On March 5, 2019, Federal Reserve Chairman Jerome Powell sat down for an interview with correspondent Scott Pelley in the Special Library at the Federal Reserve headquarters in Washington, D.C. Below is the transcript of that interview and of their conversation in the Fed’s Board Room. Scott Pelley’s interview with Mr. Powell aired Sunday, March 10, 2019.
SCOTT PELLEY: Have you stopped raising rates?
FED CHAIR JEROME POWELL: Well, that’s a good question. We see the economy as in a good place. We think that the outlook is a favorable one. Inflation is muted and our policy rate we think is in an appropriate place. So what we’ve said is that we would be patient as we watch to see how global economic conditions evolve and how our own economy evolves.
PELLEY: What does patient mean?
POWELL: Patient means that we don’t feel any hurry to change our interest rate policy. What’s happened in the last 90 or so days is that we’ve seen increasing evidence of the global economy slowing down, although our own economy has continued to perform well. Growth abroad, if it slows, can be a headwind for us. In addition, there are things like Brexit and slowing in China and Europe that can be headwinds. So, what we’ve done is we’ve said that we’re going to wait and see how those conditions evolve before we make any changes to our interest rate policy, and that means patient.
PELLEY: What would it take to raise or lower interest rates?
POWELL: We’ll be looking at a range of data. For here domestically, we’ll be looking at growth, we’ll be looking at the state of the labor market, job creation, wages and that kind of thing. We’ll also be looking at inflation, of course. And abroad, we’ll be looking to see how foreign growth is evolving, particularly in China as I mentioned and in Europe. We’ll also be watching events such as Brexit. And we’ll be putting that all together and deciding when it will be appropriate to change our policy. For now though, we’re to be patient and allow things to evolve.
PELLEY: The Chinese growth rate has been dropping. The Chinese recently announced they were expecting about 6% growth. How big a problem is that for the United States?
POWELL: Well, Chinese growth is important for world growth. It’s important for European growth as well. There’s a lot of trade between Europe and China and between the United States and China. So a healthy global economy can be a tailwind for the United States, as it was in 2017 and a little bit in 2018. If it slows down, the global economy, then we’ll feel that as a headwind. So, we don’t actually believe that very negative outcomes are the most likely outcomes there. The Chinese authorities have been deploying many measures to support growth in China. And we also think that Europe is more likely to have a positive growth rate this year. So overall, we think the U.S. outlook is a positive one.
PELLEY: You think the European growth rate is going to be positive despite the fact that the British, in some form or fashion, are going to be leaving the European Union?
POWELL: Yes. Growth in Europe has slowed substantially over the last year or so. And we’re watching that very carefully. But we still think that it’s likely that there’ll be materially positive growth this year. But again, it’s something we’re watching carefully. And, of course, we’re watching the Brexit situation quite carefully as well.
PELLEY: We have seen big swings in the stock markets in the United States. And I wonder, do you think the markets today are overvalued?
POWELL: We don’t comment on the valuation of the stock market particularly. And we do though, we monitor financial conditions carefully. Our interest rate policy works through financial conditions. So we look at a very broad range of financial conditions. That includes interest rates, the level of the dollar, the availability of credit and also the stock market. So we look at a range of things. And I think we feel that conditions are generally healthy today.
PELLEY: Generally healthy? One of your predecessors back in the ’90s famously said that the market in those days was irrationally exuberant. You don’t see that today?
POWELL: We don’t see much evidence of that today. There, as always, in our very highly developed and large capital markets, there are places you can point which are, let’s say hotter than others. But, generally speaking, credit spreads, which is the compensation you get above risk-free rates for taking credit risk, are at relatively normal levels. By some measures the stock market valuation is closer to its sort of normal levels over long periods of time. There are pockets though. There are things, for example, the leverage lending corporates. We’ve seen high growth in leverage lending to non-financial corporates. And that’s something we’re watching carefully.
PELLEY: Why so?
POWELL: So whenever there’s a lot of borrowing, perhaps because of an excess of optimism, there’s a risk that later on, borrowing will have been too optimistic or too excessive. And that goes for households. That goes for businesses. What we’re seeing now is some companies borrowing fairly large amounts of debt. And the sense of it is that if there were a downturn, having highly leveraged companies would be an amplifier, could be an amplifier, to a downturn. I don’t think it’s the kind of thing that we saw in the financial crisis, where you had, you know, the subprime mortgage crisis. It doesn’t seem to be like that, generally. But at the same time, it could be an amplifier to a downturn.
PELLEY: And this is something that concerns you today?
POWELL: It’s something we’ve been actively monitoring for some time. And we’ll continue to do so.
PELLEY: Where do you see weakness in the U.S. economy?
POWELL: Generally speaking, the U.S. economy is coming off a very strong year last year. We had growth just a touch higher than 3%. And that strength was pretty widespread. You know we have high levels of employment, low levels of unemployment, wages are moving up. Consumer confidence is high, business confidence is high. We’ve seen a bit of a slowing, but still to healthy levels in the U.S. economy this year. So the U.S. economy does seem to be favorable. The outlook for the U.S. economy is favorable. I would say the principal risks to our economy now seem to be coming from slower growth in China and Europe and also risk events such as Brexit.
