As assistant secretary and then under secretary of the treasury under President George H.W. Bush. In 2012, he returned to public service as a member of the Federal Reserve Board of Governors. His nomination to serve as chair in 2018 by President Donald Trump and then his renomination to serve as chair by President Joe Biden in 2021 stand as testaments to his bipartisanship. Chair Powell approaches economic stewardship with a philosophy grounded in empirical evidence, institutional humility, collaboration, and public service. Like the greatest Fed chairs in our history, Paul Volcker, Ben Bernanke, Chair Powell advances the interests of our nation and not his own, sometimes at great personal cost. We are immensely privileged to have him share his insights today. Please join me in warmly welcoming the chair of the board of governors of the Federal Reserve System, Jerome Powell.
Thank you. Thank you. Thanks very much.
So, I'd like to start at the beginning of your career. You studied politics and then law and then eventually pivoted from that to public service. Were you thinking about public service and economic policymaking at the start or did all of that come as a surprise later? And how did you decide to make the pivot when you were in the middle of your career?
Let me start by saying David, thank you so much for having me and thank all of you for being here today. It's great to be here. I've been looking forward to this. Yeah. So, I did, I took macro and micro my freshman year and it wasn't as interesting to me at that age than some other things. So, I wound up majoring in politics, actually specializing in Africa. It's fair to say that my freshman major was acoustic guitar. My parents gave me a Martin D35 for high school graduation. They must have regretted that because that's what I was really working on mostly. But I did finally figure out what I wanted to do. And when I graduated from college, I really had no plan. But I did have one thought and that is to have a career in the private sector but also to do public service intermittently and I was thinking about people like George Shultz who was a famous many economic jobs and others who had done those sorts of things and I grew up in Washington DC. My parents were not, my dad had fought in World War II and he had been a US attorney but they weren't people who were terribly plugged in politically. I was very interested though in those years in public policy and in trying to create a life that was partly private sector and partly public sector and amazingly enough that's kind of what happened.
Great. So now jumping right to the present we talk about the Fed as a unitary entity but of course the Fed is led by the Federal Open Market Committee. There are 12 voting members. You despite being chair only have one vote and in normal times there's a lot of consensus. Everyone's in agreement. Lately there's been some disagreement. There's been votes to keep interest rates the same but some members of the FOMC have decided instead to vote to decrease interest rates. How does the disagreement on the FOMC make your job harder as you describe the path of economic policy going forward?
You know, I don't think of it as making my job harder. I think it's, I've found throughout my career that when you have a really difficult problem, it helps to hear from all sides. And in a way I, for example, when I was a private equity investor and I was looking at supporting a transaction that I wanted to do, I really wanted to hear from the smartest people, tell me why it's a bad deal. Tell me now before we do it. And I just think you don't really know how much you believe in something until you've had somebody literally try to take it apart. So I welcome that at the FOMC and at the Fed generally. And I think it helps us make better decisions. The Fed has had a tradition of governors not dissenting, but that's really not typical of other major central banks where there's more dissenting or they're different. Depends on the central bank. And to me what matters is is it dissent thoughtful? Is it helpful? Does it express a point of view? Can you stand behind it and say, 'Yeah, that's very thoughtful.' And that kind of a thing is not bad and it doesn't hurt with communications. You know I think a situation like the present situation where there's sort of downside risk to the labor market which suggests keep rates low but there's upside risk to inflation which suggests maybe don't keep rates low. You've got tension between the two objectives. And I think to try to expect unanimity at a time like that where it's really quite historically challenging, it would almost be misleading to be really confident in which way that should go. In fact, it's been said that confidence is what you feel before you really understand the problem.
Okay, let's turn to the Fed's balance sheet. In 2008, 2009, that great financial crisis, there was a massive expansion in the Fed's balance sheet. And then again in 2020, under your leadership, there was a second vast expansion in the Fed's balance sheet to address these two economic and financial crises. The balance sheet has since come down a bit, but it still sits at over $6 trillion. So I'd like to hear your views on how efficacious this vast bond buying program has been both in the 2008 and then again in the 2020 episode and also hear your reaction to the critics who say that the Fed has become too big a player in the bond market. The Fed has become too influential. There's been a muddying of as according to the critics of monetary policy and fiscal policy. Do they have a point or are they wrong?
