Fed Chair Powell: Interest rates likely won’t return to “historically low levels” before the pandemic

Kai Ryssdal, Sean McHenry, and Andie Corban Mar 29, 2024
Heard on:
"Marketplace" host Kai Ryssdal interviews Jay Powell, head of the Federal Reserve. Courtesy Federal Reserve

Fed Chair Powell: Interest rates likely won’t return to “historically low levels” before the pandemic

Kai Ryssdal, Sean McHenry, and Andie Corban Mar 29, 2024
Heard on:
"Marketplace" host Kai Ryssdal interviews Jay Powell, head of the Federal Reserve. Courtesy Federal Reserve

As Federal Reserve Chair Jay Powell and other officials at the central bank consider cutting interest rates later this year, there’s a lot to chew on. On the one hand, the labor market remains strong, inflation is trending down, and the economy appears to be on course for the much sought-after soft landing. On the other, prices rose at a slightly faster rate in February than they did the month prior, suggesting that reaching the Fed’s 2% inflation rate goal may take a while longer.

Powell spoke with “Marketplace” host Kai Ryssdal at the Federal Reserve Bank of San Francisco’s Macroeconomics and Monetary Policy Conference, where they discussed the state of the economy and the path ahead. Below is an edited transcript of their conversation.

Kai Ryssdal: So I’m going to jump right in with the data of the morning. Personal consumption expenditures price index came out this morning. You had it yesterday, 2.8% at the core. Here’s my question: You saw it yesterday, what was your first thought?

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

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

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

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

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

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

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

Ryssdal: Say more about “because you can.” You got nothing but time basically, is that what … ?

Powell: Now the economy is strong, we see very strong growth. We had growth for last year over 3%. Many forecasters see growth coming down to around 2% this year, that’s about what, roughly what the first quarter looks like. That means that we don’t need to be in a hurry to cut, it means we can wait and become more confident that in fact, inflation is coming down to 2% on a sustainable basis.

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

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

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

Powell: 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 position now where we, where we are, we can handle whatever case comes.

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

Powell: Unanimity as such, so I don’t know any Fed chairs who were, you know, hoping for dissent. It’s not something you want, but at the same time, the way I think about it is, you talk to people, I talk to all the people on the committee for 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. If you do that, you know, people generally feel consulted. They feel that their views are being considered and reflected. And they may choose to dissent, that happens all the time. It’s not a problem when people dissent, it happens, and you know, life goes on.

Ryssdal: You literally, like, go knock on their doors or call them on the phone. Like you call [San Francisco Federal Reserve Bank CEO] Mary Daly or whoever?

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

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

Powell: The Fed is to me a very important American institution that serves all Americans on a nonpolitical basis. And what people can expect from us is that we will do our work with painstaking care. We will understand the theory, we will 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 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. 

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

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

Ryssdal: That’s funny, that’s not my experience with economic forecasters. [Laughter]

Powell: 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 problem, the collapse of the 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 are going back to school, and the economy would be fine. And it wouldn’t be much of a need for us to intervene except sort of during that early period to get the economy going. 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 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, it’s been surprising, over and over again. So I think we have to be unusually humble about our ability to foresee the future and be ready for different plausible outcomes.

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

Powell: We say that all the time in one way or another. I’ll give you an example: We have, as I mentioned, high inflation in January, somewhat less high inflation in February, and we’ve been saying that we expect inflation to move down to 2% but on a path that is sometimes bumpy. 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 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 we’re, 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, 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.

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

Powell: 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. And that’s partly because this has happened in the 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 force. And so are we going to go back to, whereas 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. 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. So we think that the factors that led rates, that really came down over a 40-year period, mostly related to big, slow-moving things like demographics, aging population which saves more, and productivity, low productivity, and things like that. Those things don’t jump around. They’re sort of slow-moving objects. 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.

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

Powell: That might be the case. I don’t know. 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 least short-term rates, lower than they are right now. But we’re gonna have to let the data tell us the answer to that.

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

Powell: 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 that’s 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 were just 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 is not done. Our goal is 2%. But as that happens, the risks to the two goals come into better balance, they’re moving into better balance, and that means we are a dual-mandate bank under law. That means 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 were 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 [policy] response as well.

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

Powell: Inflation. [Laughter]

Ryssdal: No, you can’t do that.

Powell: No, I would say this: We are at a place where the economy’s 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 the strength in the economy and in the labor market, but allows for further progress and inflation. That’s our focus. And, you know, we clearly have a chance at that outcome. And you know, we’re all very, very focused on doing everything we can to deliver that outcome. It would be a great outcome for the American people. And it would be testimony to how unusual the circumstances are.

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

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

Ryssdal: So granted, but you know what I meant.

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

Ryssdal: Understood. Last time you were on Capitol Hill, somebody asked you whether you were gonna come out and declare victory, you were gonna say, “Yeah, we did it. We’re done.” And you said, “Absolutely not. That’s not what we do.” Will you not at some point, though, when you get inflation to 2%, say, “Inflation’s at 2% We’ve done our job. Things are stable and life is good”?

