Economy and his agencys response to the coronavirus pandemic at a virtual pandemic hosted by the university, and the Federal Reserve was days away from making the first loans to small and mediumsized businesses for the lending program. This is 40 minutes. I have the signal that technology is working. No one would have put that in my domain so to quote somebody i dont take any responsibility for that. Alan reiner, director of Public Affairs at Princeton University. Thank you for joining us on the special princeton reunion event for Federal Reserve chair jerome powell, i might add we are happy to have many members of chairman powells classmates from the princeton class of 1975 on the zoom. On a logistical note if you have a question you are welcome to submit it using the q and a future zoom which you will find on the bottom of your resume window that says q and a. You may upload questions you would like to see answered and take as many of these, a full recording will be posted on the Griswold Center website. It is live streamed right now it is working. We are live. Let me introduce a man who needs no introduction but we are happy to do that today. Jay powell graduated princeton which is relevant 45 years ago. 10 years after that, they are celebrating the graduation of their daughter susie is a member of princetons class of 2020 which is sure to be a memorable year. Congratulations to you chairman powell. After princeton, jay powell attended law school, but he opted instead for successful career in Investment Banking and us treasury among others. In 2012 president obama appointed the Federal Reserve board and in 2018 donald trump elevated him to the chairmanship of the board. Trump as you no doubt know has complained many times that this was a terrible choice but almost everyone else on the planet sees it as a fabulous choice. We are deeply grateful for having him here right now. And spending time with us. Thank you very much for being here. I want to start, are you sleeping well . Thanks for having me here, welcome. I would like to say hello to my fellow classmates from 1975. If you permit me i want to start this by noting this is a difficult time for many americans. People have lost loved ones. Many millions of lost their jobs. Theres a great deal of uncertainty about the future and i think we are to start by acknowledging that fact. The fed is strongly committed to using our tools to do whatever we can as long as it takes to provide some relief and stability now to support the recovery when it comes and to avoid longer run damage to peoples lives through unemployment or to their businesses through unnecessary insolvency, sleeping well, better than i was sleeping in late february and early march. We are relying on you among other things. This is your 40 fifth reunion and congratulations, did you take economics 101 . I took micro and macro. Those were the only ones i took. That is more than William Chesney martin. Anything in princeton education that got you thinking about the Federal Reserve to be chairman of the fed. The answer is yes. By the time i was a senior at princeton i had this idea, i wanted to have a career, privatesector career to go in and serving government at different times, the model would have been cyberspace, George Shultz or someone like that. Part that was growing up in washington dc not in the middle of them but on the outside looking in, i picked up in major politics, i picked up that idea and strongly wanted to do Public Service. My dad had been Public Service and us attorney and law clerk, wanted to serve again and couldnt while he was at princeton, had to turn down a job in administration, had 6 childrens tuition to pay, that made me want to serve Public Service anymore. I start with a few general questions and get more down to the specific things you have been dealing with. At the general level, to the financial world, not every american spend every minute of every day thinking about the Federal Reserve. Start us off by talking a little bit about sitting in the more general scheme of government and while you can reveal a secret handshake. Glad to. The fed is an institution. It is a Great American institution, founded 107 years ago and is in interesting institution from the standpoint of federal in nature. There is a board of governors that exist in washington dc, long terms of 14 years, your term as chair or vice chair on the four years. Your underlying term is just as long and that is meant to keep you out of the political cycle. When they are not synced up with a political cycle, we are supposed to operate in a nonpolitical way. We have 12 banks around the country, the president of those are in the federal open Market Committee which is where we set Interest Rates, those are appointed by privatesector boards with the consent of the board. It is a way of making sure we dont have the groupthink that could result in having everyone in the building and one part of the country. We instead have institutionalized diversity of perspectives around the country. The fed is present in the community in one way or another all around the country. What do we do . We look after the overall stability of the Financial System and tools to do that, set Interest Rates to support Economic Activity and regulate banks, operate large parts of the payment system. A lot of different roles, all of them are meant to be in a nonpolitical way. And Central Banks and advanced economies do. With that comes the obligation of transparency and accountability so we are directly accountable to the system of government to the oversight committees we report to in congress and we work hard to keep their trust to understand what is on their minds, to explain what we are doing. As a way for us to maintain democratic legitimacy in a system where most of the authority and elected people, not appointed people like us. As a