LIVE: Federal Reserve Chair Jerome Powell speaks at Macroeconomics and Monetary Policy Conference

How your desire to be more confident is received by, yes, the markets and analysts, fine, but everybody else. So I'd say, yeah, the answer is yes, of course. But the main focus is on getting it right. Getting it right is the most important thing by orders of magnitude. If you get it right, then everything else falls into place. So I mean, you're talking about market reaction and things like that. You know, we look at that, of course, but ultimately, monetary policy works with a lag, and you want to make the right decisions. And you want the committee to be in a place so that if things work out differently than the base case, you're not out of position. And as I said, I think we're in a position now where we can handle whatever case comes.

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

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

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

So economic forecasters are a humble lot, generally, with much to be humble about.

So, but yeah, the pandemic era has, of course, been full of surprises. If you go back to the beginning, I think almost all of mainstream macro analysts thought that this was different and that because of the obvious supply-side problems, the collapse of supply chains and things like that, there was a group who didn't diagnose it that way, but if that's the case, then we thought that our very dynamic economy would recover pretty quickly, that people would go back to work, kids would go back to school, and the economy would be fine, and there wouldn't be much of a need for us to intervene except sort of during that early period to get the economy, you know, keep it from collapsing during the actual acute phase of the pandemic. So that didn't happen. Inflation came up, stayed up, and it took a long time to heal. And then it didn't really heal, the supply side didn't really heal in 2022, and we were thinking, well, maybe it's not going to heal. And then it did. And so the labor force participation, workers came back into the labor force in 2023, and also the supply chains healed in 2023. So right about the time we were thinking maybe this isn't going to happen, it really happened a lot in 2023, which is part of the story of why the economy did so well last year, was supply-side healing. So now we have, I mean, it's just been surprising over and over again. So I think we have to be unusually humble about our ability to foresee the future and be ready for different plausible outcomes.

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

So this is one of the things, you know, we've had our policy rate at 5.3%, which is the highest rate in more than two decades, for some time. And all through the course of 2023, we saw very strong growth. So it's, and that's partly because this has happened in a context of supply-side healing, which makes its own growth, you know, when potential output goes up. So we don't really know where rates are going to go back to when this whole thing is over. For many years, if you go back to before the global financial crisis, it wasn't unusual to see the longer-term rates in the fours. And so are we going to go back to where, in the sort of time between the global financial crisis and the pandemic, rates went lower and lower and lower, and it wasn't unusual to see in other countries long-term rates below zero. Even in Europe, they never went that low in the United States, but they went very low. So are they going to go back up to those higher levels of the pre-global financial crisis? We really don't know. We think that the factors that led rates that really came down over a 40-year period, mostly related to big slow-moving things like demographics, aging population which saves more, and low productivity and things like that, those things don't jump around, they're sort of slow-moving objects. But the truth is, we don't know. My own expectation is I don't think rates will go back down to the very, very low levels they were at before the pandemic, but where they will turn out to settle out, it's hard to say. This economy doesn't feel like it's suffering from the current level of rates, although if you look at things like inflation-sensitive spending, then those parts of the economy are really feeling the high rates.

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

I'll tell you why. So we have two mandates, as you know, maximum employment and price stability. And when one of those mandates is far from its goal and the other one isn't, you focus on the one far from its goal. And that's actually in our document that codifies our framework. So that was the case from the middle late 2021 until inflation started coming down. And so we focused very hard on inflation, and you heard us talking about inflation. But headline inflation just a year ago was, I guess, 5.2% on a 12-month basis. Now it's 2.5%, and core, I think, has come down from 4.8 to 2.8. So you've seen really significant progress. Just as a natural thing, then, the work's not done, our goal is 2%, but as that happens, the risks to the two goals come into better balance. They're coming into better balance, and that means we are a dual mandate bank under law. That means that we now, that thing we were doing, we were just thinking about inflation, that's no longer appropriate. So we're thinking about both. We're thinking about the risks to both now, and we should be. That's our job under the law. And so, you know, we're very committed to getting inflation down to 2%. Having it down to 2% is critical if we're going to have the kind of long expansions that really benefit all Americans in the workplace. At the same time, if we were to see unexpected weakness in the labor market, then that's something that we would be looking at carefully and could draw a response as well, a policy response.

