Fetcherman J. Powell making comments at the Economic Club of New York about his view of the economy and interest rates. You can be sitting down on the fireside chat with David Weston.
Let me start with something you just referred to, which is the surprise of the upside in the economic data, despite as you've turned it, I think historically fast pace of growth. Are you surprised at how resilient the United States economy.
Is just today.
We've got jobless claims members surprised because they were low. We got the retail sales numbers you mentioned, We've got industrial production across the board. It seems like a very strong economy despite all you've done to try to slow it down.
Yes, so we certainly have a very resilient economy on our hands. We've got the economy growing strongly. If you think back a year, many forecasts called for the US economy to be in recession this year. Not only has that not happened, growth is now running for this year
above its longer run trend. So that's been a surprise, driven largely by consumer spending, driven by a very strong job market, with people getting jobs with high first high nominal wages, and that as inflation has come down real wages which is spurring spending, and we've also had inflation coming down, so you know that's it really is a story of much stronger demand. There may also be there may be some ways in which the economy is less
affected by interest rates. It's hard to know precisely, but for example, companies, many companies, any company with bond market access will have termed out its debt right and therefore may not be feeling the effects of higher rates. The same may be true of homeowners who have a long term, fixed rate, low rate mortgage, who then are therefore not because it's not an adjustable rate or a higher rate,
they're not feeling that increase in rates. So the economy may be somewhat less susceptible to the effects of rate increases. On the other hand, if you look at look at interra sensitive spending, these are very much the places where we see where we expect to see and do see effects. So for example, in housing or you know in the housing effectors sector has been very affected by higher rates. As purchases of durable goods. If you look at surveys, people will not say that it's a good time to
buy a car or a house. Quite the contrary, So we see policy working through its usual channels. It may just be that rates haven't been high enough for long enough. And again it's all happening in the context of very strong demand. We've put other speculators.
Maybe the terming out of debt, as you say, both corporate debt and hushole debt may diminish the effectiveness of rate hikes. Do you have a view of whether that's true, And if it is true, what does it say about matre pussy. Does it mean you have to go farther in the rate hikes or do you just not have the power to affect it.
So no, I don't think that there's a fundamental shift in the way that interest rates affect the economy. There may be some differences in this cycle because of what I mentioned. As I mentioned, we are seeing those the effects where we expect to see them, which is interrasensitive spending and also asset prices to some extent, and the exchange rate, which you're also seeing a strong exchange rate,
which is disinflationary. So I don't think there's a fundamental change in the way monetary policy affects the economy, and again it goes back to just very strong demand. We take the economy as it is, We take fiscal policy and the economy and all the things we don't control, they come to us, and we conduct policy always to achieve maximum employment and stable prices. So we just take what comes. The fact that we have a strong growing economy,
a strong growing labor market, and inflation coming down. These are the elements that we want to see that to achieve the outcome we want. It may take more time, but ultimately this is the kind of thing you would want to see along the path to getting through this without a big increase in unemployment.
How much effect thus far has the FED had We will have memorized now long and variable legs?
How long? How variable?
And where are you in that process? Are you at the twenty five percent point the fifty in terms of seeing it in the effect in.
The real economy. So there's there's no precision in our understanding of how long legs are. One thing that has changed in the modern era is that markets now, over the course of the last thirty years, central banks have decided,
instead of being secretive, to be very transparent. And what that has meant is that markets move actually well in anticipation, well before our policy moves, So the transmission from policy moves to financial conditions actually happens before the moves now, whereas that was not the case fifty years ago when Milton Friedman coined the phrase long and variable legs. But now you have financial conditions changing, and the questions how
does it affect the economy? The standard channels are asset prices in such intrasensitive spending in the exchange rate, for example. And again we do see that happening, just not as fast as we would like. And I would attribute some of that to just stronger demand. Household savings were turned out to be higher. Household spending has been stronger, and that's by far the largest part of the economy.
In order to conduct monetary policy effectively, do you need at least hypothesis about how much has already hit the economy, because it's hard to know how much more you need to do if you don't know how far you've come.
