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tv   Princeton Discussion with Federal Reserve Chair Jerome Powell  CSPAN  January 14, 2021 6:18pm-7:19pm EST

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cable television companies in 1979. today, we are brought to you by these television companies who provide c-span to viewers as a public service. >> next, federal reserve chairman jerome powell joints princeton university center for finance for a discussion on monetary policy. he talks about the current state of the economy and how the pandemic continues to affect it. this lasts about an hour. markus: welcome back to another webinar. for everyone worldwide, we are happy to have jay powell with us. the chairman of the federal reserve bank. and the governors of the federal reserve. hi, jay. good to have you. chairman powell: good to be here. markus: thanks a lot.
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it is great to have you. he is part of the advisory council here at princeton, so we are grateful you can spend some time with us today. a quick overview of the topics we would like to cover today. we would like to talk about deflation and inflation perhaps, and then about financial dominance, a little bit of fiscal dominance, debt levels. and then we will contrast the covid crisis with the global financial crisis of 2008. we will talk about central bank independence, and also about exit strategies later on. let me start with the new, flexible inflation targeting which came out of the fed, i was wondering whether we can specify
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a little bit more the framework, the time period that it takes and the rationale behind it, the maturity of the debt contacts, what is the average, the price, how long it takes on average. and then about inflation measures as well because now with the covid crisis, the consumption cost is shifting over the time period. so it is expensive. how do you measure inflation this way? perhaps you can elaborate a little more on this new framework, which is very exciting, which the audience would like to learn more about it. so, jay, can you elaborate a
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little bit? chairman powell: sure. i would be glad to. first, thank you so much for inviting me here today. thank you for these webcasts. i have listened to a number of them and i find them to be thought-provoking, and i will be honored to join your wall of guests with my photograph if you will put it up after this. so, thank you so on our new monetary policy framework, as your listeners will know, our statutory goals are maximum employment and stable prices. over the course of 2019-2020, we engaged in a review of our strategy on how to achieve those goals, and it was our first public review of those goals. we conducted it in a transparent way that would allow public interaction with the events we
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held around the country, meeting with the members of the general public with a particular focus on low income communities, labor unions, small businesses. the point of the exercise was to step back about a decade after the global financial crisis and ask what have we learned about the conduct of monetary policy. specifically, due to a number of persistent factors that are global in nature, interest rates are substantially lower even in good times. in the u.s. we have been at or fairly close to the balance for most of the decade. in other jurisdictions, japan, the e.u., rates are even lower, and this has highly important implications for monetary policy. flexible inflation targeting over the past couple decades was successful, but needed to be adapted in a systematic way to the new normal of life in the lower bound for interest rates. that is the essence of it. it involved significant changes to our strategy for achieving
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our goals, maximum employment . your question is really about the price stability side of the mandate, so let me start with that. in essence, the fomc reaffirmed our understanding of price stability, achieving 2% over time as measured by the price index. but we added several new important ideas. we stressed the importance of having inflation expectations well anchored at 2%, which of course enhances our ability to achieve both parts of the mandate. inflation expectations i think is a team that will come back again and again. we said that to achieve inflation expectations, we need to inch even inflation. in order to achieve inflation at 2% over time following periods when inflation has fallen consistently below 2%, we would like to aim to achieve
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inflation moderately above 2% for some time. that was the logical flow of that. we call that a flexible average inflation targeting regime. your first question is, what do you mean by flexible? the first thing it means is that we have not tied ourselves, and won't, to a particular mathematical formula when we aim to achieve inflation moderately above 2% for some time. policy will continue to affect a -- to reflect a broad array of considerations. there is always an element of risk management, of judgment. we want inflation expectations that will be well anchored at 2%. you need to average 2% inflation over time to achieve that. as you know, we use policy roles and formulas. the second reason that we stayed flexible is that we are a dual mandate bank and we are always considering both parts of the mandate.
