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00:00You were nominated to be chairman of the Fed by President Trump is being chair all that it's cracked up to be. People thought that perhaps too fed on rates increases in 2019 were part of your plan. There is no such plan. We're in a place where we can be patient and flexible. Maybe the president will have a meeting with you. Have you received that invitation yet. No . No invitation. If you had an invitation to be happy to accept it. Right. I'm not aware of anyone not accepting it. OK . Would you fix your tie please. People wouldn't recognize me if my tie was fixed but it just seemed to. All right. I don't consider myself a journalist and nobody else would consider myself a journalist. I began to take on the life of being an interviewer even though I have a day job running a private equity firm. How do you define leadership. What is it that makes somebody tick . You were nominated to be chairman of the Fed by President Trump . You had previously served as a member of the Fed. Now that you've been a member and you've been chair is being chair all that it's cracked up to be . I was a governor for six years and I think I had every job on the board of governors that there is to have other than share . It's a great job and it's a great honor to come to work every day. You enjoy the job but you don't wish you were just a member . Now I do enjoy the job I really do I am very grateful for the opportunity it's a great honor and I do I enjoy it. You find that as a chairman your jokes are laughed at more quickly than a regular member or you get any putts in golf and you didn't get before. Well I guess we'll find out about the jokes. You know I don't play much golf anymore but know what I think my jokes have always been well received frankly . You had a very interesting interview at the American Economics Association where your two predecessors and at that interview you seem to say that the Fed's position going forward is that you're reasonably comfortable where you are with the Fed funds rate. Is that the proper interpretation so maybe provide a little bit of context there So 2018 was a very good year for the U.S. economy it's the strongest strongest growth we've had in more than a decade by so many measures the labor market is very strong historically low unemployment the lowest in 50 years wages going up labor force participation going up which is very important for us and inflation staying right near our target . So we see continued momentum from the data right through the beginning of this year. We also see though we see the financial markets expressing a view of concern about downside risks really associated with with global growth and with trade. So how do we put those two different signals together. So I think we're actually in a good place I think where that leaves us particularly with inflation low and under control is we have the ability to be patient and watch patiently and carefully as we see the economy evolve and figure out which of these two narratives is going to be the story of 2019. But at the end of last year in December people thought that perhaps too Fed fund rates increases in 2019 were part of your plan. Is it fair to say that that is not part of your plan right now. Today I think a better way to think about it is that there is no such plan . We you know we don't actually vote on a path or a plan for interest rates. We have each individual participant on the FOMC submits his or her individual projections four times a year and we did that in December and two rate increases was the median and it was conditional on a very strong outlook for 2019 and outlook which may still happen. But the good thing is we're in a place where we can be patient and flexible and wait and see what does evolve and I think for the meantime where we're waiting and watching. All right. So I shouldn't anticipate at your next FOMC meeting a big increase in interest rates you should anticipate that we're going to be patient and watching. All right. Okay. All right. Well I'm waiting and seeing. I have no doubt. OK now your immediate two predecessors had PTSD and economics. You have a law degree from Georgetown. You've practiced law but is there a disadvantage to not having a peace deal. And is there an advantage to having a private equity background . You know I wouldn't say that's a disadvantage not having a P . I've been at the board 70 years I've had a lot of time to learn the monetary economics you really have to do that if you're going to serve at the board and you're not a PSG economist you very much got to invest in learning. And of course I've done that but I mean my career part of my career is doing different things and learning different things. I have an interesting story for you and their effect I know a guy Nello guy who founded a private equity firm with no business degree no experience and made a success of it. So it can be done . Sometimes it's better to be lucky than anything else. So let me ask you this recently the president noted states who appointed you has been a less than favorable in some EV about some of your decisions. Does that bother you in any way. No. So we're very very focused on our job. Congress has given us a very specific job. It's an important job. We're here to serve the American people. All of the American people try to use our tools to achieve maximum employment and stable price stability. So that's what we're focused on. We don't get distracted by other things we do not take political factors into consideration either in our discussions or in our decisions at all. And that's just who we are. The president's head of the National Economic Council Larry Kudlow has suggested that maybe the president will have a meeting with you. Have you received that invitation yet. No. No invitation. I will say. Fed chairs do meet with presidents. I'm not aware of any any Fed chair in my lifetime that hasn't met with the president. These tend to be meetings tend to be rare. I think there's only been one or two during my time here and I'm not aware of any Fed chair turning down an invitation for the White House nor do I think