Speaker 1: This is Bloomberg Daybreak today, your morning brief on the
Speaker 1: stories making news from Wall Street to Washington and beyond.
Speaker 1: Federal Reserve Chairman Jerome Powell says more rate hikes are
Speaker 1: on the way. In an interview with David Rubinstein at
Speaker 1: the Economic Club of Washington, the Fed chair explained the
Speaker 1: need to push rates higher in the face of a
Speaker 1: strong labor market. He also discussed some of the comments
Speaker 1: he made after the most recent f O m C
Speaker 1: meeting and the market reaction that followed. Let's listen into
Speaker 1: that conversation now. So, Jay Um, thank you very much
Speaker 1: for being here. Why don't we start with an easy question.
Speaker 1: So you made a speech last week commenting on the
Speaker 1: f O m c s decision to raise the Fed
Speaker 1: discount rate by um a small amount relatively speaking, basis points.
Speaker 1: Someone people would say that was small, UM, But at
Speaker 1: the time it wasn't clear that the job's report would
Speaker 1: be as strong as it turned out to be. Subsequently,
Speaker 1: hadn't you known that the Job's report was going to
Speaker 1: be as strong, would you have done twenty five basis
Speaker 1: points or something different? David, Thank you for that question,
Speaker 1: Thank you, thank you for inviting me here. Today. It's
Speaker 1: great to be here, So we don't get to play
Speaker 1: it that way. Unfortunately we have to, but I'll take
Speaker 1: it this way. So the message we were sending at
Speaker 1: the phone C meeting last Wednesday was really that the
Speaker 1: disinflationary process, the process of getting inflation down, has begun,
Speaker 1: and it's begun in the goods sector, which is about
Speaker 1: a quarter of our economy, but it has a long
Speaker 1: way to go. These are the very early stages of disinflation.
Speaker 1: So the services sector really, except for housing services, pardon me,
Speaker 1: is not really showing any any disinflation yet. So our
Speaker 1: message really was this process is likely to take quite
Speaker 1: a bit of time. It's not going to be we
Speaker 1: don't think smooth. It's probably gonna be bumpy. And so
Speaker 1: we think that we're gonna need to do further rate increases,
Speaker 1: as we said, and we think that we'll need to
Speaker 1: hold policy at a restrictive level for a period of time.
Speaker 1: Then comes the the the labor market report for January,
Speaker 1: and it's very strong. It's certainly stronger than anyone I
Speaker 1: know expected and so but but I would say we
Speaker 1: didn't expect it to be this strong. But I would
Speaker 1: say it kind of shows you why we think that
Speaker 1: this will be a process that takes a significant period
Speaker 1: of time. The labor markets extraordinarily strong. And by the way,
Speaker 1: it's good. It's a good thing that inflation has started
Speaker 1: to come down without that has not happened at the
Speaker 1: at the cost of a strong labor market. So and
Speaker 1: of course since then, labor marketing, sorry, financial conditions have
Speaker 1: tightened significantly since then, So let me ask it another way. UM. So,
Speaker 1: by the way, when the numbers coming out, the job numbers,
Speaker 1: five thousand jobs, does anybody call you up in the
Speaker 1: government and give you a little heads up this is
Speaker 1: gonna happen, or they never do that? So on. On
Speaker 1: some um data, sometimes we get data just the night before,
Speaker 1: and it's only me, only me and so, but not
Speaker 1: on all pieces of data it's it's a it's a
Speaker 1: it's a very small amount of data and we get
Speaker 1: it just just the night before. For example, if we
Speaker 1: if we were going to get a big piece of
Speaker 1: data in the middle of an fm C meeting, as
Speaker 1: often happens on the day of an f MC meeting,
Speaker 1: it will help me to to know it the night before. Okay,
Speaker 1: So the markets, um, after your speech from last week.
Speaker 1: The markets assumed that therefore there would probably be another
Speaker 1: basis point increase in your next f I MC meeting. Um,
Speaker 1: was that a bad assumption by the markets. So what again,
Speaker 1: what we said at the meeting was was that we
Speaker 1: we believe that we anticipate is what we said, that
Speaker 1: ongoing rate increases will be appropriate. Uh. And the reason
Speaker 1: is we're trying to achieve a stance of policy that
Speaker 1: is sufficiently restrictive to bring inflation down to two percent
Speaker 1: over time, and we don't think we've achieved that yet,
Speaker 1: so we said that. Uh. And and you know, now
Speaker 1: you see the labor market report, and I think again
Speaker 1: financial conditions are are are more well aligned with that
Speaker 1: than they were before. So the assumption when you made
Speaker 1: your speech was that probably they're fed might em and
Speaker 1: consider uh decreasing rates by the end of this year,
Speaker 1: and the markets no longer assume that you think the
Speaker 1: markets are wrong. Well, so let me say these are
Speaker 1: all of these numbers that we're throwing around here are
Speaker 1: conditional on incoming data and what happens. So we never
Speaker 1: say this is this is what we think will happen.
Speaker 1: You know, we we make a tentative forecast and then
Speaker 1: we let the data come in. For example, if the
Speaker 1: data were to continue to come in stronger than we
Speaker 1: expect and we were to conclude that we needed to
Speaker 1: raise rates more than is priced into the markets, or
Speaker 1: then we wrote down at our last four group of
Speaker 1: forecasts in December, then we would certainly do that. We
Speaker 1: would certainly raise rates more. Okay, So today, for people
Speaker 1: who aren't familiar with the f O m C, who
Speaker 1: is actually is on the f O m C. So
Speaker 1: there the US Central Bank consists of a board of governors.