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

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

Powell: 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.

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

Powell: We wouldn’t be the Fed. but the good news is we are the Fed.

Ryssdal: No, no, no. That’s not answering the question.

Powell: No, a central bank that is excessively responsive, 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 are, 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 it’s, if you look at more emerging countries where they have weaker independence or a lack of independence, it’s hard to have price stability or maximum employment. So that’s what would happen if that were to happen, but it’s, I’ll insist upon saying that’s not the world we live in.

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

Powell: We’re always going to do what we need to do with our policy tools to achieve the goals Congress has assigned to us. And that means maximum employment and price stability. 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 the 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 [former Fed Chair] Ben Bernanke said and what Janet said, and I’m sure [former Fed Chair] Alan Greenspan said it before, is we’re not on a sustainable fiscal path. That’s an uncontroversial statement. And the sooner we get on that path, the better, back on that path. 

Ryssdal: A word here about the balance sheet. You said you’re going to slow the runoff [of Treasury securities] and sort of keep an eye on things and how they go. Does it suggest a worry about the economy that you’re going to slow the runoff of the balance sheet?

Powell: 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 while, year and a half, not even year and a half. And so we’ve said that we would slow the pace, and what we’re trying to do there is try to actually get further without, without being disruptive. The last tightening cycle 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 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 gonna get to the same point or even lower than we would have. And it’s not at all, in any way, related to concern about the economy. It’s our plan.

Ryssdal: On that word “transparency,” which you’ve mentioned a couple of times. In your policy and your predecessors’ policy and those of the committee and the Board of Governors of transparency and giving forward guidance and letting everybody know what you’re thinking and what your plan is. Why?

Powell: The old school was, tell them nothing. You know, be mysterious about it. And then a bunch of scholars 40 years ago, people like [economist] Alan Blinder and others, thought about it and said, you know if the public understood your reaction function, the way you would react to different kinds of data, then that’ll make your job easier because markets will go oh, I see. The data came in. Let’s say some data comes in hot. Data comes in hot, the Fed will do X. So we’ll react that way. So in effect the markets and the public will understand what you’re doing is a good thing. And that was very novel. So the path went from tell them nothing, the Fed didn’t even announce what it did in an FOMC meeting until 1994. The first post-meeting statement saying, hey, we raised rates or we didn’t was 1994. So from there, you have a straight line really of increasing transparency to the point where you are now, where you see a lot of transparency. Some people say it’s too much. But that’s the idea, and I think you’ve gotten to a place where we try to be so clear in what we’re doing that the public will understand what we’re doing and why and that actually helps our policy be more effective.

Ryssdal: Humor me. What happens if well, everybody’s anticipating a cut in June, but what happens if you guys out of nowhere came out at 11 o’clock Pacific time, I know it’s different for all of you in different time zones. The statement came out and said we cut 25 basis points today without having given anybody a heads up? What do you think happens?

Powell: Nothing good. 

Ryssdal: Seriously? Everybody goes, “Yay, rate cut!”

Powell: No, no, look, we are careful, thoughtful. We’re steady handed. It would be very much not the way we do business.

Ryssdal: No, it wouldn’t, but play it out for me. What do you suppose happens here, seriously? Humor me.

Powell: I think if we did something like that, markets would say we thought we understood the Fed. We’ve spent years, someone would go on TV and say I’ve spent 30 years watching the Fed and I don’t understand this at all. Why’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. When the pandemic hit, we did two off-cycle meetings in one cycle. And then we canceled the actual meeting. So.

Ryssdal: Look what happened then!

Powell: Well, that was, that was — 

Ryssdal: We had a pandemic. 

Powell: That was what needed to happen. That was what needed to happen.

Ryssdal: Do you worry that the Fed gets covered too much, especially now? When we’re all trying to parse your every word? Does it get covered too much, like a horse race? Kind of there’s a little bit of who’s in front, polls say this, what are they going to do?

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

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

Powell: OK. 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 in the long-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. 

Ryssdal: Apologies to those of you on the livestream who are gonna hear this later on the radio. Is professor Swanson in the room? Sir, I’m sorry, I’m going to steal your thunder. There’s a panel coming up this afternoon, sir. At 1:25. The title of which is, “Speeches by the Fed chair are more important than FOMC announcements: An improved high frequency measure of U.S. monetary policy shocks” by professor Eric Swanson at the University of California, Irvine, and some others. Agree or disagree?

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

Ryssdal: To that general point, do you get too much press?

Powell: It’s not for me to say.

Ryssdal: It is for you to say! It’s literally for you to say!

Powell: I do, I absolutely think there’s too much focus. If you think about the things that are really important in the economy, things like trade and what we should be doing, some of the things that we’re doing, that the administration has done, they’re far more important over the medium and longer term than monetary policy is. Although it’s important that the Fed has a good framework of monetary policy that’s well understood. Very important that we do our job, but 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.