that would be appropriate. So but I really don't have any any news. All right. So if you had any invitation to be happy to accept it right. I'm not aware of anyone not accepting it. OK so let's talk for a moment about the economy. The Fed and its land and its FOMC minutes pointed out that there's a disparity a little bit. The financial markets seem to be a little bit uncertain from time to time. But the core economy seems to be doing quite nicely. Now how do you just explain why the financial markets seem to be nervous and the core economy seems to be growing at a pretty good rate. So the financial markets really beginning in the fourth quarter got more volatile and seemed to be pricing in a more pessimistic outlook which as I mentioned it seems to be rooted in concerns about slowing growth and a related concern of the ongoing trade negotiations. So if you look at the incoming data right through the end of the year and into the beginning of this year you don't really see any evidence of a slowdown. And so we're in a situation where we have factories pointing in different directions and by the way this is not uncommon. This is this is actually something that happens not infrequently. And when we when we when we had that what we do is we we apply sort of risk management principles. In other words we're not just concerned about the baseline case we're thinking about what are the risks and we're we're we're using our our tools to address those risks . So in that case what does it mean. Means First there is no pre-set pass for four rates. There really isn't there never is but there particularly is it now. Second as I mentioned it gives us the opportunity to be patient and watch and see what what does evolve. Are we going to see the more positive view that most forecasters have of this year or are we going to see slowing global growth and are we're going to see that affect U.S. growth if it does then I can assure you we you know it's a common thing for the economy to behave in ways that are not exactly as we expect. And when that happens we can flexibly and quickly move policy we can do so in as insignificantly as well if that's appropriate. So we'll always use our tools to try to sustain this expansion and keep the labor market strong and inflation. So currently the Fed is projecting the U.S. economy is going to grow in 2019 at two point three percent. I believe that's your number. It previously was a little bit higher 2.5 percent. I think last year you've lowered it. Is that correct . Let me say first there is no official Fed projection with what two point three percent was was the median of 17 participants . So they were half above and half below that you know will will during the year not infrequently in fact. Typically when we submit new projections every quarter the projections will change . I mean it's very difficult to forecast the economy to that level of precision and you know so we'll take into account tightening financial conditions which we've seen and we'll also lower our rate pass and and try to have monetary policy offset weakness before it even happens. The shutdown what's the impact on the economy in your view in the short term if shut your government shutdowns don't last very long. They have typically not left much of a mark on the economy which isn't to say that there's plenty of personal hardship that people undergo. But at the aggregate level the economy generally does not reflect much damage from a shutdown. A longer shutdown is something we haven't had. If we have an extended shutdown then I do think that that would show up in the data pretty clearly and I would say particularly from our standpoint one of the agencies that shutdown is Commerce which has the Bureau of Economic Analysis and the Census Bureau and some of the pretty important data that we get is published by them and would not be published including retail sales and GDP and a bunch of other things that are coming out this month so we would we would have a less clear picture into the economy if it were to go on much longer. So how do you get out of speaking in Fed speak when you have all those fed people around you when people start using these technical words that don't mean anything to them it's just irritating. So I try hard not to use it or relapse into Latin for that matter and so today let's talk about the economy going forward. We're close to the longest period of expansion since World War Two and we could break that record. Do you see anything on the horizon that would make it likely we would go into a recession in 2019 . I don't see anything that suggests that the possibility of a recession in the near term is at all elevated. Recessions are or most often caused by two things One is inflation that is that is high enough that the Fed has to hit the brakes. We don't see that more more common recently in the last several cycles. It's really been a matter of mounting financial imbalances by which I mean asset bubbles the housing bubble the dot.com bubble or just excessive leverage as you saw in the subprime mortgage area were those those things happen. We don't see that either. So we don't see the two most basic recent causes of recessions we don't see those risks. So I would say the possibility is not elevated at the moment. So you don't see any worry. You're not worried in 2019 about anything close to a recession. I don't see a recession. I would say that if you asked me what am I worried about I would say the US economy is solid. As I mentioned there is good momentum going into this year. The principal worry I would have is is really global growth. If you look at Asia look at Europe you're seeing slowing in growth and the question will be how much does that affect us. It's it's a tightly integrated global economy and global financial markets and we will feel that talk about inflation for a moment one of them Fed's main jobs is to worry about inflation. What do you think the inflation rate is likely to be for 2019. I think it's gonna be right around 2 percent. We think sort of a capital asset that we inherited from Chairman Volcker and Greenspan is strongly anchored inflation expectations. So what