Fed Chair Jerome Powell: The 2024 60 Minutes Interview

Jerome Poell, the

chair

man of the Federal Reserve, may have rescued the economy from inflation without putting millions out of work when Americans were suffering the highest inflation in 40 years. The Fed raised interest rates 11 times to cool the economy. Economists expected a recession, but now. inflation is falling while employment is near a 50-year high On Thursday we sat down with Poell for a rare

interview

to talk about interest rates that remain dangers and the one question on everyone's mind (the story will continue in a moment) is that inflation is dead. It wouldn't go at all. On that note, what I can say is that inflation has really come down over the past year and quite sharply over the past 6 months.

We are making good progress, the work is not done and we are very committed. to make sure we fully restore price stability for the public's benefit, but inflation has been falling steadily for 11 months, right? You've avoided a recession, why not cut rates now? Well, we have a strong economy, growth is underway. at a solid pace the labor market is strong 3.7% unemployment with the economy strong so we feel we can approach the question of when to start reducing interest rates carefully and we know we want to see more evidence that inflation is coming down moving sustainably up to 2% we have some confidence that our confidence is increasing we just want a little more confidence before we take that very important step of starting to cut interest rates we just want to see more inflation fell from just over 9 % to about 3%, close to the Fed's ultimate goal of 2%, why is their target rate 2%?

Interest rates always include an estimate of future inflation, if that estimate is 2% that means you will have 2% more. that interest rates can be lowered, the central bank will have more ammunition, more power to fight a recession if rates are a little higher, are you committed to getting up to 2.0 before cutting rates? No, no, that's not what we want. say nothing no um we are committed to returning inflation to 2% over time. I have said that we would not wait until we reach 2% to reduce rates. We met with Powell in the Federal Reserve board room where this committee meets every day.

Approximately six weeks to set the so-called federal funds rate, which influences most loans, last week Powell announced that the rate would remain at its 23-year high, around 5.5% unchanged for 6 months, disappointed a lot of people on Wednesday. I can't overstate how important it is to restore price stability, meaning inflation is low and predictable and people don't have to think about it in their daily lives. That's where we were for 20 years. We want to return to that movement. too soon would trigger inflation again, might or might simply halt progress. I think it's more likely that if you move too soon, inflation will stabilize somewhere well above our 2% target and what's the danger of moving too late if you move too late, then it might, it might, uh the policy would be too strict and that could easily affect economic activity and the labor market, maybe a recession, right, and we have to balance those two risks, there are no, you know.

The easy, simple and obvious path was that the Fed was too slow to recognize inflation in 2021, so in retrospect it would have been better to have tightened policy sooner, we thought the economy was so dynamic that it would take care of itself with pretty quickly and we thought that inflation would go away pretty quickly without intervention from us, so in the fourth quarter of '21 it became clear that inflation was not transitory in the sense that I mentioned and we pivoted and started adjusting and, as I said, it is essential that we do so. that it was critical to CR that we do that and that is part of the story of why inflation is going down now.

We are wondering about an interest rate cut at the next committee meeting in March. I think it's not likely that this committee will reach that level of trust in time. for the March meeting, which will be in 7 even weeks, the next committee vote would be in May, how would you characterize the consensus around this table for rate cuts? Is everyone on board? Almost all of the 19 participants sitting around this table believe that In the most likely case, it will be appropriate for us to reduce the federal funds rate this year. Cuts to the fed funds rate would probably be a quarter, maybe half a percentage point at a time, as long as the inflation data remains good, we just want to see more good data in that sense, it doesn't have to be better than we've seen or even as good, they simply have to be good, so we expect to see that in 2021 little looked good, inflation turned on after pandemic disruptions and when the federal government spent five trillion dollars to maintain the economy afloat, many in Congress questioned Powell's rapid rate hikes and predicted disaster, and I hope you reconsider as you conduct this before you drive this economy off a cliff, thank you Mr.

President, but interestingly when rates went up the economy added more than five million jobs Powell told us that's because of the strange dynamics of pandemic auto sales, for example, there was a shortage of semiconductors because a lot of people were buying goods that involved a lot of semiconductors, so while the Demand Car consumption increased because people did not want to travel by public transport, for example, and moved to the suburbs. While that's happening, you can't get semiconductors, you can't make cars, so there's a shortage, so what happened is inflation just skyrocketed. and as the supply of semiconductors raised prices again, inflation has moderated a lot, so really these unique characteristics of the pandemic were reversed in a way that reduced inflation.