Speaker 1: Here in Washington, they're seven governors. Those governors are nominated
Speaker 1: by the President and confirmed by the Senate, and we
Speaker 1: serve terms that are that are not syncd up with
Speaker 1: the election cycle, so we're we're independent. They are also
Speaker 1: twelve reserve banks around the country which have a degree
Speaker 1: of independence, and they're so so each each reserve bank
Speaker 1: is led by a president who works there full time.
Speaker 1: All twelve of them sit on the FMC. So that's
Speaker 1: nineteen people sit on the FMC, so it's quite a
Speaker 1: large committee, of which twelve vote. In any given year.
Speaker 1: The reserve bank presidents vote on a rotating basis, except
Speaker 1: new York, which votes every year. So when you vote,
Speaker 1: do you vote at the beginning of an f o
Speaker 1: MC meeting and then just kind of have discussions afterwards,
Speaker 1: or do you wait till the very end and then
Speaker 1: you vote. Now we vote at the end, I mean
Speaker 1: the whole the f MC meeting process takes, you know,
Speaker 1: more than a full week. I'm talking to all of
Speaker 1: the participants, all ninth eighteen other ones, and staff has
Speaker 1: sent around memos and there's something called the Teal Book,
Speaker 1: which is the staff's assessment of the you know, of
Speaker 1: the economy and international economy and monetary policy and all that.
Speaker 1: Then we have an extensive discussion on the morning of
Speaker 1: the first day about the economy. Everybody talks about that.
Speaker 1: On the second day we talk about monetary policy, and
Speaker 1: then we vote on monetary policy around noon on the
Speaker 1: second day. So there's the chairman of the Federal Reserve
Speaker 1: Board speak first and say here's what I think, and
Speaker 1: or does he wait until the end and say, well,
Speaker 1: thanks for what you think, but let me tell you
Speaker 1: what I think. What do you do? Different chairs have
Speaker 1: done in different ways, and so I tend I've tended
Speaker 1: to do what my precessor media precessor did I think, Well,
Speaker 1: this is what I do. I speak last on the
Speaker 1: sort of the economic go around. So everyone else talks
Speaker 1: about what they think about the economy and in their district,
Speaker 1: for example, if their reserve bank president. And I listened
Speaker 1: to all that, and then I give my comments at
Speaker 1: the end and I kind of sum up what people
Speaker 1: have said, and then I speak first on monetary policy. Okay,
Speaker 1: so you've said the inflation rate target is two percent um,
Speaker 1: But why two percent and not three percent? Three percent?
Speaker 1: You could be tolerable, really, I mean most for most
Speaker 1: of organized history, three percent is considered. Okay, why do
Speaker 1: you want two percent? Two percent is the global standard,
Speaker 1: and that is our objective two percent piece as measured
Speaker 1: by the PC index, and that's just that's not something
Speaker 1: we're looking at changing. That isn't going to change. It's
Speaker 1: that's not gonna change, not going to change now. But okay,
Speaker 1: so you need to get the two percent, and your
Speaker 1: goal to get there is by what period of time
Speaker 1: would you like to get there? Well, we say, we
Speaker 1: say that we're using our tools to get there over time.
Speaker 1: If you look at our forecasts, we expect two thousand,
Speaker 1: twenty three to be a year of significant declines in inflation,
Speaker 1: and it's actually our job to make sure that that's
Speaker 1: the case. But I would tell you that, uh, you know,
Speaker 1: with inflation headline headline PC inflation is running about five percent.
Speaker 1: This is on a twelve month basis. Core is running
Speaker 1: at four point four. My guess is it will take
Speaker 1: certainly into not just this year, but next year to
Speaker 1: get down close to two. Okay, So two percent is
Speaker 1: firm that you're not that yes, okay. So the theory
Speaker 1: of raising interest rates, um is that it will decrease
Speaker 1: economic activity and increase unemployment. But you've been increasing interest
Speaker 1: rates for a while and unemployment is now a record mow.
Speaker 1: So what's wrong with the theory. Why is unemployment not
Speaker 1: going higher? Well, the labor market is strong, because the
Speaker 1: economy is strong, and as I mentioned, it's a good
Speaker 1: thing that we've been able to see the beginnings of
Speaker 1: disinflation without seeing the labor market weekend. Um, it's just
Speaker 1: that there's a lot of demand for workers. In fact,
Speaker 1: if you if you look at the supply of workers
Speaker 1: versus demand for workers, demand for for US workers is
Speaker 1: now more than five million greater than the available supply,
Speaker 1: and the available supply consists of people who were either
Speaker 1: working or actively looking for a job. So this this
Speaker 1: is this was not the case before the pandemic. The
Speaker 1: pandemic really had a significant left a list lasting marks
Speaker 1: so far on labor supply in the United States. Labor
Speaker 1: force participation rate came down, and there now is a
Speaker 1: shortage of workers and it it feels it almost feels
Speaker 1: more structural than cyclical, so that that's a that's a
Speaker 1: significant issue. Now you've resisted I think saying what unemployment
Speaker 1: rate would be acceptable to you? I think, but is
Speaker 1: there an unemployment rate that you think would moderate inflation
Speaker 1: such that you would tolerate unemployment at four percent, five percent,
Speaker 1: six percent? I guess I think about it this way. Um,
Speaker 1: you know are we have two goals that Congress is
Speaker 1: assigned us, maximum employment and price stability. Price stability, as
Speaker 1: we've agreed, is two percent inflation. Maximum employment means if
Speaker 1: you want a job, you can get one. So right
Speaker 1: now the labor market is at least at maximum employment.
Speaker 1: By many would say that it that it is out
Speaker 1: of balance with more demand than there is supply. So
Speaker 1: what we're trying to do is get inflation down we're
Speaker 1: not We're not targeting, you know, a different unemployment rate.