So on legs, I think if you think back, it's been a year now since the last seventy five basis point hike we did. It was the November meeting in twenty twenty two. The first one was in June, so it's more than a year, so we should be seeing the effects. By the way, they don't all just arrive on one day. They arrive and then they're thought to
peak and then to diminish. So there's a lot of uncertainty around lags, and one of the reasons why we have slowed down significantly this year is to give monetary policy time to work. The truth is, though you can find academic support for different different diferent speeds and duration of lags, So we have to use our eyes and a little bit of risk management in patients in slowing down the pace to make sure that we are seeing the full effects. And I think again that's part of
why we've slowed down this year. We went very quickly in twenty twenty two to catch up to where we needed to be, and now we're moving carefully with these decisions.
So when you spoke back in August of twenty twenty and sort of laid out the revisions to the framework as it were, you said that in terms of anticipated growth, the sort of consensus have gone from something like two point five to one point eight percent. I think we're the numbers you laid out of that. Where are you now? Where's the fed? Where are you? And what you think?
Basically? The long run growth is long run potential growth is not something that moves around a lot over time. But I would my own guess is it's around two percent. I think that the standard mainstream view would be a little bit below two percent, But I would just say two percent real growth over time. And you know what causes growth is you know, growth in hours worked plus growth in productivity. Growth in hours worked is a function of population growth in the long run and also labor
force participation. Many things affect productivity. But if you if you drop in reasonable standard longer term estimates of hours worked growth and productivity, which is just output per hour productivity growth, you get something around two percent. And that's that's higher than most other advanced economies.
As you look at it, do you see historical precedents for having growing economy with high rates over a long period of time? I mean, as you look back, I mean, is it like the late nineties? For example? What analogies do you draw as you try to determine what this might be doing at the economy of the longer term.
So that's really a question about the what the level of rates will be going for, what the neutral level will be, And I think it's it's very hard to know confidently what the answer to that will be in five years. Some of the reasons why rates were low for the last twenty five years were just the aging of the global population and globalization and you know, so lots of savings and relatively with an aging population, savings greater than investments, so rates are lower and productivity was low.
So all of those led to low interest rates. So what has changed with the pandemic. You might see less effects from globalization, certainly demographics that the aging of the global population is not changed. I mean, this is a discussion we're having on an ongoing basis. It doesn't really affect current policy. But where will rates settle out? What
will be at a normal rate. So if a typical FED tightening cycle would leave you at five or six percent, and this is in the before the pandemic and before the low inflation period, you would have had had FED rates in four or five percent or even higher. Frequently are we going back to that? I really don't know. I wouldn't want to speculate. I mean, my guess is it'll be somewhere in the middle. But I don't know. I mean, I think we can say this now, the
effective lower bound is not an issue. You know, we were very concerned about that. Right now we're very far from the effective lower bound, and the economy's handling it just fine. But that's you know, that's because we're at a time of really elevated demand coming out of the pandemic. As we reopened with fiscal stimulus and monetary stimulus. We
have very strong demand of the United States. Hard to know what the economy will want in the way of interest rates when five years from now, in all of the effects of the pandemic are behind us.
You mentioned the long term equilibrium rate, which you talked about again back in Jackson Hole in August of twenty twenty. Back then you said you thought it had served, consensus had come down. I think it was from like four point twenty five percent to two point five percent.
Where is it today? So, I think, by any reckoning, long term interest rates and the neutral interest rate came down steadily over the course of several decades. So where is it today? I don't know, you know, we're finding it. Basically, the idea was, I think the median indication of what the real neutral rate was around fifty basis points before the pandemic. It may have risen in the near term. The real question that matters, though, is will it rise in the long term, and that we don't know.
But do you need to know in order to conduct monetary busy? I mean you must have to have at least a theory. I mean, I'm not saying you have to be right about it, but you have to have a hypothesis, don't you. As you look at the data, you have to put the data through some sort of theory.