PELLEY: A record seven million Americans have fallen behind on their car payments. Never happened before. What do you make of that?
POWELL: Well, if you, so, take a step back and look at the broader consumer credit picture, which is generally a healthy one. Mortgage credit is in good shape. Default rates are low. And as I mentioned, wages have moved up significantly. So the consumer’s in a pretty good place. What’s happened with automobiles is that the car sales have been quite high for a number of years. So the whole body of outstanding auto loans is much larger than it was. Auto default rates have actually not moved up. They’ve actually been fairly stable. But the number of people who are experiencing, you know, auto defaults has gone up because the number of borrowers has gone up. I think it also though shows that not everyone is experiencing this widespread prosperity that we have. And that’s something we pay attention to as well.
PELLEY: Retail sales declined in December, the fastest pace since 2009. Are these things taken together suggesting that the system is blinking red?
POWELL: Well, we look at a wide range of data. We never focus too much on one month’s report, on one series. And I think generally, the outlook for the U.S. economy remains a favorable one. You point to the retail sales number. And it was surprisingly weak. And we’re, of course, watching that. We’ll be watching the next month retail sales. The reason it’s a surprise is that we had lots of other reports of relatively healthy levels of spending over the holidays. And that comes from a number of different channels. And so we’ll be looking to see, there’s also evidence, by the way, that spending has popped back up in January. But that’s a surprisingly weak reading. And we’ll be watching the next month’s reading shortly.
PELLEY: But the overarching question is are we headed to a recession?
POWELL: The outlook for our economy, in my view, is a favorable one. It’s a positive one. I think growth this year will be slower than last year. Last year was the highest growth that we’ve experienced since the financial crisis, really in more than ten years. This year, I expect that growth will continue to be positive and continue to be at a healthy rate.
PELLEY: You mentioned growth last year being slightly over 3%. That was with the tax cut and with unemployment in this country at a rate that we haven’t seen in decades. Is that the best the economy can do now, 3%, slightly over? Are the days of 4% growth over?
POWELL: So growth really amounts to, you can break it down into a couple of things. One is how fast is the labor force growing? And the other part is how fast is productivity growing? The labor force, back when we used to have 4% and 5% growth years, the labor force was growing quickly, 2.5%, 3% in some cases back in the ’60s and ’70s. We have an older population now. And our labor force is growing more slowly. It’s growing less than 1% a year. So, it’s not likely that we could sustain the kinds of growth rates that we had when population and the labor force was growing more quickly. Nonetheless, we can grow at a healthy rate. And last year was a good year.
PELLEY: So 4% is something we shouldn’t expect in the future?
POWELL: There will be years of 4% growth. But it would be challenging to see sustained 4% growth, again, because of the slow growth of the workforce. Our workforce is growing at a trend rate of about 0.5% a year. To get to 4% headline growth, you would need 3.5% productivity growth. We don’t have any modern experience of productivity, which is just the increase in output per hour worked, running at those kinds of levels for a long period. But, you know, who’s to say what’s possible with productivity?
PELLEY: Will you allow your inflation target to drift up above 2%?
POWELL: We have a 2% inflation target. And we say that it’s symmetric. And what we mean by symmetric is that if inflation is below target or above target, we look at it symmetrically in the sense that we’ll always be trying to get back to 2%. But that we won’t be trying to do that any differently if we’re a couple of tenths above 2% or a couple tenths below 2%.
PELLEY: So over time, you want to average 2%, but if the inflation rate goes above 2% that doesn’t mean you’re going to slam on the brakes?
POWELL: We haven’t actually said that we want to average 2% inflation. What we’ve said is something a little bit different, which is that we look at errors above and below 2% symmetrically. Honestly though, inflation has mostly been below 2%. We haven’t had inflation above 2%. And so it has averaged less than 2%. And that’s something that is worth thinking about because we want inflation expectations to be anchored at around 2%. And we have to reach 2% sustainably and symmetrically we think for that to be the case in the long run.
PELLEY: Want to make sure I understand. If the inflation rate rises something over 2% for a limited period of time, that doesn’t mean the Fed’s going to jump on the brakes?
POWELL: I think we wouldn’t overreact to inflation modestly above 2% any more than we overreacted to inflation modestly below 2%. I think we’ll always be moving inflation back to 2% with our policy. But I think we do that in a symmetric way.
PELLEY: Were the recent rate increases wrong? The president called the Fed “crazy” and out of “control.”
POWELL: I feel, and our committee feels, that our interest rate policy is in a very good place right now. It’s roughly neutral in a sense that our interest rate is in the range of estimates of a rate that is neither urging the economy to go faster, nor trying to slow it down. And we think that’s an appropriate place for an economy that has the lowest unemployment in 50 years, that has inflation right about at our 2% objective, that has returned significantly to good health.