Inflation, no, you can't do that. No, I would say this: we're at a place where the economy is strong, without question. The labor market's in a good place. We've got, you know, unemployment under 4% for more than two years now, for the longest time in 50 years, and we've had progress on inflation. So we want to use our tools in a way that keeps, you know, the strength in the economy and in the labor market, but allows for further progress in inflation. That's our focus. And, you know, we clearly have a chance at that outcome, and, you know, we're all very focused on doing everything we can to deliver that outcome. It would be a great outcome for the American people, and it would be testimony to how unusual the circumstances are.

So there's always a sort of unconditional probability of a recession in the next year. And so the real question is, if you look through history, it's not possible to rule a recession out for a long period of time. So granted, but you know what I meant, right? The real question is, is the possibility of a recession elevated at the current time? And I would say no. I don't, and I don't see forecasters disagreeing with that. Growth is strong, as I mentioned. The economy is in a good place, and there's no reason to think the economy is in a recession or is at the edge of one. But humility understood.

I don't want to speculate about that. You know, we'll jinx it. I'm a superstitious person. But no, look, we'll always tell you what we're seeing in the economy, and if we get to that place, that'd be a great outcome for the public. That's the main thing.

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

It just wouldn't, we wouldn't be the Fed. But the good news is, we are the Fed. You know, you well... no, no, no, that's not answering the question. A central bank that is excessively responsive to, you have to look at other countries basically, and what you see is there's no credibility. Credibility on inflation and on sticking to your knitting is everything. Because if people believe that you will accomplish your goals and that you won't deviate from them for reasons like that, then it'll be easier to do so. Markets will react appropriately, and in people's thinking, inflation should be around 2%. And if they think that way, then it probably will be around 2%. So if you look at other, I think of more emerging countries where they have weaker independence or a lack of independence, it's just, you know, it's hard to have price stability or maximum employment. So that's what would happen if that were to happen. But I'll insist upon saying that's not the world we live in.

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

Not at all. So we published a, the thing about the balance sheet is we want to be highly transparent and predictable. It's not the main story about monetary policy. The main story is interest rates. What happens is when we get into a very difficult situation like the pandemic or the global financial crisis, we buy treasuries to lower interest rates and to support the economy, and then we're left with a bigger balance sheet. And we start to then, when the time is right, let it run off and shrink back to where it needs to be. So that's what we're doing. And what we said was at a certain point we would slow the pace. And the reason is, it's moving down quickly. We've decreased the size of the securities portfolio by a trillion and a half dollars over the course of the last, well, year and a half, not even year and a half. And so we've said that we would slow the pace. And what we're trying to do there is try to actually get further without being disruptive. The last tightening cycle for the balance sheet ended when we suddenly found ourselves that we'd gone too far, and it was very disruptive to markets, and we had to buy treasuries to create more reserves in the economy. So this time we tried to learn from our first experience with shrinking the balance sheet, and this time we said we would slow at a certain point. But we're going to get to the same point or even lower than we would have, and it's not at all in any way related to a concern about the economy. It's our plan.

Nothing good. I mean, I think we would seriously... well, the market goes, 'Yay, rate cut!' No, no, no. But we would, you know, look, our, we are careful, thoughtful, we're steady hand. If we did things like that, it would be very much not the way we do business.

I think if we did something like that, markets would say, 'We thought we understood the Fed. We've spent years...' Someone would go on TV and say, 'I've spent 30 years watching the Fed, and I don't understand this at all. Why'd they do it?' In other words, you don't do an off-cycle rate cut at a time like that. It's just something that would never happen. I mean, if there were a reason, so we, you know, when the pandemic hit, we did two off-cycle meetings in one cycle, and then we canceled the actual meeting.

Well, that was, that had a pandemic. That was what needed to happen. That was what needed to happen.

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

Okay. The things that matter for the United States economy over the medium and longer term are not the decisions the Fed makes. The Fed tries to guide the economy to maximum employment and price stability through a business cycle, and can react, we do critical things during crises, we're very, very important in crises. But things that add to the productive capacity of the United States, things that give people more skills so they can contribute more to the economy, things that increase productivity so that an hour's work is worth more output, that's the evolution of technology, it's also the skills that people have. Those things, investing in those things, that's what drives the longer-run growth and the longer-run economic well-being of our citizens, not the things that the Fed does. What we do is very important in maintaining stability and smoothing out the business cycle and also crisis response, but we don't work on those really far more important longer-run issues.