specific followup, do you worry in generically or especially these days, the public, market, congress, white house, take your pick, hold exaggerated beliefs about what the Federal Reserve can accomplish. Mission creep is one thing, for sure, something different. What do you think of that . We have a precious grant of independence but it means we need to stay in our lane and do things that the military assigned us to do. We should be part of the elected branch of government. We stick to that. We do have tools that can be used in the Financial System only in emergency systems like the Global Financial crisis a decade ago, those tools can only be used now with the approval of the secretary of the treasury under statute passed by congress under doddfrank. We do use those tools and they are powerful. They have quite a limited use. The treasury secretary as part of the administration. And it is not for general fines. The tools that we are using our lending tools, not spending tools. We dont have the ability to make rants of money to particular groups of people no matter how directly they are affected. Companies affected by the pandemic. That is a job for elected spending and taxation. It is not a job for officials like us. It is not a need to underscore the limits of the powers. Authorities are very strong and that week like this you see how strong they can be. To make, let me say, to be paid back. With 100 certainty if there was such a thing in the world. You have been directed during the pandemic to make loans in places where a fed has not gone before and they are not 100 guaranteed to pay back. Do you see that. Does this worry you . At the beginning of this my colleagues and i needed to be using tools to the fullest extent that it would be hard to explain why we hold back from doing that at a time a 50 year low, in the unemployment space of 60 days, we saw economies around the world shutting down, we felt called, we crossed a lot of redlines that had not been crossed before and im very comfortable that this is a situation where you do that and figure it out after word. That is how i would look from that. In line with that, the fed stood up in a short period of time, veritable alphabet soup of lending facilities some of which look like the financial crisis, can you give this a sense institutionally, as you alluded in this question, i can sympathize with that. Give us a sense how difficult it was for the institution. It is an extraordinary institution, we are lucky to have a large number of highly dedicated, highly capable people many of whom are here and live through the Global Financial crisis and were critical players in implementing facilities put in place then to prevent the collapse of the Financial System, very different set of problems. All of us have studied the lessons of the financial crisis a great deal. We knew a lot. I would break it into a series of phases when the pandemic as it became clear a week or so before the end of february the pandemic was going to be a global phenomenon any hope that it would be contained in a meaningful way was gone and markets continue to struggle with processing. It is unknowable. What will be the effect on the global economy, investors fled from any risk and market stopped functioning in a broad sense so companies and households control over debt, what we did was came in the first instance, to restore market function through a variety of ways can we purchase treasury securities to get the market open again. It is systemically important. With private corporations, did some facilities there. We turn the provision of credit to corporations for municipalities and states is something we had not done in modern history at all but this is not the Global Financial crisis. It was about weakness in the Financial System. This time the Financial System is in good shape relatively, strong capital, risk management, high level of liquidity. This was the problem in the real economy, companies not being able to finance themselves. We announced the setup to backstop that market and as we backstop these markets even as we begin lending they start to work again, theres the confidence factor in force here. It was a remarkable time, a great honor to serve in these jobs. Sometimes they are not easy but never forget how important, what an honor it is to be able to be in a job at this time when you need it. Let me pursue an aspect that is incipient better than i which lending programs, i remember when mainstreet was first announced, thinking this was an assignment push the fed into a place that it had never been. Even more so than the one you were just speaking about. Can you comment on the special difficulty the fed has encountered in standing up to socalled mainstreet lending . The mainstreet facilities for small and mediumsized companies, that are not large enough the dont have the ability to have access to the Capital Market so they dont issue public bonds in public equity meaning they get financing through the Banking System and we have a facilities that have access to the bond market. Congress under 500 employees, paycheck protection program. This is for companies that are in the middle. It is challenging because it is next ordinary diverse space, the credit needs of different kinds of companies in Different Industries are extraordinarily diverse, some borrow against assets, some against cash flow, some are more volatile another so it is quite diverse and figuring out the right credit product for that market is challenging. In addition the World Bank Credit is a world in which every Credit Agreement between the borrower and the bank is negotiated. Each Credit Agreement does that. There are forms of indenture and forms of prospect us and it is much more routine than it is. You are days away from making our first loans in mainstreet, you have three facilities that are part of a commitment