PELLEY: Traditionally, presidents don’t criticize the Fed. When you heard President Trump call the Fed “crazy” and “out of control,” what did you think?
POWELL: I don’t think it would be appropriate for me to comment on other elected officials or on the president.
PELLEY: You have a rule about speaking about President Trump?
POWELL: I don’t think it’s appropriate for me to comment on the president.
PELLEY: And therein lies the rule. You don’t do it?
POWELL: No, I don’t. I don’t think it’s appropriate. I really don’t.
PELLEY: Isn’t it your duty to respond when the president calls the Fed a “much bigger problem than China”?
POWELL: My duty is one that Congress has given us, which is to use our tools to achieve maximum employment and stable prices and to supervise and regulate banks so that they treat their customers fairly and so that they’re strong, well-capitalized and can perform their critical function in good times and bad. That’s my job. And I think for me to get into responding to any elected official would be a distraction from that job.
PELLEY: Do you listen to the president?
POWELL: I don’t comment on the president or any elected official.
PELLEY: Can the president fire you?
POWELL: Well, the law is clear that I have a four-year term. And I fully intend to serve it.
PELLEY: So no, in your view?
PELLEY: You were raising interest rates at the end of last year and just in the beginning of 2019. The president sounded off on that. And you stopped raising interest rates. Was it because of pressure from the White House and the President?
POWELL: Not at all. Not at all. And it’s very important that the public understand that we are always going to make decisions based on what we think is right for the American people. We have a very wide network of contacts throughout American business and American life. We talk to them regularly. We listen to diverse perspectives and then we make a decision. And that decision is the best one we can make in real-time to serve the interests of the American people. We will never, ever take political considerations into effect. This is a strong institution, which has a strong culture, which is as I’ve described it.
PELLEY: Help the audience understand how this was constituted by the Banking Act of 1935. How independent is the Fed? Who do you answer to?
POWELL: We answer to the American people and to their elected representatives in our system of government. So when we say we’re independent, what does that mean? What it means is that we serve long terms that are not at all synced up with the election cycle. And it means that we are directed to execute policy in a strictly non-political way, serving all Americans. And that’s what we do. We are independent in that sense. Our decisions on rates can’t be reversed by any other part of government. So, of course, Congress created us and could un-create us. But, nonetheless, that’s what independence means for us. But the other side of independence is accountability. That independence is a precious thing. It enables us to better serve the public. It’s critical for our service to the public. But it brings with us a duty to seek and embrace accountability and thereby, democratic legitimacy. And in our system of government, our accountability runs through the elected representatives and the oversight committees in Congress.
PELLEY: Your Fed is apolitical?
POWELL: Strictly non-political.
PELLEY: Where are you taking us? What is an ideal economy in your view?
POWELL: Well, I think of the direction I’d like to see us keep going. And that is right now, unemployment is at a 50-year-low. And we’re at a pretty good – we’re pretty close to price stability as well. But we have longer run issues. And it would be important for us as a nation to address these issues. In particular, you’re not counted as unemployed if you haven’t looked for a job in the last four weeks. And we have an unusually large number of people in their prime working years who are not in the labor force. The United States has a lower labor force participation rate than almost every other advanced country. That is not our self-image as a country. It’s very important that we bring people back into the labor force so that they can contribute to our shared prosperity and reap the benefits of doing so. The economy will be stronger and the country will be stronger if we can do that. Not all of the tools to accomplish that are the Fed’s. Many of them are in the hands of Congress.
PELLEY: Where did these people go who are no longer looking for work?
POWELL: They went a lot of places. Many of them are discouraged from finding work. There are a range of causes, really. And part of it is evolving technology. So as technology evolves, it requires rising skills on the part of the people. U.S. educational attainment has not moved up as rapidly as it has in other countries. Globalization’s also a factor. For many advanced economies, manufacturing, to some extent, has moved into developing countries. And so the manufacturing employment and the manufacturing base is smaller than it was. So for whatever reason, and the opioid crisis is related to, I think, to those other factors. There are just are quite a few people who are out of the labor force, particularly young males, who would be better off in the labor force, and the country would be better off for it as well.
PELLEY: Many people lost a great deal during the Great Recession. Wages are now increasing at around 3%. Are those people going to be made whole ever?
POWELL: Well, the financial crisis did a great deal of damage to many people’s lives. And, of course, not all of them will be made whole. People lost their houses. They lost their livelihoods, lost their jobs, and there’s no way that they’re all going to be made whole. So I think what we can do is learn our lessons from that crisis. That was the worst financial crisis in 75 years. We tried very hard to learn the lessons of what went wrong and to build a much stronger, more resilient, better capitalized financial system so that it will be more resilient to the kinds of shocks that happen in the economy.
PELLEY: What went wrong was that American banks let the country down. Are American banks safe today?