Speaker 1: We're trying. We're trying to use our tools to get
Speaker 1: inflation to come down over time. In hindsight, would you
Speaker 1: say that when COVID hit the economy and we chected
Speaker 1: five trillion dollars of physical policy into the economy and
Speaker 1: the Fed did quantity to be using and other related
Speaker 1: things kept interest rates very low, would you say in
Speaker 1: hindsight that was a mistake or was the right policy
Speaker 1: at the time. So I think you have to go
Speaker 1: back to the decisions that were made in real time,
Speaker 1: and it was something nobody had ever seen. The global
Speaker 1: economy came to a virtual stand still. People were talking
Speaker 1: about depression. People were talking and we didn't think. We
Speaker 1: had no idea when we would get vaccines that worked.
Speaker 1: So Congress took very strong measures, and we took very
Speaker 1: strong measures. And you see where the economy is. You've
Speaker 1: got a very very strong labor market, but you have
Speaker 1: high inflation. As I mentioned, we're at the beginning of
Speaker 1: getting that down. If you look around the world though,
Speaker 1: at other countries, they're also experiencing high inflation, including countries
Speaker 1: that didn't that didn't do that as much as we did,
Speaker 1: either from a fiscal or monetary standpoint. So that that
Speaker 1: tells you though that a big part of this inflation
Speaker 1: is actually related to the you know, the pandemic itself
Speaker 1: to shut down and in the reopening. That's a big
Speaker 1: part of it. The quantitative using program has increased the
Speaker 1: balance sheet. I guess of the FED, and what is
Speaker 1: your balance sheet now? I think it's eight point four
Speaker 1: trillion dollars if you must sound like you know, found
Speaker 1: eight point that was yesterday's not? Okay? Alright? Eight point
Speaker 1: four trilla um? What would you like it to get
Speaker 1: down to over the next year or two? Is there
Speaker 1: some lower number? So we are in the process of
Speaker 1: shrinking the balance sheet actively actually passively, is I should say?
Speaker 1: So what happens is his treasury securities on our balance
Speaker 1: sheet mature up to a cap, a monthly cap. We
Speaker 1: we that the balance sheet shrinks in that amount. Same
Speaker 1: thing with mortgage backed securities as they are prepaid, or
Speaker 1: so we we the balance sheet is shrinking in terms
Speaker 1: of the target level of it. We haven't put a
Speaker 1: specific dollar number on it. The idea is we're in
Speaker 1: a regime of ample reserves reserves are basically deposits at
Speaker 1: the at the reserve banks. And when we get close
Speaker 1: to that level where we feel that we're reserves are ample,
Speaker 1: kind of where we were before the pandemic, then we'll
Speaker 1: slow down and we'll sort of test where we are,
Speaker 1: and but it'll be a couple of years, we think,
Speaker 1: till we get to that level. The FED does not
Speaker 1: sell securities. They wait for them to mature and then
Speaker 1: you just uh cash them in. You don't. You're not
Speaker 1: in the market selling securities that are not yet mature.
Speaker 1: Is that correct? That is correct. It's also correct though
Speaker 1: that we've said we would consider sales of mortgage backed securities.
Speaker 1: But I will tell you that's that's not something that
Speaker 1: is on the on the list of active things things
Speaker 1: and being actively considered. So some people that are worried
Speaker 1: about the federal debt limit and that we might not
Speaker 1: we have an extended on time, we have thirty one
Speaker 1: point four trillion dollars of debt? Are you a little
Speaker 1: worried about the debt limit not getting extended? So the
Speaker 1: debt limit is really something for the fiscal authorities to
Speaker 1: deal with. The Our only role in this is that
Speaker 1: we're that we're the fiscal agent of the Treasury Department.
Speaker 1: We're not a policy maker on that. And I will
Speaker 1: just say this, this can this really can only end
Speaker 1: one way, and that is with Congress raising the debt
Speaker 1: ceiling in a timely fashion so that the US can
Speaker 1: pay all of its bills one and as do. That's
Speaker 1: what has to happen. And if that doesn't happen, no
Speaker 1: one should think that the FED has the ability to
Speaker 1: shield the financial markets or the economy from the consequences
Speaker 1: of moving too slow. So you don't have any program
Speaker 1: in place ready to go if in fact that limit
Speaker 1: isn't passed in time. This is something that Congress has
Speaker 1: to deal with. And the same that the so called
Speaker 1: trillion dollar gold coin solution is not one year in
Speaker 1: favor of I guess, as I said, this ends in
Speaker 1: only one way, and that way is Congress voting to
Speaker 1: raise the debt ceiling so that the US can pay
Speaker 1: all of our bills. Okay. In terms of consultation, um,
Speaker 1: do you consult regularly with the Treasury Secretary or the
Speaker 1: head of the National Economic Council or the President United States?
Speaker 1: How do you kind of relate to the administration for
Speaker 1: a long long time, you know, sixty or seventy years there.
Speaker 1: I think there's been a weekly breakfast or lunch with
Speaker 1: the Treasury Secretary and the FED Chair. And that's what
Speaker 1: I've had with with treasure secretaries that I've had as
Speaker 1: FED Chair. I've also had a regular article it called
Speaker 1: irregular Lunches with the head of the NBC. We also
Speaker 1: have regularly regularly scheduled lunches with the Council of Economic Advisors.
Speaker 1: And that's that's really the that's the that's the institutional
Speaker 1: structure of our of our contact with the administration. So
Speaker 1: and the way the FED works today. If you could
Speaker 1: reconstruct the operations of the FED, you know, would you
Speaker 1: change the legislation anyway? Would you think the FED operates
Speaker 1: in a in a way that's as efficient as you
Speaker 1: can realistically operate. We're not looking for any changes to
Speaker 1: the Fellow Reserve Act. I mean, I think it does work.