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that means we couldn't really tie policy to a formula that applies to only one side. in this case, inflation. i would also be remiss if i didn't mention the equal and point and changes we made to the employment side of the mandate. -- the equally important changes we made to the employment side of the mandate. maximum employment is a broad, inclusive goal which reflect our appreciation for the benefits of a strong labor market. second, we said we will react only to shortfalls for maximum employment, as opposed to the old, which was deviations for maximum employment. that reflects our view that employment can run at or above the estimates without causing concern, unless a company signs an unwanted increase or other risks that could impede the achievement of our goals, an important change. that follows the experience of recent cycles, especially last
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year with the pandemic, in which greater market conditions were very strong indeed, yet inflation was quiescent. we saw the substantial social benefits a strong labor market can bring. you pointed out in your question, i believe, that the benefits will be more fully realized to the extent it is seen as credible, the new framework. i would say a couple things. since we lost the framework in august, there is plenty of evidence that market participants have shifted their expectations in a way that is consistent with the new framework. surveys now show that market participants expect us not to raise rates until inflation has reached 2% and the labor market is strong indeed, and that is also consistent with our rate guidance. our eyes are wide open on this. at the end of the day the public will need to see us allow inflation to move above 2% for a time before the new framework will be seen as credible. markus: thanks a lot.
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if i may follow up on this. can you move away from a single number? it becomes more flexible in this regard as well? chairman powell: sorry, i didn't catch your question. markus: is it not flexible as well, in the more general flexible way of thinking about it? chairman powell: that is clearly the case. we will continue to write down our own estimates, with a natural rate of unemployment. of course, that is only one factor that we take into account when we talk about maximum employment. one of the big lessons of the last crisis was how much room there was in labor force participation, which performed really quite differently than expectations, and better. so we are really looking at the
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employment in population and size of the workforce, as we always have. broader things. we always write down estimates of the natural rate of unemployment. what we are really saying is that we are no longer going to raise interest rates just because, for example, it might apply well below our current estimates of the natural way to unemployment. that would not be a reason to raise interest rates unless we see trouble in inflation or other imbalances that could threaten our mandate, and that is a significant change if you read the transcripts that were released in 2015. there was a lot of discussion of the issue around, could we let unemployment go below the natural rate? we saw what happened. we were the first group on the committee to see a sustained period of very low unemployment in many years, and we saw that it did not produce troubling inflation, and we very much took that on board.
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markus: do you take inequality considerations into account as well? if the labor market works well, it helps the less well-off? is this a consideration as well, an inequality component? chairman powell: yes, looking at maximum employment as a broad and inclusive goal does include that. you will notice that we have been talking more and more about various kinds of inequality. there is a reason for that. that is that we think they connect directly to the maximum employment goal. so maximum employment, if you take that statutory goal seriously, it is not achieved if there are lots of people not working around the edges of the labor market who could be working, who constitute the potential labor force, and there is a lot of that in minority communities, a lot of moderate income communities. we focus on it, and we never
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really did just look at the aggregate data, at least in recent years. but we will continue to talk about those more in the futures -- of the running features of the economy. we will take them into consideration and look at maximum employment. we do understand that both issues are important national issues that require a society-wide effort, and that his business, fiscal policy, that is the fed. what we can do -- what we will do, and it is important, but really the main answers have to come from education, training, and that has to become a national goal, i think, and we are hopeful that that will be the case.
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markus: so let me move on a little bit to the inflation demand, because there is a danger that we might end up like japan. there is huge deflationary pressure because of force saving by -- on the other hand, you might go back. we have to be very careful to put on the accelerator, but you might get stuck in a low-inflation environment for quite a while. what do you think of safe elements to control mechanics, which might occur or might not occur but get stuck in a more inflation environment. how do the new framework help us manage this for our economy?
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chairman powell: so a couple of things i would say about that. as you suggested, in the near term, as the pandemic recedes and we see a strong wave of spending as people return to their normal lives, beginning various services, there could be exuberant spending and we could see some upward pressure on prices. by the way, at about the same time we will see measured inflation go up because of the lapse below readings in march and april of last year. that is in the forecast of many economists. but the real question is, how large is that effect going to be, and really be persistent? because clearly a one-time increase in prices is very unlikely to be persistently high inflation, and that just is a function of the underlying inflation dynamics of the u.s. economy, as they have been in the last many years.