POWELL: American banking system is much, much stronger and more resilient than it was before the financial crisis. Particularly the largest banks have double or more the amount of capital, which is to say resources to absorb losses. They’re far more liquid. It’s often a lack of liquidity that causes a financial institution to fail. So they have far higher levels of liquidity. Because of stress testing they also have a much more forward looking sense of what the risks are that they’re actually running and the ability to manage them is much higher. In addition, we’ve required them to undergo resolution planning in case they do fail. There’s a plan for what to do, which doesn’t involve a taxpayer bailout. So overall, there’s no question that, not just the banks, but various aspects of the financial system, are in a much stronger place. We never declare victory on this. We are still working on it and we will continue to be vigilant because people’s lives can be permanently damaged by that kind of event. And we really want to avoid that.
PELLEY: But in 2007 the Fed missed the reckless criminal banking that was happening throughout our banking system. How do you know today that the banks are safe?
POWELL: Well, as I said, we spent ten years analyzing, understanding what went wrong and trying to correct it. And we’ve done a great deal. As I say, we don’t declare victory on this. We never will. We are going to keep our vigilance high on this. But overall, there’s no question in my mind that the financial system is much stronger and better able to perform its critical function in good times and bad.
PELLEY: A collapse of the financial system like we saw in 2008 cannot happen again?
POWELL: Cannot is a strong statement. You know, I would say that our system is vastly more resilient and strong than it was before the financial crisis.
PELLEY: How concerned are you about either criminals or more importantly hostile nations attacking our banking system through the computer system?
POWELL: So cyber risk is a major focus. Perhaps the major focus in terms of big risks. I think the kinds of risks that happened to us in the financial crisis, we’ve worked hard to build up resilience against those. Cyber risk is a constantly evolving risk. We devote very large amounts of time and resources to protect the Fed, but also to protect financial institutions and the financial markets. And private corporations do the same thing. The banks we supervise are required to have plans in place and state of the art, you know, technology and the like. I would say for cyber risk though I’ve never felt a time when I think we’re doing enough. We just have to keep running hard to keep up with the risk.
PELLEY: I have the sense that I just hit on the thing that keeps you up at night.
POWELL: I would say of the risks that we face, that certainly is the largest one.
PELLEY: What’s the worst case scenario that you worry about?
POWELL: Well, what you worry about, one case that we think about a lot is if there were a successful cyber-attack on an institution, or a financial market utility – a payment system – which managed to take down that institution or that utility for an extended period of time. How do we build the resilience, the redundancy in case that does happen? And even more, how do we do everything we possibly can to make our institutions and our utilities resilient against that activity, so that kind of an attack, so that it doesn’t succeed?
PELLEY: According to federal statistics, the upper half of the American people take home 90% of income, leaving about 10% for the lower half of Americans. Where are we headed in this country in terms of income disparity?
POWELL: Well, the Fed doesn’t have direct responsibility for these issues. But nonetheless, they’re important. And in particular, I would point to a couple of things. One is just relatively low mobility. We think of ourselves and we’ve always been a country where anybody can make it to the top. But the data show now that actually, the chances of making it from the bottom to the top in the United States are lower than they are in many other comparable countries. This is not our national self-image. And I think that comes down to better education, better training, getting people into the labor force and putting them on the path to prosperity. The other issue is related to that and that is the relative stagnation of incomes for most people. For a long time, we saw rising incomes generation upon generation. That process has slowed down. And I think it’s important that we do those things we can from a public policy standpoint to give people the tools to take part in the economy. And also to create an environment where productivity can go up. It’s really rising output per hour, what we call productivity, that allows real wages to rise over time. It allows living standards to rise over time.
PELLEY: Adjusted for inflation, this generation of middle Americans have not done better than their parents. What one thing can we do to get the economy for those people unstuck?
POWELL: Well, there’s no silver bullet. There’s no one thing here. But I would say right at the top of the list would be education. People need the education and the training to be able to compete successfully in a global economy where technology is driving so many things. And that’s a key thing that, as a country, we need to continue to focus on and do better. There really is no substitute for your workforce having the skills and aptitudes to compete in the global markets. Our workers are the best in the world. But we’re leaving – some people are being left behind.
PELLEY: I had the opportunity recently to speak with one of the world’s leading experts on artificial intelligence, who told me quite matter of factly that 40% of all jobs [could] be wiped out by automation and AI. Is that something you’re looking at?
POWELL: We do pay attention to, not just to AI, but to evolving technology generally. I think you have to start with a longer perspective, which is over time, technology has tended to raise living standards and also over time prosperity from technology has tended to be spread broadly.
But that doesn’t necessarily hold over short periods of time. And there’s no law of nature that says it will continue to hold. I think what we can do as a country is try to be leaders in technology, but also make sure that our workers have the education and the skills they need to benefit from advancing technology.
PELLEY: The Federal Reserve back during the Great Recession added something like [$1.7] trillion worth of mortgages that the rest of the economy really didn’t want in order to make lending begin to happen again in this country. With the benefit of hindsight, was that the right thing to do? And is it the kind of thing that the Fed would do again if another big sector of our economy collapsed?
