things that we’re doing, that the administration has done, they’re far more important over the medium and longer term than monetary policy is. Although, it’s important [inaudible 00:39:17] Fed that has a good framework of monetary policy that’s well understood, very important that we do our job. Don’t get me wrong, it is important, but absolutely the other things are more important over a long period of time for the people we all serve.

Kai Ryssdal:

Around the last time you and I spoke in 2022, I also talked to Chair Bernanke about his book, and I asked him whether you two ever talk on the phone? And he said, “Yeah. He calls me every now and then. Mostly he [inaudible 00:39:48] as a courtesy to him.” And I said, “Well, J. Powell’s a good guy. He probably just calls you.” And he said, “When J. Was new to the Fed, he used to come down to my office on a Saturday morning with another governor or two, and we were just talking about monetary policy as he was trying to learn.” And I guess my question is, do people come to you now?

Jerome Powell:

Well, I don’t go to the office on Saturday anymore, but Ben used to go. Ben was in the office on Saturday, and when I was a new governor, so was I. And I took the advantage of the fact that he was there in his office and we could chat. It’s a much more relaxed way. I talk to people. I work at home now on the weekends and I talk to all kinds of people all weekend long. Yeah.

Kai Ryssdal:

Who do you go to, though, for council?

Jerome Powell:

Well, I talk to my colleagues on the FOMC, I talk to senior staff, I talk to the formers. I talked to both… Janet is now Treasury Secretary, so that’s a different thing. But I check in with Ben, I check in with other former Fed people. The group of people that you can really talk to is pretty small. But I do take advantage of that. Why wouldn’t I?

Kai Ryssdal:

Back to Kashkari for a minute, and the interview I did with him. Explain that.

Jerome Powell:

What?

Kai Ryssdal:

The little chuckle.

Jerome Powell:

You said, “Back to Kashkari.”

Kai Ryssdal:

Well, Neil’s an interesting guy. One of the things we were talking about was consensus, I mentioned that before. Do you worry about groupthink around the table? Talk to me about the strength of the conversations, I guess. That’s the question, the robustness of the debate.

Jerome Powell:

This is a virtue of our federated system. We have 12 Reserve Banks, each Reserve Bank has its own economic staff, and they have traditions that they follow or don’t follow. But in any case, you have a guaranteed institutional diversity of perspectives, institutionally guaranteed diversity perspectives. People come in and they’re going to have different views. And I think that’s absolutely critical. The fact that we were able to get a unanimous decision on something doesn’t mean there weren’t different views. Also, remember, before the vote, there’s a lot of discussion that goes on to try to—

Jerome Powell:

Also remember, before the vote, there’s a lot of discussion that goes on to try to arrive at a plan that people can get behind. So that also tends to minimize.

Kai Ryssdal:

Sorry. Let me just pick up on that. Is it baked before you guys get in the room on the Tuesdays and Wednesdays?

Jerome Powell:

It’s not fully baked, but yes, you do a lot to… of course. Part of my job is to know what people think and to come to the committee with something that has really broad support, and that’s part of the thing that I do. But we do have different perspectives, and that’s really healthy. I was an investor for quite a while, and when everyone agrees that something is a great investment, you got to really worry. You want somebody who’s really smart to explain why it’s not so that you can go through the process of hearing the case against. And I think it’s really helpful to hear different views so that you can test your own perspective. If everybody agrees, it could be kind of flabby. It hasn’t really been tested.

Kai Ryssdal:

Mary Daly in the production was talking about your special talent. That you’re a listener, you’re a consensus-builder. What is your special talent? Why do you think you have this job?

Jerome Powell:

Why do I have this job?

Kai Ryssdal:

Don’t ask me, man.

Jerome Powell:

When I got to the Fed in 2012, of course I had no idea what was to come. I will say what I try to do on listening is I think, again, if you do listen to people and they understand that you’re hearing them and not just kind of explaining things to them, and they get that and they feel listened to and heard from, for most people, most of the time that’s going to be enough for them to go along, even if they don’t like a decision.

Also, it builds relationships. I spent a great deal of time with our oversight committees and beyond that on Capitol Hill, and more so than my predecessors. And I think they see the Fed as… I want them to see the Fed as what it is, which is this non-political agency that doesn’t run talking points at them and isn’t political and is just doing our work and staying out of the political issues. And I’m in their offices listening to what they say, and I think they really appreciate that.

Kai Ryssdal:

Yeah. But do you think it’s working?

Jerome Powell:

What?

Kai Ryssdal:

Your effort to get them not to see you as a political agency and just doing the best by the American—

Jerome Powell:

Much, much better than you would think. I think there’s a certain amount of low noise on that subject, but if you talk to people privately, I think that an independent Fed has very broad support in both parties on both sides of the Hill.

Kai Ryssdal:

I’ll appreciate you’re going to want to be discreet on this question, but what’s running through your head when you’re at the green table in front of a Senate or a House committee? Like your internal monologue.

Jerome Powell:

… listen hard to get the question. And sometimes the questions are more like speeches or they’re not really questions, or they’re not quite the right question. And so I try to find the good question and give the good answer to that question. Also, respect. In our system of government, our oversight and our democratic legitimacy runs right through transparency and right through their actions of holding us accountable and us explaining to them what we’re doing and why. So we answer any and all questions that they may have. And so I work hard to get ready for those with a lot of help from people, and we take them very seriously.

