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00:00This is my kitchen table and also my filing system over much of the past three decades. I've been an investor the highest quality of mankind. I've often thought as private equity. And then I started interviewing Oh I watch your interviews because I know how to do it. I've learned in doing my interviews how leaders make it to the top. I asked him how much he wanted. He said 250. I said fine I didn't negotiate with him. I did no due diligence. I have something I'd like to sell and how they stay there. You don't feel inadequate now because the only the second wealthiest man to rise out right. A number of years ago I hired a young investment banker but previously worked in the government and also been a lawyer. His name was Jay Powell. I thought he was a very impressive person. They did a terrific job at my firm but he left to go back into public policy work. He's now the chairman of the US Federal Reserve Board. In that context he has to deal with the most important economic issues now facing the country. Let me begin by talking about the state of the economy. Your public statements to date in recent interviews makes it sound like you feel the economy is in reasonable shape to go forward from here and you're expecting growth of 5 to 6 percent this year. Is that a correct announcement of your views. Generally yes. I would say that the economy at this point does seem to be at a bit of an inflection point and that makes sense with ever more widespread vaccinations with strong fiscal policy with continued support from monetary policy. You see the economy opening. You can see ridership on airplanes going up and people going back to restaurants. I think the March jobs report that we recently got shows what that can look like which was close to a million jobs in a month. So I think we are we're going into a period of faster growth and higher job creation. And that's a good thing. I would point out there still risks in particular. I would say the main risk is that we'll have another spike in cases perhaps in a in one of the virus strains that made be more difficult to treat. Now we don't see that yet. We do see cases having moved up a bit. But that's something we need to be careful about. And I think we'd be wise to keep wearing masks and being socially distant at least for a while longer. The debt is pretty high. Twenty seven trillion or so. And the annual deficit is now about two and a half to three trillion or so. Is that a concern to the Fed in terms of impacting inflation. So yes in the overtime and in the longer run the US federal budget is on an unsustainable path meaning simply that the debt is growing meaningfully faster than the economy and that's by definition unsustainable over time. It's a different thing to say that the current level of the debt is unsustainable. It's not. The current level of the debt is very sustainable and there's no question of our ability to service and issue that debt for the foreseeable future. I would also say though that as it as a nation we will have to eventually get back to a sustainable path. That is something that is best done in very good times when the economy is at full employment and when taxes are rolling in. This is not the time to prioritize that concern but it is nonetheless an important concern that I believe we will ultimately have to return to again when the economy is strong. Now you have previously said I just want to ask you if you feel the same way now that currently you do not expect the Federal Reserve to increase interest rates before the end of 2022. Is that a correct view of what you've said. So here's what we've said. We've said that we would expect to keep interest rates where they are today until three particular outcomes are achieved in the economy. The first is that the recovery in the labor market is effectively complete. The second is that inflation has reached 2 percent and really reached did not just sort of tap the base as I like to say but has reached sustainably. And the third thing is that inflation is on track to run moderately above 2 percent for some time. Those are the tests. So we are really focused on the progress of the economy toward those goals and not on a particular timeframe. When we get those three boxes checked that's when we'll consider raising interest rates and that's when that's what will raise interest rates. Until then we won't. So what you're referring to I think is we all write down these projections every quarter in the March June September and December FOMC meetings write down individual projections and we submit those. We tabulate them and publish them. And most most members of the committee did not see raising interest rates until 2024. But that isn't a committee forecast. It isn't something we vote on or act on as a group. It really is just our own assessment. And so I think there's a tendency of markets to to focus too much on what we call the dot plot. OK. But based on what you know today you would not expect to increase interest rates before 2022 or you're just not saying that yet. Well before 2022 that would be this year. I think that would be highly unlikely. I I don't I don't talk about particular dates. I don't think there's any use in that. So but it really is outcome based. Well let me ask you. Last time the Fed did increase interest rates it did so for us by a little bit and then it started shrinking its balance sheet a bit. Do you have any view on whether that's the right way to proceed when you begin to increase interest rates. Should you increase interest rates and then shrink the balance sheet later or you should you begin to shrink the balance sheet and then increase interest rates. Do you have any view on. Their one policy or the other is better. So what we did after the global financial crisis was first we we were buying assets and then we gradually slowed the pace at which we were buying treasuries and mortgage backed securities. And then we held the balance sheet constant for a while. After that we started raising interest rates. We raise them gradually. And at