POWELL: When the financial crisis hit, the Fed cut our interest rates to near zero, effectively as low as we could. And that wasn’t enough. The economy needed more support. So we went and bought longer duration bonds, both Treasury securities and mortgage backed securities, because that would’ve lowered, and did lower, longer term rates and provide support to the economy.
Since that time, there have been countless studies of the effect of those purchases, which we refer to as quantitative easing or QE. And most studies say, conclude, that those programs did provide meaningful support to the economy. There’s a range of perspectives, but I would say that’s most studies. So that’s an extraordinary tool that one wouldn’t use in the ordinary course. But we have said that, if needed, we will use all of our tools to give the economy the support that it needs.
PELLEY: So the lesson that the Fed learned was that was an effective tool and is now part of your toolbox?
POWELL: Quantitative easing is certainly in the toolbox. Our first order of business in a downturn would be to cut interest rates to support economic activity. If we needed to resort to our other tools, including forward guidance, including, quantitative easing, if we needed to do that, we would certainly do it.
PELLEY: No one seems to talk about the national debt anymore. Have you noticed that?
POWELL: Well, it’s not our job. Fiscal policy is not the Fed’s job. But when something threatens the overall economy, I feel that we have a duty to speak up.
PELLEY: Does the national debt threaten the overall economy?
POWELL: In a long-run sense, U.S. debt is on an unsustainable path. And what I mean by that is that the debt is growing faster than the economy. That cannot go on indefinitely. I wouldn’t want people to think that we’re on the verge of a debt crisis or anything like that. I don’t believe that is the case. But what happens is you borrow more and more, and you’re going to be spending more and more taxpayer dollars on servicing debt rather than investing in the things that we need to succeed as a country. Better education, things like that. So it is important that we get our hands around the debt. And ultimately, we will. There won’t be any choice in the end. But, again, we don’t do fiscal policy. We don’t give Congress advice on particular fiscal policies. But I will say that it’s important that we address this issue.
PELLEY: What do you mean we won’t have any choice in the end?
POWELL: Well, the record is if something is unsustainable and cannot go on indefinitely, it will stop. So ultimately, countries, and businesses, and people who borrow excessively have to face that they’ve borrowed excessively. Again, the United States is a long way from any such event. The problem is more that we’re spending more and more of our precious resources on servicing debt rather than investing in the things that we really need to succeed as a country.
PELLEY: The bleeding will stop one way or the other.
POWELL: In the long run, yes.
PELLEY: Congress has been raising the debt ceiling steadily. Do you think that’s something that should continue to happen for the economy?
POWELL: The debt ceiling is really just something that allows the federal government to borrow to pay for the programs that Congress has already authorized. The real point is that Congress has to better match spending and taxes– tax revenue. The debt ceiling is something that only the United States has. They have a separate vote in effect on whether to raise the debt ceiling to allow the money to be borrowed to actually pay for the programs that they’ve approved. So, again, we don’t do fiscal policy here at the Fed. But when something threatens the overall economy I feel an obligation to speak up. And in the debt ceiling, the idea that we would somehow come to a place where we’re not honoring all of our obligations is something that could threaten the economy.
PELLEY: A large bank merger has recently been announced, and I wonder whether we still have banks that pose a systemic risk to the economy, that they are too big to fail. That was a big problem in 2008. It cost taxpayers $700 billion. Aren’t we still in the same place?
POWELL: We’re in a very different place. So we have identified eight banking institutions in the United States as systemically important. And we have focused the highest expectations, and regulation, and requirements on those eight institutions. And that’s not going to change. They’re very highly capitalized. They have high amounts of liquidity and just in general high requirements. For banks below that level though, as we move down into smaller, more traditional banks, that present less of a threat to the economy, we think it’s appropriate that they not be subject to quite the same high level of expectations as we impose on those banks.
PELLEY: But the eight banks that you just mentioned are still too big to fail. And your answer to that is to watch them, not break them up.
POWELL: No, I think in the sense of too big to fail, no, that’s not the case. The Fed doesn’t have the authorities that we had before the crisis to do some of the things we did during the crisis. And what we have instead is a resolution mechanism so that if a large financial institution does fail, it can be addressed in what amounts to a bankruptcy kind of a format.
PELLEY: It can be unwound over time. It doesn’t have to be–
PELLEY: –a collapse.
POWELL: We didn’t have a means of allowing a large financial institution’s fail before the financial crisis. We have that now. And we’ve spent many years building up a framework around it and requiring the banks to have higher levels of liquidity and capital and to have plans. I think we’ve made a great deal of progress. That’s not to say that the failure of a large bank wouldn’t be a very challenging event for the economy and for the financial markets. But I think we’ve made a great deal of progress in addressing that problem.
PELLEY: Any of these eight large banks in your view can be unwound in an orderly way?
POWELL: I believe that is right. Certainly that is the goal that we’ve been working for a decade now. And I think we’ve made tremendous progress toward it.
PELLEY: What is the biggest threat to American prosperity that no one is talking about?