So I think the place to start with that is the problem that people were struggling with from about 2008 to 2022 let's say in central banking everywhere in the world is once you've cut interest rates to zero. Do you have anything else you can do? Let's say you cut interest rates to zero and the economy is still clearly not flourishing and it wants more support. So do you just say well we're done. We're out of ideas here. And there were two ideas that were followed in the global financial crisis. One of which was to buy assets, longer-term assets. And what you're doing there is you're buying longer term government guaranteed securities which would hold down longer term rates and that should stimulate the economy or also forward guidance which would tend to hold down forward rates as well or just rates generally. So we did those two things rather than do nothing. And I think in the first instance they were both efforts were successful at restoring market function and at restoring financial stability. At the beginning of the global financial crisis and the pandemic we had massive problems of market function. They were solved. I think the question getting to your question David of the macroeconomic effects is a much less certain question. I don't think there is an accepted answer, but I would just say there's an oceanic quantity of research on this and overall it tends to find that buying long-term assets does lower interest rates and does provide some support for economic activity. And I guess I'd be in the camp of thinking that there's something in that. But it's hard to quantify it. And I think different people have different views on how much those effects could be. The other side of it is QE is thought by the critics to risk all kinds of other things. So for example you could buy too much of the treasury market and it would stop functioning well. We have not seen that here. At the very beginning there was a thought that it would be inflationary. We have not seen that or that it would threaten financial stability or even create inequality. So, we haven't really seen the downside risks. At the same time, the last thing I'll say is I remember before I took over as chair thinking I'll almost certainly never have to do quantitative easing. So, what's that expression? Man plans and God laughs. Something like that. So, it just, the pandemic came around and we needed to do a lot of asset purchases in a big hurry and we did. So far, no Treasury Department has ever said, 'Stop doing that. You're supporting the economy too much.' Maybe that'll happen someday, but hasn't happened yet.
Great. So, let's talk about the dynamics of inflation since the spike in 2022. Inflation has been coming down since then, but it still hasn't reached its 2% target. Some have argued that that last mile is extremely difficult and to obtain that we will need a recession. Others have argued that you've gotten us very close and you'll get us the rest of the way. Are you concerned about the time duration of the path from the high inflation of 2022 back to target? It's taken time. We're not there yet. Is that a destination we'll reach or are you concerned that the last mile will prove very difficult?
So we will reach, the FOMC is and will continue to be committed to getting inflation back to 2% on a sustained basis. That's the place to start. So I feel like we had pretty much gotten there at the end of 2024 against the predictions of almost the entire economics profession. When we raised rates a lot and very quickly in 2022, 100% essentially of economists were forecasting a recession. We didn't have one actually. We had 23 and 24 were both very strong years as the supply side healed and as our higher rates had some effect on inflation. So by 2024, you had the economy growing at two and a half percent, you had inflation in the two plus a few tenths on a 12-month basis by the end of the year. And you had the employment market, you still had the labor market at essentially full employment. So I would call that a soft landing. We had it there. Then since then we've had to face a much smaller source of inflation which is that the tariff inflation is visible and we think it's really just a one-time price increase. That's been our thinking since the beginning. Right now we think it's adding somewhere between a half and a full percentage point to inflation. But that's a much smaller thing than we saw during the pandemic inflation. And of course now we're facing events in the Middle East which will certainly affect gas prices and we feel like our policy is in a good place for us to wait and see how that turns out.
Great. So let me turn to the current crisis in the Middle East and the effect on energy prices. Indeed, this classroom is familiar with that question from the last problem set where we asked, 'How would you advise the Fed to respond to the rising price of oil?' And we teach that when there's a demand shock, that's a pretty natural set of recommendations that emerge for the Fed. But when there's a supply shock like this energy price shock, there's trade-offs that the Fed has to juggle. How do you make those trade-offs in general? And how do you make those trade-offs in this particular instance? And can you help everyone with their pieces?