Kai Ryssdal:

Banking regulation. New regulations are in the works. Banks are not happy about it, from Wall Street down to community bankers that I talk to. What’s your confidence level first of all about the banking system right now and then about the need for more regulation? Can you fix what you think is wrong?

Jerome Powell:

Sure. I would say the banking system is in a good place now. A little over a year ago we had a period of stress. I think things have settled down significantly. I think banks are lending. I think we focused a lot of attention during that period and since on banks that had things like CRE, commercial real estate, losses, or perhaps funding structures that needed to be supported more. And we’ve worked with a ton of banks to address those issues.

And so I think the banking system is definitely in a good place. I think the commercial real estate problem will be with us for some years, and it is just a question that some banks, and it’s mostly small banks, it’s definitely not the very large banks, have concentrations of commercial real estate, and it looks like they will be realizing losses over time. And we’re working with them to make sure they have enough capital, that they do understand the losses, and so that they can work through this. And so that’s what we’re doing. And again, that process will play out, and I think that’ll be okay.

Kai Ryssdal:

I talk to a community banker every now and then up in Seattle and she basically… I don’t want to put words in her mouth but I will. I don’t think she would characterize it as, “Working with.” I think she would characterize it as, “The Fed’s telling us what to do.” And I guess I wonder what your response is to that.

Jerome Powell:

Well, supervisors, we have a job, which is to make sure that banks understand and can manage their risks. And it can be either of those things. It can sometimes… certainly supervisors have to at some point say, “You’ve got to do this. And that’s one of the lessons of the Silicon Valley Bank situation, was a need to be forceful when it’s appropriate.

Kai Ryssdal:

Sorry. Let me dig in on that just a little bit. Forceful is one thing. Well, let me phrase it a different way. Do you need to convince the banks that you’re working with them? Or can you just say, “You got to do it. Sorry?”

Jerome Powell:

I’ve never worked as a bank supervisor, but what I believe is this: bank supervision can tend to be pretty process-oriented, and there’s a playbook, there’s a checklist, and that’s a good thing because you want the banks, it wants to be transparent so that they know what’s expected so they can do what’s expected. But it can also be slow when it needs to be fast.

And so the art of it… and there’s definitely an element of art in this thing. And some people are just very, very good at it, and others less so, but you can see. The art of it, though, is for banks to understand, generally banking is different from many other industries. It is a heavily regulated and supervised industry and, particularly the larger institutions, they have ongoing daily interactions with their regulators and supervisors. What’s important is that the banks are well-capitalized, that they understand their risks and they can manage them, that they have adequate liquidity, that they have good resolution plans. And our job is to make sure that that’s the case. The more the banks take that on themselves and do a great job at it without us pushing them, the less we need to push.

Kai Ryssdal:

The international situation, the United States is doing better than every developed economy, I believe in the world, by a good measure. What do you make of that, and how does it affect your decision-making?

Jerome Powell:

A fair amount of my job is going to these international meetings, either in Basel or whoever’s running the G7 or the G20 in a given year. And that is what people are talking about, is the exceptionalism right now of the US economy, how strong the US economy is. And there’s no question that we are performing very well. I think part of it just is productivity is a key thing. Europeans are very focused right now on not just their short-term low productivity, but what can they do to have greater productivity growth over time?

This is a big focus for the European economic officials at the highest level. Mario Draghi’s doing a report on it, and the finance ministers that I talked to from the big countries, this is their focus, and so it’s tremendously important. So people are thinking about, what can we do? Some of the things they’re looking at doing are sound like the United States, like having a flexible labor market and having a very active financial sector that can fund early stage or small companies well. So it’s very important. And so yeah, the performance of the US economy in the last year or so has quite strong.

Kai Ryssdal:

Does that affect how you do your job?

Jerome Powell:

Yes, it does.

Kai Ryssdal:

Discuss.

Jerome Powell:

Well—

Mary C. Daly:

I’m going to have to take the punch bowl away.

Kai Ryssdal:

Seriously?

Mary C. Daly:

Apparently.

Kai Ryssdal:

Oh man.

Mary C. Daly:

I know. It goes fast when you’re having a good time.

Kai Ryssdal:

Sorry. My job is to hit up the time post and I can’t even do that.

Mary C. Daly:

Well, apparently not, no, but I’m your helper. I am on stage ready to help you.

Kai Ryssdal:

Sorry, Mary.

Mary C. Daly:

Chair Powell, I’ll turn it back to you.

Jerome Powell:

Well, as I mentioned earlier, the fact that the US economy is growing at such a solid pace, the fact that the labor market is still very, very strong gives us the chance to just be a little more confident about inflation coming down before we take the important step of cutting rates. And so we’re not going to take that step until we are confident. We don’t think it’ll be appropriate to do so, I should say. But that’s the way it plays into what we’re doing.

Kai Ryssdal:

Over to you, boss.

Mary C. Daly:

Okay. Thank you very much, gentlemen. It was a terrific conversation. I appreciate it.

Kai Ryssdal:

Thanks, Mary. Appreciate it.

Jerome Powell:

Thanks, Mary.