So we all write down our estimates of the longer run neutral rate every quarter in the summary of economic projections, and that's based on models. It's based on also looking out the window and including lags, thinking how are our current rates affecting the economy. So the evidence of your eyes is that the economy is handling much higher rates
at least for now, without difficulties. So notionally, that might tell you that the neutral rate has risen, or it may just tell you that we haven't had rates high enough for long long enough. You're right, though, but you know, we have models for everything, we have formulists for everything. Ultimately, as a practitioner, we have to, you know, focused on what the economy is telling us, even taking legs into account. What's it telling us? Does it feel like policy is
too tight right now? I wouldn't have to say no. I think the evidence is not that policy is too tight right now. So we'd five five and a quarter to five and a half percent.
Do you think we're entering into a new phase in monetary policy? We had the vulgar disinflation I think you referred to it as and then we had sort of inflation targeting. For a time, there was concerned about secular stagnation. We were pushing the zero bound, as you said, we were concerned with that, and then we had the pandemic and we had the real problem with inflation.
What's the next phase look like? How would you describe what we've been through? Is in all of the advanced economies around the world was a period where the effective lower bound, the proximity of interest rates free interest rates to the effective lower bound, which is zero or a little bit less, was a big problem for monetary policy, and just rates came down and down and down. And the problem is if rates are going to be close to zero in good times, then how do you cut?
And so have central banks lost the power of their most important tool, which is interest rates. This was a subject of a vast literature in monetary policy research for twenty years, and the most common answer was some kind of a makeup strategy. So you would credibly promise to run inflation a little bit hot and above two percent, and that would anchor inflations two percent to counter the times when it was below. So that was a very
serious problem which filled books worth of research. Then comes the pandemic, Then comes the response to the pandemic, and then comes the pandemic inflation, not just the United States but everywhere. The question is that a secular change or are these factors that brought us to that place? Are they still out there waiting to come back? And you know,
books are written on this subject. Now you can argue that, and some have argued that effectively, the last twenty years before the pandemic, we're kind of a perfect storm of disinflation, and now that's all gone and we're going into a more inflationary period that will be characterized by more supply shocks and things like that and therefore more inflationary pressure. So are we going into such a I don't know. I mean all I can tell you I think it's unknowable.
And you know, great theorists and researchers have different views on this. It's not something you can settle in advance. We'll have to see. I think our issue is right now trying to achieve a sufficiently restrictive stance of policy to bring inflation down to two percent over time. That's what we're really focused on.
Whenever any of us goes, particularly institutions, go through tumultuous times, and know, as you've been through the tumultuous time, we look back and think, O coo do we learn? So after action report, look at the pandemic and then pandemic inflation, what would you say you learned in terms of macroeconomics, in terms of the economy from that experience.
So, hindsight is always a wonderful thing, right. I think the fair way to judge the actions that were taken is to put yourself in the place of legislators and policy of other you know, and central bankers around the world, And there was no playbook. You know, we've never seen we hadn't seen a global economic shutdown. People were thinking that the pandemic might kill a whole lot of people, and that we wouldn't have a vaccine for five years.
We might now have an economy for five years. So these things were all very possible in March of twenty twenty, and so we pulled out all the stops in Congress, put at all the stops. With the benefit of hindsight, Could we have done a little bit less and had a little bit of inflation, I guess we could. But I think if you look overall at the performance of the US economy, our economy is the strongest. We have the you know, we're actually also making the most progress
on inflation, but we certainly have the strongest growth. We're back to prior growth trend, you know, not just the level of where we were, were actually back to the prior trend. The labor market. The last time we had this many consecutive months of unemployment below four percent was in the late nineteen sixties, so it's more than fifty years ago. So our economy is doing very well from all of that. But if you had perfect hindsight you
might have. You might not have had as much inflation if we'd done less, although other countries who didn't do as much as we did also had substantial inflation problems. I think my question was just a little bit different.
It's not so much of assigning blame or saying to somebody make a mistake, as are there things that going forward would change the way you conduct monetary policy that you learned from that that maybe nobody had reason to know at the time, but it was an experience you went through.
Well, you know, we were in a time of a very long time, in a reasonably long time, of disinflationary forces, and I think everybody's in instinct had been attuned to risks coming from this direction, which is too low inflation. And so what this has taught us is that you know that period, that period is over, and we now have probably going forward, a more balanced set of risks
where high inflation and low inflation are both risks. In fact, right now the risk is still high inflation, but I'm assuming once we get back to two percent we won't have that. But we've certainly learned that. And I mean, events are the possible range of events is so much wider than what we think it is on any given day. Right, the tails are so wide, and it's just not human nature to constantly be thinking about things that are way out in the tail. But they happen in financial markets
and in economies. They happen far more regularly than they should.