to reached a different part of that broad space. In the meantime many of those companies are finding they can borrow from banks. Others are waiting to get their facility up and running, the biggest challenge of the 11 facilities that we have set up are the 3 mainstreet facilities. The last thing i will say is as we have shown we are very willing to learn from experience. We put out a proposed term sheet, we have a couple thousand letters from people in the first mainstreet term sheet. We turn that around, we consulted actively with Different Companies and experts and we release the document and expect to start making loans on mainstreet in a few days. Congratulations, you envisioning these loans to behalf 1 million, that was me speaking, you speak, the loans we are talking about. The current structure is the smallest loans would be half 1 million and the largest ones could be over 100. That is for larger companies. We are working with companies that have as many as 15 employees and 5 billion in revenue and there is no limit on the bottom end. I can imagine expanding on either end. The whole nature of this exercise congress has given us his find companies that have employees. It is all about creating a context in which employees have the best chance to either keep their job, or find a new job. That is the point of this exercise. The ones that may not be laid off may have ultimately be laid off. Him and him and him are the added ammunition. The interest no. During the Global Finance a crisis the fed got to zero and we did two things. One we promised a to hold our policy Interest Rate at zero for a long time. That affects short meeting of longterm Interest Rates and that supports Economic Activity because marr was borrow all across the curve. This was what became known as quantitative easing longerterm treasury and fully guaranteed security guaranteed by u. S. Government. To lower longterm deals. Those of the principles we use during the financial crisis. We feel we understand them and we no longer think of them as nonstandard tools. We think of them as in the toolbox because were in there at much lower and expect part of the time to get the effective lower bound of zero which we are, in fact, now. Some banks decided in addition to that negative traits. We dont think thats an appropriate tool here in the United States. I would safety evidence on whether it works is mixed. There are clearly some negative side effects. There sometimes its just not clear to my colleagues and me on the federal open Market Committee that this is a tool that would be appropriate to deploy here in the united state states. If i could push you on that. Because whats different in the United States compared to eurozone . A couple things. One, first i dont see i dont see that the evidence, this is not a difference, different understanding that our bankers around the world who think this is the biggest. The evidence on whether it helps is pretty ambiguous. Theres a sense of credit mediation. Their crushing, bank margins and the makes them lend less and there are other possible negative effects. I think the evidence is mixed. Its not clear it away. We have institutional arrangements that would not work with the negative rates. I wouldnt say are decisive, things like money market funds, which a lot of companies of various kinds used to fund themselves in which individuals look upon as a place to put their money. Thank you very much. Let me turn to some questions from people listening. Pardon my squinting a little, reading this off my screen. Heres a question, thanking you. The question is how sensitive is the fed to the very difficult time, in particular the lower end of the economic spectrum is experiencing these days compared to the extraordinary strength and the equity market that wall street has seen . Does that affect policy at all or is it just a necessary side effect that even if you are not rooting for it, just happens . Let me say hello to frank, and say that we know that, i guess everyone is affected by the pandemic in a negative way to one degree or another but the burdens are falling very strongly on those who can at least can afford them. The Service Economy deals with large groups of people that are tightly together. So thats restaurants and bars. Its travel. So tells. Its a lot of places, and many of the jobs that have been lost at least temporarily are relatively lowpaid Service Industry jobs. You can just see that those of people that are being laid off who have the least financial resources, for example, in our sheds are the conservative household account decisionmaking which we released a week or so ago, it looks like if youre someone who made 40,000 or less annually, the chances of your being laid off in the last month or so approach 40 . Almost 40 of of the people of lost a job if youre making 40,000. This is falling secondly, falling on women to some extent are in those jobs and so theres tremendous inequality in the way the pandemic is affecting our population. You asked does that affect our policy. Look, it does affect our policy. Essentially part of our mandate is maximum employment and stable prices are monitor policy mandates. We are very focused on the full range of employment and doing it whatever we can really as image in early try to get those people back to work or in new jobs. Some of those jobs may take a while to come back. Its important that those people be protected from this event. Its not something as anybodys fault vote. This was a Natural Disaster so its important they receive support and they have received a very high degree of support so far. Thank you. This next question comes i think from several people but in particular came first from joseph berg. The question is what if theres another big wave of covid19 in the late fall . And the fed is as to react again. How big a Balance Sheet can you manage