Jerome Powell

by um a small amount relatively speaking basis points. Someone people would say that was small um, but at the time it wasn't clear that the Job's report would be as strong as it turned out to be. Subsequently, had you known that the Job's report was going to be as strong, would you have done twenty five basis points or something different? David, thank you for that question. Thank you, thank you for inviting me here today. It's great to

be here. So we don't get to play it that way, unfortunately we have to, but I'll I'll take it this way. So the message we were sending at the fhone C meeting last Wednesday was really that the disinflationary process, the process of getting inflation down, has begun and it's begun in the goods sector, which is about a quarter of our economy, but it has a long way to go. These are the very early stages of disinflation. So the services sector really, except for housing services, pardon me, is

not really showing any any disinflation yet. So our message really was this process is likely to take quite a bit of time. It's not going to be we don't think smooth. It's probably gonna be bumpy. And so we think that we're gonna need to do further rate increases, as we said, and we think that will need to hold policy at a restrictive level for a period of time. If next month you had another five thousand jobs created net jobs, would that be good or bad from your

point of view? Have we got a lot of people working but maybe producing more inflation. We don't. We don't have the luxury of thinking about good or bad. It just is what it is. So but I would say again we most most analysts, most economists would say that to get inflation down from high levels that we've had, if you look at history, there is some softening and labor market conditions that goes along with that, and that is still you know, very possible and indeed likely here

some softing and labor market conditions. However, this cycle is different from other cycles because of where it came from, and it's just confound at all all sorts of attempts to predict what it would do. Okay, so the markets um after your speech last week, the markets assumed that therefore there would probably be another basis point increase in your next f i MC meeting. Um was that a

bad assumption by the markets? So what again? What we said at the meeting was was that we we believe that we anticipate is what we said, that ongoing rate increases will be appropriate. Uh. And the reason is we're trying to achieve a stance of policy that is sufficiently restrictive to bring inflation down to two percent over time, and we don't think we've achieved that yet, so we

said that. Uh. And and you know, now you see the labor market report, and I think again, financial conditions are are are more well aligned with that than they were before. So the assumption when you made your speech was that probably they're fed, might I am and consider uh decreasing rates by the end of this year, And the markets no longer assume that you think the markets are wrong. Well, so let me say these are all of these numbers that we're throwing around here are conditional

on incoming data and what happens. So we never say this is this is what we think will happen. You know. We we make a tentative forecast and then we let the data come in. For example, if the data were to continue to come in stronger than we expect and we were to conclude that we needed to raise rates more than is priced to the markets, or then we wrote down at our last group of forecasts in December, then we would certainly do that. We would certainly raise

rates more. So you've said their inflation rate target is two percent um, but why two percent and not three percent? Three percent could be tolerable really, I mean most for most of organized history, three percent is considered. Okay, why do you want two percent? Two percent is the global standard, and that is our objective two percent piece as measured by the PC index, and that's just that's not something we're looking at changing. That isn't going to change. It's

that's not gonna change, not gonna change now. But okay, so you need to get the two percent, and your goal to get there is by what period of time would you like to get there? Well, we say, we say that we're using our tools to get there over time. If you look at our forecasts, we expect two thousand twenty three to be a year of significant declines in inflation. And it's actually our job to make sure that that's

the case. But I would tell you that, uh, you know, with inflation headline headline PC in inflation is running about five. This is on a twelve month basis. Core is running at four point four. My guess is it will take certainly into not just this year, but next year to get down close to two. Okay, so two percent is firm. That's you're not going to get off that, yes, okay, So uh. The theory of raising interest rates um is

that it will decrease economic activity and increase unemployment. But you've been increasing interest rates for a while and unemployment is now at to record low. So what's wrong with the theory. Why is unemployment not going higher? Well, the labor market is strong, because the economy is strong, and as I mentioned, it's a good thing that we've been able to see the beginnings of disinflation without seeing the labor market weekend. Um, it's just that there's a lot

of demand for workers. In fact, if you look at the supply of workers versus demand for workers, demand for for US workers is now more than five million greater than the available supply, and available supply can systs of people who were either working or actively looking for a job. So this this is this was not the case before the pandemic. The pandemic really had a significant left a list lasting marks so far on labor supply in the