that means is that when the economy is really weak inflation doesn't go down very much. And when economy's really strong it doesn't go up very much. So inflation tends to be routed pretty close to 2 percent. And let's talk about the Chinese economy for a moment Are you worried about the slowing growth rate in the Chinese economy and its impact on our economy. It is a concern something we're watching. You know the Chinese economy has slowed down and it's showing up a lot in consumer spending. We also saw two weak manufacturing and services surveys thing you're also seeing though is the Chinese authorities are ah ah doing repeated rounds of things to support the economy as they can do just over and over again. Different things. And so I still think the baseline most likely baseline case for China is going to be another year of solid growth there. I don't see there's no reason to think it'll be it'll be something worse than that. You think the tariffs that we've imposed on Chinese imports is a good thing for our economy a harmful thing for the Chinese economy. So I don't think that the tariffs on either side have had much of a visible mark on either the Chinese economy or the United States economy. I would never comment on the administration's trade policy. I will say this though if this leads us to a fairer. If this process leads us to a fairer more open lower tariff environment for trade that will be good for the global economy be good for our economy if instead it leads to a more protectionist environment where tariffs are higher and their mutual and their long lasting then that will lead to a less productive economy here in the United States and around the world. Are you worried at the Fed about the enormous amount of debt the federal government has. I'm very worried about it but from the Fed standpoint you know we're really looking at a business cycle kind of late. That's that's our frame of reference. And the long run fiscal non sustainability of the US federal government isn't really something that plays into the next you know the sort of medium term that is relevant for our policy decisions. It's a long run issue that we we definitely need to face and ultimately will have no choice but to face now as a result of quantitative easing the Fed bought a lot of securities and now you're letting them roll off. Is that the correct policy as opposed to selling them you're just letting them expire. Is that the correct policy in your view. Yes. So that we we wanted to have the balance sheet returned to a more normal level which is a level no larger than it needs to be for us to conduct monetary policy was effectively. Sorry. What level would that be a trillion dollars. Don't know the exact level if that will depend on that really the public's appetite for our liabilities specifically currency to us that's a liability and the public has a large appetite for currency and also reserves and other liabilities so that it'll be substantially smaller than it is now. But what is it now. What is the balance sheet now a little under 4 trillion. It was 1 trillion before the crisis. It will it's it will be smaller than it is now but nowhere near what it was before it. What about the unemployment rate. Where do you think that's headed for this year. Right now it's three point nine percent. And we've been under 4 percent since I think for the last nine months. Again that hasn't happened since the mid 60s. So it's 50 year low. If we get this world that is sort of our baseline case of growth in the range of two to two and a half percent then unemployment should move down and a couple of tents something like that. You meet with the treasury secretary regularly or other people the White House. By long tradition many decades tradition the Fed chair has regular meetings which wind up being breakfast and lunches mostly breakfasts between the secretary of the Treasury and the Fed chair. Where did they happen at the Treasury or at the alternates alternates. We also have the Council of Economic Advisors where's the food better than Treasury has a trust me there you meet with any member of Congress who wants to meet with you. Or how do you decide. I don't decide. I just meet with them. I do I think it's very important I visit them quite a lot but I have visitors over for breakfast and lunch in groups and things like that. I can't I can't stress how important it is in our system of government our accountability to the American people runs through Congress. We seek transparency we seek accountability. It's a big part of what we do. Some of your predecessors were known to speak in what they would call him. I would call Fed speak which is to say it's very difficult to understand what they're actually saying . Alan Greenspan would be the master at that. I think he would take pride in loudly. So you don't like to speak in Fed speak so how do you get out of speaking in Fed speak when you have all those fed people around you so I what I'm trying to do is I'm trying to explain what we're doing and why we're doing it in a way that is comprehensible to the interested public and that's what I try to do when people start using these technical words that that don't mean anything to them. It's just irritating. So I try hard not to use it or lapse into Latin for that matter. OK. Now speaking of Latin an interesting use of language you have a skill that you have perfected since college which is you can take a word and pronounce it backwards. So like take Rubinstein. You can say that backwards is that right . Yes it actually was something I was born with. I can spell . I can see your name spelled forward and backward in my head I only I've been able to do that since I was I could read. So sir any advantage in life and having this skill or it has been surprisingly lucrative at times really. I spent a couple of years really getting the books and I sat next to Janet Yellen those days and she used to come into my office are you coming out today . So I hit it really hard there. I felt like I had a lot to learn and I did you grew up in the Washington area and you went to undergraduate at Princeton and you then went to Georgetown Law School