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as you know, we have a flat phillips curve, meaning there is still a small connection but you need a microscope to find it. between a flagging labor market and inflation. it was also little persistence of inflation. if inflation were to go up for any reason, it doesn't follow -- inflation doesn't stay up. it used to be you go back to when i was an undergrad in princeton come you had a steep phillips curve, combined with highly persistent inflation, and that is what gave you the inflation i graduated into in 1975 and later in that decade. so it will change, but they don't change -- we don't think they change quickly or on a dime. we will come back to that. i also think -- let's say we have a strong economy and the second half of the year, and that continues. remember, we are a long way from maximum employment. there's plan to have slack in the labor market, unlikely that wage pressures will -- also,
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look around the world. a shortage of demand and lots of large advanced economy countries around the world when we began this crisis and deeply negative interest rates, and policy space with interest rates. that all is going to hang out around for a while. the u.s. economy is strongly integrated with the rest of the world and that is going to matter. i should add, if inflation were to move up in ways that are unwelcome, we have the tools for that and we will use them. no one should doubt that. too low-inflation is a much more difficult problem to solve. i will stop there. markus: let me move on to the next topic, financial stability, which is also a major concern.
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the financial sector is very sound at this point, but there might be overleveraged and going on on the corporate side. could financial instability limit at some point down the road? and to avoid financial dominance -- finally, one of the programs that helps the corporate sector, some corporations might use it to lever up,, higher dividends, to buy back shares, the only firms which issued bonds. and paying higher dividends than before -- any tools you can invent, or are they tools that other companies would like to
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have? chairman powell: i would say we don't feel pressure from financial dominance. i suppose we will talk fiscal dominance in a moment. financial dominance is the reluctance of the ability of the central bank our corporate sector, our nonfinancial corporate sector did go into this downturn with relatively high leverage, but as you lower interest rates, interest payments are not at a terribly high level. by historical standards, they are sort of at a normal level. we have not seen the big uptick in default that we might have seen in financial corporates. it is just not something we are feeling, nor have i ever felt it really. when the time comes to raise
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interest rates, we will certainly do that, and that time is no time soon. you ask about macro tools. the difference between the united states and other countries, i would say, is that we do not have a lot of time varying tools where we can see a particular situation. the history of those -- we have had them over history and it has not been a good history. it is very difficult to get the timing right and that sort of thing. what we did have is strong through the cycle tools. the idea is that we will not rely on our ability to put these things into effect for the right time and the right proportion. we don't think we are very good at that. we think it is better, as one of our mutual friends and colleagues likes to say, better
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to build strong levees than try to predict hurricanes. what we have done is we have run very strong stress tests that require banks to be resilient, the kind of national stress that can suddenly appear in a global financial crises that can suddenly appear in a go buffet and crisis. i think that is the right way to do it. good times and bad, you want to build the strength of the financial system during good times, holding onto those gains. that is how we look at it. we are not really seeking the other kinds of tools. a different political economy is the way we are doing it. i think that way works. i think if you look at the performance of the u.s. banking system certainly, and many aspects of the nonbanking financial sector, which we talk about, they perform fairly well so far during this episode. you mentioned the bond purchase program. we had a primary facility, and
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it closed on december 31. then we had really as a way to get a grip on financial conditions in the nonfinancial corporate market at the height of the crisis, a secondary market, where we would buy very small amounts of bonds issued by 800 different issuers. we wanted to be able to come if conditions start to fall apart, get in there and have a strong effect. we didn't extend any new credit to any corporate. -- any new credit to any corporate. we were not really in a position to demand that anybody do anything. the other thing, though, i would say, that is a decision for congress. we really shy away from anything to do with credit allocation.
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there are all sorts of social benefit and cost judgments that can be embedded in the kind of factors. those are great judgments, important judgments, but we are not comfortable making commitments. we don't want to get into a credit allocation based on a lot of different factors. that is what elected people are elected to do. they provide all sorts of places in the federal government, credit to important constituencies and industries at attractive rates. that's the job of elected people. markus: so let's move on and go a little deeper into the covid crisis. i think what is striking is, contrasted with the 2008 global financial crisis, what do you see as the major differences between the two crises? and the fundamental shock was much larger than it was in the 2008 crisis.