Speaker 1: The structure that I discussed earlier, where you've got the
Speaker 1: twelve Reserve Bank presidents coming in. What that assures really
Speaker 1: it institutionalizes diversity of thought. So we get different people
Speaker 1: coming in who've got different background, different careers, and they
Speaker 1: and they think different ways, and I think that's enormously
Speaker 1: beneficial to our decision making process. So there has been
Speaker 1: discussion recently about the FED, some FED members, pread board
Speaker 1: presidents selling their securities and maybe not doing everything they
Speaker 1: were supposed to do in terms of disclosing it. What
Speaker 1: have you done to fix that process? We put a
Speaker 1: new system in a new set of rules in place,
Speaker 1: which I think are best in class for a public
Speaker 1: institution like the FED. And uh, you know, the the
Speaker 1: innovations were that that if someone wants to sell something
Speaker 1: that they own or buy something, they have to clear
Speaker 1: them at advance with with staff at the Board of Governors,
Speaker 1: and then you've got to wait forty five days for
Speaker 1: that to execute. Also, you can't own individual stocks and
Speaker 1: there there you can only do these you can only
Speaker 1: authorize these transactions or execute them during specific times. Um.
Speaker 1: And it's you know, it's it's a and we we
Speaker 1: just of course all of these are disclosed. If you're
Speaker 1: if your idea is to go to trade things, buy
Speaker 1: and sell them because you think, you know, you think
Speaker 1: this stock is cheaping that kind of thing, that's just
Speaker 1: not something that will work. What is the salary of
Speaker 1: the chairman of the Federal Reserve Board. It's um, it's
Speaker 1: around a hundred and ninety dollars, I believe, okay, So
Speaker 1: you're you live on the d dollars. If you need
Speaker 1: to sell something, what do you do? You have to
Speaker 1: clear it for forty five days? Or that's right. We
Speaker 1: we've you know too, if we we have family expenses
Speaker 1: that if we have them that exceed myself even we
Speaker 1: have to sell and as I think that fair salary
Speaker 1: for the job or I do yes, okay, So today, um,
Speaker 1: how do you coordinate with central banks, let's say it
Speaker 1: in England or Japan or China. Do you have regular
Speaker 1: conversations with them about what they're doing? We do, you know,
Speaker 1: And I meet six times a year in Switzerland with
Speaker 1: the heads of all the many, many central banks, you know,
Speaker 1: even the even the small and medium sized ones at
Speaker 1: at in Bosil, at the Bank for International Settlements. In addition,
Speaker 1: among the major central banks, I have regular dialogues going
Speaker 1: with with most of them. And so we're talking though
Speaker 1: about is really what's happening in the economy and how
Speaker 1: are you thinking about policy and that kind of thing.
Speaker 1: It's very important that we keep those discussions going because
Speaker 1: particularly in a crisis, You're gonna need to know each other,
Speaker 1: and you're gonna need to know you're gonna be able
Speaker 1: to trust each other. And do you think the US
Speaker 1: economy is pretty much in control of its own inflation rate?
Speaker 1: Or there events outside the United States, like what China
Speaker 1: is doing or the Ukraine War that are affecting inflation
Speaker 1: and make you nervous about where inflation might be going.
Speaker 1: We have the tools, the FED has the tools to
Speaker 1: achieve our two percent goal over time. But uh, inflation
Speaker 1: in the United States is of course very closely related
Speaker 1: to things that happen here, including the balance between supply
Speaker 1: and demand. It's also affected by, for example, commodity prices
Speaker 1: that are really set on the global markets. You know,
Speaker 1: oil and man agricultural commodities are priced globally, so that
Speaker 1: there there are certainly it's an integrated global economy and
Speaker 1: global markets, and we you know we are, or that
Speaker 1: you get data from all the US government agencies, But
Speaker 1: do you ever use anecdotal things like you go to
Speaker 1: the supermarket and mices are high and you say this
Speaker 1: price is high, or how do you get you ever
Speaker 1: get anecdotal things? Or people ever call you up our
Speaker 1: friends and say, by the way you should do this
Speaker 1: or that. You ever get that kind of information is
Speaker 1: you only get it from the government reports. I mostly
Speaker 1: get data, but I will say the the I do
Speaker 1: believe that actdotal information is very useful. And one of
Speaker 1: the things the Reserve banks are great at is all
Speaker 1: twelve of them have big operations where they talk to
Speaker 1: businesses and nonprofits, universities in every sector of the of
Speaker 1: the country and the economy, and they bring that back
Speaker 1: to the FMC meetings and they talk about what they're
Speaker 1: seeing because often, you know, but steering at data is great,
Speaker 1: but you need to need to have a story, and
Speaker 1: I think hearing the stories that people tell it does
Speaker 1: help me to sort of, you know, assess what's going
Speaker 1: on out there. So, as the chairman of the Federal
Speaker 1: Reserve is obviously an important job, how do you reduce
Speaker 1: the stress level you have? I mean, you can't be
Speaker 1: watching economic numbers all the time. So what do you
Speaker 1: do to relieve the stress? Other than interviews like this?