before it gets to be a problem, and one of the problems he asks in the question is inflation, or maybe use of the problems . Let me start by saying, we are not experts on epidemiology, the spread of pandemics or anything like that. We talked to experts in the main answer they give you is things are highly uncertain. We dont know anything that the general public doesnt know, if youre listening to experts about how the school. Theres clearly a risk of that, a risk of second outbreak or second wave. That would be challenging. Because we continue to react. We are not close to any of the makes we might have, i would say. We will continue to have to react but i would worry almost more that a second outbreak would undermine confidence. A full return, a full recovery of economy will really depend on people being confident that its safe to go out and safety engaged in a broad range of economic activities. Thats how the economy will recover and you see people testing the limits now probably everyday, all of us are doing things with my other done two months ago introducing how that works. Were watching the data nationally. I think a second wave would really undermine Public Confidence and might make for a longer, a significantly longer recovery, and weaker recovery. In terms of the Balance Sheet first, inflation is, the inflation concerns for now are to the downside. The risks are to the downside, not to the upside. We see price of moving down. Thats because in a lot of part of the Common People are cutting prices, so youll see we can inflation data for a while. Weve been dealing with this Inflationary Forces for a long time actually, globally, inflation, one thing thats happened since 1975 is inflation was really the big economic issue really since another princetonian paul volcker one of the great Public Service servants of our lives, what he did at the fed and his colleagues did, inflation has been under control. The upside risks to inflation is not great. I would say of course our Balance Sheet can go to infinity. I would say im comfortable with where we are now in the path we are on and dont see risks based on what were doing right now to inflation or to financial stability. Thank you. We have a couple of variance on this question. Once the fed is then purchasing fixed income security, so its anticipating going down the road youre talking about earlier, whats the plan for managing the portfolio . I read the question as saying, it will have more than fixed Income Securities in it. Well, with the things that wound up on a sheet during the financial crisis we help them to maturity. These are relatively shortterm loans of four years. So far thats what weve been doing. The plan would be not to sell the but to hold them to maturity. I would say we do not desire to have an active role in managing the portfolio but were not the right ones once the facilities have been a limit that theyre going to do, then the decision about what to do about the fall and things like that will not be things we want to be involved in a daytoday basis and those arrangements that we work out. We of course have a Financial Advisor on each of these facilities, and in summer i will be managed in a commercially reasonable way but not by fed policymakers. Thank you. Thats very useful. Does the generic question from judy about how does the fed go about communicating with the public on these emergency tools . And in particular an effort to avoid some of the misunderstandings that took root after the emergency measures of the financial crisis a decade ago. That proved that you well know was not too popular with the public even though it was tremendously successful. The first thing is that we are disclosing just a lot of information, much more than the law requires us to do disclose. We are disclosing for all of the facilities of the cares act we will be disclosing the name of the father, the amount and we will be updating those on a very regular basis. I like to think disclosure will really help because, i mean, i read things in the paper that are supposedly happy at a note there not happening. For one reason for not having is we have made very many phones ship. I read that were extending tons of credit to this industry that. Actually we havent really made a lot of folks in the Corporate Credit facilities. We have started the municipal ship. So transparency is really important. I i also think we have to just, this is something weve been focused on. Alan come you with the very beginning of the transparency revolution and one of its principal authors. I think the old theory was tell them nothing, there should be a lot of mystery around central banking. Alan and a bunch of other researchers put that completely around and now that view has been for some time transparency is your friend, that markets would do the work for you if they understand what you are doing. We work very hard to explain ourselves to the general public and particularly focus on the general publics elected representatives in congress. We work really hard to stay in communication with them, the ones who on the committee, the winter leadership, the ones not on committee, and also we tried to communicate publicly through a lot of outreach to explain what we really are doing and try to avoid misunderstanding and also by the way listen to feedback. We listen. We did this route of events over the last year or so called that listens which was really such a Successful Program where we listen to people from all different walks of American Life talked about how they think about the fed and mantra policy. I would tell you it really informed the work weve been doing in sort of reviewing the way we do what we do. Just as a footnote to that, im happy every time you and spending, but a warning. I wrote a whole book on the crisis as you know. The public left that with no distinction thinking that