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are there any lessons from 2008 that's useful this time around and other lessons that were outdated or irrelevant. contrasted, between various forms with 2008. chairman powell: interesting. you are right that the covid shock,, strictly -- the covid shock was significantly larger, but the two episodes are fundamentally different. the most important differences are not about size. when you go back to the global financial crisis and the great recession, there was a buildup of unsustainable imbalances in the economy, in the form of a housing bubble that pops. and then they undercapitalized
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banking system, amplify it, and the system ultimately needed to be built up by taxpayers. there were also lots of points of failure in the nonbank part of the financial system as well. going into the crisis, household indebtedness was quite high, and a lot of it in support of unsupportable mortgages. so foreclosures came in, and you were right away into a very slow and long and painful recovery. the pandemic was effectively a natural disaster. it struck an economy that was performing well. every economy, and certainly our economy, faces longer run challenges. but there was no threat to long, ongoing expansion. you cannot identify something that if this blows up it could blow up the expansion. the banking sector is much better capitalized, had much more liquidity.
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an appreciation of its risks and certain things to -- we did do some -- the nonbank sector, sorry, of the financial sector. but less so. households were in relatively good shape. corporate leverage was high as i mentioned. we haven't seen really the payoff there in a negative way. another critical difference at this time, both fiscal and monetary, responded very quickly and very powerfully. in a sustained way. critically, it was sustained. this was a particular shock that called for fiscal policy. what we can do is we can restore market function and sustained market function, and then we can stimulate aggregate demand. particularly with monetary policy.
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this situation, with 25 million or 30 million people out of work overnight, called for fiscal policy. and we got it with the cares act. both reactions were swift and overpowering. that was a big difference. we did learn that. we learned, come in early, come in hard. don't leave until the job is job. the other difference that is completely different is the privacy of health care policy. the single most important economic policy in this is health care policy. it is getting control of the virus which we have not done yet but it is also developing medical treatments and vaccinations. i would say we did apply some of the lessons of the global
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financial crisis. markus: would you say, if you did not have the 2008 crisis, your response would be different? where there some lessons from 2008 that helped you make a quick response? chairman powell: i would not want to get caught saying that 2008 was a good thing. nonetheless, i would say it this way. i joined in 2012, so i was there for the response. we still had a long way to go in the economy. we learned plenty of lessons. in 2012, we did not know the new normal, what it was going to be. for many years, i was writing down a return to 3% growth, a
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return to 4% nominal federal funds rate. we went through a 10 year expansion, and we see what is happening around the world, we see the performance of inflation, we learn. we also learned from, in particular, fiscal policy tightened a lot. in 2013, 2014 and 2015. the fed is doing qe3, insurance extension programs, fiscal policy is just a weight on the back of monetary policy. it's not helping. we have seen follow-up from the fiscal authorities and i think that has been part of the story.
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you're looking at forecasts now, we are back to potentially pre-pandemic level of output relatively soon. the key thing is that maybe we will be able to avoid a lot of the damage to people's lives. people losing the life they have made, getting back to a strong labor market quickly enough that people's lives can get back to where they want to be. we are in a good place february 2020. we think we can get back there much sooner than we had feared. markus: always we have to and o -- end on a positive note. before we do that, perhaps we can look at the tools that the fed has employed and, one role i
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think very crucially in march, the fed intervened in order to stabilize the system not only for the u.s. but for the global market. something i think has been elaborated on a little bit. and to what extent is the fed also there to make sure treasuries remains the globa safe asset. what i found most striking and you alluded to this already, the fed put up corporate bond programs, and it was not enough to just be there as a backstop. without really buying corporate bonds, and work well already with corporate bonds in 2020.
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despite that the fed said, we will backstop. on top of it, can you talk a little bit about being on the financial crisis but helping out small and medium enterprises, main street facilities, and your experience of how well this works in conjunction with the u.s. treasury? another dimension, being the lender of last resort, establishing the dollar as the global currency. there's argument out there that the swap lines were crucial at that point. it's a good deal for the u.s. to swap lines. it essentially becomes a lender of last resort to many banks around the globe.
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how much it actually establishes the dollar. finally, how do you see th [indiscernible] fiscal -- now we are talking more about another $2000? do you see this as helicopter part of money? monetary spend, always by the fiscal side, so how do we take the interest rates into account? chairman powell: let me start with the treasuries. everything we do ask to tie into our mandates, price stability, i would say restoring a critical market such as the treasury market to functioning. that clearly ties into our role.