some point we actually and we held the balance sheet constant. So we don't sell bonds into the market. And we either when they mature we either reinvestment or the we allow them to to run off. So that's what we did last time. I think if you look at the sense of our guidance it is that we will reach we will reach the time at which we will taper asset purchases when we've made substantial further progress toward our goals from last December when we announced that guidance. And that would that would in all likelihood be before well before the time we consider raising interest rates. We haven't voted on that order but that is the sense of the guidance is that it would work in that way. In other words if you will you are likely to follow the same policy of not selling into the market the bonds you already have or other securities. But just let them mature and then that that's the way you would shrink your balance sheet. These are questions which lie ahead of us. But essentially though I would say it this way we the first thing we do is we we say that we will gradually reduce the pace of our purchases. And then when the purchases go to zero that's the size of the balance sheet is constant. And when bonds mature you reinvest them. Now then another step and we took this late in late in the day the last cycle was to allow bonds to start to run off. And we haven't decided whether to do that or not. If we didn't then and I don't think we now would ever actually sell bonds into the marketplace. You mentioned inflation. Let me talk about that or ask you about inflation of the Fed for quite some time has tried to get 2 percent inflation but really hasn't been able to get 2 percent inflation our economy. Why do you think it's been so difficult to get inflation at 2 percent or higher. When I work in the government many years ago we had double digit inflation. I don't think we're getting that again. But why is inflation so hard to get when we have large deficits and a lot of government spending. So the economy has really changed since those days. That's that's when I was in college. And I think people generally attribute the quarter of a century of low inflation that we've had to a number of factors. One is globalization. One has spread of technology. Another is demographics and an aging population. All of those tend to lead to to lower inflation. So what we have in fact since the global financial crisis for the last decade you've seen central banks around the world really struggle to reach a 2 percent goal and in some cases you know are fighting outright deflation. The reason that's that's a difficult thing is that reduces the scope of central banks to react to the economy when it turns down which can lead to still weaker economic outcomes lower interest rates lower inflation. So you can get into a cycle if you will that's that's not a productive one. So we really want inflation to be at 2 percent. We wanted to average 2 percent over time. And that means that we want to we want to overshoot 2 percent after we've been through a period moderately and for some time after we've been below 2 percent for a while. Is there anything you think the Fed should be able to do to help people who are really suffering in the pandemic. I think they need to be in the room with us as we make our decisions about monetary policy. So let me ask you about the situation with respect to a couple issues you've talked about climate change for example or racial inequality. The Fed has not historically been somebody that's supposed to be focused on climate change and you're focused on the unemployment rate but not under the statute whether it's minority unemployment rate or more white unemployment rate. How do you assess these issues that are not really in your statute but are now important in terms of determining how the economy is moving forward. So there are two different issues and there are differences and similarities. But the point is both of them we see only through through the ISE through through the lens of our existing mandates. We haven't gotten any new mandates. So take climate change for example. The reason we're focused on climate change is that our job is to make sure that financial institutions banks particularly the largest ones understand and are able to manage the significant risks that they take and the public will expect us to do that. Climate change is just another one of those risks. And increasingly the large banks very much realize that if you talk to leaders of these large financial institutions they are very focused on what climate change is going to mean for their business for their business model over time. So that's it's within the scope of that Mandy. It's it's similar with with inequality. We have these persistent disparities racial gender and other disparities in economic outcomes in our economy. And they kind of hold the economy back. You know we all want an economy where everyone has the ability to contribute to and benefit from the prosperity that we that we have in our in our great economy. So really our focus is on those the gaps that we face that we call them out. We talk about them. We've tried to incorporate into our monetary policy framework the thought that that maximum employment our statutory goal is a broad and inclusive goal. That's a reference to those issues. And also I think we now realize that that unemployment can go low for quite a long time without inflation being a problem which will also tend to help those groups. On that I would just stress of course we aren't we can't be the primary policy organization that treats either climate change or inequality. We see it through the lens of our existing mandates but those are very much issues for our elected representatives and for other parts of the government more than they are for us. When you come to work sometimes you see people in tents living in and in effect they're living in tents homeless people living in tents. Your mandate is not the go solve that problem necessarily. But is there anything you think the Fed should be able to do or should be given more power to do to