the Federal Reserve had spent all its many of the treasury had spent all this money come even though virtually every penny of it was lending, not spending. This is something i dont think i have a magic solution to how you explain this to the average american, but its a huge task, and indicates of the financial crisis they never really got the distinction. Good luck with that. I would just say most people have Better Things to do in their life and understand the details of central banking. Working at the fed you get that from day one but our obligation is to be as transparent as possible and to patiently and clearly explain ourselves to the public that we serve. We just work really hard at that and thats part of the job. Its part of how we retain our democratic legitimacy. Thank you. Weve got time for a few more questions. Im squinting at the screen trying to read them. Michelle asks, are the latest related to a previous question. Are the latest that policies likely to lead to more income inequality and the United States . Absolutely not. And ill tell you why. As i mentioned, the pandemic is falling on those least able to bear its burdens. It is a great increaser of any inequality if you just look at the labor market reports, the bureau of labor statistics put out, you will see that it is lowpaid workers in the Service Industries who are bearing the brunt of this. Its also women to an extraordinary degree as i mentioned. So everything we do, everything we do is focus on creating environment in which those people will have the best chance to keep their job or get a new job. To go back to their old job if theyve been furloughed. Take a company, i wont give an impetus as an example, a company that was investmentgrade march 22 but its not been downgraded to socalled junk, not investmentgrade company, but as tens and tens of thousands of employees. Why would we include that company and one of our programs . Is a very Large Companies and their many of them that would fit that description. Im not thinking of anyone. The reason is that a company like that doesnt have, kimbrell of its debt and can have enough cash on hand to deal with its obligations, what theyre going to use it will let people off. They will cut costs. They wont have any choice. Thats the choice they will make, lets put it that way. By nothing officially and including those companies, the ones who need the credit or needed to credit in march, those companies have now been able to glut and finance themselves and that now lots of cash on the Balance Sheets, and for the most part have it. These are companies not so directly affected as some of the Service Industry companies are the deal directly with the public in large numbers. They have been able to avoid the layoffs. That is the point of all this, and i think way to keep our focus really tightly on that goal of the labor market and supporting a a labor market and not get distracted by other goals. This may be the last question and it takes us outside the boundaries of the United States. Catherine asks, as the fed looks at the Global Economic situation, what are you thinking about whats happening both in the pandemic and the economics, in some of the poorer countries in asia, she lists nta, pakisn and indonesia as an example. This this is a very challengg time for those countries. They dont have the kind of Critical Infrastructure that we have. They dont have the policy space, as we say. They dont have the ability to provide support to the economy either through fiscal policy or Monetary Policy that we do. Its a very, very difficult challenging time for many of those poor countries and International Trip on in the world bank are doing everything they can to get more resources and try to help those countries. But theres no question, for l of the suffering thats going on in countries like the United States, western europe, you are seeing even worse outcomes in many of the poor countries. Its something that those International Organizations are going to need a lot of support from nations like the United States and have been giving it to deal with. I have one final question from an extremely important person, very important person, susan powell asks, and she starts phrasing it, chairman powell, do you have a favorite child . [laughing] , and should that favorite child be congratulated on anything . I love all my children equally, but i certainly think susan powell deserves special congratulations here today for graduating in the class of 2020. So thank you. And from all of us here joined that congratulations, susan. The class of 2020 will long remember the end of its senior year, and its going to get two graduations, as most people on the call that no, a virtual one happening soon and then another physical one in a years time. So, chairman powell, on behalf of the Griswold Center, if i y take the liberty, although im not a member, on behalf of the class of 1975, on behalf of the entire Princeton University community, and indeed the citizenry of the United States, i want to thank you for your service. I want to thank you for spending this time with us this morning. We are deeply in your debt, and really glad youre the chairman of the Federal Reserve, so thank you. Heres a look at our live coverage tuesday. National institutes of Health Director dr. Francis collins discussed the latest Coronavirus Research during a Virtual Event with the Economic Club of washington, d. C. Dr. Collins talked about the origins of the coronavirus, hears about a resurgence in the fall, and his optimism about a covid19 vaccine. Thank you, dr. Collins for the calling this morning. For those who dont know, dr. Collins guidance phd in genetics and decide to go back to university of North Carolina so use as a phd, an mba. He has been International Human genome project and codiscovered human genome and he has been head of the nih sin