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i would say what we did is we bought. we were not making a market come we were buying a lot of treasuries. i would add that the performance of the treasury and mortgage market in the acute phase of the crisis means we need to talk about market structure and greater resilience. i know you had darrell duffy a while back to talk about that. of course we are doing that. where looking at the role of regulation in the market structure in the treasury market. we need the treasury market to work. in terms of a state asset guarantor, we don't have a formal role at that but if we do our job well, we will foster the creation of state assets and the
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use of the dollar as a reserve currency. they are not direct goals but nonetheless, they certainly benefit the united states and to the extent that they are well aligned with the achievement of our goals. the backstop effect was extraordinary. you may remember hank paulson saying in the last global financial crisis, give me a bazooka so i don't have to use it. it did not work that time. but it really did work this time. one way to think about it is the elimination of bad tail risk. these facilities take much more time than you would imagine to set up. legal structures, and it is a line that goes in. we had a lot of people at the fed and treasury who had worked on these facilities in the last
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crisis. i know all of them. great people who don't get a lot of public recognition. when the bad situation is there, they are serving the country very well. what happened this time, we would announce the corporate facility with immunity facility and the market started working right away. ironically, the fact that there was no take-up for the corporate, nothing but a sign of success, the amount of borrowing and level of interest rates in the muni markets are extraordinary. it's setting all kinds of record and rates are low. this is true across the credit spectrum. you pointed out main street. it is much more difficult to reach nonfinancial businesses, small, nonfinancial businesses
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that do not have bond market access. it is very difficult for the fed. we have no experience this doing that. by the way, we are a bank regulator and we have spent the last decade working hard with banks not to make bad loans. i think one of the things we learned, for these smaller firms, what they really needed in many places was a ppp program or some kind of a transfer to keep them open. fiscal policy. they need physical support. the answer for a small business that can operate is not necessarily to borrow. many of them took the view that they would rather not borrow. i got to pay that back. i think a lot of work will be done should the need arise again to reach nonfinancial
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corporate's a mass scale. i think we do need to spend some time in the next year or so think carefully of what the best way to do that is. dollar funding markets around the world benefit u.s. households and businesses substantially. they amount to lending that winds up showing in consumer lending or business lending in the united states. in addition, there are very important markets and when they experience stress, it shows up quickly in the short term markets. they are very important in the world. our swap lines again i think did a very good job of keeping those markets working and really serving the u.s. economy as well as the global economy. there is a lot of gratitude. this comes with the global reserve currency.
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and good economic citizen of the world. it really helps people in the united states a lot. it is not something that we give to the world. treasury repo facility, this is new, this is for countries that are not large enough for a swap line, just a place they can turn their treasuries into cash. a big part of the risk off that at the beginning of the acute phase of the crisis, was selling by sovereign owners, and there was not enough capacity to handle in private markets. a treasury repo facility was an important factor. on a fiscal helicopter drop, i i'm going to take a dodge that if i may. that's straight fiscal policy. you can argue that for countries in a permanent liquidity trap.
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we will have policy space for interest rates fairly soon in the suite of history. it will take a few years. markus: ok, let's now move, the public debt level has reached record highs. if you look at the cbo, it is going up tremendously over th next few years. the question is, how will this impact of monetary policy -- on that. jason furman saying that is not such a big problem as long as interest rates stay low. nevertheless, might be constraining true fiscal dominant monetary policy down the road.
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the independence of the central bank that, at that time, when it has to step on the brakes a little bit, that it can actually raise interest rates. do you think it's very important not only for the fed but other central banks around the globe as well. how would you stress the importance of the independence of the central bank, also in connections, whether there are some things institutionally in the u.s., some modifications are not? final, i would like to in times of crisis, one says the treasury and central bank should collaborate. you did so with u.s. treasury or with the bond buying programs, which we talked about, taken on by the u.s. treasury rather than the fed. any lessons we should learn from the action in the treasury for
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the central banks, not only for the u.s., but for other countries? chairman powell: to start with public debt and monetary policy, i would say, first of all, the u.s. is not on a sustainable ath the federal government level. in the simple sense that the debt is growing significantly faster than the economy and that means by definition that it is unsustainable. that is not to say that the level of debt is unsustainable. it is not, it is far from unsustainable. i think we are a long way from fiscal dominance of the united states if we get to that place. high public debt in no way impacts monetary policy. now, we are squarely focused on serving the public through our new framework to achieve maximum employment and stable prices.