I suspect every person in this room as well. Where it's going on with yields with bonds, it's been a big story, particularly in the longer end of the curve. What is your understanding of what is going on in the bond market and why those yields are going up, particularly again at.
The longer end of the curve. So it's it's really two questions. One is why is it happening? And the other is why does it matter for policy? And so I would say, on the why is this happening question, I think it's appropriate to have a little bit of humility. It's always hard to say exactly what's going on with longer term yields, but this is what I think we can say. First what it's not. It's not apparently about expectations of higher inflation, and it's also not mainly about
shorter term policy moves. So FED funds moves over the next year or two. Really, if you can look at the two year for example, and two years moved up a little bit since September. But really the move is in longer run bonds. So it's really happening in term premiums, which is the compensation for holding longer run securities, and not principally a function of the market looking at near
term fund rate. I think a few other ideas about the many candidate ideas and many people feeling their priors have been confirmed by this event, I'll say as well. But so one would be just that markets and analysts are seeing the resilience of the economy two high interest rates, and they're they're revising their view about the overall strength of the economy and thinking even longer term. This may
require higher rates that could be part of it. You know, there may be a heightened focus on fiscal deficits that could be part of it. QT could be part of it. Another one you hear very often is the change changing correlation between bonds and equities. If we're going forward into if we are going forward into a world of more supply shocks rather than demand shocks, that could make bonds a less attractive hedge to equities, and therefore you need to be paid more to own bonds, and therefore the
term premium goes up. So all of those are possible ideas. Then the question is does it matter for us as long as I'm talking about this. So the way I think about it is, uh, you know, we change our policy. Actual and expected changes in our policy affect financial conditions, and persistent changes in financial conditions affect economic activity, hiring, and inflation. So one question is are we seeing the
longer run bonds? Are they increases in rates? Are we seeing those come through in financial conditions in a persistent way? And I think if you look at financial conditions indexes, the answer so far would be yes, you are persistence. It will be a matter of just seeing with our own eyes. But certainly they're coming. If you look at financial conditions indexes, they're showing tightening and it's a lot
because of longer rates. Then the question is is indigenous and is it just because the market expects us to take things, to take further actions to tighten monetary policy, in which case, if you have to follow through, but that doesn't seem to be the case, is it doesn't seem to be principally about expectations of us doing more. It seems that the other factors are the more the
more prominent ones. Another question is bottom bottom line? Know that that means it probably does over time, it makes sense, it's something that we'll be looking at.
Well, that's the question I say, is over time. From what you understand right now, do you think this is a temporary phenomenon or do you think there are structural factors whatever they are, and we can talk about what they might be, that would really are This is the future that we're looking at now.
So of the factors I just listed, some of them are shorter terms, some of them are longer term, and some of them could be either. So for example, fiscal concerns over fiscal deficits that that could be a longer term factor. The change in correlations between but stocks and bonds could be a long term I don't think we know. I think you know. Basically, bond prices are set by supply and demand. The supply of treasuries is is a known thing, but demand can be affected by any and
all of these theories, and also just by sentiment. Sentiment too, which is hard to characterize. So you know, markets have been volatile, they've been longer than you know. You've seen the rates moving up and down a lot. I think we have to let this play out and watch it. But you know, for now, it looks it's clearly a tightening in financial conditions, and so we'll be watching.
It carefully talking about the physical side. And you've been very careful repeated to say you want to stay in your lane. You're not responsible for fiscal issues. At the same time, you have to take into an account and it looks like the United States is going to have to borrow a fire amount of money, by the way, other countries are as well. Around the world, we have a big, big supply of treasuries coming on board. To what extent do you think that is a longer term issue?
And let me tie it back to something you refer to in your marks. Actually, when we see geopolitical conflict around the world, like in Israel, like in Ukraine, some of the build up with respect to China, the defense spending is going to be elevated for the United States and for other countries. Do you take that into account and figuring monetary policy, because it may well mean that we're borrowing a lot more money than we have in the past, so we.