Well, maybe they should tell me. Sure. So, you start with what you said. Our tools work on demand. Higher rates will tend to moderate demand. Lower rates will tend to stimulate demand. And when you have a supply shock, our tool doesn't have meaningful shorter term effects on supply. So, when you have a supply shock, the first question is, do you respond to it? And the classic question has been around energy just in general. Not really speaking about the current situation although I'll get to that I guess but energy shocks have tended to come and go pretty quickly. Monetary policy works with long and variable lags famously. And so by the time the effects of a tightening in monetary policy take effect, the oil price shock is probably long gone and you're weighing on the economy at a time when it's not appropriate. So the tendency is to look through any kind of a supply shock. But a critical essential aspect of that is you have to carefully monitor inflation expectations because you can have a series of these supply shocks and that can lead the public generally, businesses, price setters, households to start expecting higher inflation over time. Why wouldn't they? At the end of a certain number of years that inflation is now just higher and that can happen. So you monitor that very carefully. Also in the current situation, you have to be mindful of the whole broader context. And the broader context is we're still, we've been coming down close to 2% post pandemic, but we've never actually gotten right and stayed at 2%. So, it's been a while. And we're very mindful of that fact. Inflation expectations do appear to be well anchored beyond the short term, but nonetheless, it's something as we will eventually maybe face the question of what to do here. We're not really facing it yet because we don't know what the economic effects will be, but we'll certainly be mindful of that broader context when we make that decision.
Great. You've been a powerful and vigorous defender of the independence of the Fed with respect to monetary policy. You've also been collaborative with administrations with respect to financial regulation. So under President Biden, you worked for or you collaborated in a program of increasing regulation. Under President Trump, you've worked together to reduce regulation. So on the one hand, we've got an independent Fed with respect to monetary policy and on the other hand, we have a collaborative Fed with respect to financial regulation. I don't think there's a tension there, but can you explain to us the two different approaches and how you understand them?
Yes. So, start with monetary policy. You know, I think there's pretty broad consensus in both political parties on both sides of Capitol Hill. And our oversight, by the way, is Congress, not the administration, but pretty broad agreement that on monetary policy, the Fed needs to be fully politically independent, not reactive to political things at all. We just need to do our job and stick to our knitting. Regulation is a little bit different especially since Dodd-Frank where the Dodd-Frank Act created something called the vice chair for supervision who has a specific statutory assignment which is to oversee all of supervision and also set the agenda for regulation. So the vice chair for supervision if she wants to propose a change in for example the Basel 3 Accords as implemented in the United States she has to bring that to the board of governors which is the seven governors and vote for it but she has full control over supervision. So as chair, the whole idea is to be non-political and never working for or against any political party or individual or never even considering things like that. So I think the way the law works is the chair should allow the vice chair for supervision to carry out the role that Congress has assigned to that person by statute. And that's what that is. So you'll see and the two parties really have a big difference on regulation now. So I like to think that the chair should always be someone who is working without regard to political and should be therefore a person who can be reappointed by either side. That's always been the case, Ben Bernanke was reappointed. I was reappointed. And I think it's a good test of the Fed's nonpartisanship that your appeal is really bipartisan. And I think that's a critical thing. So if I were to try to impose my personal views on regulation that really wouldn't work. So I think there's, I don't want to say difference but any chair needs to let the vice chair for supervision take the lead on those issues and then I'm another voter is what I am.
Great. So let's talk about Dodd-Frank and the reforms to the financial system. 2008 was a terrible crisis and there were many efforts made in the years afterwards to tighten the bolts and create a safer financial system less prone to these kinds of cataclysmic events. But today we look out at the world and we see lots of threats both inside the formal banking system that you regulate and in the non-bank financial system which is lightly or not at all regulated. So I wanted to have your thoughts on whether we're in a position of relative safety after all the Dodd-Frank and other reforms following the 2008 financial crisis or whether the new threats actually have brought us to another period of concern. And just to illustrate with a couple examples inside the banking system, there's commercial real estate that has fallen in value that affects both the banking system and non-banking financial institutions. We have the private credit market and a very active debate about its health. We have concerns about cyber security in the age of AI. Do you worry that another financial crisis looms out there? Of course there's always a possibility but is it something that's an issue of high alert or do you feel that we're putting all the pieces in the right places?