United States. The labor force participation rate came down, and there now is a shortage of workers, and it it feels it almost feels more structural than cyclical. So that that's a that's a significant issue that you've resisted I think saying what unemployment rate would be acceptable to you? I think, but is there an unemployment rate that you think would moderate inflation such that you would tolerate unemployment at four, five percent, six percent? I guess I think

about it this way. UM, we have two goals that Congress is assigned US, maximum employment and price stability. Price stability, as we've agreed, is two percent inflation. Maximum employment means if you want a job, you can get one. So right now the labor market is at least at maximum employment, but many would say that that is out of balance with more demand and there is supply. So what we're trying to do is get inflation down. We're not we're

not targeting, you know, a different unemployment rate. We're trying. We're trying to use our tools to get inflation to come down over time. So if I wanted to go get a mortgage on a house I was gonna buy, for example, uh, you would say, I'm not going to be any better off waiting till next year than now because rates aren't going to come down that much at the beginning of next year, so I might as well

get the house now mortgage. So I say, Surprisingly enough, I get a lot of requests for advice on those kind of things and you don't give anything, and I but I really can't, Okay, I can't really can't respond, So okay, So on the whole, to summarize where you are, you're basically saying that the job's data was that came out was a little bit surprising, but in the end you're taking you've taken into account and you're pretty comfortable with the guidance you gave last time, and you're not

prepared to give anything that's completely different guidance than you gave last week. Well, I mean, this is a world in which we've had the the inflation, sorry, the the the labor market report, and I think that does I think it underscores the message that I was sending at the at the press conference and in the meeting that we have a significant road ahead to get inflation down to two percent. And I think there has been an expectation that it will that will go away quickly and painlessly,

and I don't think that's at all guaranteed. That's not the base case. The base cases it will for me is that it will take some time and we'll have to do more rate increases, and then we'll have to

look around and see whether we've done enough. In hindsight, would you say that when COVID hit the economy and we chected five trillion dollars of physical policy into the economy, and the Fed did quantity of easing and other related things kept interest rates very low, would you say, in hindsight that was a mistake or was the right policy at the time. So I think you have to go back to the decisions that were made in real time, and it was something nobody had ever seen. The global

economy came to a virtual stand still. People were talking about depression. People were talking and we didn't think. We had no idea when we would get vaccines that worked. So Congress took very strong measures, and we took very strong measures. And you see where the economy is. You've got a very very strong labor market, but you have high inflation. As I mentioned, we're at the beginning of

getting that down. If you look around the world though, at other countries, they're also experiencing high inflation, including countries that didn't that didn't do that as much as we did, either from a fiscal or monetary standpoint. So that that tells you though that a big part of this inflation is actually related to the you know, the pandemic itself is shut down and then the reopening. That's a big

part of it. So are some people that are worried about the federal debt limit and that we might not have to extend it on time. We have thirty one point four trillion dollars of debt. Are you a little worried about the debt limit not getting extended. So the debt limit is really something for the fisc authorities to deal with. The FED our only role in this is that we're that we're the fiscal agent of the Treasury Department.

We're not a policy maker on that. And I will just say this, this can this really can only end one way, and that is with Congress raising the debt ceiling in a timely fashion so that the US can pay all of its bills one and as do. That's what has to happen. And if that doesn't happen, no one should think that the FED has the ability to shield the financial markets or the economy from the consequences of moving too slow. So you don't have any program in place ready to go if, in fact, the that

limit isn't passed in time. This is something that Congress has to deal with. And the so called trillion dollar gold coin solution is not one year in favor of I guess I. As I said, this ends in only one way, and that way is Congress voting to raise the debt ceiling so that the US can pay all of our bills. And today, what about the debt total

debt of the United States, which produces some inflation. With thirty one point four leaving inside the debt limit, are you worried about the total indebtiness United States producing inflation or you don't think that's a big problem. Yeah, it's not the level of debt. I would say. The thing I'd say about the level of debt is really it's not. First of all, it's not the Fed's job. But I would say that we we we're on an unsustainable fiscal

path at the federal government level. That has been the case for some time, and it's something we will have to deal with it. Better to deal with it sooner rather than later. Now, many of your predecessors were economists, your train as a lawyer. Um so Um, they spoken what I call FED speak, which is to say, incomprehensible kind of economic language, which was done intentionally. I think sometimes they would say, so you tend to speak in English? Um?