Speaker 1: You know the usual things. I read pretty light fiction,
Speaker 1: detective and spy fiction. I exercise as much as I can,
Speaker 1: as you know, I'd like to ride my bike, I
Speaker 1: play the guitar, play music. M say, is that safe
Speaker 1: riding a bike? You know, dangerous and it's it's stayed. Sorry,
Speaker 1: it's safe if you stay on the bike and they're
Speaker 1: good at That's what I tried. And you still play
Speaker 1: the guitar or I do? I do? Yeah? Bare hair
Speaker 1: is awfully short for playing the guitar. Interest need longer hair,
Speaker 1: your hair longer when you were younger and grey? Or
Speaker 1: it's too great too, it's okay. So let me ask
Speaker 1: you about, um, the the issue of what it's like
Speaker 1: to be chairman of the FED. You you can't go
Speaker 1: have you regular friendship kind of dinners or meetings. Can
Speaker 1: people people treat you much differently, I assume than they
Speaker 1: used to write. When you go to a restaurant, are
Speaker 1: people listening to what you're saying or something like that.
Speaker 1: I have always thought that my jokes were funny, David,
Speaker 1: but no, so yes, it's um, I've never been a
Speaker 1: public figure before like this, and it's very different. But
Speaker 1: you know, it's it's a great honor to serve. But yeah,
Speaker 1: if you when you go in public places, you have
Speaker 1: to be very careful about and um, which is the
Speaker 1: president Nited States ever call you with any advice or
Speaker 1: you don't really say he doesn't the President Trump ever
Speaker 1: call you or President but I never call you or well,
Speaker 1: I think it's a matter of public record that President
Speaker 1: Trump did used to call me from time to time.
Speaker 1: What did he call you? Um, No, I haven't had
Speaker 1: that kind of I haven't gotten any calls from from
Speaker 1: President Biden. Okay. So the biggest challenge you have now
Speaker 1: he is being able to keep a straight face, not
Speaker 1: telling people what you're gonna do in the future, and
Speaker 1: look at the data and then come up with the
Speaker 1: right solution. Right, that's mostly it. I think the biggest
Speaker 1: challenge we face at the FED is completing the process
Speaker 1: of getting inflation down to two percent. And what what
Speaker 1: I want to point out is that we're seeing disinflation
Speaker 1: in the goods sector. We're going we expect to see
Speaker 1: it in the housing services sector. And that's that's These
Speaker 1: are the three parts of the of the core PC
Speaker 1: inflation index that we look at. There's fifty six percent
Speaker 1: of the economy, which is the rest of the services sector.
Speaker 1: It's the biggest part obviously, and we're not seeing disinflation
Speaker 1: there yet. And that's going to take some time, and
Speaker 1: I just we we need to be patient, and we
Speaker 1: think we're gonna need to keep rates at a restrictive
Speaker 1: level for you know, for a period of time before
Speaker 1: that comes down. So when you made your speech the
Speaker 1: other day, when you talked about the FED discount rate,
Speaker 1: you use the word disinflation eleven times, not that I'm counting,
Speaker 1: but eleven times, so you were saying that disinflation is
Speaker 1: beginning to appear. Would you use that word eleven times
Speaker 1: again today after the jobs report or would less trying
Speaker 1: to use that word so much? I might use the
Speaker 1: the I might say, I would certainly use the word disinflation, yes,
Speaker 1: which means declining inflation. And I would call it declining
Speaker 1: inflation to for and today, what about the debt total
Speaker 1: debt of the United States, which produces some inflation thirty
Speaker 1: one point where you leaving aside the debt limit, Are
Speaker 1: you worried about the total indebtiness the United States loosing
Speaker 1: inflation or you don't think that's a big problem. Yeah,
Speaker 1: it's not. The level of debt. I would say. The
Speaker 1: thing say about the level of debt is really it's not.
Speaker 1: First of all, it's not the fed's job. But I
Speaker 1: would say that we we we're on an unsustainable fiscal
Speaker 1: path at the federal government level. That has been the
Speaker 1: case for some time, and it's something we will have
Speaker 1: to deal with it. Better to deal with it sooner
Speaker 1: rather than later. Now, many of your predecessors were economists,
Speaker 1: your trained as a lawyer. Um so um. They spoken
Speaker 1: what I call FED speak, which is to say incomprehensible
Speaker 1: kind of economic language, which was done intentionally, I think
Speaker 1: because sometimes they would say, so you tend to speak
Speaker 1: in English. Ums. That have been a plus to saying
Speaker 1: when you're dealing with members of Congress, they can understand
Speaker 1: what you're saying. I like to think, so you know,
Speaker 1: I've made it a real priority to to engage a
Speaker 1: lot with Congress. In our system of government, unlike the
Speaker 1: parliamentary system, our accountability is to the legislature. It's to
Speaker 1: send it in the House, in particularly the two oversight
Speaker 1: committee Senate Banking and House Financial Services. And I think
Speaker 1: it's very important that we respect that and explain what
Speaker 1: we're doing and listen to their concerns and and share
Speaker 1: with them how we're thinking about things. And I think
Speaker 1: they appreciate that and but that is, you know, we
Speaker 1: have this precious independence. We can't be removed from office.
Speaker 1: We serve these long terms. The other side of that
Speaker 1: has to be accountability. And the way for us to
Speaker 1: get accountability is to be as transparent as possible and
Speaker 1: try to reach you know, the people of the United
Speaker 1: States through their elected representatives. So this is a very
Speaker 1: high priority and we're gonna keep doing so. When you
Speaker 1: testify in front of Congress, how much time does it
Speaker 1: take to prepare for that? Is that a one hour
Speaker 1: preparation session or is it a one day session or
Speaker 1: a one week session? You know, they're supposed to these
Speaker 1: are supposed to be monetary policy hearing is under the
Speaker 1: Humphrey Hawkins Act, and they're actually on any anything that's
Speaker 1: any political issues. So it's it's quite extensive. You have
Speaker 1: to prepare for everything that the FIT is involved in
Speaker 1: and many things that the FIT is not involved in.