You know after the global financial crisis we actually started a new division called the division of financial stability and their job is to be the watchers of all financial stability issues all the time. So we don't, the old system was a crisis arrives we get the team together and we battle the crisis. This is much more of an ongoing monitoring thing with a framework that can be checked. So I would say after the global financial crisis which happened when you all were extremely young, with between Dodd-Frank and the Basel agreements we pretty dramatically raised the amount of capital and liquidity that the largest firms and other banks have and I think that's been a good thing. I think they're also much more transparent and more aware of their risks and that kind of thing. So I think we've significantly hardened the system against the kinds of things that happen in the global financial crisis where you had a lot of credit losses really around mortgages and that's so that kind of a situation we've got well capitalized large banks. But that's just one part of the financial system. The capital markets. The US has by far the largest capital market sector relative to the banking sector. The other countries still have a much bigger banking sector relative to their capital markets. And that's going to be less well-regulated and that's a good thing. You want it to be the place where biotech companies can do IPOs and they may or may not succeed but they can get capital out of that market and you're taking a lot of risk but great things happen because people put money into biotech. So we've done some hardening of that but we shouldn't be trying to regulate risk out of existence. So I think and we did fix some of the things that broke in the global financial crisis and the pandemic we did address. The real thing though is the financial sector is just always evolving rapidly and I think vigilance is what you need. You just need to always know that there's another thing coming. And I think in particular we've had all kinds of financial crises but we've never really had a successful cyber attack on a large financial utility let's say or financial institution and that would be quite a different thing. You know if people are going to lose money in a certain part of the economy we have a hugely resilient financial system. Now it's more, let me say this, more about resilience than it is about avoiding crisis. One of our former people used to say that we're in the levee building business, not the hurricane prevention business, right? So, they're going to be hurricanes and they're going to come and you just have to assume you won't know what direction or what the nature of it will be. So, you want a highly resilient financial system and we do have that. But again, nobody who's in that business will ever give you a green light. They'll always say here these are the risks and we got to monitor. You mentioned private credit. So private credit is something as you guys are probably following. It's a relatively small part of a very large asset pool. We're watching it super carefully as everyone is. We're talking to the people in the industry and investors and everything. I think we understand it. We're monitoring it for looking for things that might lead to greater contagion or greater losses or connections to the banking system and we're going to do that. Again you're not going to hear people say oh there's no problem here because that's a jinx. But nonetheless it's something that we're following very carefully.
What is one of your biggest regrets in your time as Fed chair? And on the other hand, what is something that you're very proud of?
You know, on regrets, I don't allow myself the luxury of that. I think it's really important that in my job I'm focused on the windshield and not the rear view mirror. And so I don't, I'm tempted to say regrets. I've had a few, but then again, not so many or whatever the line is from that Frank Sinatra song. So, I just think you, I'll have plenty of time for that after I'm out of this role. But, honestly, you just have to keep looking at the next thing. You can't be berating yourself for the mistakes that you've made. You're going to make mistakes and you're going to learn from them. Take it from an expert. I've made plenty. But, I don't focus on regrets and things like that. You know, my overall in terms of what I'm proud of, I'm more than happy to talk about that.
Let's go for it. Yeah, let's go deep there.
So I basically, I'll just say it's an incredible honor to do public service as many of you will find out at some point in your life. I always wanted to do some of it. I saw these people around Washington who were well-known public servants like George Shultz and I would think that that looks like a really interesting thing to do. It's different, you know, in the private sector. I love my years in the private sector, but there really is a feeling of what you're doing is helping ideally helping all Americans and that kind of thing. It's a great honor to serve the public and particularly in a job like this. So that is the main thing I'm proud of is 14 years at the Fed and eight and a half of them as chair. I'll always be proud of that.
And I'm very grateful to you for your service to our country.
So, if you were willing to share publicly some advice that you would give to the next Fed chair, we'd love to hear it.