Ryssdal: Around the last time you and I spoke in 2022, I also talked to [former Fed] Chair Bernanke about his book, and I asked him whether you two ever talk on the phone and he said, “Yeah, you know, he calls me every now and then,” mostly, he imagines, as a courtesy to him. And I said, “Well, Jay Powell is a good guy. He probably just calls you.” And he said, “You know, when Jay was new to the Fed, he used to come down to my office on a Saturday morning with another governor or two and we would  just talk about monetary policy as he was trying to learn.” And I guess my question is, do people come to you now?

Powell: Oh, well, they don’t necessarily … I don’t go to the office on Saturday anymore, but Ben used to, 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 much more relaxed. I talk to people, I work at home now on the weekends and I talk to all kinds of people all weekend long.

Ryssdal: Who do you go to, though, for counsel?

Powell: I talk to my colleagues on the FOMC. I talk to senior staff. I talk to the formers. 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, the group of people you can really talk to is pretty small. But I do take advantage of that. Why wouldn’t I?

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

A little chuckle!

Powell: You said back to Kashkari. 

Ryssdal: 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. 

Powell: This is a virtue of our federated system. So we have 12 Reserve Banks, each Reserve Bank has its own economic staff. And they have traditions, you know, that they follow or don’t follow, but in any case, you have, you sort of have a guaranteed institutional diversity of perspectives, institutionally guaranteed diversity of perspectives. People come in and they’re going to have different views. And I think that’s absolutely critical. And I do think, you know, the fact that we were able to get a unanimous decision on something doesn’t mean there wasn’t, there weren’t different views. Also remember before the vote, there’s a lot of discussion that goes on to try to arrive at a plan that people can get behind, so it’s not, you know, that also tends to minimize —

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

Powell: It’s not fully baked, but yes, you do a lot to, of course, part of my job is to know what people think and to come to the committee with something that has really broad support. And, 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 gotta 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.

Ryssdal: [San Francisco Federal Reserve Bank CEO] Mary Daly was talking about your special talent that you’re a listener, you’re a consensus builder. What is your special talent? Why do you think you have this job? 

Powell: Why do I have this job? 

Ryssdal: Don’t ask me.

Powell: You know, when I got to the Fed in 2012, of course, I had no idea what was to come. You know, I will say what I try to do on listening is I think if you, if you do listen to people and they understand that you’re hearing them and not just kind of explaining things to them, and they get that, and they feel listened to and heard from, for most people most of the time that’s going to be enough for them to go along, even if they don’t like a decision. It also, it builds relationships. So you know, I spend a great deal of time with our oversight committees and beyond that on Capitol Hill, more so than my predecessors. And I think, you know, that they see the Fed as, I want them to see the Fed is what it is, which is this nonpolitical 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. 

Ryssdal: Yeah, but do you think it’s working?

Powell: What? 

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

Powell: Much, 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 as an independent that has very broad support in both parties. On both sides, sides of the Hill. 

Ryssdal: I’ll appreciate you’re gonna want to be discreet on this question, but

what’s running through your head when you’re at the green table in front of the Senate or a House committee? Like your internal monologue?

Powell: I’m trying hard 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, in our system of government, they are our oversight. And our democratic legitimacy runs right through transparency and right through their, you know, their actions of holding us accountable and to us explaining to them what we’re doing and why. So we answer any and all questions that they may have, so I work hard to get ready for those with a lot of help from people. And we take them very seriously. 

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

Powell: 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. Banks are lending. I think you know, we focused a lot of attention during that period and since on banks that had things like CRE, commercial real estate losses, or perhaps funding structures that needed to be supported more, and we’ve worked with a ton of banks to address those issues. 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’s 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. So that’s what we’re doing. And you know, that process will play out and I think that’ll be OK. 

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

Powell: 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. 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.

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

Powell: I’ve never worked as a bank supervisor. But what I believe is this: Bank supervision can tend to be pretty process-oriented. And 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 the banks to understand — generally banks, you know, banking is different from many other industries. 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.

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

Powell: So a fair amount of my job is going to these international meetings, either in Basel [Switzerland] 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 is just that productivity is a key thing. 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. [Former European Central Bank President] Mario Draghi is doing a report on it. And finance ministers that I talked to for the big countries, this is their focus. And so it’s tremendously important and you know, so people are thinking about what can we do. Some of the things they are 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 early-stage or small companies well. So, it’s very important. And so yeah, the performance of the U.S. economy the last year or so has been quite strong.

Ryssdal: Does that affect how you do your job? 

Powell: Yes, it does.

Ryssdal: Discuss. Well — seriously? Oh, man.

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

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

Daly: Well, apparently not. But I’m your helper. I am on stage ready to help you. So Chair Powell, I’ll turn it back to you. 

Powell: 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 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.

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