Of course see the same things that everyone else. So I just came back from IMF meetings this weekend, and there's a lot of talk of the very large resource demands that organizations like the IMF and of course countries are facing, and the need for substantial amounts of revenue. You mentioned military. There's also dealing with climate change and things like that, so it's a there's a lot of that we don't as you mentioned, we don't comment on
on fiscal policy. Actually, the fiscal authorities have oversight over us and not the other way around, so we stay away from that. So I would just say everyone knows that it's not a secret, and about all I can say is we know that we're on an unsustainable path fiscally. It's not that the level of the debt is unsustainable. It's not it's that where the path we're on is unsustainable, and we'll have to get off that path sooner res
and later. It's not really something though, that affects a monetary policy decision about whether how much we raise rates in the next six months. It's not going to be driven by Uh. I mean if there were some vast new fiscal policy that we're about to be enacted, and then that that would have an effect on the models and have an effect on projections, and indirectly that would affect us, but we would not be in a position of responding directly in fiscal policy.
When we talk about the treasure market, obviously there's there's buying and selling, and the United States government is issuing a lot of treasuries. There's also a question of who's buying, and we're we now have one buyer who stepped out of the marketplace, namely the FED, which is a big buyer. At the same time, we're getting reports that maybe some of the overseas buyers may be pulling back as well. How do you take that into account and assessing where we're going with long term bobb yells?
So, actually, I think buying by overseas entities has actually been pretty robust this year. So there have been some small changes, but I think by and large it's been it's they've they've been buying, uh, you know, robustly. Again, look at we look at the broad financial conditions, We look at interest rates, other asset prices. That's what we look at. We're not you know, we don't focus on
fiscal policy. We wouldn't change monetary policy because of for example, you know, because we think that the US is on an unsustainable path. Everyone knows that we're just going to do monetary policy to achieve maximum employment and stable prices, and that's how we think about it.
I'm curious, though, one of the things you're most concerned about is the real economy.
What's going on in the real economy.
You distinguish yourself from some of your predecessors, and that you have a significant exposure to the private sector, not just the voice academics. As you talk to CEOs people in business, what are you hearing about the cost of capital, Because these bond prices are really affecting cost of capital for the.
First time in a while.
There was a long time the cost of capital felt like was almost zero, and business changes an awful lot when you really when the price of money goes up.
I talked to several people this week who run companies, and they each said that the economy remains strong and that they don't see the consumer you know, you see there's some areas where we're spending is softening. But overall, I mean, look at the retail sales number. The consumer is strong. Volume is not going up very much, but
companies are profitable. You don't know now if you get to where I think the cost of capital would really matter, would be for smaller companies and early stage companies, and that really does matter. So, you know, we don't have a lot of tools. We have interest rates, and they're far from perfect perfect. It's famously a blunt tool, but it's what we have to get inflation down. And really the world counts on us to deliver low and stable inflation.
That's what we have to do. And you know, at a time like this, there are you know, we know that we're having negative effects on you know, we had the homebuilders in this week. It's a very tough time in the whole home building industry and we know that. But ultimately, what we want to get back to is a long period of price stability. That's the best thing we can provide, and that that policy makers and businesses and everyone can and people can just lead their lives
not worrying about inflation. This is what we can deliver, it's what we have to deliver, and this is the time. You know, our independence is not for times when we're really popular. It's for when we're now, when we're doing something that that that really the public counts on us to do. Notwithstanding that, it's that it's challenging and difficult, and you know, higher interest rates are difficult for everybody.
You have not wavered from your commitment to two percent again today two percent, no question about it. There are those who suggested, including some colleagues in the FED, that maybe the bond market is doing part of your job for you.
Is that the way you see it, look, I would I would say it this way. The whole idea of tightening policy is to affect financial condition and to the extent higher bond rates to reflect that they do, they're producing tighter financial conditions right now. So that is that's
how monetary policy works. That's literally how it works. So again, in principle, as long as they're as long as bond rates are going up for some reasons, and they're not going up just because they expect us to do things so that if we don't do them, they'll come right back down, as long as and we don't think that's the case, actually doesn't I don't think it's the case. It doesn't seem to me. That's where analysis leads you. Then, sure that's a tightening. That's exactly what we're trying.