help people who are really suffering in the pandemic. We're not we're definitely not seeking any new authority nor are we. As as I mentioned earlier we're we're not the the agency that has the most direct authority over that. I just happen to see it right here on Virginia Avenue there. There have often been a couple of tents where at this end of town where there's some open space. But now it's big. It's it's it's a lot of tents and it's a lot of people. And you can't miss it. You come. You drive by and you think and it has to be because of the pandemic. It just it's grown a great deal. And it really struck me as I. It strikes me every day as I go by it. So how does that play into what the Fed does. I think we need to keep those people in mind really. You know we don't have tools that deal directly with them. But you know those are people many of them probably were working in February of 2020 before the pandemic hit. And I think they need to be in the room with us as we make our decisions about monetary policy. We need to be thinking that it's not just the headline in the aggregate it's also the people who are at the margins of the economy. Just keep him in mind. OK let's talk about fintech. Since you first got into the financial world the fintech revolution has really changed the banking and financial services. How does the Fed regulate some of these new fintech companies that are really not subject under the traditional rules to your regulation. Are you worried about your inability to kind of control some of these companies that might have an enormous impact on the economy in the financial area. The key thing is that equal activities the same activities should be regulated the same way no matter where it is what kind of business it's in. That's one thing. Another is it needs to be regulated in a way that gives consumers and users of that service a protections that they need. And so they have to understand what the risks are what they're doing and that sort of thing. So I think with the growth of the nonbank financial players we have some work to do to understand and and and deal with those challenges in the meantime. We have the legal authority that we have over banks really. Also over some of the payment utilities and we'll use that. But we don't have authority over many other companies that are that are. Very much engaged in payments business and dealing with dealing with the public and I think Congress is looking at the question of whether whether there is enough there whether there is the sort of regulation and supervision that they need is really there. Related to that would be crypto currencies which is not quite fintech. Maybe some people might say it is but crypto currencies have blossomed mushroomed depending on your observation of the size. It's hard to know exactly how big it is. Are you worried about the impact on crypto currencies in terms of the paying back to the economy and the ability of people to use these things for nefarious purposes. So a couple of things with. We think of them more as crypto assets because crypto what people call crypto currencies they're really vehicles for speculation. No one is using them for payments for example like the dollar. What they're using them for is to speculate. It's late. It's a little bit like gold for you know for thousands of years human beings have have given gold this special value that it doesn't have from an industrial standpoint. But nonetheless for thousands of years they've done that. So Bitcoin is much more like that in the crypto currencies are much more like that. They're not they're not really being actively used as payments. I think you said recently the biggest problem that you're worried about now is cyber cyber attacks and so forth. Can you elaborate a little bit more why you are so worried about it and how does the Fed protect itself. Cyber is just it's the new frontier. And I know that isn't that's not a new insight. We we spend a great deal of time and money you know making sure that we are resilient making sure that the banks they spend a lot of time and money. As I said before you it's one of those things where you never feel like you've done enough. Let me ask you a little bit about the FOMC. People probably don't really know how it works that well that much but how many members are there of the FOMC so that all 12 Reserve Bank presidents and all of the sitting governors which is currently six are what we call participants in the FOMC. So it's a Federal Open Market Committee and we meet eight times a year. We're doing it virtually now. But I do it from this beautiful boardroom we have upstairs. So in the Supreme Court when they have conferences among the members I think the chief justice gives his view first and others according to seniority give their views. How does it work at the FOMC. Does the chairman of the board you give your views first or do others speak and then you give your views. It really depends on the issues and what we're talking about. And you know it's sort of up to me. We view the order changes. It's not an order of seniority or anything like that. People say let's say we're going to have a go around on the economy. People will say I'd like to go in the middle. I'd like to go at the beginning. I let you at the end. And we sort of make up a list and we handle the list around. So I will sometimes go first if I really want to make a point. Often I'll go last and I'll try to sum up and then say what I think the path forward is. It really depends on the situation. OK. I always worry about the secrecy. So I assume that you have somebody coming and sweeping the room where all these discussions are going to occur or when they're being done virtually. You have the best cyber people in the world to make sure that nothing leaks out. Is that correct. That is correct. You know of course we we realize that we're a very attractive target for for hacking and cyber attacks of all kinds. And so we invest a great deal of time and money in trying to make ourselves as safe as possible. We also have very strict rules for FOMC participants and their staff