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my strong view is that central bank independence is an institutional arrangement that has served the public well. every advanced economy democracy around the world has central-bank independence. institutional arrangements differ. i think that is well understood among elected representatives. i think people to understand that having an independent central-bank really does help in times of crisis, but particularly during the business cycle when you can be focused on serving all of the american people and ignore political considerations completely.
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13-3, i will talk a little bit about that and collaboration. it allows us to do emergency lending. it has been on the books for a long time. the tests are unusual circumstances, borrowers cannot get loans. effectively, it is an emergency and private sector mediation has broken down or is not working to the point where the rates being charged are not in the range of normal. that is when it comes into effect. we use it quite aggressively and too could affect during the financial crisis. dodd-frank took the position and made it law. that if you are going to do that kind of emergency intervention in the markets, then you really should have participation and approval from elected governments in the form of the executive branch.
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and that is the treasury. i would say, i think that is good policy, i think that is appropriate. it's also the law. that's what we did. people will make their own judgments and we will study it. but, my own sense is that our collaboration with the treasury was very successful throughout this, and it really did work. there was a lot of benefit. the treasury has sole responsibility for fiscal policy. we're not in the negotiations. we don't want to be in negotiations over fiscal policy. we speak about it at a high level and try not to get into the details, and we don't want to be in the details. treasury is in those. for treasury to be part of 13-3, i think that helps treasury
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heavy strong perspective, and i think the whole system works. there are people at the fed and at treasury who have this institutional knowledge. the relationship is a good one. i think finance ministries and central banks around the world do know each other well. we stay in our lanes, we have different authorities, different responsibilities, we respect that. we stay in our lanes and they stay in their lane. i think it does work. i think our current institutional arrangements are quite workable. so i would not be looking to change them. markus: if i could throw in the public debts, furman was mentioning that the u.s. is in a good situation with debt levels because everyone else is going into high debt levels. only the global scale it might be more challenging for other
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countries. he used the term, you only need to be the least in terms of debt levels to be able to fund yourself. so i wonder what challenges for other countries. chairman powell: you had jason, larry summers, olivia blanchard, others have been looking at this question. we have not really incorporated the low interest rate environment into thinking about fiscal policy. the work of all three of them is, if you look at real interest payments as a percentage of gdp compared to debt as a percentage of gdp, you see a much mor -- less concerning picture. this is new work, new thinking. there is no doubt there is something in it. it is not something i think that has made its way into the policy debates yet but it is interesting. markus: let's suppose, hopefully
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the crisis is behind us soon with a new vaccine coming out. at some point, we have to start thinking about -- perhaps at some point we have to thinking about it. are there any lessons for taper tantrums or things to avoid, because it was detrimental to other economies outside the u.s.? lessons we can learn about what not to do, what to do. i was wondering, other tendencies, other future developments of the central-bank currencies, is there anything -- right now, we focus on the covid crisis, and once that is established, we can focus on
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central-bank currencies and other aspects. one thinking is that smaller - companies can move ahead with the experiment. because you do not want to risk the global world currency, the u.s. dollar, with experiments. let smaller companies experiment and depending on their experiment, the u.s. dollar could move. i don't know what your thinkings are on these topics. and perhaps other future projects. chairman powell: let me start by agreeing that now is not the time to be thinking about exit. that's another lesson of the global financial crises. be careful not to exit this
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early and try not to talk about exit all the time. we are strongly committed to our framework and using our monetary policy tools. i think the taper tantrums, it highlights i think the real sensitivity that markets can have about the path of asset purchases. so, we know that we need to be very careful in communicating about asset purchases. a couple of general caveats, we always try to avoid an excessive focus on a particular likely path, the most likely or modal path. monetary policy is only sometimes about the most likely path. it is often about how you conduct risk management to avoid downside cases.