To achieve, And therefore it seems like almost arithmetic. It must reduce some of the impetus for you to continue to raise rates.
At the margin. It could. I mean, I think that remains to be seen. And by the way, I'm not blessing any particular level of longer term rates, but just in principle, that's right. So let's talk about the labor market.
You refer to that in your marks as well, And as you say, vacancies have come down some, although they still are pretty elevated. If I'm not mistaken, quits have actually gone up some. It seems to be a type of the labor worker. What do you make of what's going on in the labor marker right now?
Labor market has been extraordinarily strong. So what happened in the pandemic was we had a negative labor supply shock is one way to think about it. So a whole lot of people left the labor market when the pandemic happened and then didn't come back. And so when the economy reopened and everybody you know, there was remember there was revenge, travel and revenge everything, very strong demand, and there just weren't the people. So you had two job
openings for every person actively seeking employment. We've never been any where you're close to that. There was panic that you know, and wages and bonuses, and particularly in things like in person services where people had not gotten big wage increases and didn't want to come back to work. So that's that's where we were. So since then, there are very many signs that the labor market is getting back into balance, and I talked about some of that
in my remarks. Surveys of work. You know, we survey businesses. We don't do it, but other people survey businesses and say our work plentiful, and that measure that measure was no. But now it's back to pre pandemic levels. Survey workers are jobs plentiful, and that was at an all time high and now it's still high, but back. So wage increases are coming back down to more normal levels. Job openings are down from two to one point four. They were at one point two in the very tight labor
market of twenty nineteen. By the work week, by so many measures. The labor market is gradually cooling, and part of that is this all through twenty twenty two, we thought we were going to get more labor supply and we didn't, and I personally thought, well, I guess we won't get any and then we've gotten a substantial amount this year. The female labor. First participation is that in prime age workers is at an all time high, which has to be related in some way to work from home.
But labor force participation increased, immigration increased, and now you see that in the overall cool of the labor market. So even though job creation is still very high, there are the workers to fill those jobs. And again businesses will tell you it's that it's very different. It's still a very tight labor market, but it's loosening.
Coming back to your goal of two percent inflation, what have you learned from this experience about the relationship between inflation and labor I mean, there's a lot of talk about Phillips curve, whether it still applies, whether it's weaker, what is it? What's your hypothesis right now with the relationship between inflation and labor market.
Let me tell you what it was before. So one of my favorite charts is just the slope of the Phillips curve over forty years, and so it shows the relationship between unemployment and inflation. If you go back to the high inflation of the seventies, it was a very tight relationship, and that relationships went down and down and down to the fact where the Phillips curve there was almost no relationship, meaning that the Phillips curve was very
very flat. Now, actually, if you just ignore cause and just look at the data, it will tell you that the relationship is back. Do we really think that's a sustainable thing. I don't know. What happened though, was that people came to seriously expect two percent inflation, something like two percent inflation. And if people expect that, if companies expected, and workers expected, and you expect that in your shopping, then that's what will happen in a way, And that's
what happened. So even in very very tight labor markets, we didn't have high inflation. I was at the FED since twenty twelve as unemployment went from six to five to four into the threes for the first time, and you know, the models were all saying that we should be seeing some inflation, and we never saw we never really saw two percent inflation on a sustained basis during that era. So we learned that the Phillips curve was
really flat. Some pronounced it dead. Now I don't think most of the inflation we're seeing at all is from the Phillips curve, though, I think it was built really the collision of very strong demand, really strong demand with constrained supply. Cars being a great example. Many people wanted cars, didn't want to ride public transportation, wanted to move to the suburbs, unlimited demand for cars. Interest rates are low, yet we couldn't get semiconductors, so there are no more cars.
Car production went down. How do you solve that problem? Prices just go way way up for cars. That's how you clear the market. So that's a classic example of what happened here. Really wasn't about the Phillips curve. It was more about constraints supply and demand more broadly, especially for goods. At the beginning.