POWELL: That no one is talking about? I would point to our longer-run challenges. So, the U.S. economy right now is in a pretty good place. Unemployment is at a 50-year low. Inflation is close to its target. We are growing at a reasonable rate. But we face longer-run challenges. And I would like to see a stronger national focus on, for example, labor force participation. There are plenty of prime-aged people who are not in the labor force and who would be better off in the labor force. And I’d like to see us find policies that can support and reward work, provide training and education, and generally try to raise U.S. labor force participation so that we’re no longer at the bottom of the league table among advanced economies. I think that’s a win-win. That gives us faster growth. It gives us more widespread prosperity. These people can contribute to our shared prosperity, and they can also benefit from doing so.
PELLEY: This may not be a fair question, so let me kind of ask it as a sidebar. Do you know how many of those people there are? What’s the number of people who are working age, but are unattached from the workforce?
POWELL: Well, the number is very large. But a lot of people are doing so by choice. Really, the question is, so our labor force participation rate right now is 63.2%. If it were to go up three or four percentage points, that would be very good. That would be very good. Because some people in their prime-age working, prime-age labor force participation is much higher than that, but still lower than in other countries. Really I could get you a number, but I don’t have one off the top.
POWELL: – off my head.
PELLEY: – that’s why I asked. Because I didn’t know whether this was top of mind and right off the top of your head or—
POWELL: It’s a complicated answer.
PELLEY: Well, of course it is. All of this is.
PELLEY: You had dinner with the president recently. And you took your vice-chair with you. Did you feel like you needed a witness?
POWELL: It would not be appropriate for me to talk about private conversations like that. I will say that that we had, at the president’s invitation, we had dinner. [Treasury] Secretary [Steven] Mnuchin, [Federal Reserve] Vice Chair [Richard] Clarida, the president, and I had dinner. We talked about the economy. But I wouldn’t want to get into talking too much about the contents of a private meeting.
PELLEY: Without getting into the contents, did you feel like the president was listening to you?
POWELL: I try not to comment on the president. I just don’t think it’s appropriate for me to comment on the president or frankly any other elected official. If I do that, I think it’s a distraction from the important job that we have.
PELLEY: This builds on a conversation that we were having a short time ago. You mentioned the opioid crisis. It’s that big a problem in the labor force?
POWELL: Yes, it is. The opioid crisis is millions of people. They tend to be young males. And it’s a very significant problem. And it’s part of a larger picture of low labor force participation, particularly by young males.
PELLEY: I mean, you seem to be talking about part of this generation being lost, unattached from the rest of the economy.
POWELL: That is the issue. When you have people who are not taking part in the economic life of a country in a meaningful way, who don’t have the skills and aptitudes to play a role or who are not doing so because they’re addicted to drugs, or in jail, then in a sense they are being left behind. And there are too many of those people. And I think bringing them into the labor force would enormously benefit our country. We’d grow more strongly. And I think it would be good for the economy and good for the country.
PELLEY: Many people seem to believe that the American dream is dying. To them you would say what?
POWELL: Well, I have a more optimistic view than that. I do believe the United States has very strong institutions. It is the world’s leading democracy. We still have the strongest economy in the world. And we have longer-run problems, as is always the case with an economy. And it’s important–
PELLEY: But the middle class is getting left behind, Mr. Chairman.
POWELL: What’s happened is that incomes for sort of the median family have gone up at a much slower rate than they had in generations over the last century let’s say. And that’s not a good thing. And I think as a country we ought to be doing those things that will enable people to succeed, whatever part of the economic world they come from. And I think that’s about our workers having the education and the skills that they need to capitalize on the great opportunities that are presented by technology.
PELLEY: You mention education a lot. What is missing?
POWELL: Well, U.S. educational attainment led the world for a long time. We were the first country in the world to have gender-blind secondary education. And what you see from that period of our history is technologies evolving very quickly, but living standards are rising and on a broad basis in the 1970s, around about that time, you saw educational attainment flattening out for the United States. And you saw it rising all around the world, in emerging market countries and also in the other advanced economies. And just about that time, you also see median incomes, middle class incomes flattening out. And you also see lower mobility for people at the bottom end. So I think at the top of the list of things that we could do to improve living standards, improving the education system is right at the top of that list. It’s very, very hard to do it.
PELLEY: I spoke to a gentleman who was at the time, the president of Caterpillar, the company that makes heavy mining and construction equipment. And he told me that he wanted to build a new manufacturing plant in the United States but he couldn’t find enough American workers who had the education to operate computerized machine tools.
POWELL: We hear that all the time from our business contacts. And it is very disturbing. I mentioned these people who are out of the labor force or on the fringes of the labor force. And you hear all the time of lack of skilled labor. Even carpenters, electricians, plumbers, factory workers who can operate, you know, computerized equipment. There’s a great need for those people. And we absolutely can match up the people we have with those jobs. It’s just something we need to focus strongly on as a country.
PELLEY: A recent Gallup poll showed that more young people in America believed in socialism than capitalism. That’s got to be hard to hear for a guy who used to work in private equity and is now chairman of the Fed.