Is that have been a plus? You'd say, when you're dealing with members of Congress, they can understand what you're saying. I like to think, so, you know, I've made it a real priority to to engage a lot with Congress. In our system of government, unlike the parliamentary system. Our accountability is to the legislature. It's to send it in the House, and particularly the two oversight committees Senate Banking

and House Financial Services. And I think it's very important that we respect that and explain what we're doing and listen to their concerns and and share with them how we're thinking about things. And I think they appreciate that. And but that is, you know, we have this precious independence. We can't be removed from office. We serve these long terms.

The other side of that has to be accountability. And the way for us to get accountability is to be as transparent as possible and try to reach you know, the people of the United States through their elected representatives. So this is a very high priority and we're gonna keep doing it. So when you testify in front of Congress, how much time does it take to prepare for that? Is that a one hour preparation session or is it

a one day session or a one week session? These are supposed to be monetary policy hearing is under the Humphrey Hawkins Act, and they're actually on any anything that's any political issues, So it's it's quite extensive. You have to prepare for everything that the FIT is involved in and many things that the FIT is not involved in. So it's it's a lot of preparation. So when you get questions from some members, you have to bite your tongue and say, why are you asking a question like that?

Or you never have that problem? That never happens, Never happens, Okay. In terms of consultation, um, do you consult regularly with the Treasury Secretary or the head of the National Economic Council or the President United States? How do you kind of relate to the administration? For a long long time, you know, sixty or seventy years there, I think there's been a weekly breakfast or lunch with the Treasury Secretary and the FED Chair. And that's what I've had with

with Treasure secretaries that I've had as FED Chair. I've also had a regular article it called irregular lunches with the head of the NBC. We also have regularly, regularly scheduled lunches with the Council of Economic Advisors. And that's that's really the that's the that's the institutional structure of

our of our contact with the administration. Does the President United States ever call you with any advice or you don't really the President Trump ever call you, or President Bide never call you, or well, I think it's a matter of public record that President Trump did used to call me from time to time. What did he call you? Um, no, I I haven't had that kind of I haven't gotten

any calls from from President Biden. For people who aren't familiar with the f O m C, who is actually is on the f O m C. The US Central Bank consists of a board of governors. Here in Washington, they're seven governors. Those governors are nominated by the President and confirmed by the Senate, and we serve terms that are that are not syncd up with the election cycle,

so we're we're independent. There are also twelve reserve banks around the country which have a degree of independence, and they're so so each each reserve bank is led by a president who works there full time. All twelve of them sit on the FMC. So that's nineteen people sit on the FMC, so it's quite a large committee, of which twelve vote in any given year. The reserve bank presidents vote on a rotating basis, except New York, which

votes every year. So when you vote, do you vote at the beginning of an f o MC meeting and then just kind of have discussions afterwards, or do you wait till the very end and then you vote. Now, we voted at the end, I mean the whole the FMC meeting process takes, you know, more than a full week.

I'm talking to all of the participants all night, eighteen other ones, and staff is sent around memos and there's something called the Teal Book, which is the staff's assessment of the you know, of the economy and international economy and monetary policy and all that. Then we have an extensive discussion on the morning of the first day about the economy. Everybody talks about that. On the second day we talk about monetary policy, and then we vote on

monetary policy around noon on the second day. So there's the Chairman of the Federal Reserve Board speak first and say here's what I think, and or does he wait until the end and say, well, thanks for what you think, but let me tell you what I think. What do you do for different chairs have done in different ways, and so I tend I've tended to do what my predecessor, media predecessor did. I think, Well, this is what I do.

I speak last on the sort of the economic go around, So everyone else talks about what they think about the economy and in their district, for example of the Reserve Bank president, and I listened to all that, and then I give my comments at the end, and I kind of sum up what people have said, and then I speak first on monetary policy. So do you consult regularly with some of your predecessors, I mean, obviously wanted Secretary of the Treasury now, but Ben Bernaki for example, Or

I do. I I talked to U former Chairman Bananke. I talked to you know, uh, Secretary yelling. I still talk to Alan Greenspan now. And again, when you're dealing with this with your colleagues on the FED board and you disagree with them, do you say, look, I'm the chairman of the FED. I am the person who has to make the final decision, and this is what we should do, or you don't quite do it that way.