is that right. And you were editor in chief of the Law Review. Yes it was and then you clerked and so you had a great legal career and you practiced law. Davis spoke for a while. Why did you abandon the practice of law. It's funny it's just so. Going to law school led me to practice law. You sailed though it didn't didn't lead everybody there and then practicing law led me to want to go into investment banking because they were the clients and it seemed like they were having more fun. So I I went into investment and making more money. And that led me to do other things. And so you ultimately went to Dillon Read and there you worked for man Nick Brady who often became Treasury secretary . He recruited you to Washington D.C. and you became undersecretary for finance under him under George Herbert Walker Bush is that right . That's correct. And then you decided to go back to Dillon Read for a while and then you decided that the high point of your life would be if you went into private equity. And so as so many people know you join Carlyle and you were there for about eight years and so is there any doubt that private equity is the highest calling of mankind . So let me say I. Somehow that was the path that made sense to me along the way. You know it did it leave me a private equity it was it was a you know it was a great way to make a living I really enjoyed my time there. So when you left Carlyle you did something very interesting and this brought you to the attention of President Obama. Explain this to people. So I went to a bipartisan policy center to work on fiscal policy and I was there for two years it was two great years. And I saw the debt ceiling crisis coming and I wrote this big study that showed pretty much what would happen with some precision if the debt ceiling weren't raised. And you can actually look at what bills are due and what day with the federal government you look at something called the daily CAC Treasury cash statement and I started briefing people on this and it really went viral. That went by and I went up briefing the whole Republican caucus in the House and the Senate and and playing a real role in that . And I think the Obama administration. So I think Boehner Majority Speaker Boehner and Cantor Eric Cantor thought that I had played a real role in turning around the House Caucus on that. Told that to the president and the next thing I know I'm getting a call from from Tim Geithner wondering whether I would come over to talk about being on the full Reserve Board. And so when you got on the Fed did you think that the people there didn't know as much as you did about policy or that they knew more than you did and how did what do you think when you first got on the Fed. You're not an economist so I had nine months nine months between getting that phone call and actually walking in the front door and being sworn in and I use that time to just study economics and study you know through textbooks and also through lots and lots of papers and speeches I just use that time and then I got the real education. I assume that I had a lot to learn. I spent a couple of years really hitting the books in fact I sat next to Janet Yellen in those days and she used to come up in my office and go. Are you coming out today . So I hit it really hard there I felt like I had a lot to learn and I did. So you were there when Janet Yellen was chair she was vice chair that's when she was vice chair but she became chair and you were there and also Ben Bernanke. So who was the better chair this entire time. So when the opportunity came for you to be appointed as a chair as I recall there were several candidates that were considered by the president. Had you ever met the president before. I never had met the president. I met him for the first time when I had my interview for chair. And how long did you spend with him less than an hour . I can't remember exactly how long it was but. And so after it was over you said I got that did I did that pretty well and I'm going to get this job or get it. No I didn't know I felt like I felt like the interview had gone well. That's really all I knew . Now you're a guitar player right. I'm an amateur musician . Yes. And and do you sing as well or just I sing badly. I try . I try to accompany people who sing well and used to be a golfer . You're not a golfer now I can't play a lot of golf these days but I ride my bike. I'm a you know I've been a road cyclist for many many years. Is that safe when you're the chairman of the Federal Reserve Board. Know I'm afraid to go across the street sometimes when I see bikes coming and so forth. Is that safe for you to do that you know so I do. I do try to keep it in a safe way. So we have a weekend house on an island I ride around the island over and over again where I ride my my stick my stationary bike. I don't get it. I don't get out on the streets of D.C. so much anymore. OK. And talk about the pleasures of the job. What is the great pleasure of the job . What's the least pleasurable part about this job other than the interview that you have to do with somebody. I mean like I actually I actually enjoy meeting with people and meeting with the public . It's a little bit like your your statement that you don't find any deals in the office. He used to say so you know in my case getting out of the office going to Capitol Hill I really enjoy engaging with people. Also we have lots of groups that come in . I met with a group of students from DC last week high school students. It's really a lot of fun. Also I just saw them. I would go back to the fact that it's such a great honor and privilege to do this that you know I I never go to work thinking this isn't a great job and a very special time in my life .

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The David Rubenstein Show: Jerome Powell

Federal Reserve Chairman Jerome Powell talks with David Rubenstein about the U.S. economy, the government shutdown, President Donald Trump and the outlook for interest rates. The interview was recorded at the Economic Club of Washington D.C. on Jan. 10. (Source: Bloomberg)

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