POWELL: I think that our market-based economy has served us very well over time. Very well. And I think it’ll continue to do so. Let’s remember that the U.S. economy is the strongest in the world. Let’s remember that having a market-based system where private actors make decisions about allocating capital and things like that has served us well.
PELLEY: Finally, let me just nail this point home. Most people remember 2008 and the Great Recession. Can you tell me in this interview that our banking system is safe and sound and that can’t happen again?
POWELL: What I can tell you is that our banking system is incomparably stronger and more resilient than it was before the financial crisis. Particularly our largest banks have far higher levels of capital to absorb losses. They’re far more liquid. Often, financial institutions have problems because of a lack of liquidity. Our banks have much, much more liquidity than they had. Our banks are far more aware of the risks that they’re running and better able to manage them. And if they do fail, we now have a system for resolving them in bankruptcy. So we are in a much better place than we were. We will never declare victory on this. We’re always going to be vigilant about emerging risks, and we’re going to be vigilant about not backsliding and perhaps inadvertently allowing the financial system to weaken again.
PELLEY: In those days the Fed did not see the Great Recession coming. I wonder what has the Fed learned from that lesson?
POWELL: Well, I think we’ve learned a wide range of lessons. One of which is, that to our surprise, the financial system was not strong enough to withstand the shock that hit it. We really did think and I think broadly experts thought that the system was strong enough. And it turned out not to be. So the crisis exposed great weaknesses, not just in the banking system, but all across the financial system. We’ve spent a decade building higher resilience. As I mentioned, we will never declare victory on this. We’ll always be remaining vigilant.
PELLEY: But the Fed won’t be fooled again?
POWELL: Well, we are determined to remain vigilant and to continue to monitor for emerging risks and to sustain the gains in resilience that we have, you know, fought for and won.
PELLEY: One more follow-up. Do hostile nation states have the ability to take our banks down through cyberspace?
POWELL: The part of it that we control is to have our banks be as resilient as they possibly can and also our government institutions, like the Fed. We spend a great deal of resources and time on cyber resilience. And so do our banks. And we actively cooperate with other government authorities on this. And it’s just something where I think you can never sleep well with this new risk and just do everything you can to stay ahead of it. And that’s going to be what we do.
PELLEY: Yeah, but that is the question. Are we ahead of it?
POWELL: What we can do is focus on analyzing the latest threats, playing the best defense, making sure that our institutions are resilient and won’t be successfully attacked, and also if they are successfully attacked having a backup plan, having redundancy. And so we do all of those things. There’s a great focus on this at all private institutions, also public institutions. At the Fed we have a particular role in making sure that our banking institution is resilient to cyber risks. We take this very seriously. I’d say in a sense it is our top priority. But I think it’s just something where we’re going to be working hard to stay ahead of the threat for a long time.
PELLEY: It’s become your top priority?
POWELL: In a sense, it’s the biggest risk. You know, the kinds of risks that we faced in the financial crisis are very real, but we know I think generally what to do there. We raised capital standards. We raised liquidity standards. The banks are taking much less risk now. So, we addressed all of those things that happened in the last crisis. Cyber is a relatively new kind of a risk with nation state actors. And it’s one where the playbook is still being developed in real time. And, yes, it is a very high focus for many aspects of government and the private sector.
PELLEY: Too many unknowns.
POWELL: Many unknowns. And it’s an evolving situation. It’s, you know, the threats evolve and develop. And– we do everything we can to stay ahead of them.
PELLEY: The dollar is strong, which to most people sounds like a good thing. But of course that limits imports if American goods become too expensive. The president said recently, “I want a strong dollar, but I want a dollar that’s great for our country, not a dollar that’s so strong that it makes it prohibitive for us to do business with other nations and take their business.” Are we now in danger of having a dollar that’s too strong?
POWELL: So the Fed doesn’t have responsibility for the dollar. That is a responsibility that lies with the administration and with the Treasury Department. So we don’t comment on the level of the dollar. I would say that it is one financial condition among many that we monitor.
PELLEY: Are you concerned about it?
POWELL: I think financial conditions broadly continue to be in an appropriate place and supportive of a favorable outlook for the United States.
At this point, the interview moved to the Federal Reserve Board Room.
PELLEY: That Federal Open Market Committee that sits around this table [in the Federal Reserve Board Room] is the committee that makes the decision about interest rates. You’ve had four interest rate increases in your tenure. I wonder, were any of those unanimous?
POWELL: They were all unanimous.
PELLEY: All four?
PELLEY: No disagreement about raising interest rates?
POWELL: No. It’s not at all unusual to have a dissenting vote about monetary policy. That’s traditionally happened with great frequency. It has not happened yet on my watch. That’s not to say that we don’t have vigorous discussions and a range of perspectives. And I think one of the great benefits of the system that we have is we have 12 Reserve Banks. And they bring different perspectives to our discussions, and that’s, to me, a very healthy thing. You want to hear disagreement around issues before you make a decision. I think mistakes get made when everyone agrees and no one tries to explain why the decision is incorrect.