Let's chend you another responsiblit years, which is the banking system. Last March we had something was scare because of I guess interest rate risk with Silicon Valley Bank, and then some others.
Are we through that? Now? Where are we in that process? Are you?
Are you resting easy?
So what you pay us for is not to rest easy. We don't do that. So, but I would say where we are is this though things have certainly settled down, certainly have settled down. We see the funding markets as fine. We see and you know, we paid a lot of attention to banks that looked anything thing like the banks that had the problems and made sure that they that they had credible liquidity plans and plenty of liquidity and
all of that. And so I think all of that has worked, and we set up this facility that's available for banks to borrow, and so all of that has led to a real settling down. But you know, our job is to be on the case. And you know, we're still on the case, and we'll, you know, we'll we'll keep after that. Banks are generally very well capitalized
and highly liquid in our country. Banks are strong. You know, we benefit from all those years of reform under DoD Frank and Buzzle three that we went through, you know, with former Governor Trula and many others, and so we benefit from a very strong, well capitalized banking system that's much better at managing its risks than the one that entered the global financial crisis very well capitalized. But you want some more proposal Buzzle three proposal, which is you know,
it's a it's a rule that's out for comments. So there's not a lot I can say, but we do expect a lot of comment, and we do expect to take those comments very seriously.
Talk about the commercial real estate, there are some concerns out there in the marketplace what's going on Because obviously there's a repricing that comes with your increased rates. It's thought that there's some real estate that it's not worth the money that was originally financed with it. How concerned should we be about that as something lurking out there that could really affect the system overall, not just to be able invested.
So there's work from home and that's affecting downtown real estate in a lot of big cities and higher rates as well, as you point out, So this is an issue that we pay a great deal of very careful attention to. Commercial real estate is not a is not a principal risk or a major risk for the very large largest banks. It is much more for regional and really the smaller banks have proportionally much larger exposure to
real estate, so commercial real estate. So what we've done is the supervisors are in there look at real estate portfolios. They're working with banks to make sure that they have they have plans to deal with the problems they have in their portfolio. These problems evolve over time, they don't they don't land with great suddenness like a market event, and so we're working with all of the bank regulars, are working with banks that have, you know, concentrations of
troubled real estate to work it out. There will be losses, for sure. You can drive down through most downtowns in many downtowns anyway and see buildings that are empty and things like that. But we're working through it, and you know, we're on that case and don't see it as you know, as presenting much broader problems. But our job is to make sure that it doesn't.
As you mentioned regional banks or where a lot of people focus on this as you conceptualize the bank system, what is the role of the regional banks. We have the super big banks that don't look like they're going anywhere, and we've got the community banks, the smaller banks that we understand are critical for portunity, for small businessinesses and
local context. But what about the regional banks, how much pressure is on them and what would the would the damage be to the system if in fact there was more consolidation with some of the big banks.
I think the regional banks are very important, extremely important. You know, we are we have forty five hundred banks, which is a lot more than any other country per capita or per dollar of GDP. But we have you know, our gesibs. The largest banks are deleting banks in the world in profitability and in their success in their business. We have community banks and you know, deal in smaller communities. But we also have these great regionals and I think
they do. They do a great business among with you know, with many companies, and I do think their business model is under pressure, and I would not like to see us add to that by treating them exactly like gesibs. I think they need, they don't need exactly the same attention that a GCIM gets. So but I would say we, I personally think and I think we have to fed strongly think that that that the regionals and the smaller
regionals are an enormously important part of our banking system. Okay, you've been very generous for your time.
Really appreciate. I have one last question. Are you having a good time? You have so wide? No, no, no, I assume this wasn't that pleasant, but in general you're enjoying your job.
I would say this, first of all, it's an incredible honor to do this job, and every day I do it, I feel so fortunate and so lucky and blessed to be entrusted with this. And you know, all I want to do is do the best job I can for the public that we all serve. And yes, there's a lot that is enjoyable about it, but mostly it's just so important to get it right and that's what we're trying to do. Thank you so much, Jared Pobble, it's
really good at you all right. That was fed Shair J. Pale speaking at the New York Economic Club with our David Weston.