It's a it's a process of reaching agreement, and um, I hear what people have to say, I tell them what I think, and then I'm the one who has to bring a proposal in front of the full committee, not just the Board in front of the Full Committee on Monetary Policy, and it works. Know, we have to reach an agreement, and uh, you know, we get to a place. I think you can tell today we are blessed with a diversity of perspectives on the FOMC with

nineteen people. Of course we are. But you have one thing that unites all of us, and that is a very strong commitment to getting inflation down. And when you want to talk to members of the of the Board of the Federals a board, do you go to their office or they come to your office. I like to do both. I mean, I really don't like to sit in my office all day and and have just have people come to see me. I like to go barge

in on people. And you know, I think it's much better to get up and walk around and see people. The fet has been pretty good at avoiding leaks of its decisions. How do you do that? Because most people in Washington are not so good at that. How do you avoid leaks? We do have, you know, we've got very strict rules around confidentiality, particularly around the written materials that we have. You know, we we publish these things internally for for the FOMC, meaning the memos and the

Teal Book and all that um. But the other thing to remember, though, is you know, we're not trying to hide our decisions from the public. We actually, in the modern modern monetary policy, we want the public to understand how we think, how we're thinking. And and you know, if markets really understand how you're thinking in a new a new piece of data comes in, the markets will go where they're going to do this, and it sort of happens organically. And that happened all last year as

we were, you know, talking about raising rates. The market priced in rate increases long before we actually enacted them. So it's not we want to be transparent. We're not looking to surprise markets with these decisions. So you get data from all the various government agencies. But do you ever use anecdotal things like you go to the supermarket and you see prices are high, and you say, this

price is high? Or how do you get you ever get anecdotal things or people ever call you up our friends and say, by the way, you should do this

or that. I mostly get data, but I will say the the I I do believe that ancdotal information is very useful and one of the things the reserve banks are great at is all twelve of them have big operations where they talk to business is and nonprofits, universities, every sector of the of the country and the economy, and they bring that back to the FMC means and

they talk about what they're seeing. So there has been discussion recently about the FED some FED members, pread board presidents selling their securities and maybe not doing everything that they were supposed to do in terms of disclosing it. What have you done to fix that process. We've put a new system in a new set of rules in place, which I think are best in class for a public

institution like the FED. And uh, you know, the the innovations were that that if someone wants to sell something that they own or buy something, they have to clear them at advance with with staff at the Board of Governors and then you've got to wait forty five days for that to execute. Also, you can't own individual stocks and there there you can only do these you can only authorize these transactions or execute them during specific times. Um. And it's you know, it's it's a and we we

just of course all these are disclosed. If if you're if your idea is to go to trade things, buy and sell them because you think, you know, you think this stock is cheap in that kind of thing, that's just not something that will work. What is the salary of the chairman of the Federal Reserve Board. It's um, it's around a hundred and ninety dollars, I believe, okay, So you're you live on the hundred dollars. If you need to sell something, what do you do? You have

to clear it for forty five days. That's right. We we've you know too, if we have family expenses that if we have them that exceed my salary, then we have to sell and as I think that's a fair salary for the job or I do, yes, okay, So today, Um, how do you coordinate with central banks, let's say in England or Japan or or China. Do you have regular

conversations with them about what they're doing? We do, you know, and I meet six times a year in Switzerland with the heads of all the many, many central banks, you know, even the even the small and medium sized ones at the at in Bosel at the Bank for International Settlements. In addition, among the major central banks, I have regular

or dialogues going with with most of them. And so what we're talking though about is really what's happening in the economy and how are you thinking about policy and that kind of thing. It's very important that we keep those discussions going because, particularly in a crisis, you're gonna need to know each other and you're gonna need to

know you're gonna be able to trust each other. Okay, so the biggest challenge you have now is being able to keep a straight face, not telling people what you're gonna do in the future, and look at the data and then come up with the right solution. Right. That's mostly yet, I think the biggest challenge we face at the FED is completing the process of getting inflation down to two percent. And what what I want to point out is that we're seeing disinflation in the good sector.

We're going we expect to see it in the housing services sector, and that's that's These are the three parts of the of the core PC inflation index that we look at. There's fifty six percent of the economy, which is the rest of the services sector. It's the biggest part obviously, and we're not seeing disinflation there yet. And that's going to take some time, and I just we we need to be patient, and we think we're gonna need to keep rates at a restrictive level for you know,

for a period of time before that comes down. Thanks for listening to hear more of my interviews. You can subscribe and download my podcast on Spotify, Apple, or wherever you listen.