PELLEY: Well, tell me what are these meetings like around this table? As far as I know no television camera has ever been in here during an Open Market Committee meeting.
POWELL: Well, they go something like this. We all sit around this table. And there’s lots of staff sitting around. And we begin with a briefing on the economy and of changes in financial conditions. And, then, participants have a chance to offer their own commentary on the state of the economy. We take a break. We have dinner. And the next morning, we come in. And we talk about monetary policy as a follow on to what we discussed the day before about the economy. We discuss monetary policy. There’s a presentation by staff. Individual participants contribute what they want to contribute to that discussion. Then, generally, the chair offers a proposal. And then, there’s a vote on that proposal.
PELLEY: How lively is the discussion? How often are there dissenting views?
POWELL: Dissenting views are very common. But really, it’s more, though, different perspectives. Not every different perspective leads to a dissenting vote. We always have a range of perspectives on every issue. So, you’re guaranteed that with a committee that has as many as 19 members. Right now, we have 17 participants on the FOMC. You’re going to get a range of perspectives on, essentially, everything. And that’s very healthy, I think.
PELLEY: And the various bank presidents are coming from various places in the country. You have someone coming from the bank in San Francisco, somebody coming from the bank in Dallas, somebody coming from the bank in Minneapolis. So you get a really good look around the country that way.
POWELL: You really do. One thing the presidents can do is they report on what’s happening in their district. So, each of the 12 Reserve Banks, now, has a very highly developed network of contacts that reaches far beyond the business community, deep into the business community, but also into academe and all different walks of American life. And they, pretty systematically get the perspectives of people through surveys and conversations and they accumulate that. They come here and they talk about what’s going on in their district. So, you gain, just listening to what’s going on around the country, I think you gain an understanding of what’s happening, which is superior to just looking at the national numbers. If you’re just looking at the national level numbers, you’re going to miss a lot of nuance in my opinion. So it’s a good system and I think it’s served us well, served the public well.
PELLEY: How much do you think the average American understands about the Federal Reserve?
POWELL: I think it is understandable that most people would not pay a lot of attention to central banking. They have other things to do in their lives. That is very understandable. It is, central banking and the Fed, are important things in our society. But they’re not things that are widely understood. And I, frankly, think it’s our obligation to be as transparent and explain ourselves as clearly as possible because what we do affects all Americans. And any American who wants to understand what we do should be able to do so straightforwardly.
PELLEY: Everybody’s got a mortgage or a car payment.
POWELL: That’s right. No, our interest rate policy affects everyone and so does financial regulation, indirectly. So that’s why I say we have an obligation to be as transparent as possible, to explain ourselves to the American people and to their elected representatives in Congress.
PELLEY: Well, when the committee does decide to raise interest rates, how does that affect people?
POWELL: Well, we raise one interest rate called the Federal Funds Rate. And when we raise that rate, other short-term, overnight interest rates, so borrowings that are a day long or a month long or a few months long, those will be affected by our change in policy.
PELLEY: So the banks pay a higher rate once you increase–
POWELL: When consumers who have floating-rate debt will pay a modestly higher rate. We move rates up quite gradually. So you might or might not notice it. But, generally speaking, borrowers will pay a slightly higher rate when we raise our Federal Funds Rate.
PELLEY: Why are the rate increases so gradual?
POWELL: Well, we think that’s what the economy has needed. We held our rate, our policy rate, near zero for almost seven years. That’s something that’s without precedent. And I think we were wise to do so. And then, about three years ago when the economy had really begun to return to health, we very gradually raised rates to a level that’s more normal in a healthy economy. Rates are still quite low. But they’re closer to a normal level for a healthy economy.
PELLEY: Is it sort of an attitude of wait and see? You raise the interest rate a quarter of a point and see what happens? And, then, if the economy can take it, you raise another quarter, just tiny, little steps at a time?
POWELL: So looking back, I think we’ve been very careful to give the economy every chance to recover and return to growth and return to health. And that’s one reason why we’ve moved so gradually. I think today we actually think our policy rate is in a good place. And we’ve said that we’re going to be patient and wait to see how events evolve before we make any change to our policy.
PELLEY: We had the boom and bust in the ’90s. We had the boom and bust in the mid-2000s. Are you trying to avoid another boom and bust cycle?
POWELL: Well, yes. A boom and bust cycle’s not something we want. Well, you know, we’re using our tools today to try to sustain this long expansion. The economy’s been expanding now for almost ten years. And we want to use our tools to allow the economy to continue to expand, to continue to keep the labor market strong, job growth strong, the economy growing and also keep inflation close to our two percent objective.
PELLEY: This is the longest expansion in American history. How long can it last?
POWELL: It will be the longest in a few months if it continues. I would just say there’s no reason why it can’t continue.
PELLEY: For years?
POWELL: You know, eventually expansions come to an end. The business cycle has not been repealed. But I would say there’s no reason why this economy cannot continue to expand.
PELLEY: This expansion’s not worn out yet?
POWELL: I don’t think so. I think there’s every reason to think that this expansion can continue to expand.
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