Speaker 1: Uh So it's it's a lot of preparations. So when
Speaker 1: you get questions from some members, you have to bite
Speaker 1: your tongue and say, why are you asking a question
Speaker 1: like that? Or you never have that problem? That never happens,
Speaker 1: never happens, Okay, okay, all right, well good. UM, So today,
Speaker 1: as you look at um, the country's economy, what is
Speaker 1: the biggest worry you have about inflation? Is it just that, um,
Speaker 1: the physical policy is not completely under control, we have
Speaker 1: exogious events outside. What is your biggest worry about inflation today? Well,
Speaker 1: it's it's kind of what I was saying earlier, which
Speaker 1: is we're just at the beginning of this process, right,
Speaker 1: goods inflation, so we need that process to continue. Goods
Speaker 1: that the whole thing began. The inflation began with people
Speaker 1: not being able to buy services instead buying goods, and
Speaker 1: then global supply chains collapsing and so you couldn't get goods,
Speaker 1: and prices of goods one up, and that's where it started.
Speaker 1: But that is now starting to get better as supply
Speaker 1: chains are improving and as people are rotating their purchases
Speaker 1: back to services. You move on though we're not seeing
Speaker 1: it yet in housing services, which is either rent or
Speaker 1: or the ownership the imputed costs of house ownership. But
Speaker 1: we expect to see that, so we need that to happen.
Speaker 1: That's another big part of the economy. It's got to come.
Speaker 1: It should come in the second half of this year.
Speaker 1: Then the biggest piece of it, and what I worry
Speaker 1: about the most is when are we going to see
Speaker 1: disinfo disinflation or declining inflation in core services ex housing.
Speaker 1: So that's what I worry about. The last thing I
Speaker 1: worry about is just another exogenous event. It's a risky
Speaker 1: world out there, uh, you know, with the war in
Speaker 1: Ukraine and the reopening of China, and you know we
Speaker 1: there there are those are things that can affect our
Speaker 1: economy and the path of inflation. Right, So the balloon
Speaker 1: was not You're worried though, you don't care about the balloon.
Speaker 1: It's not not within our ambit. Okay, So today the
Speaker 1: Federal Reserve gets data from all over the country. And
Speaker 1: are you convinced that you get the best data, you
Speaker 1: have the best data collection methods, or do you think
Speaker 1: it's not as modern as what Wall Street gets? We
Speaker 1: so most of the data that we get are just
Speaker 1: the same. You know, we don't collect the data on
Speaker 1: unemployment or inflation or most things. So and most of
Speaker 1: that's just government data, and a lot of that's, for example,
Speaker 1: very high quality. The labor market data is very high quality.
Speaker 1: We what we get, which I think is better and
Speaker 1: different from what everybody else gets. Is what I mentioned earlier,
Speaker 1: and that is the reserve banks putting together that the
Speaker 1: bitness and the beige not not the page book, the
Speaker 1: page book, the page book, putting together the beige book,
Speaker 1: and also coming in and you know, sharing the anecdotes
Speaker 1: and you know what they're hearing. What's happening with each
Speaker 1: district is different. You have agricultural districts, districts and energy districts,
Speaker 1: and so that I think, I think our anecdotal but
Speaker 1: its just the hall of information we get through that
Speaker 1: through that network is I don't I don't think anybody
Speaker 1: else has that. So do you consult regularly with some
Speaker 1: of your predecessors, I mean obviously wanted Secretary of the
Speaker 1: Treasury now but Ben Bernacky for example, or I do
Speaker 1: I I talked to former Chamber of Bannaky, I talked
Speaker 1: to you know, Secretary Yellen. I still talk to Alan
Speaker 1: Greenspan now and again. And when you're dealing with this
Speaker 1: with your colleagues on the FED board and you disagree
Speaker 1: with them, do you say, look, I'm the chairman of
Speaker 1: the FED. I am the person who has to make
Speaker 1: the final decision and this is what we should do,
Speaker 1: or you don't quite do it that way. It's a
Speaker 1: it's a process of reaching agreement, and um, I hear
Speaker 1: what people have to say, I tell them what I think,
Speaker 1: and then I'm the one who has to bring a
Speaker 1: proposal in front of the full committee, not just the board,
Speaker 1: in front of the full Committee on Monetary Policy. And
Speaker 1: it works. You know, we have to reach an agreement,
Speaker 1: and uh, you know, we get to a place. I
Speaker 1: think you can tell today we are blessed with the
Speaker 1: diversity of perspectives on the FMC with nineteen people. Of
Speaker 1: course we are. But you have one thing that unites
Speaker 1: all of us, and that is a very strong commitment
Speaker 1: to getting inflation down. So in some parts of Washington,
Speaker 1: people say, if you give me this, I'll give you that.
Speaker 1: I'll trade this for that. You never do that at
Speaker 1: the FED when you're coming up with the decision. I'll
Speaker 1: do what you want if you do what I want.
Speaker 1: That doesn't happen ever, not really. Okay, it's like you
Speaker 1: mean a better office or something like that. Well, just uh,
Speaker 1: you know, I'll say what you want me to say
Speaker 1: if you say what I want you to say or something.
Speaker 1: And that never happens, right, No, it doesn't happen. I mean,
Speaker 1: And when you want to talk to members of the
Speaker 1: of the board of the federals Ave Board, do you
Speaker 1: go to their office or they come to your office?
Speaker 1: I like to do both. I mean, I really don't
Speaker 1: like to sit in my office all day and and
Speaker 1: have just have people come to see me. I like
Speaker 1: to go barge in on people. And you know, I
Speaker 1: think it's much better to get up and walk around
Speaker 1: and see people. The FED has been pretty good at
Speaker 1: avoiding leaks of its decisions. How do you do that?