for the handling of confidential materials. I would just say you never feel like you've done enough. I'm sure you feel the same way in business. You just never feel like you've done enough. But we try very hard to to be as robust against those kind of penetrations as possible. You are the first person in quite some time to be the chairman of the Fed who was not a page in economics. You've been trained as a lawyer. Is that why you were able to speak in the King's English much better than the economists who've had that job because you tend to speak in ways that people actually can understand. I do consciously think it's very important to speak to the interested public in a way they can understand and to avoid jargon. Large public and private institutions around the world are really struggling to hold the faith and support of the public. And I think for the Fed it's it's terribly important that we do engage with the public proactively. We don't look at this as something we've got to do. It's absolutely essential to what we do is to speak to the public and the public's elected representatives in Congress a lot and and sort of gain our democratic legitimacy through that. Typically chairs of the Fed we'll have a regular lunch with the secretary treasury sometimes even the president United States will have some regular contact. How are you relating to this administration. Do you meet with the secretary treasurer regularly or people in the White House staff where the president how are you doing that. So I think the the way it's the sort of standard way it's happened it has been this that there's a weekly. It's been a breakfast or a lunch between the secretary of the treasury and the Fed chair. And it rotates back and forth into each building. That's now a phone call. And so that's that's what I've been doing with Secretary Yellen. In addition there's been a an irregular roughly monthly lunch with the head of the National Economic Council. So there's a relationship there. You know meetings with presidents and fed chairs are very very very infrequent and not not only sort of a schedule. So I have not met with the president. Had you met him before he was president. You must have met him at some point at some point in his life or your life or you really haven't met him yet. I think I'm shaking his hand. But I don't I have not really met him and talked to him. So when you are running the Fed in a pandemic are you doing it remotely from your home. I know you're now in the Fed building now but have you been the last year or so mostly working from home or have you been coming into the Fed and working from there. So we had a pretty significant FOMC meeting on March 15th which I think was a Sunday and that was the last meeting that I did from this building that I went home after that and since March 15 of 2020 have mostly worked from home. And although lately I'm coming in I found myself coming in two three four days a week as a matter of fact more than I used to. I'm not sure why that is but that is the case. And it was I would tell you it was surprising how well our business and our business model were able to adapt to doing work remotely. I think many many organizations had that experience that we certainly did. You're coming in more frequently cause your wife is saying finally it's time to get out of the house and go to the. More as are some of that or maybe some of that involved there maybe some of that involved. Absolutely. I wanted to ask you what have you learned as a member of the Fed board member that you didn't really know before that surprise you perhaps. And what have you learned about the pandemic and the way it's affecting the economy. That might have been a so-called lesson learned that the Fed has learned about how the economy operates in a pandemic. Well I mean I'm just about to have my ninth birthday here at the Fed. So I've learned a lot in those nine years. I think you have to master the specific economics around monetary policy. And also you've got to master payments and regulation. So there's a lot there's a lot to learn in terms of the pandemic. I would say this. The the first and most important thing about the pandemic was was health care policy which starts with the things that we did to shut down the economy. Not we but that that that the government did and that the private sector did to get the pandemic under control and then to get people to socially distance and then ultimately vaccines. All of that was and is more important than anything we can do. The second most important thing was fiscal policy. This was a situation where you know 30 million households are suddenly without an income. And Congress had to replace that. That isn't a matter for monetary policy. It works by stimulating aggregate demand by lowering interest rates. That wasn't that would that would become important later. But that was not what was needed. It was fiscal policy. Fiscal policy came in and made the difference in this cycle. Then then us we were third. And I think we had three goals from the beginning. The first of which was just a stabilized thing which I think we we seem to stabilize markets after what we did on March 20 3rd of last year and also to provide some comfort and then support the economy when the expansion began. And then over the long run to try to avoid the longer run damage to people's working lives into smaller businesses going out of business or things like that. So those were the things we tried to achieve. Clearly we've learned a lot about the way pandemics work and we hope to learn. No no more about that going forward because we hope to have no more pandemics.

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The David Rubenstein Show: Fed Chair Jerome Powell

Federal Reserve Chairman Jerome Powell talks about when interest rates may rise, racial inequality, and Bitcoin. He appears on the latest episode of "The David Rubenstein Show: Peer-to-Peer Conversations." The interview was recorded April 14 for an Economic Club of Washington virtual event. (Source: Bloomberg)

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