So, one thing you will learn when your children are grown up and they have their own children is never volunteer advice. Only give advice when asked. So, and I would not, I will not, I would only give advice if asked and I would do it privately. But I'll just say in general a couple things about the Fed. It is very very important to stick to your knitting and to stick to the things that were actually assigned. And there's always a temptation to want to move into other areas. And I think we have very powerful tools. They're supposed to be for maximum employment and price stability and financial stability. There's always a time when an administration looks and says it would be good to use that tool for something else. What if we were just to like and call that like that's part of the mandate happens all the time and we just have to be in a situation where we're not trying to be, again we're not trying to work against any politician or any administration but we have to be careful to stick to what we're doing. The other thing is I'll just note that the Fed's not a perfect institution. Don't look for perfection. What we do is very challenging and highly uncertain, but it's a great American institution and I'm very proud to work with the people I work with. They're extraordinary right across the board, an incredible group of people. And I'll just close by saying it's very hard to build great democratic institutions and much easier to bring them down.
So though you were uncomfortable giving unsolicited advice to your successor, I know that the students in this room would love to hear your advice. They've asked me for my advice and asked me what
So they're entering into an uncertain time, an economy where new job formation is lower for many reasons. In particular, jobs that were plentiful a couple of years ago for students coming out of college are no longer so. And AI sits as this remarkable technological transformation that is both promising and existentially threatening. So if you're advising the 600 students that sit here today, what would you suggest they think about as they embark on both academic and then ultimately professional careers?
Let me start by saying that I'm well aware and my colleagues too are well aware of the current situation for students coming out. It's a time of very low job creation. And also you have AI going on. And you've got the effects on job creation of significant changes in immigration policy which have brought down both demand and supply of workers. The unemployment rate is really low, but that doesn't help you if you're coming into that kind of market. So it's a time when you're coming out in the business cycle at a time when getting hired is a little bit challenging. There's also probably something more longer term, more secular that's happening around technology and AI. So yes, it is a challenging time, but I'll say a couple things. One just is that the US economy compared to other major open economies and big market-based economies around the world is just incredibly dynamic and productive. Since World War II, US compared to other large mature economies, our productivity has grown at like twice the speed for example in Europe and higher productivity is the way compensation and earnings can grow over time. So it's an incredibly flexible and dynamic economy. It reinvents itself. Technology, it always comes from the United States. So just be optimistic about the medium and longer term. I'm very optimistic about the medium and longer term. The other thing is my observation is that these large language models make people much more productive. I feel like it's making me more productive because I can learn things really quickly. And I talked to my son and others who are out there in the world and I think if you use it well it's making you more productive. So, I think you're in a situation where you need to invest the time to really master the use of these new technologies and that should stand you in good stead. But there's no denying it's a challenging time to enter the labor market, but it may take some patience and all that, but in the longer term, this economy is going to give you great opportunities and just be a little optimistic about that.
So when you talk about the longer term, are you talking about 10 years, 20 years, 40 years? Are you worried that there'll be wind at our back as we use these tools over the next decade? But at some horizon, let's say 40 years, there'll be substitution rather than complementarity.
You know, it's so hard to say. I mean a lot of people you talk to business people are talking about the next few years being big years for AI to come in but they're mostly talking about existing middle management back office jobs and things like that. I don't think they're it shouldn't have those kinds of effects on people who can use AI well. So certainly the next few years look like whatever the effects are they'll start to feel them because major US companies and we talked to a lot of those people who run those companies and they're all looking at what they can do and the truth is they can take out a lot of jobs that can be automated by a very smart large language model. They just can and they will because their competitors are doing it and they can't afford to have higher costs than their competitors. What's that going to mean for you? It may not mean that much. It depends on what you're going to wind up doing. You may stay in school a little bit and you may do something that is going to create new jobs too over time and again it makes people more productive. I did talk to a CEO in tech world who said the marginal benefit of a new employee in this world is actually very high. Now that's not what you hear all the time. So I don't know, I mean if you look back through history to generalize, tech this has been going on for a couple hundred years since the loom was invented and to put all the people who were doing weaving out of business. But in all cases it has wound up raising productivity and raising living standards as long as the society keeps producing people who have the skills and aptitudes to benefit from that technology. So that will be the case here, but you're right there can be a period during which it's challenging and this may be one of those, but nonetheless, I would just say it's out there and it's out there to be done and I would be medium and longer term very optimistic about this economy compared to any other economy.
Terrific. Thank you so much. We're now going to open it up to your questions. So, I think I've got Jason and David in the well and I've got two microphones in the balcony. Why don't we start with Jason, do you have a question?
I think I have a question.