Pass. No, I look forward to, I saw that on the agenda. I look forward to, I'm not going to come in here and embarrass you by being here, but I will read the paper. But to that general point, do you get too much press? It's not for me to say, but I do think...

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

Oh, well, they don't necessarily. I don't go to the office on Saturday anymore. But Ben was in the office on Saturday, and when I was a new governor, so was I. So I took advantage of the fact that he was there in his office and we could chat. It's a much more relaxed way. I talk to people, I work at home now on the weekends, and I talk to all kinds of people all weekend long.

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

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

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

Why do I have this job? Don't ask me. You know, it's when I got to the Fed in 2012, I didn't, of course, I had no idea what was to come. I will say what I try to do on listening is, I think if you, again, if you listen to people and they understand that you're hearing them and not just kind of explaining things to them, and they get that and they feel listened to and heard from, for most people, most of the time, that's going to be enough for them to go along, even if they don't like a decision. It also builds relationships. So, you know, I've spent a great deal of time with our oversight committees and beyond that on Capitol Hill, and more so than my predecessors. And I think, you know, they see the Fed as I want them to see the Fed, as what it is, which is this non-political agency that doesn't run talking points at them and isn't political and is just doing our work and staying out of the political issues. And, you know, I'm in their offices listening to what they say, and I think they really appreciate that.

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

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

Sure. So I would say the banking system is in a good place now. A little over a year ago, we had a period of stress. I think things have settled down significantly. I think banks are lending. I think, you know, we focused a lot of attention during that period and since on banks that had things like commercial real estate losses, or perhaps funding structures that needed to be supported more. And we've worked with a ton of banks to address those issues. And so I think the banking system is definitely in a good place. I think the commercial real estate problem will be with us for some years, but it is just a question that some banks, and it's mostly small banks, it's definitely not the very large banks, have concentrations of commercial real estate, and it looks like they will be realizing losses over time. And we're working with them to make sure they have enough capital, that they do understand the losses, and so that they can work through this. And so that's what we're doing. And, you know, again, that process will play out, and I think that'll be okay.

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

So I think, I've never worked as a bank supervisor, so, but what I believe is this: bank supervision can tend to be pretty process-oriented, and, you know, there's a playbook, there's a checklist, and that's a good thing because you want the banks, it wants to be transparent so that they know what's expected so they can do what's expected. But it can also be slow when it needs to be fast. And so the art of it, and there's definitely an element of art in this thing, and some people are just very, very good at it and others less so. But you can see, the art of it, though, is for banks to understand, generally banks, you know, banking is different from many other industries. They, you know, it is a heavily regulated and supervised industry, and they, you know, particularly the larger institutions, they have ongoing daily interactions with their regulators and supervisors. What's important is that the banks are well capitalized, that they understand their risks and they can manage them, that they have adequate liquidity, that they have good resolution plans. And our job is to make sure that that's the case. The more the banks take that on themselves and do a great job at it without us pushing them, the less we need to push.

So I, you know, do a fair amount of my job is going to these international meetings, either in Basel or whoever's running the G7 or the G20 in a given year. And that is what people are talking about, is the sort of exceptionalism right now of the U.S. economy, how strong the U.S. economy is. And there's no question that we are performing very well. I think, you know, part of it just is, I mean, productivity is a key thing. The Europeans are very focused right now on not just their short-term low productivity, but, you know, what can they do to have greater productivity growth over time. This is a big focus for the European economic officials at the highest level. Mario Draghi is doing a report on it, and finance ministers that I talked to from the big countries, this is their focus. And so it's tremendously important. And, you know, people, so people are thinking about what can we do. Some of the things they're looking at doing sound like the United States, like having a flexible labor market and having a very active, you know, financial sector that can fund, you know, early stage or small companies well. So it's very important. And so yeah, the U.S. is doing, the performance of the U.S. economy the last year or so has been quite strong.

Yes, it does.

Well, I'm going to have to take the punch bowl seriously.

Apparently not.

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

Okay, thank you very much, gentlemen. That was a terrific conversation. I appreciate it. Thanks.