Speaker 1: Because most people in Washington are not so good at that?
Speaker 1: How do you avoid leaks? We do have. You know,
Speaker 1: we've got very strict rules around confidentiality, particularly around the
Speaker 1: written materials that we have. You know, we we published
Speaker 1: these things internally for for the FMC, meaning the memos
Speaker 1: and the Teal book and all that um. But the
Speaker 1: other thing to remember, though, is you know, we're not
Speaker 1: trying to hide our decisions from the public. We actually,
Speaker 1: in the modern modern monetary policy, we want the public
Speaker 1: to understand how we think, how we're thinking. And and
Speaker 1: you know, if markets really understand how you're thinking in
Speaker 1: a new a new piece of data comes in, the
Speaker 1: markets will go where they're going to do this, and
Speaker 1: it sort of happens organically. And that happened all last year.
Speaker 1: As we were, you know, talking about raising rates. The
Speaker 1: market priced in rate increases long before we actually enacted them.
Speaker 1: So it's not we want to be transparent. We're not
Speaker 1: looking to surprise markets with these decisions. From the time
Speaker 1: that you make your decision on the f O m C.
Speaker 1: Whatever time it is during the day, as your press
Speaker 1: conference at two o'clock or something like that, your decision
Speaker 1: is made by two o'clock or whatever it is or
Speaker 1: something like that. So you got a half hour, but
Speaker 1: you have to avoid leaks during that half hour because
Speaker 1: that's very market sensitive information. How do you make sure
Speaker 1: nobody is calling their spouse and saying, guess what we're
Speaker 1: gonna do? Well, we you know, we people take this
Speaker 1: very seriously. None of that happens, you know, you mean,
Speaker 1: you're you're taking your professional life in your hands if
Speaker 1: you do something like that. I think people have a
Speaker 1: sense of self preservation, so they're you know, people are
Speaker 1: very careful about about this information. There is a period
Speaker 1: of a couple of hours after the meeting and until
Speaker 1: we announced the decision, but we actually announced the decision
Speaker 1: at two the press conferences at two thirty. So I think,
Speaker 1: you know, it's a fairly small group of senior staff
Speaker 1: and policymakers that that kind of know what happened and
Speaker 1: what we're going to say, and I just think everybody
Speaker 1: understands that that you've just got to be really careful
Speaker 1: with that. To go back to jobs discussion, if next
Speaker 1: month you had another five nineteen thousand jobs created net jobs,
Speaker 1: would that be good or bad from your point of view?
Speaker 1: Have we got a lot of people working but maybe
Speaker 1: producing more inflation? So we don't. We don't have the
Speaker 1: luxury of thinking about good or bad. It just is
Speaker 1: what it is. So but I would say again we
Speaker 1: most most analysts, most economists would say that to get
Speaker 1: inflation down from high levels that we've had, if you
Speaker 1: look at history, there is some softening and labor market
Speaker 1: conditions that goes along with that, and that is still
Speaker 1: you know, very possible and indeed likely here some softing
Speaker 1: and labor market conditions. However, this cycle is different from
Speaker 1: other cycles because of where it came from, and it's
Speaker 1: just confound at all all sorts of attempts to predict
Speaker 1: what it would do. So it is good that we
Speaker 1: have seen very strong labor market, but at the same
Speaker 1: time we're seeing wages moderating. Wages are still very wage
Speaker 1: increases are still very high, but wage increases have come
Speaker 1: down to a level that is closer to what would
Speaker 1: be sustainable, still well above what would be sustainable with
Speaker 1: two percent inflation. And same thing with inflation. Inflation is
Speaker 1: starting to come down in the labor market hasn't softened.
Speaker 1: We do expect that it will soften um, but you
Speaker 1: know it will do what it will do. Our job
Speaker 1: is to get inflation down to two percent and preserve
Speaker 1: maximum employment. So when the f o MC meets, as
Speaker 1: it does regularly eight times a year, yes eight times,
Speaker 1: you pretty much know how the decision is going to
Speaker 1: come out before you actually get together, because you've been
Speaker 1: talking to each other. Or does the meeting of the
Speaker 1: FOMC change minds in ways that you might not have
Speaker 1: expected before the meeting started. It depends on the meeting.
Speaker 1: You know, I do. I talk to each of the
Speaker 1: eighteen other participants at least once and we go through everything.
Speaker 1: What you know, what's your analysis of the economy, well,
Speaker 1: everything about montery policy, everything about the path forward and
Speaker 1: all of that. So um, in some some meetings, I
Speaker 1: will say, some of the time you get into a
Speaker 1: discussion at the meeting which suggests that maybe you should
Speaker 1: communicate differently, and then think about that. And we might
Speaker 1: actually take a break in the middle of the meeting
Speaker 1: and then go off with a smaller group and think
Speaker 1: about that and come back and make changes. Sometimes though
Speaker 1: everything plays out is expected, and when you're having these
Speaker 1: FOMAC meetings, I assume somebody sweeps the room to make
Speaker 1: sure there's no bugs and anything all that, so no leaks, okay,
Speaker 1: And today, um, as you look forward, as we are
Speaker 1: going forward for the next mainder of this year, your
Speaker 1: basic view would be you'd be happy if the inflation
Speaker 1: rate were to get down by the end of the
Speaker 1: year to two percent. Maybe run realistic, but your core
Speaker 1: inflation now or overall inflation, you think it's about four
Speaker 1: or four and a half percent something like that, or
Speaker 1: what when you're saying is it's it's in that range.