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that is a little bit why our guidance on rates is not time-based. it's outcome base. it requires the achievement of various objectives. those will come when they come, rather than -- we will of course be very, very transparent as we get closer. i would just say this on th current situation. when it does become appropriate for the committees to discuss certain dates, when we have clear evidence we are making progress toward our goals. and we are on track to make substantial further progress toward our goals. when this happens, and we can
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see that clearly, we will let the world know. we will communicate very clearly to the public and do so well in advance and active consideration of continuing stable asset purchases. that is how we are thinking about that. i will say something about cvdc. since we already world reserve currency, we actually think we need to get this right and we don't feel a need to be first. effectively, it already means we have a first mover advantage because we are the reserve currency. i think there are both benefits and potential costs and
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unresolved questions around cdbc technology has made this possible. it is effectively private sector actors can create the equivalent of digital money. we know, in the past, when private sector money, at some point they find out it is not money, and that is a really bad thing to avoid. we are investing heavily, understanding the technology, the policy questions, the many policy questions. we will also do, as we go through this process, a great deal of outreach to every constituency that will be interested including elected representatives, financial market participants, and try to
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understand, how are these cases, do we need this? how would it help and what are the benefits. i think all of that will inform our thinking as we go through it. we are determined to do thi right rather than quickly. it would take some time. i think it's something we need to take care of seriously. markus: to make sure private sector is not taking more risks for the fed to have to step in and expose. chairman powell: clearly, there is a need for -- and we have been focused as you know on better regulatory answers, and that will continue to be a high level focus because they could become systemically important overnight and we don't preten
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-- begin to have our arms around the potential risks, how to manage those risks. the public will expect that we do. that is something we have been working on with our colleagues around the world. markus: let me conclude with another group of questions that are more for the academics in our audience. with action during this program, what are the most urgent needs and research you find useful. he also impacted academics, non-academics. monetary policy, economics. given that you provided so many natural experiments.
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chairman powell: i am not a research economist but i am an avid consumer of economic research. it is hard for me to imagine a time where we would be throwing up more situations that call for deep research, national experiments of different kinds. it is just an extraordinary time. in the near, middle, and longer-term. in the near term, a very high priority for us is understanding what actually happened. you do not know that until you take it apart piece by piece. what actually happened during the acute phase of the crisis. the things that we did, how they really work. what did not work. all of that will be gold and i think a lot of effort will be spent on that.
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i think more medium-term, we want to understand the extent of labor market scarring and damage to the productive capacity of the economy. that is obviously a key thing we are monitoring. different countries did different things with their labor markets. the question will be, what worked and why? our labor market has been more flexible. this will be a different economy when we come out of the pandemic. longer term i would point to climate change for the financial sector for the economy where the
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early stages still. we're still very early stage of trying to understand what the implications are for the economy and the financial sector in particular and hence, how do we incorporate those into our policies, as we try to manage that system. those are a few things. there's just so many things. i'm sure i'm leaving many out. i think it's going to be a very rich environment. markus: thanks a lot. climate change is challenging because -- it's a huge forecasting challenge as well. thanks a lot. i think this was fantastic. i think i learned a lot. we really appreciate your time for being with us and thinking
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what's going on within the fed. typically in this webinar series, we end on a positive note. you have to give us some positive outlook or some positive -- what your experience in the last 10 months or something where you look forward, say you're looking beyond the crises, what will help us in the long run and what are the positive aspects? let's switch it off now and focus on the positive things and perhaps you can give us one or two sentences on some positive note. chairman powell: i think that's easy. i remember coming back to the united states for an overseas trip in near the end of february. really being concerned about the possibility of very, very horrible outcomes in the economy and society. we went to work.
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congress went to work. the people who invent vaccines went to work. sitting here on january 14, 2021, we are not living that downside case. i will remember the discussions we had, which were pretty scary in march and april. we were doing the best we could. here we are now with vaccines, the population is getting vaccinated. you're in a situation where we can be back to the old economic peak fairly soon and passing it. we may bypass lot of the damage that we were concerned do to low and moderate income people who still have very high unemployment. with reopening of the service economy later this year, we hope we'll get that effort. i'm optimistic about the economy over the next couple of years. we got to get through this difficult period with spread of covid. as a vaccines go out and we get covid under control, there's a
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lot of reason to be optimistic about the u.s. economy. markus: thanks a lot. fantastic to have you with us. thank you even more for saving not only the u.s. economy but the whole global economy in march and april of 2020. i'm convinced without the action of the fed, we'll be in a totally different word these days. deep gratitude for doing that. thanks again and hope you stay in touch. ♪♪ >> you're watching c-span, unfiltered view of government. c-span was created by america's cable television companies in 1979. today, we're brought to you by these television companies who provide c-span to viewers as a public service. >> vice president pence participated in a security bre

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