Jerome Powell turns 71 today after a career in Investment Banking for which he was appointed. Fed by Barack Obama, named president by Donald Trump and retained by Joe Biden, Powell travels often to listen to the country and we met with him at Spelman College in Atlanta, where he talked about higher prices, inflation is a thing , prices are another and I wonder if there is any reason to believe that people will see the prices of things go down, so the prices of some things will go down, others will go up, but we don't expect to see a drop in the general price level .

That doesn't usually happen. in economies, except in very negative circumstances, if you think about basic needs, such as bread, milk and eggs, prices are substantially higher than before the pandemic, so we believe that it is one of the main reasons why people have been relatively dissatisfied. with what is otherwise a pretty good economy, but those prices won't soften unless something like a recession hits. Things that are affected by the prices of raw materials, such as gasoline prices, the prices of some foods that incorporate the price of raw materials, cereals and things like those can go down a lot, but the general price level does not go down.

The Federal Reserve was empowered during the Great Depression to regulate the economy by controlling the money supply and setting interest rates. It also regulates commercial banks for safety reasons, something that is still being questioned by the effects of the pandemic. The value of commercial office buildings across the country is falling as people work from home. Those buildings support the balance sheets of banks across the country. What is the probability of another real estate banking crisis? I don't think so. I don't think it's likely: we looked at the balance sheets of the largest banks and it seems to be a manageable problem.

There are some smaller and regional banks that have concentrated exposures in these areas that are challenged and you know we are working with them. You think it's a manageable problem, we're not going to see bank failures across the country like they did in 2008. I don't think there's much risk of a repeat of 2008, there will certainly be some banks that will have to close or merge. I suspect that for the most part last year there was panic at the 16th largest bank. A Federal Reserve report blamed poor bank management, but also the supervision by the FED itself that it appears to trust. banks and yet the Silicon Valley bank, the second biggest failure in US history, did the FED miss it?

So yes, we did it and we saw frankly that we needed to do it better, so we have spent a lot of time working on ways to make supervision more effective and also to adapt regulation to a more modern context in which a bank run can happen much more quickly. than might have happened 20 years ago, another economic hangover after the pandemic is a sharp increase in the national debt. Within 30 years it is projected to be $144 billion or $1 million per household. How is the national debt evaluated? We try very hard not to comment on fiscal policy and, you know, instruct Congress on how to do their job when they actually have oversight over us, but in your opinion, is the national debt a danger to the economy?

In the long term, the US is on an unsustainable fiscal path. The US federal government is on an unsustainable fiscal path and that simply means that the debt is growing faster than the economy. I have a feeling that this worries them a lot in the long term, of course it does, they know that indeed we are borrowing from future generations. It is time for us to prioritize fiscal sustainability again and the sooner the better. later, what would you say is the most important factor for the future of American prosperity? With your permission, I will name two things.

One is that I think we have to remember that we have this dynamic, innovative, flexible and adaptable economy more than other countries. and this is the big reason why our economy has performed so well. The other thing I will point out for the United States is that since World War II, the United States has been the indispensable nation that supports and defends democracy. Security agreements. The economic agreements we have. I have been the leading voice on that and it is clear that the world wants that and I would like the United States to know the people in the United States so that they know that this has benefited our country greatly, it benefits our economy greatly to have this role and Solo I hope I hope that continues Jerome Powell is about two years into his current term as president.

He suggested to us that the likely time for the first interest rate cut would be mid-year, a few months before the election. Your decisions are inevitably going to influence this year's elections and I wonder to what extent politics determines when decisions are made. We do not consider politics in our decisions, we never do and we never will, it is not easy to make them the economy gets to this point in the first moment. First of all, these are complicated, you know, making risk-balancing decisions if we were to try to incorporate a completely different set of political factors into those decisions.

It could only lead us to bet on worse economic outcomes, so we simply don't and won't do it. We are going to do it, we have not done it in the past and we will not do it now. There are people watching this

interview

who are skeptical about it. You know, I would just say this. Integrity is priceless and in the end that is all. You have it and we plan to keep ours.