Speaker 1: There are different measures. Yes, we we expect, you know,
Speaker 1: significant progress on inflation this year. And again it's our
Speaker 1: job to produce it, and I want to I want
Speaker 1: to say again, you know, we put we throw these
Speaker 1: numbers around, but the reality is we're going to react
Speaker 1: to the data. So if we continue to get, for example,
Speaker 1: strong labor market reports or higher higher inflation reports, it
Speaker 1: may well be the case that we have to do
Speaker 1: more in race likes more than its priced in. So
Speaker 1: if I wanted to go get a mortgage on the
Speaker 1: house I was going to buy, for example, uh, you
Speaker 1: would say, I'm not going to be any better off
Speaker 1: waiting till next year than now because rates aren't going
Speaker 1: to come down that much at the beginning of next year,
Speaker 1: so I might as well get the house now mortgage.
Speaker 1: So to say, surprisingly enough, I get a lot of
Speaker 1: requests for advice on those kind of things and you
Speaker 1: don't give any and I but I really can't, Okay,
Speaker 1: I can't. I really can't respond. So okay, So on
Speaker 1: the whole, to summarize where you are, you're basically saying
Speaker 1: that the job's data was that came out was a
Speaker 1: little bit surprising, But in the end, you're taking you've
Speaker 1: taken into account and you're pretty comfortable with the guidance
Speaker 1: you gave last time, and you're not prepared to give
Speaker 1: anything that's completely different guidance than you gave last week. Well,
Speaker 1: I mean, this is a world and we've had the
Speaker 1: the inflated sorry, then the labor market report, and I
Speaker 1: think that does I think it underscores the message that
Speaker 1: I was sending at the at the press conference and
Speaker 1: in the meeting that we have a significant road ahead
Speaker 1: to get inflation down to two percent. And I think
Speaker 1: there's been an expectation that it will that will go
Speaker 1: away quickly and painlessly, and I don't think that's at
Speaker 1: all guaranteed. That's not the base case. The base cases
Speaker 1: it will for me is that it will take some
Speaker 1: time and we will have to do more rate increases,
Speaker 1: and then we'll have to look around to see whether
Speaker 1: we've done enough. Okay, And in two percent is the
Speaker 1: we have for the last twenty five years before inflation
Speaker 1: came along, But prior to that, for most of US history,
Speaker 1: we were higher than two percent. Is that that two
Speaker 1: percent is? We're now so used to two percent after
Speaker 1: twenty years of it? Do you think that's the appropriate level?
Speaker 1: So for we went through this long period where inflation
Speaker 1: was really anchored around two percent, and we we think that.
Speaker 1: You know, economists think that that's because people start to
Speaker 1: expect two percent inflation and inflation it's in a way,
Speaker 1: if people, if everyone expects that prices are going to
Speaker 1: go up, prices and wages are going to go up
Speaker 1: two percent per year, then plus productivity in the case
Speaker 1: of wages, then it will That's what will happen. Having that,
Speaker 1: having price stability, real price stability from extended period of
Speaker 1: time is just enormously beneficial to the public because you
Speaker 1: can then on the back of that, you can build
Speaker 1: a very strong labor market as we had. We had
Speaker 1: a labor market with really three and a half percent
Speaker 1: unemployment in two thousand, uh eighteen and nineteen, and we
Speaker 1: had inflation running, you know, just barely getting to two percent,
Speaker 1: wages moving up the most for people at the lower
Speaker 1: end of the of the spectrum, and so this was
Speaker 1: we all want to get back to that place. But
Speaker 1: the bedrock of the whole thing is to get inflation
Speaker 1: under control. The unemployment rate hasn't come down as much
Speaker 1: as people are going up as much as people thought.
Speaker 1: In part, some people say because we don't have as
Speaker 1: many immigrants coming in the country, legal immigrants coming in,
Speaker 1: taking some of the jobs that otherwise would take. Do
Speaker 1: you think immigration is an issue in terms of giving
Speaker 1: us more labor workers or do you think that's not
Speaker 1: a factor. So, just as a matter of arithmetic, it
Speaker 1: was a factor because there was very little migration across
Speaker 1: borders during the pandemic UH and that was part of
Speaker 1: what was happening, particularly in certain sectors like the agricultural
Speaker 1: sector and food service and things like that, where they're
Speaker 1: just warrant the people. However, just just very recently here
Speaker 1: the immigration data have turned up again, and so and
Speaker 1: I think that maybe maybe maybe part of why people
Speaker 1: are feeling somewhat less pressure in a labor market to
Speaker 1: find workers. This is an issue not for the fetter.
Speaker 1: This is immigration is obviously political issue. We do not
Speaker 1: seek to be a player on this. But it's just
Speaker 1: a fact though that that you know right now the
Speaker 1: United States has has fewer available workers than it has
Speaker 1: jobs plus job openings. And when you increase interest rates
Speaker 1: and the criticial effectives to increase the value of the
Speaker 1: dollar versus other currents. Do you have any concern about
Speaker 1: the bague of the dollar going up too much or
Speaker 1: that's not something you comment on, So that the actually
Speaker 1: the responsibility for the for the exchange rate is really
Speaker 1: rests with the Treasury Department and the administration, not with us.
Speaker 1: Of course, that's another that's another financial variable that goes
Speaker 1: into every economic model. But we don't we don't look
Speaker 1: at it as something that we're working on. All right, Well,
Speaker 1: I think I haven't been able to get you to
Speaker 1: say anything you didn't want to say, so, um, you know,
Speaker 1: I would say, Jay, I've known you a long time.
Speaker 1: I think you've done a great job in a difficult situation.
Speaker 1: I appreciate your service to the country. At an eighty
Speaker 1: thousand dollars a year or whatever the salary is something
Speaker 1: like that. So thanks very much for being here, and
Speaker 1: thank you for your service. Thank you, David. Great to
Speaker 1: see it. Thank you.